The paper firstly examines the way in which U.K. mutuals operate and the forces which are leading mutuals to consider demutualisation. Demutualisation is normally accomplished by a Scheme of Transfer under Section 49 of the Insurance Companies Act 1982. The role of the directors and actuaries is discussed, including the impact of the Institute's latest Guidance Note (GN15).
The protection of policyholders' reasonable expectations, the value of membership rights and the basis of dealing with any orphan surplus are the central problems. The paper examines them in the context of both the open fund and closed fund situation and shows how they may be resolved.
A simple model is used to project the financial position of both an open and closed fund in a demutualised company. The relative advantages and disadvantages of each indicate that different courses of action may be appropriate for mutuals in differing financial positions.