Regulation, Capital, and Organizational Form in U.S. Life Insurance

Abstract

This paper studies the influence of the legal environment and economic conditions on the form taken by life insurance company incorporations between 1900 and 1949. It identifies three key factors associated with mutual formation - low initial capital requirements for mutuals, regulatory favoritism, and economic distress. Mutuals were formed almost exclusively in states offering an explicit advantage to mutual incorporation in the form of reduced initial capital requirements. This suggests that the mutual form's disadvantage in raising capital, in conjunction with rising capital requirements and the elimination of such regulatory favoritism, may have contributed to the decline in its use.