The Equitable, the nation's third-largest life insurer, said it will convert from a mutual company to one owned by stockholders so that it can more easily boost its troubled finances.
The Equitable, which has more than $135 billion in assets, would become the largest insurer to take this step in recent history, industry analysts said.By converting from a mutual company, which is owned by its policyholders, to a stockholder company, the Equitable will be able to raise funds by selling shares to investors.
James Guenther, an insurance industry analyst at the Chicago investment firm Duff & Phelps, said that as a mutual company, the Equitable's options for raising additional funds are limited to various forms of debt instruments such as bonds.
"You can't raise equity capital (through selling shares), which regulators want to see," he said. "Debt is debt. It's something that has to be paid back."
The Equitable suffers from declining values in its real estate investments, losses in its large "junk bond" portfolio and problems with its mortgage loans, analysts said.
Late last month, rumors swept the financial markets that the Equitable had missed a payment on its bonds and was near insolvency. The company denied the rumors.
Standard & Poor's Corp., a major credit-rating agency, predicted Tuesday that the insurance company will take large write-offs for its troubled investments, which "may cause a significant loss for the year and reduce the company's capital."
S&P added that the Equitable's greater investment in junk bonds than other life insurers and its large mortgage loan portfolio "indicates a potential for additional future investment-related losses, given the current outlook in the economy in general and investment markets in particular."
S&P said the Equitable is "already more thinly capitalized than its peers." The ratings agency lowered by one notch its ratings on the Equitable's ability to pay policyholder claims.
S&P said Equitable's announcement that it will convert to a stockholder company "indicates that the company recognizes its need to seek significant external capital."
The Equitable said the conversion to a stockholder company could take up to 18 months. Under it, policyholders would receive payments in the form of cash or stock in the Equitable, the insurer said.