Aligning with a larger organization gives management an opportunity to leverage its skills across a broader market. Finally, demutualizing provides management the ability to offer additional financial incentives to key executives and producers in the form of restricted stock grants, stock options, and management recognition programs. The potential cultural shock of becoming beholden to public shareholders may provide the greatest impediment to successfully implementing a demutualization. Asking company employees to eschew a deeply ingrained corporate culture in a short period of time is difficult. Equally difficult may be asking potential shareholders to believe that a newly demutualized company is in fact shareholder focused.
Share repurchase is the simplest to explain.
Once publicly owned, a company can reduce its equity via share repurchase and, thereby, if all other things are equal, increase its return on equity. The pursuit of share repurchase should be considered as just one method of employing capital, because in the long run capital management via share repurchase has diminishing marginal returns. Of course, if returns from share repurchase are declining as market price to book value increases, management may use its improved stock valuation to acquire other financial companies in pursuit of corporate strategy. Given the national scope of life products, the economic advantages of large scale have barely been pursued for most of the industry. So, acquisition of other life companies may be the paramount use of capital by a recently demutualized insurer.