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On money

Personal Finance editor


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© St. Petersburg Times,
published July 1, 2001

Getting details on insurance company's 'demutualization'

Q. I have a life insurance policy with Prudential, which has asked me to vote on "demutualization," which would make the company a public company. Policyholders will receive stock. Other than stock price fluctuations, are there any major differences for the policyholders between a mutual and a stock company? I understand that the policyholders give up certain rights with a mutual company if it ceases operations, but is that any worse than losing the value in the stock in the stock company?

A. Converting to public ownership is a trend among large insurance companies such as Prudential. This process separates policy ownership from share ownership.

Now if you give up your policy, you also give up your ownership interest without additional compensation. If the new structure is approved, you will have the option of selling your shares whether or not you keep your policy. If you hold your shares, you will get whatever dividends the board of directors decides to pay. And, as you noted, your shares may rise or fall in value.

"If you look at the majority of these large life insurance companies that have gone through a full demutualization, we believe it has benefited both policyholders and those who become shareholders," said Maitland Lammert, an analyst who follows the industry for Edward Jones in St. Louis. "When they convert, they typically pay more attention to the bottom line, become more efficient and actively pursue growth strategies.

But she notes that there are no guarantees this will occur. There also is the possibility that maximizing profits for shareholders will conflict with providing the best value to policyholders.

It is tough, maybe even impossible, for policyholders such as yourself to figure out whether the shares you are being offered are fair compensation for your interests in the company or what long-range impact the new structure might have on your premiums and policy dividends.

Lammert says she has a lot of faith in the process of determining the share allocation. "It's typically based on the amount of profits that the policy has contributed over its lifetime," she said. But other industry observers are not so confident.

"I don't see how anybody can really draw any conclusions about whether what they are doing is fair for the policyholders because a lot of what they are doing is shrouded in secrecy," said insurance industry expert Joseph Belth, a retired professor at Indiana University.

You are doing the right thing to try to understand how the deal will work.

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Q. Will you please tell me what is the "triple witching hour" that happens periodically and that I see mentioned in the newspaper?

A. That term refers to the final hour of trading on a "triple witching day," which is the third Friday in March, June, September and December. The name comes from the simultaneous expiration of stock options, index options and futures contracts on market indexes. The combination sometimes touches off above-average trading activity and volatility.

Triple witching days create opportunities for traders, but if you find volatility upsetting, these are good days to stay on the sidelines.

Although less widely known, there also are "double witching" days, which occur the third Friday of every month other than March, June, September and December. The term refers to the expiration of stock options and index options.

Online money map

If you're looking for ways to save on long-distance service, check out (, which rates some of the little-known but less expensive services. It's a good starting point for doing your own comparison shopping. The company also has Web sites with details on credit card deals ( and ways to reduce junk mail (

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- Helen Huntley writes about investing and markets for the Times. If you have a question about investments or personal finance, send it to On Money. We'll try to answer those we think are of greatest reader interest. All questions must be submitted in writing, but readers' names will not be published. Send questions to Helen Huntley, Times, P.O. Box 1121, St. Petersburg, FL 33731, or to by e-mail.

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