The Visible Policy
Annex C, Still Mutual!

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After the Visible Policy (VP) had been available for several years, I decided to write the New York Life Insurance Company and let them know how much I favor them remaining a mutual. Note the VP was not written as a vehicle for my opinions -- the Life Insurance Glosspinion exists to allow that. Its Demutualization Annex is full of commentary relating to the demutualization of life insurance companies. In this appendix, some of my opinions leak out, and I apologize to those who would prefer facts only.

Here is what I wrote NYLIC, and below that is their answer.

My Letter to Sy

Mr. Sy Sternberg, President
New York Life Insurance Company
Suite 3200
51 Madison Avenue
New York, NY 10010
23 September 2002
Dear Mr. Sternberg,

My participating whole life policy from New York Life is over six years old. I like it and appreciate the knowledge and professionalism which my agents have demonstrated. (My original agent is transitioning the business to his daughter.)

Soon after receiving the policy, I became concerned that NYL would transition to a Mutual Holding Company (MHC). It was a relief when the New York Legislature rejected the 1997/98 bill which would have allowed the formation of such entities. It was an even greater relief when NYLIC's Board of Directors subsequently issued its statement affirming that NYLIC would remain a mutual company. I would rather have my policy backed by a 150+ year mutual tradition than the shifting business decisions of a stock company constantly concerned with making its next quarterly report look good.

Of course I would feel better if you had not supported the MHC legislation in the first place. I have read much of your testimony during the hearings. I understand it was your intent that, should NYLIC transition to an MHC, it would be for the purpose of continuing its mutual tradition. Do you now believe that the best way to preserve this tradition is to maintain NYLIC's status as a true mutual (not MHC)?

I suspect your answer is yes. NYL's 2001 Annual Report had a section focusing on what "mutual ownership" means. Also, I read your paper, "A Contrarian Strategy: The Case for Remaining a Mutual Life Insurance Company". Thus I sense that you are rededicated to the concept of mutuality. Great!

One omission in the 2001 Annual Report does bother me. The section entitled, "First of all, what exactly does 'mutual' mean?", fails to state that participating policyholders own the mutuality. It mentions that they have the right to vote for directors and they "have the right to expect that the company's highest priority is to safeguard their interests." Why avoid stating the obvious -- "We are owned by participating policyholders."?

Fortunately, the New York Life site does make an unequivocal statement. It is in your Glossary:

Mutual Insurance Company
An insurance company which has no capital stock or stockholders, but is instead owned by its policyowners. One key feature of mutual companies is that earnings above those necessary for the operation of the company may be returned to the policyowners in the form of policy dividends.

Unfortunately, the site's article about dividends uses the same legalistic phrasing of the Annual Report.

What really concerns me is this quote from a 1998 NAIC conference:

New York Life argued that since a policyholder cannot sell his interest in the company he is not an owner and stated that his company has not used the term owner in any communication to policyholders for at least 40 years.

Here is a link:

There is no mention of who was speaking for NYL. The document is fairly long; the quote is from the section entitled, "Mutual Holding Company White Paper Stalls Again".

Note that the logic is flawed. A policyholder can indeed sell his interest in the company. He does this by transferring the policy to a new owner. Or, in exchange for Cash Value, he can lapse his policy, transferring ownership to the mutuality as a whole. It is the same as a public corporation buying back its own stock. And when did those policyholders of 40+ years ago cease to become owners? More generally I see the statement as partisan words spoken while NYL was publicly advocating for the ability to form an MHC.

Assuming the quotation is correct, do subsequent statements by you and the board repudiate the concept that the policyholder is not an owner? I sure would like to see a plain and public statement as to who owns NYLIC.

What I really hope is that the issue is moot. So long as NYLIC maintains its mutual status -- which does not include being an MHC, in my opinion -- the issue of ownership is theoretical. If the Company chose to fully demutualize, it would of course be important. But as stated above, I favor mutuality anyway.

I apologize for the length of this letter. The issue of demutualization is important to me, and I wanted to give you my viewpoint as a policyholder / owner / "one_whose_interests_are_of_the_highest_priority".

If you are not already aware, I am the author of two sites relating to Life Insurance.

(Compared to them, this letter is short!)

The first is a detailed analysis of my policy. As mentioned in the beginning, I like it. <smile> The second is an opinionated glossary of life insurance terms. Issues relating to demutualization are covered in great detail.

Please be aware that I plan to place this letter and your reply on "The Visible Policy" site. Thank you for your time, leadership, and stewardship.

With kind regards,

Richard W. Franzen

NYLIC's Reply


 The Company You Keep
New York Life Insurance Company
51 Madison Avenue, New York, NY 10010
Bus. 212 576-4985
Fax 212 447-4266

David A.K. Harland
Vice President and Chief of Staff
Office of EVP and Secretary
October 29, 2002

Dear Mr. Franzen:

Sy Sternberg has asked me to respond to your letter of September 23, 2002.

We appreciate your kind words about New York Life and our agents' professionalism. We are particularly pleased to hear that you support the Company's decision to remain a mutual insurance company.

As you know, in January 1999, the Board of Directors unanimously agreed that the Company should not demutualize. The Board reached this decision after careful deliberation, taking into account a variety of factors, including the long-term best interests of our policyholders. When insurance companies demutualize, management must weigh the interests of its policyholders against the expectations of its shareholders. Policyholders buy life insurance in reliance on a promise that the insurer will be there to pay the benefits that have been promised years or even decades into the future. In contrast, shareholders judge a company based on its stock performance and focus on short-term results. We believe that our priority first and foremost is to manage to the long-term promises that we have made to our policyholders.

When the Company announced its decision to remain a mutual, many of our competitors were in the process of demutualizing. The Company's decision was seen as somewhat controversial and contrary to the prevailing wisdom. The major rating agencies, however, have unanimously acknowledged the wisdom of this decision. (See copy of enclosed New York Life 2001 Annual Report.)

In September 2002, Moody's noted that demutualization has "negative credit implications, primarily because of the inherent conflict between the interests of policyholders and shareholders. Shareholder-owned companies are under pressure to deploy and optimize excess capital in order to achieve higher returns on equity....Mutual insurance companies can take a longer-term horizon in setting and meeting sales and financial objectives, putting themselves under less pressure to make acquisitions when internal growth is slower than anticipated."

In its April 2002 report, Moody's said that the mutual form of ownership "allows mutual companies to avoid the potential conflicts of interest that exists between policyholders and shareholders in publicly traded companies."

Many large life insurance companies decided to demutualize to raise capital to fund growth. New York Life, however, has more than sufficient capital to fund its continued growth and does not need to raise capital in the capital markets. In its December 2001 report, Standard & Poor's observed that: "In the past, New York Life has been able to generate all of the capital necessary to support future business growth from its ongoing operations....New York Life is one of the few mutual companies without pressing interest in either of the prime motivations for the recent demutualization trend in the industry...."

We believe mutuality has been the foundation of our success and will continue to serve us well in the future. We also believe that our mutual status appeals to our policyholders because it avoids potential conflicts of interest and allows us to offer traditional participating whole life policies, which many of our competitors are no longer offering, following their demutualization and due to their public company status. As a result, the company has no intention of demutualizing and no longer feels the need to advocate the adoption of mutual holding company legislation in New York due to our strong capital position. (See attached print ads on mutuality, which are running in national magazines.)

In your letter you raise a concern about who owns the Company. As a mutual insurance company, New York Life is operated and maintained for the benefit of its policyowners who own a participating insurance policy. According to Black's Law Dictionary, "The term 'owner' is used to indicate a person in whom one or more interests are vested for his own benefit." The interests of New York Life's policyowners are set forth in the New York Insurance Law. By law, participating policyowners have the right to share or vote for directors, and to participate in any distribution of surplus in the event of a liquidation following the payment of creditor claims and the satisfaction of contractual obligations. Accordingly, we publicly recognize our policyholders as owners as we have done in the attached current-print ads.

I hope that my letter responds to your questions and want to thank you for your support and patronage as a valued policyholder and member of the New York Life family.


D A K Harland

Accesses since 27 July 2004
last modified 22 November 2010
2004 - 2010 by Rich Franzen
Mr. Harland's letter published with acknowledgement.

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No content within The Visible Policy has been approved, authorized, or verified by New York Life or any of its representatives.  I have attempted to fairly and accurately portray the policy, but there are likely to be mistakes.  Over time, I shall endeavor to correct any misinformation found herein.
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