CUNA Mutual’s Reorganization Plan Deserves Close Look
I’m writing in response to Brian Prunty’s letter regarding CUNA Mutual’s proposed reorganization to a mutual holding company structure. [CU Times, Aug. 17, page 10.] Like Prunty, we encourage all policyholders to read through the MHC materials thoroughly. Further, we, too, believe in the benefits of mutual ownership and in having a strong governance model. Prunty raises concerns that warrant clarification.
In CUNA Mutual’s plan of reorganization, the MHC board structure is consistent with our current model. Today, policyholders own the parent company–CUNA Mutual Insurance Society (CMIS); CMIS, in turn, owns several subsidiary companies that comprise CUNA Mutual Group, including CUMIS Insurance Society, a property and casualty carrier. The independent CMIS board of directors oversees the parent entity (CMIS) and the group as a whole. Each of the subsidiaries has a separate board.
In the proposed MHC structure, the framework is very similar. Policyholders will own CUNA Mutual Holding Co., the new parent organization. The new parent company board of directors oversees this parent entity and the group as a whole. The board of the parent company will be responsible for setting policy for the group and reviewing issues that are material to the group as a whole. As such, the parent board maintains an oversight role over CMIS (reorganized as CMFG Life) and all of the subsidiaries. In addition, the parent audit committee will serve as the audit committee of CMFG Life and other major insurance subsidiaries, ensuring independent review of financial results and internal controls.
The reorganization plan also addresses financial benefits for officers. The boards of the subsidiary companies cannot authorize the issuance of stock; that authority rests with the board of the parent company. As Prunty correctly states, the MHC reorganization plan does allow the board of the parent company to authorize the issuance of stock without policyholder approval. However, regulatory approval to issue stock would still be required, and the board indicated in the reorganization materials it has no intent to issue stock. In the unlikely event the board would authorize the issuance of stock, the company previously agreed to a stipulation with regulators that places additional limits on the ability to grant stock options to directors and officers.
The proposed MHC structure does not change CUNA Mutual’s strategy or its focus on credit unions. Nor is this a move to provide personal enrichment for the board or officers. CUNA Mutual’s board believes in a mutual ownership structure but is concerned our current structure could limit our ability to successfully implement our strategy and, thus, inhibit long-term growth. The proposed structure maintains the key benefits of a mutual ownership structure while providing more capital access and flexibility.
Senior Vice President and Chief Legal Counsel
CUNA Mutual Group