Good Afternoon. Thank you for inviting me to testify here today. My name is Jason Adkins, I am attorney for the policyholders of State Mutual who sought to intervene in Division of Insurance hearing and Executive Director of Center for Insurance Research, a nonprofit public policy and advocacy consumer organization based in Cambridge.

I would like to comment on the matters before you as follows:

• First, briefly, the narrow issue of State Mutual's demutualization plan and the unfair process by which it has been considered by the company and the Division of Insurance. The result has been a prejudicial, unfair and unreasonable plan;
• Second, the larger issue of the process by which mutual insurers should be permitted to convert to a stock company; and
• Third, a brief overview of current deficiencies in State laws governing mutual insurance companies and suggested reforms.

State Mutual has produced a flawed plan that discriminates against its 93,000 individual policyholders and favors the 15,000 institutional (employer) policyholders. If you would like more information about the substantive problems with the plan, I am happy to respond to any questions you may have. I have also attached a statement I made on behalf of policyholders at the Division of Insurance's ("Division") State Mutual public hearing which outlines our essential critique.

I. As for the first issue, the State Mutual demutualization process:

• The first board meeting at which CEO John O1Brien presided there were 61 ballots cast out of a potential 108,000 policyholders eligible to vote. No annual notice was sent to policyholders about the meeting.
• State Mutual formed the holding company, Allmerica Financial Corp., in 1992 for the purposes of the demutualization, according to State Mutual's Plan of Reorganization (Plan, Part 2 at 36). No annual notice about the annual meeting was sent to policyholders that year either. There were 36 ballots cast out of 108,000 eligible to vote.
• In early 1993, State Mutual began to "seriously" consider demutualization. (See letter to policyholder, Division of Insurance docket # 33A). At the 1993 annual meeting, for which no annual notice was provided, 28 ballots were cast out of 108,000. There was no discussion in the 1993 meeting minutes of demutualization. State Mutual spent $4.6 million that year developing the plan.
• In late 1993, State Mutual submitted a draft of their Plan to the Division and, in early 1994, the Commissioner established a "working group" of top staff and retained outside advisors to review all materials and work with State Mutual on the plan. The Division and its advisors held near-weekly meetings with or on the State Mutual matter.
• None of the extensive documents, legal memoranda or other information submitted by State Mutual to the Division on issues of procedure or substance was made public at that time or any time since then, despite the fact that at this point State Mutual was clearly a party in interest and one which intended to appear before the Division in a public hearing as mandated under Chapter 175, Section 19E -- the demutualization statute. I have sought access to this information and the Division has written a memorandum of law seeking to prevent disclosure of the materials arguing, among other things, that this is part of an "inter-agency" process.

I urge you to inform the Division that State Mutual is not their client, is not part of their agency, that the documents they are secreting away must be released to the public, and that they should have been so released prior to the public hearings. The hearings should be reopened to enable the policyholders to participate with full information.

• In March 1994, State Mutual held an annual meeting for which no annual notice was sent to policyholders, and only 27 ballots were cast out of a potential of 108,000. The minutes for the meeting show State Mutual discussed briefly management's study of demutualization. No annual report or copy of the minutes were sent to policyholders. State Mutual spent $9.2 million on the plan in 1994.
• In February 1995, the board of directors voted to approve the current Plan of Reorganization and filed it with the Commission of Insurance. A 241-page complex, table-filled Policyholder Information Statement was sent to the 108,000 eligible policyholders by State Mutual after it had been reviewed by the Division. An accompanying notice from the Division gave policyholders less than three weeks to peruse, digest the plan and seek to intervene in the upcoming public hearings which were to commence in five weeks.
• State Mutual was the only party granted full rights in the public hearings. The policyholders I represent, who are similary situated to the 93,000 other individual policyholders, were informed by the Commisisoner's Presiding Officer, that they did not have enough interest to be parties. They were permitted limited participation rights which did not include the right to discovery of information, the right to cross-examine State Mutual's witnesses, or the right of appeal.

State Mutual presented its entire case in one day, in a process the Commissioner herself called "one of the most, if not the very most, complex and interdisciplinary corporate insurance transactions which any regulator must oversee."

• State Mutual cites as affirmation of their process the policyholder vote approving the plan. This vote was the product of a flawed process, misleading information and notice, and the supposed promise that policyholders would receive, at minimum, $504 in shares or cash if the shares market price in the initial public offering went as planned. Because policyholders each owned $1,000 of the company at a minimum, and due to other inequitities in the formulas used by management, policyholders are receiving significanty less than they would receive under a fair plan.

II. The second matter I will touch on very briefly is the larger issue of the process and its implications for Massachusetts citizens and policyholders.

The life insurance market is dominated by mutual insurance companies in Massachusetts and the nation. The biggest life insurance companies headquartered in Massachusetts are John Hancock with about $43 billion in assets, followed by New England Mutual, Mass Mutual, and others. The demutualization statute was filed by John Hancock, they may well be next and the process must best protect consumers and policyholders alike. The current process, as interpreted by the Commissioner of insurance, does not and this body should correct that by reforming section 19E. The proposed one year moratorium on demutualizations would be an important step to allow you time to reform the process. At minimum, the standard should be that the plan must be "in the best interest of policyholders," not "not prejudicial" as is the current standard.

III. Lastly, Massachusetts laws governing mutual insurance companies more generally require reform to increase the accountability of these companies to their owners -- the policyholders, and to regulators and the public. I urge you to consider amending current laws to provide:

• meaningful notice and information disclosure requirements for annual and special meetings (none now exists);
• a meaningful process by which policyholders may nominate candidates for the board of directors, and a requirement that the number of nominations exceed the number of open seats (current nomination provisions serve as an absolute barrier to policyholder action);
• a process by which life mutuals may have access to policyholder lists as is available for property and casualty mutual policyholders in Massachusetts.
• allowance for votes by proxy to be received one day before annual meetings (not seven days as under current law);
• a quorum requirement for annual meetings of some percent or a minimum number of members who may not be employees of the company (none now exists);
• a meaningful mechanism through which policyholders may call special meetings (the current mechanism is an absolute barrier);
• limitations on board representation for stock subsidiaries of a mutual so that representation is in direct proportion to the guaranty capital versus the mutual's total assets (not the one third representation currently permissible irrespective of asset value);
• higher fines for officers who ask for or receive proxy votes in violation of the law.

Thank you for the opportunity to appear before you here today. I am available for any questions.