Old-line mutual insurer shifting to shareholder-owned

``Everybody's watching Union Mutual.'' James Morton, president of the John Hancock Mutual Life Insurance Company (with $24.7 billion in assets), was talking about the much smaller Union Mutual Life Insurance Company ($4.5 billion in assets). Union Mutual may not be a ``major'' insurance company, but the old-line Portland, Maine, firm is being closely watched as it embarks on a journey many other companies are considering: demutualization. ``We think of ourselves as pioneers,'' Union Mutual president Colin Hampton says. He is referring to the challenges and pitfalls of an almost two-year process of turning the firm from a mutual company ``owned'' by its policyholders into a company owned by stockholders. The new status would permit Union Mutual to do more in its specialties of group medical and disability insurance, as well as expand its recently-introduced effort to offer flexible benefits programs to smaller companies, Mr. Hampton says.

After several months of preparation, the formal part of that process began Jan. 2, when the company filed a plan with the Maine superintendent of insurance, who is expected to give a decision in a few months. Should he approve, the plan wil be put to policyholders, who must approve it by a two-thirds margin. A group has been formed to oppose the conversion, which may make the two-thirds goal somewhat more difficult to achieve.

If the company does win approval, it must follow a complicated formula for converting each policyholder's mutual ownership of the company into stock. Policyholders who do not want stock will receive cash payments equal to 50 percent of their equity share.

As for insurance, the coverages, rates, or income from annuities should not be affected by the switch, Mr. Hampton says.

While the changeover at Union Mutual (a new name will be picked later) is being watched closely, its lessons may not be easily transferred to other companies. In the first place, the company is in Maine, one of only 15 states with a law that describes how a demutualization process should work.

In the second place, with less than $5 billion in assets and only 150,000 policyholders eligible to receive stock, Union Mutual's experience may not be as meaningful to a large mutual company like John Hancock or an even larger one like Prudential, with more than $70 million in assets.

Prudential, in fact, has some experience in this area. It was a stock company until 1915, when it began converting to mutual status. Athough it began operating as a mutual company a few years later, a Prudential spokesman says, long legal battles dragged out the conclusion of the changeover to 1940 -- 35 years later.