Life & Health · Chapter 1 · Company Types
Demutualization
Definition
Conversion of a mutual company into a stock company. Each policyholder gets a preemptive right to buy a proportionate share of the new stock, applying his or her equity in the insurer toward the purchase — or taking cash instead.
Exam tip
Trap: the payout is measured by the policyholder's equity in the insurer (surplus and reserves, under a formula the Office approves), not by how much premium they paid.
Related terms