Pacific Mutual Seeks State's OK on Public Share Offering

By JAMES S. GRANELLI

April 23, 1997 12 AM PT

TIMES STAFF WRITER

NEWPORT BEACH —

Pacific Mutual Life Insurance Co., the largest life insurer based in California, sought state approval Tuesday to convert to a new corporate structure that would allow the public to buy a stake in the 129-year-old company.

The Newport Beach insurer sees its expansion through acquisitions, and it wants to be able to tap the public markets for cash to finance its purchases. As a mutual, the company is owned by policyholders, making it difficult to buy other firms.

“Our industry is going through a pretty intense transformation with an uncharacteristically high level of mergers and acquisitions,” said Thomas C. Sutton, the company’s chairman. “This change of structure is positioning us for the future.”

Sutton said he hopes to complete the transformation by this fall, paving the way for the company to go public sometime in 1998 at the earliest. The restructuring wouldn’t affect any jobs or duties, he said.

Mutuals make up a small portion of the 2,000 life insurers nationwide, but they are among the biggest. They include such major players as Prudential, Metropolitan Life, Massachusetts Mutual, John Hancock and New York Life. Pacific Mutual, with $27 billion in assets, is the nation’s eighth-largest mutual and is 22nd largest among U.S. life insurance companies.

Pacific Mutual joined other mutuals in pushing for laws that would allow them to restructure in a way that would make acquisitions easier, while keeping policyholders in control. In the last two years, 11 states, including California, and the District of Columbia have enacted new laws. Nationwide, two companies already have converted and one more is in the final stages.

But an industry expert has questioned whether policyholders’ rights and regulatory oversight will be preserved under the new structure. “It’s entirely possible that these things can be adequately handled, but nobody’s done it yet,” said Joseph M. Belth, editor of the Insurance Forum in Ellettsville, Ind.

Under the new structure, two holding companies would be created. At the top would be Pacific Mutual Holding Co., owned by policyholders. The second company, Pacific LifeCorp., would eventually go public, issuing up to 49% of its stock to investors, with Pacific Mutual Holding retaining at least 51%. Pacific Life also could issue debt securities to raise capital for acquisitions.

The state Department of Insurance has scheduled a public hearing on Pacific Mutual’s proposal for June 3 at its Los Angeles headquarters. Policyholders are scheduled to vote on the change June 13 at a special meeting.

Pacific Mutual has long prided itself as a flexible company that is able to change gears quickly, whether introducing new products or changing its delivery system. It operates a group health insurance division and owns 42% of Pimco Advisors in Newport Beach, a major asset management company.

But the restructuring is, in part, a return to the past. Though it had “Mutual” in its name, the company was owned by shareholders during much of its history.

Pacific Mutual was founded in Sacramento in 1868 by such wealthy business leaders as Leland Stanford, Charles Crocker and Mark Hopkins. Stanford, a former governor, railroad executive, soon-to-be U.S. senator and founder of Stanford University, was the company’s first president.

The company’s first policy was reserved for Stanford, and it has become part of the folklore at Pacific Mutual and at the university that Stanford founded as a memorial to his only son.

When the elder Stanford died during the recession known as the Panic of 1893, his financial affairs were in a tangled state, and the university, which was supported totally by Stanford’s fortune, was unable to pay professors’ salaries. The future of the 2-year-old school was in doubt.

His widow learned of the life insurance policy and presented it to Pacific Mutual, which paid the policy amount: $11,784. She turned the check over to the university to help pay the salaries until her husband’s estate could be straightened out.

Pacific Mutual moved its headquarters to San Francisco in 1893 and continued to prosper through several recessions. It acquired Conservative Life Insurance Co. in Los Angeles in 1906 in what turned out to be a fortuitous purchase.

Several weeks after the deal closed, Pacific Mutual’s headquarters was dynamited in an effort to halt the spreading fire sparked by the historic 1906 San Francisco earthquake. The company quickly moved its headquarters to Los Angeles.

The company stayed in Los Angeles until 1972, when it became the first major white-collar company to set up headquarters in Orange County.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Planning to Go Public

Pacific Mutual Life Insurance Co., the largest life insurer based in the state, is seeking to restructure to allow the public to buy a stake. Details on the 129-year-old firm:

Pacific Mutual Life Insurance Co.

Headquarters: Newport Beach

Founded: 1868

Chairman/CEO: Thomas C. Sutton

President: Glenn S. Schafer

Core businesses: Life insurance, annuities, investment products and services, group employee benefits, pension investment services

1996 assets: $27.1 billion, up 16% from 1995

Employees: 2,200, including 1,650 in Orange County

****

Company Assets (in billions)

1996: $27

****