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SBLI Plan of Conversion from Stock to Mutual. Thoughts?

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Yesterday I was notified that SBLI (Savings Bank Life Insurance of Massachusetts) plans to convert from a stock insurance company to mutual, and was provided a proxy vote. While I know that generally demutualization is seen as unfavorable to existing policyholders, how about this situation?

My wife and I have many years left on large term policies with SBLI, and my kids have 100k child's life policies -- that have provided very favorable dividends thus far so keep the non-term-life hate to a minimum, plz

https://www.mysbli.com/docs/President%20Letter.pdf
https://www.mysbli.com/docs/Notice%20Of%20Special%20Meeting.pdf
https://www.mysbli.com/docs/Summary%20Policyholder%20Information%20Statement.pdf
https://www.mysbli.com/docs/SBLI%20-%20General%20Policyholder%20Information%20Statement.pdf
https://www.mysbli.com/docs/General%20Policyholder%20Information%20Statement%20-%20Annex%20A.pdf
https://www.mysbli.com/docs/General%20Policyholder%20Information%20Statement%20-%20Annex%20B.pdf
https://www.mysbli.com/docs/General%20Policyholder%20Information%20Statement%20-%20Annex%20C.pdf
https://www.mysbli.com/docs/General%20Policyholder%20Information%20Statement%20-%20Annex%20D.pdf
https://www.mysbli.com/docs/FAQ.pdf

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I am voting NO as well.

social1984 (Jun. 06, 2017 @ 8:06p) |

I have no use to be "an owner" of yet another insurance company, particularly one I can't get rid of (as I have 27 more ... (more)

dk240t (Jun. 07, 2017 @ 8:42a) |

I am also voting NO for the following reasons. First, my distrust of corporate behavior has never been higher. Second, t... (more)

theaantoniaskindle (Jun. 13, 2017 @ 6:10p) |

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What risk are you insuring with the kids?

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The one thing I'm seeing is that they're going to take the actual surplus and send it to shareholders, and replace it with debt. This debt will *compete* with policyholder dividends in much the same way that policyholder dividends will complete with shareholder dividends.

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stanolshefski said:   What risk are you insuring with the kids?
OT. But to answer the question, insuring future insur-ability. The lower than expected premiums plus dividends made it a no-brainer.   

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Is it expected that a mutual insurance company will be more stable than a stock insurance company? I ask because the reason we want to ensure the company is around in the future if something happens to us.

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clarner said:   Is it expected that a mutual insurance company will be more stable than a stock insurance company? I ask because the reason we want to ensure the company is around in the future if something happens to us.
  I don't think taking an actual surplus and using that to buy out the shareholders, and then borrowing money to create the legally required surplus is going to going to make the company more stable.

Remember, bondholders are legally due their interest payments on schedule whereas stockholders are never due a dividend

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I too received this notice and would like to hear more opinions on it. SummerSoFar, did you make a decision? Thanks.

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The guaranteed portions will still be guaranteed so for term it wouldn't bother me much.


You will find the WL produces very similar returns long term to other WL. SBL seems to "favor" higher earlier values for lower long term values compared to competitors. There is no magic in this world, insurance companies don't have magical investments.
It's not about hate.

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I am also wondering the same thing. I have a term life insurance plan---is it in my best interest to keep this company as a stock company or is a mutual company better. We need to vote. Regardless of what I vote, the company might change to mutual, so I'm wondering what this means.
They will be 57.3 million in debt with the switch. There was a note to read the "Milliman Opinion, dated 1/4/17, in Annex B go the General Policy holder Information Statement." I was unable to find the Milliman Opinion

This is what I researched on my own:

STOCK (current status): stability, raise funds easily, earn profit for shareholders, buy stock, might be more risky, owned by shareholders, maximize shareholder value.

MUTUAL (company wants to convert to this): owned entirely by policyholders (share ownership), vote members of board in, might be forced to demutualize (change to stock company), invest in conservative & low yield assets, RELIES on policy premiums for money, might increase premium rates.

**Let me know what you're voting on this. All I care about is that my term policy and this company staying in business just in case something happens to me.

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Most people actually worry about mutual becoming stock company thinking they then will care more about stock holders.

Truth is you can't really predict this one way or other.

Even if no change, your insurance company could always sell your policy to another company so you only know they aren't allowed to change the guarantees.

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I'm a reporter working on a story for the Boston Globe about this conversion. Would like to get some voices from policy holders in the story. Are any of you willing to talk about the questions/concerns you have about this conversion? I can be reached at 617-929-7406. Thanks.

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we have reporters now? whoa

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Came across this site when I was researching this conversion.

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deirdrefernandes said:   Came across this site when I was researching this conversion.
  
https://www.bostonglobe.com/business/2015/06/06/big-companies-li...

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Clearly this is designed to let shareholders cash out; there are no benefits to policyholders other than 'voting rights', which along with $1.50 will get you a cup of coffee. According to the mailing the new company will take on 57+ million dollars in debt to pay existing shareholders, and finance that by issuing 'Surplus Notes'. According to the mailing, "The interest costs of the Surplus Notes may exceed the current annual dividend payments to shareholders following the conversion", meaning the company could end up paying out more to those Noteholders than it currently does to shareholders, leaving less money in reserves.
In addition, the new Surplus Noteholders will have first claim to any funds or value as a result of any liquidation. From the mailing, "Surplus Noteholders, unlike the current shareholders, could receive their entire investment back before policyholders, holders of annuity contracts (that's us) become entitled to any residual value. So no benefit to policyholders, but big benefits to current shareholders and future Noteholders.
And here's a question, why don't they offer the Surplus Notes, which will pay interest from our premium payments, to EXISTING policyholders?
Finally, note that the mailing carefully states that according to the Consulting Actuary "the proposed Conversion is fair to SBLI's policyholders from an actuarial point of view". In other words, at the time of conversion we're not getting screwed, but get no benefits other than the aforementioned 'voting rights'. Someone else however is clearly benefitting in a big way.

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Note how in the 6/6/2015 Globe story cited above the big Mutual firms run rough-shod over their mutual shareholders (policy holders) at annual meetings.

FYI, here's today's Globe story from deirdrefernandes.

https://www.bostonglobe.com/business/2017/06/01/insurer-wants-get-banks-out-its-business/KqUfxbKG9WcwPvOCGfQJrK/story.html 

I am sorry that Citizens Financial Group, of Providence; Charlotte-based Bank of America Corp.; Santander Bank NA; and TD Bank NA are not happy and want to sell their SBLI shares. Tough.

I am going to vote against this conversion

I view conversion to a Mutual form as allowing SBLI to potentially enter new lines of business with insufficient oversight, and potentially run the company into the ground. This is similar to what happened in New York, when NY's SBLI converted to a Mutual form, and started losing massive amounts of money. See the NY State Department of Financial Services order:

http://www.dfs.ny.gov/about/hearings/sbli_demut_20140821/SBLI_De... 

To summarize, don't fix what ain't broken.

Best,

--Keith
@KeithDPatch

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Thanks for input. Policyholder here looking for more discussion - nothing to add and no time to investigate on my own so thanks to those sharing.

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KeithDPatch said:   
I am sorry that Citizens Financial Group, of Providence; Charlotte-based Bank of America Corp.; Santander Bank NA; and TD Bank NA are not happy and want to sell their SBLI shares. Tough.

I am going to vote against this conversion

  
I am of the same mind and will do the same. Thanks to those who contributed.

Edit: Done. 80 votes against now submitted.

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The Milliman Opinion in full is Annex B of the General Policyholder Info Statement. They mailed out the Summary Policyholder Info Statement.  I'm sure Milliman the full write-up winds up being what they summarize on page S-4 -- that the actuary hired by SBLI says they think the plan is fair to policyholders.  Would you expect anything else?   

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[My previous post was meant as a reply to Friendness' question about where the Milliman Opinion was. Here are my general comments.]

There is probably little impact to their ability to pay insurance benefits - the Mass Dept of Insurance will make them keep a strong enough balance sheet to meet claims. Dividends might be reduced though. Usually mutual insurance companies are more generous to their senior management, because unorganised policyholders tend to always vote their proxies with management. In a stock insurance company the institutional stockholders will keep an eye on management excesses, and lobby for seats on the board of directors. In a mutual insurance company the directors tend to become the company's top managers and their friends.

Financially SBLI is trading a payment of $1.8 million in dividends for a payment of $3.5 million in interest on the surplus notes, along with the one-time payout of $57.3 million to buy back the stock. Policyholders do wind up with the ownership rights, which historically mean little to individuals.

The best outcome for policyholders would be if our votes caused the conversion to fail - and if management then proposed a new conversion with an added cash incentive to policyholders. This is unlikely since the stockholders will all vote for the conversion. I can't figure out how many voting rights stockholders have versus the 20 or less for each policyholder, but it is likely that many policyholders will not return their votes.

What will probably happen is that the conversion will go through, and there will be a class action suit on behalf of the policyholders. The lawyers will settle for a payment to them of about $20 million for expenses, and policyholders will get a coupon for a $100 reduction of the first year's premium on a universal life or some other Mass. SBLI product.

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The Globe article shines some much needed light into the murky world of mutuals. 
Voting "Yes" offers no benefits to everyman policy holders.
I'm voting "No".

 

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I am voting NO as well.

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I have no use to be "an owner" of yet another insurance company, particularly one I can't get rid of (as I have 27 more years on a 30yr term policy).

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I am also voting NO for the following reasons. First, my distrust of corporate behavior has never been higher. Second, the banks have not started to ask for a larger share of the profits. If that were to happen, and it resulted in a lower annual dividend, i.e. higher premiums, policy holders would start to cancel. So there is a built in check against this action by the banks. Clearly, the big banks are earning more money from this investment than from other investments or they would have sold their shares themselves. Going into debt to pay off the banks is a dangerous idea and does not bode well for policy holders. This scheme may have been a multi-year plan by SBLI because they have been keeping a larger share of profits than they should have for years instead of reducing our premiums further. Now there is a juicy pile of cash and who knows what kind of kickbacks are being paid by the banks to get their hands on this money. Instead, SBLI should give policy holders a better dividend return. I called Deirdre Fernandez at the Boston Globe. Her number is in her post above. I hope she will write a story in time to explain what is going on so other policy holders will take the time to vote. I suspect that SBLI policy holder voter turnout will be especially low and policy holders will simply surrender their rights to big corporate interests, just as citizens have. If you wish to continue holding an affordable term policy with SBLI do not let this conversion pass.

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