SI 01130: Resources Exclusions

Effective Dates: 11/14/2013 - Present

TN 46 (01-03)

A. Background

A number of major insurance companies are undergoing a process called demutualization. Under demutualization, the company converts from a mutual company owned by its policyholders to a stock company owned by stockholders. Generally, demutualization is done by life insurance companies, but a company that is primarily a health insurance company may also demutualize. A mutual insurance company may also convert to a stock insurance company that is owned by a mutual holding company. In contrast to full demutualization, these policyholders usually do not receive compensation such as stock or cash. In some cases, however, full demutualization occurs before the holding company is established, and compensation is paid to policyholders.

As part of demutualization, the insurance company issues shares of stock or cash to its policyholders to compensate them for the loss of certain ownership rights. The amount of compensation is determined by the insurance company and is related to the value of the insurance policies owned by the policyholders.

B. Policy -- Demutualization

1. Compensation Paid by the Insurance Company

Shares of stock and cash received as compensation as a result of demutualization of a life or health insurance company are a conversion of a resource and are not income (SI 01110.600B.4.). The shares of stock or the cash are counted as a resource in the month after the month the compensation is received by the policyholder.

2. Cash Surrender Value (CSV)

The CSV of a life insurance policy does not change after demutualization and the normal rules for determining the CSV apply (SI 01130.300C).

3. $1,500 Life Insurance Exclusion

The existing rules for the $1,500 life insurance exclusion continue to apply to policies issued by a demutualized insurance company (SI 01130.300B.2.). However, this exclusion does not apply to the compensation received by a policyholder (e.g., shares of stock or cash).

4. Dividends Accumulations and Additions

Dividends paid by life insurance companies before or after demutualization are not income. Dividend accumulations are a countable resource before and after demutualization. The valuation of dividend additions is not affected by demutualization. See SI 01130.300A.5.

NOTE: Demutualization usually does not affect whether a particular policy receives dividend payments. SI 01130.300C.5. contains an operating assumption that mutual companies pay dividends and that stock companies do not. This may not hold true for stock companies that were formerly mutual companies. Generally, policies that received dividends under a mutual company will continue to receive dividends from the stock company. New policies issued by the demutualized company will generally not pay dividends.

C. Procedures -- Demutualization

When you are evaluating an individual's resources, follow the existing procedures for developing insurance policies in SI 01130.300 and these additional steps to determine the effect of demutualization on the individual's countable resources.

1. Identify Compensation from Demutualization

Ask the individual or consult your offices precedents to ascertain whether the individuals insurance company has demutualized as a lead for your development.
Ask the individual if he or she received any compensation from the company other than dividends (e.g., shares of stock or cash).
Curtail development if information in the individuals file indicates that demutualization has already been developed.
Curtail development if the mutual insurance company was converted to a stock company owned by a mutual holding company and the individual alleges that no compensation was paid to the policyholders.

2. Determine the Value of Compensation Paid to Individual

Determine the value of any shares of stock received per SI 01140.220.
Determine the value of dividend accumulations, if any, per SI 01130.300.
Include any compensation received due to demutualization in the individual's countable resources starting with the month after the month the compensation was received.

3. Document the File

Verify the type and value of compensation and whether dividends are still received using documents provided by the individual. See SI 01140.220 if it is necessary to verify the value of stocks.
If the individual is unable to provide evidence, contact the insurance company to verify the type and value of compensation and whether dividends are still paid. A report of contact with the insurance company is acceptable to document the file.
Use the File Documentation Notes section of the MSSICS Life Insurance page to document that the demutualization issue has been developed. For example: “INSURANCE COMPANY DEMUTUALIZED. COMPENSATION PAID IN 10 SHARES OF STOCK VALUED AT $25 EACH IN SEPT 2000.”
If the compensation was in the form of shares of stock, use the Stock, Bond, or Mutual Fund (RSTB) page on MSSICS to document shares of stock that the individual received.
If the compensation was in the form of cash, document using the Cash (RCSH) page or Financial Institution Accounts (RFIA) page as appropriate.