In an unusual move, Savings Bank Life Insurance Co. of Massachusetts plans to convert to a mutual firm later this month, in hopes of getting its largest shareholders, the big banks, out of the business.
Massachusetts banks started the life insurance company, but new regulatory requirements and the low-interest-rate environment have made their involvement in the company increasingly expensive.
SBLI, which has $3 billion in assets, has asked policyholders to approve a plan later this month that would pay the company’s 30 bank shareholders $57.3 million for their stock and turn the operation into a mutual company owned by the policyholders.
SBLI plans to use its surplus and debt to fund the purchase.
If the banks remained shareholders, they would be likely to demand a greater share of the profits and eat into the dividends the insurance company currently pays to the 536,000 policyholders, about half of whom live in Massachusetts, said Jim Morgan, president of Woburn-based SBLI.
“We’re trying to protect the policyholders from having the dividends diluted,’’ Morgan said.
For decades, when banks and insurance companies converted, it usually went the other way: from mutual company to publicly traded stock company.
A stock sale can be a quick way to raise capital, make it easier to sell to a larger firm, and provide a big payday for insiders, including key executives.
In 2000, for example, Boston-based John Hancock Mutual Insurance Co. ended its 137-year run of policyholder ownership by selling stock in the company.
Four years later, it was sold to a Canadian financial services giant, Manulife Financial Corp., for almost $11 billion.
At the time, Hancock’s chief executive, David D’Alessandro, was criticized for earning about $100 million in stock, severance, pension, and other payments between the time of the conversion and the sale of the company.
Morgan, however, said that SBLI is trying to ensure policyholders retain greater control of the company and provide the banks a fair price for their shares.
For decades, many small Massachusetts banks had life insurance arms. Those insurance divisions were consolidated into SBLI in 1992, and the banks were provided shares in return.
Some of the state’s largest banks are shareholders, including Citizens Financial Group, of Providence; Charlotte-based Bank of America Corp.; Santander Bank NA; and TD Bank NA.
Each year, SBLI awards about $1.8 million in dividends to the banks.
The insurer also makes dividend payments to its policyholders — about $40 million last year, Morgan said.
But rules adopted since the 2008 financial crisis require banks to set aside more capital for certain types of investments that are considered riskier. That made them more eager to exit SBLI, Morgan said.
The conversion came as a surprise to many policyholders.
Robert Wright, a professor in South Dakota who has studied insurance companies and owns an SBLI policy, said he would prefer the insurer to be a mutual company that doesn’t have to worry about the short-term needs of shareholders.
But he wants to ensure that SBLI doesn’t overpay the banks for their shares.
“It’s fine, as long as it’s a fair price,’’ he said.
Deirdre Fernandes can be reached at deirdre.fernandes@globe.com. Follow her on Twitter @fernandesglobe.
