Relates to the formation of mutual holding companies by certain domestic mutual property/casualty insurers and the reorganization in connection therewith of a…

◆ The sponsor's argument

Why Jamaal Bailey says this is needed

Similar statutes allowing for insurance mutual holding companies have been enacted into law in 34 states and the District of Columbia. Numer- ous property/casualty insurance companies in the United States have converted to a mutual holding company structure in recent years. New York domestic mutual property/casualty insurers are at a competitive disadvantage because they do not have the authority to reorganize in the same mariner. In New York State, there are many companies that could enhance the interests of policyholders by availing themselves of this proposed law and, as a result, being able to raise capital or merge with other mutual holding companies, thereby contributing to the growth of New York's economy. As a major part of the financial services industry, property/casualty insurers today face the same competitive pressures and capital needs that are linked to any mergers, consolidations and capi- tal-raising activities occurring throughout the financial services arena. Within the property/casualty insurance industry itself, insurers must enhance and strengthen capital, liquidity and profitability to hold their own against intense competition. The insurance-buying public looks carefully at financial ratings and capital base. As a consequence, more than ever before, access to capital is critical. However, one segment of the property/casualty insurance industry - mutual property/casualty insurers - has a decided disadvantage compared to stock property/casualty insurers in accessing capital markets. Since mutual insurers cannot issue stock, they do not have the array of methods for accessing capital markets that their stock insurer counterparts do. Additionally, mutual insurers are limited in their ability to consol- idate and grow through acquisition s because other companies can only be acquired as subsidiaries of the mutual property/casualty insurer, and this structure limits the size of acquisitions because subsidiaries are subject to a%- riskbased-capital factor, statutory accounting requires write - off of the good will element of the purchase price, and legal investment laws may limit the amount an insurer may invest in subsid- iaries. Therefore, this law would enhance the ability of property/casualty insurers to consolidate and grow through acquisitions. One of the few alternatives for a mutual property/casualty insurer is to convert to a stock form of ownership in a process called demutualiza- tion. Demutualization (or conversion) of New York domestic mutual property/casualty insurers is currently authorized pursuant to Insurance Law Section 7307. However, proceeding directly with demutualization is a major undertaking involving complexity and uncertainty. The feasibility of raising capital through demutualization can be hampered by stock market conditions, which can be volatile and uncertain, and by strains on the profitability of the insurance business. Conversion to the stock form opens a mutual property/casualty insurer to the possibility of hostile acquisition by a foreign management - presenting uncertainty and instability which may make property/casualty policyholders uncomforta- ble. There are therefore a number of mutual property/casualty insurers for which demutualization may not be an attractive alternative, but which still have a need to raise capital to support their business. This bill would authorize a domestic mutual property/casualty insurer to reorganize into a domestic stock property/casualty insurer through the formation of a new mutual holding company which owns, directly or through one or more stock holding companies, at least 51% of the reor- ganized mutual property/casualty insurer. The new organization could permit capital raising by selling voting stock of the reorganized insur- er or one or more stock holding companies to persons other than the mutual holding company, and the issuer of such voting stock contributing all or a portion of the proceeds down to its stock property/casualty in

This is the sponsor's own case for the bill, quoted from their memorandum. It is not Agora's description of what the bill does.