Abstract
As the 20th century came to a close, increased competitiveness, globalisation, and deregulation heralded the end of the historically dominant mutual structures within the financial sector. Life insurance companies sought to demutualise to support a new global strategy of pursuing a diversified financial services group structure. Existing insurance demutualisation research is predominantly focused on agency consequences, efficiency, expropriation, and pre- and post-demutualisation efficiency. Few studies have considered whether demutualisation has succeeded in its intentions. The diversified or integrated structure of the demutualised company offers opportunities to develop synergies and achieve value extraction across the areas of insurance, banking and asset management. One of the greatest opportunities for synergy lies in consolidating the distinct asset management functions in insurance, banking and asset management. However, there is a lack of clarity in the literature explaining how an asset management function operating within a mutual life assurance company will be impacted by, and respond to, a fundamental change in its core organisational context.
There are two forms of change during demutualisation: inherent systematic changes and management-chosen unsystematic changes, with both impacting the asset management function. Inherent systematic changes occur due to the emergence of agency. The investment objective is compromised in a mutual structure due to the lack of agency. Consequently, capital allocation may be more strategically aligned to the mutual objectives than to the investment portfolio objectives. Together with the return of agency, a post-demutualisation investment structure may include a return to objectivity. Furthermore, during demutualisation, management may use the opportunity to implement a more competitive operational structure. This post-demutualisation structure and strategy have important change management implications for long-term shareholder wealth creation.
The purpose of this study is to explore the role of the asset management function in the transformation of a life insurance company into a diversified financial services group. The study advances the existing body of knowledge on agency theory, particularly pertaining to mutual structures, by implementing a case study approach to the historical development of a large South African-based insurer, Sanlam. It explores the short- and long-term change management issues caused by the inherited and chosen implications that demutualisation holds for the asset management function. Results suggest that the inherent systematic changes amplified the autonomy crisis in the asset management function, brought about by the mutual company’s legacy of control. The management-chosen unsystematic changes resulted in the destruction of value creation by the asset management function due to the focus on strategy rather than culture.
Key words : Asset Management, Investment Management, Insurance, Demutualisation, Mutual, Financial Services Group, Sanlam