In a move to convert from a mutual insurance company to a stock-owned insurance company, Harrisburg-based Millers Mutual Insurance Co.'s board of directors has approved the formation of a mutual holding company and is now awaiting state approval of its plan.
A mutual insurance company is owned by its policyholders, and a stock-held company is owned by stockholders. In the case of Millers, policyholders would have the same voting rights they enjoyed prior to the conversion.
Once the conversion is made, Millers would be able to make an initial public offering of stock, said David W. Carmean, vice president and secretary of the company, which sells property and casualty insurance. An IPO would allow the company to acquire other insurance companies,fundmajor capital improvements and create new enterprises, among other possibilities.
"At a later date, should the company desire, they could do an IPO, but the idea would be to sell 49 percent of the stock, leaving the mutual holding company with 51 percent of the stock, thus preventing a takeover," Carmean said.
He pointed to the case of Lancasterbased Old Guard Group Inc., which became the target of a hostile takeover attempt by Marietta-based Donegal Group Inc. when Old Guard began an initial public stock offering in 1997. Donegal failed in its attempt.
He stressed that launching an IPO is ,,only a possibility in the future. This action we're taking right now is only to form a mutual holding company."
In a July 21 notice to eligible members, Millers said a mutual holding company will be formed under the plan, and members' voting rights will be transferred to the mutual holding company, which will become the parent of the reorganized holding company system. Once Millers is converted to a stock insurance company, it will be controlled by its sole shareholder, a stock holding company to be owned by the mutual holding company.
"Millers will be converted from a mutual insurance company to a stock insurance company and you will continue as a policyholder of the converted company," the notice told policyholders. "Your insurance coverage will not change."
According to Rick Russell, executive vice president of the Professional Insurance Agents Association, Mechanicsburg, a state law passed in 1996 allows for mutual-to-stock conversions. State Insurance Department spokeswoman Melissa Fox said 11 such conversions have occurred since the law passed.
"Demutualization is a controversial issue in the insurance industry today," Russell noted, saying the issue "can even get pretty emotionally charged" over whether policyholders will lose ownership of the company when the conversion takes place.
In a July 19 letter to policyholders, Millers President and CEO Robert Lyon said the move "is being undertaken to enable the company to prepare for its future in an ever-changing financial services industry."
A public hearing has been tentatively scheduled for 9 a.m., Sept. 24 in the state Insurance Department's administrative hearings office in the Capital Associates Building at 901 N. Seventh St., Harrisburg, to hear comments regarding the conversion, which is called a "demutualization," according to Fox.
Fox said the Insurance Department received the Millers Mutual reorganization plan July 16, and is now reviewing it. Millers' policyholders had 30 days from the date of the July 21 notice to eligible members to provide the Insurance Department commissioner or Millers with any comments on the plan. As of Aug. 30, the department had not received any written comments, Fox said.
In the past year, Lyon has stated that his firm plans to remain independent in the consolidating insurance industry. Millers Mutual has about $50 million in assets and 50 employees, and last year acquired another company, Paradise Mutual Insurance Co., Hanover, which brought in another $5 million in assets and 15 employees.
"Any mutual company that dernutualizes does so to find an avenue for additional capital that it can raise," said Dennis Rowe, president and CEO of Harrisburg -based Penn National Insurance. "It certainly isn't a sign of weakness that a company would demutualize or have an initial public offering. To the contrary, it's a sign of strength."
An insurance company has a number of options for transforming to a publicly held company from a mutual company owned by policyholders, Rowe noted. He said Penn National Insurance has a holding corporation that is fully owned by the original mutual company, so it's not demutualized.
As for the time frame, Fox said any company filing to demutualize before the Insurance Department has 90 days to file its plan with the department after a two-thirds majority of the board of directors passes a resolution.
In the past, the department had 60 days to approve the resolution from the time it was filed. "Now, that is no longer the case," Fox said. "Sixty days was entirely too short a time frame to accomplish this. So, the time frame has been waived."
The department looks for evidence that the company is acting in the best interests of the policyholders and will remain solvent if it demutualizes, Fox said.
If the commissioner approves the plan, within one year the company is required to present the information to the policyholders for approval. A vote must be held within 30 days and win a twothirds majority of policy holders for the plan to gain approval.
If approved, the company will file corporate articles of amendment with the Department of State's Corporation Bureau. Generally, the day of the filing is the day of conversion. If disapproved, and the company wants to try again, the entire procedure must be repeated, Fox said.
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