Two and a half years after being taken over by the state, the troubled Pawtucket Mutual Insurance Co. and its subsidiary, Narragansett Bay Insurance Co., have been successfully rehabilitated and will start writing policies again, effective this spring.
The company, renamed Pawtucket Insurance, will be “much more specialized” than its precursor, writing only homeowners’ insurance in Rhode Island, Massachusetts and Long Island, N.Y., said Stewart H. “Nick” Steffey, president and CEO of Blackstone Financial Group, which acquired the 157-year-old company this fall.
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“We’re positioning ourselves to start writing business on April 1,” Steffey said. “We used to have 66,000 policyholders; today we have [none]. We want to grow carefully, but we expect in the first year to have somewhere between 3,000 and 5,000 policies.”
The insurer will target homes valued at $180,000 to $800,000, including coastal properties that are being snubbed by other carriers, Steffey said. The goal is to inspect every property and try to reduce exposures, he said. “Our idea is to give a preferred price for a preferred risk.”
Licensed in 11 states, Pawtucket Mutual employed 220 people and wrote $86.2 million in premiums in 2002, including Narragansett, with the vast majority in personal lines. But the companies were in deep financial distress.
Substantial losses, capital depletion and low investment income had led to a rapid decline in the surplus, from $49.3 million in 1998 to $8.5 million by the first quarter of 2003. Many agents began placing their business elsewhere, further eroding company revenue.
In May 2003, Marilyn Shannon McConaghy, then director of the R.I. Department of Business Regulation, went to Superior Court and got control of the companies, hoping to save them. Pawtucket began non-renewing its policies and laying off dozens of workers.
The surplus kept plummeting, to $4.9 million by September 2003. But claim reserves were strong, about $61 million – plenty, DBR officials and their consultants thought, to cover losses.
And Pawtucket had “significant intrinsic value,” a DBR report says: a franchise viewed as a “New England institution,” a sound infrastructure, a network of about 450 “loyal and capable” independent agents, plenty of loss data across its territories, and low-cost operations.
Still, it wasn’t an easy sell. To boost the companies’ appeal, the DBR converted them into a single stock company, updated rates and claim-review strategies, sold off one of three downtown Pawtucket buildings, and made other operational improvements.
In May 2004, the DBR formally sought offers, but with a $1-million deposit required, no one bid. Last February, a second bidding session was held, and five offers came in. The DBR team picked a bid by Blackstone, which offered $5 million for the Pawtucket name, licenses and buildings and agreed to assume all outstanding claims.
Led by Steffey, a 39-year insurance veteran with experience at Cigna and Liberty Mutual, among others, and his own insurance financial consulting firm, Blackstone is an investors’ group created expressly to buy and revamp Pawtucket. Insurance law expert Stephen Zubiago, of Nixon Peabody in Providence, worked closely with the team.
With the buyers’ capital, plus combined assets of about $33 million, and combined equity of about $6 million, Steffey said, the company is ready to resume business. But it needs to raise another $20 million to $100 million to support “a significant, but not huge, market share.”
The homeowners’ insurance market in Pawtucket’s target states is worth more than $5 billion, Steffey said, and “it’s growing, very profitable, and very much in demand.”
In fact, said Roger Messier, president of Butler & Messier Insurance in Pawtucket, the majority of Cape Cod homes have been forced into the last-resort market, and homeowners across the region are facing mandatory deductibles and jacked-up premiums.
Pawtucket is “going into a line that everybody’s scared of right now,” Messier said, but with a good reinsurance deal, it could do well, and “it’s wonderful that they’re trying to do something” for those homeowners. However, he added, “it’s a tough market near the water.”
Pawtucket does, in fact, have “a wonderful partnership” with industry giant General Reinsurance Corp. (GenRe), Steffey said, and the company will be selective in whom it covers, picking only “homeowners who maintain their homes well.”
The investors’ vision is to make Pawtucket Insurance “a small, local company with local employees serving local customers,” Steffey said, “sort of like Amica 50 years ago, when they were in downtown Providence.”
The company’s agent network – all independents, including Messier – is still in place. The staff had shrunk to 19, but five new people have been hired, Steffey said, and more will be added soon, especially to do home inspections and underwriting. Being in Pawtucket will be an asset, he added, because of the low cost of real estate and skilled staff.
“We’re pretty encouraged,” Steffey said. “We think the [DBR] did a terrific job.” Pawtucket Mutual “is an important part of northern Rhode Island,” he added, “and we’re going to bring it back and make it stronger than ever.”
