THE increase in the number of life assurance companies "demutalising" brings up interesting questions about how their changing structure affects policyholders. Most publicity surrounding these changes concerns the issuance of free shares.

Mutual companies are effectively owned by the policyholders but in recent years this ownership has been limited to "with-profits" policyholders. These policyholders are given shares in lieu of their ownership when the mutual company becomes a publicly listed company (plc) with shares traded on the stock exchange.

A Family Money reader from Wicklow writes that his wife holds unit-linked policies with both Canada Life, which is planning to demutualise, and Sun Life of Canada, which may do likewise.

When the couple enquired about free share entitlement they were told that she was not eligible as only "with-profits" policies would fall under the free share allocation.

The reader writes that "surely one set of policyholders cannot be more mutual than others" and "the free shares are intended as a distribution of the capital assets of the company which have been built up over the years by the administration of all types of policies and should not be linked arbitrarily with policies just because they are denoted as `with profits'."

Unfortunately, this does not appear to be the case. "Basically the situation with a mutual company is that it is owned by the `with-profits' policyholders," says Mr Michael Kiernan, assistant director of marketing for Canada Life. "It's the nature of ownership of the company and `with-profits' holders are eligible to vote."

Another factor affecting share distribution is that these demutualisations are taking place outside Europe and are governed by different laws. Canadian legislation prescribes that the only people to participate are "with-profit" policyholders, says Mr Kiernan.

In other cases, shares may be issued based on the memorandum and articles of association of the society. This specifies who owns, or is a member of, the society.

Ms Ann Matthews of Norwich Union, a company which went through demutualisation two years ago, says: "All companies have their own rules. With Norwich Union, ordinary policyholders were given 150 free shares, `with-profits' got a minimum of 150 free shares."

Despite Canadian unit-linked policyholders' ineligibility, they should remember that when these policies were purchased there was no expectation or promise of free shares, so the shares should be looked at as a bonus, rather than a right.

Assuming that Canada Life becomes a plc, 55,000 Irish policyholders will be eligible for free shares, says Mr Kiernan.