Legal Definitions - demutualization

Definition: The process of converting a mutual insurance company, which is owned by its policyholders, to a stock insurance company, which is owned by outside shareholders. This is usually done to increase the insurer's capital by allowing the insurer to issue shares. About half the states have demutualization statutes authorizing such a conversion.

Example: XYZ Mutual Insurance Company decides to demutualize and become a stock insurance company. As a result, the policyholders will no longer own the company, and it will be owned by outside shareholders who have purchased shares in the company.

Explanation: This example illustrates how a mutual insurance company can become a stock insurance company through demutualization. The process allows the company to raise capital by issuing shares to outside investors, which can help the company grow and expand its operations.