PHENIX MUTUAL FIRE INSURANCE COMPANY
42 PLEASANT STREET
CONCORD, NH 03301
Notice of Special Meeting of Policyholders
August 26, 2009 at 10:00 a.m. at 42 Pleasant Street, Concord NH
Re: Affiliation with Motorists Mutual Insurance Company
Dear Policyholder,
This letter is to advise you of a proposed affiliation between Phenix Mutual Fire Insurance Company (“Phenix”) and Motorists Mutual Insurance Company (“Motorists”). It is also to notify you that a Special Meeting of Phenix policyholders is hereby called to take place at the location and time noted above. At the special meeting the Phenix policyholders will be asked to approve the affiliation of Phenix and Motorists and elect a new slate of directors for Phenix.
I. Background
Phenix was formed in 1886 as a New Hampshire based insurance company and has been providing high quality property and casualty insurance services to its policyholders and agents for over a century.
However, in recent years events beyond the control of Phenix have had an adverse impact on the company. Because of its size it has become increasingly difficult for Phenix to operate cost effectively and maintain its expense exposure at reasonable levels. The ability to operate cost effectively has been further hampered by the economy and the competitive environment.
Phenix has taken steps to meet these challenges, however, management has concluded that Phenix’s ability to continue to provide quality services to its policyholders and agents is dependent upon obtaining access to enhanced resources.
As a result, management determined the best alternative was to seek a relationship with a larger, stronger mutual insurer to ensure the future viability of Phenix.
After carefully considering several proposals, management concluded that an affiliation (as described in more detail below) with Motorists Mutual Insurance Company, based in Columbus, Ohio is the best alternative (the "Affiliation"). Motorists is a regional property and casualty insurance company that is licensed in its surrounding states. Motorists has a successful history of affiliations with companies like Phenix, and the Phenix Board of Directors (“Board”) firmly believes the Affiliation will provide an excellent opportunity for Phenix to continue to deliver the highest level professional services to its policyholders and agents.
The Board and the Motorists Board of Directors have voted to approve the terms of the Affiliation. A summary of the terms of the Affiliation and the documents associated with the transaction is provided herein. Policyholder approval and the New Hampshire Department of Insurance approval are required for this transaction to be completed. Accordingly, a Special Meeting of Phenix Policyholders will be held on August 26, 2009 to approve the Affiliation. The Board believes this transaction is in the best interests of its policyholders and unanimously recommends the policyholders approve the proposed transaction by voting in favor of it. If the policyholders approve, New Hampshire law provides that a public hearing be held at the New Hampshire Department of Insurance to obtain final approval of this transaction.
II. Summary of Transaction
The terms of the Affiliation are set forth in three main documents: (1) the Affiliation Agreement (the "Affiliation Agreement"); (2) the Amended and Restated Reinsurance Pooling Agreement (the "Pooling Agreement"); and (3) the Cost Sharing and Management Agreement (the "Management Agreement"). If you desire to review the documents they can be found on the websites of both companies. Those links are www.motoristsgroup.com and www.phenixmutual.com. If you prefer to receive printed copies of the documents, please contact: Charles R. Gaskill, Vice President, Corporate Counsel, Motorists Mutual Insurance Company, 471 East Broad Street, Columbus, OH 43215, phone 614-225-8593 or via email at chuck.gaskill@motoristsgroup.com. Each of the agreements is briefly described below.
Affiliation Agreement
The Affiliation Agreement is the governing document of the Affiliation and sets forth the basic terms and conditions of the transaction. This agreement cannot be terminated without the consent of both the Motorists Board of Directors and the reconstituted Board of Phenix as described below (the “New Board”), both of which will be controlled by Motorists.
Amended and Restated Reinsurance Pooling Agreement
Motorists participates in a reinsurance pool that was established in 1993. Other members of the pool are Wilson Mutual Insurance Company ("Wilson"), Iowa Mutual Insurance Company and its wholly owned subsidiary Iowa American Insurance Company (collectively, "Iowa"), and American Hardware Mutual Insurance Company ("Hardware"). MICO Insurance Company ("MICO"), a wholly owned subsidiary of Motorists, is joining the pool this year as well.
Under the terms of the Pooling Agreement each member transfers to Motorists all of its premiums, losses and expenses in exchange for a stated percentage of the entire pool. As a result the risk of an exposure is spread among all pool members. Pursuant to this proposed Pooling Agreement, Phenix will transfer all its premiums, losses and expenses to the pool. It then will accept back 3.5% of the combined risk transferred to the pool by all members.
Cost Sharing and Management Agreement
Motorists presently has a Cost Sharing and Management Agreement with each of the companies that are members of Pooling Agreement. If the Affiliation is approved, Phenix will enter into a similar agreement with Motorists.
Under the Management Agreement, Motorists will agree to provide managerial and supervisory services to Phenix. Included will be services related to reinsurance, actuarial analysis, employee benefits, corporate and tax accounting, executive management, investment services, information technology services, corporate and strategic planning and claims management. These services will enhance Phenix’s ability to compete in the insurance business and reduce its operating costs.
The services provided by Motorists will be subject to the New Board’s oversight, and the Motorists employees performing the services will be subject to the direction and control of the New Board.
Phenix will agree to pay or reimburse Motorists for its costs and expenses in furnishing the services on a basis that approximates Motorists’ actual costs and expenses. The dollar amount of this cost cannot be precisely determined at this time, as it will depend on the degree to which the services are utilized and other factors.
Key Terms
Below are some of the key terms of the Affiliation of which you should be aware and consider:
Board of Directors – The Phenix policyholders will elect the members of the New Board. Motorists will have the right to nominate up to seven (7) members to the New Board and Phenix will have the right to nominate up to five (5) members to the New Board. Motorists will control the New Board and Phenix's future business affairs. Phenix will continue to exist as a separate insurance company but will be controlled by the New Board, and ultimately by Motorists. The names of the candidates are provided below.
Management – Motorists will relocate a Motorists executive to Concord, New Hampshire to head up a commercial lines division at Phenix. This executive will report to the President of Phenix who will, in turn, report to a Group Senior Officer of Motorists in Columbus, Ohio for purposes of implementing and effectuating the transaction documents as well as Phenix's day-to-day ongoing business operations. No other material changes in the management or operations of Phenix are planned as part of the Affiliation.
Bylaws – The Phenix bylaws will be amended so as to make them consistent with Motorists' bylaws.
Principal Office and Continued Existence. Phenix will continue to exist as a New Hampshire mutual insurance company and be located at its present office in Concord, NH. There are no plans to move Phenix or to re-domesticate it. Pursuant to the Affiliation Agreement, Phenix may not be re-domesticated or relocated for at least ten years unless the New Board unanimously agrees otherwise.
Premiums. There will be no change in premiums of your policy due to the Affiliation. There are no plans to change Phenix’s underwriting policies or rates.
Policyholder Rights. There will be no change in your rights as a policyholder.
No Consideration. There will be no cash or other compensation distributed to policyholders and the officers and directors of Phenix will not receive any additional compensation or employment/consulting contracts because of the Affiliation, except directors not nominated for reelection to the New Board will receive $2,200 annually for two (2) years in connection with their service on an Advisory Council.
A.M. Best. It is anticipated that Phenix will see an increase in its A.M. Best rating as a result of the Affiliation.
If the proposed Affiliation fails to gain the necessary approvals, Phenix will continue to exist as a New Hampshire mutual insurance company. However, if Phenix remained independent, it would continue to face the difficulties that it does currently, which could threaten its long-term viability as described below.
III. Management’s Reasons for the Affiliation
Phenix faces several challenges if it is to continue to operate independently in this competitive marketplace without entering into the Affiliation.
The company’s principal line of business is personal property insurance. The geographical area in which Phenix writes is competitive and heavily influenced by larger insurers offering more products. Because of its relatively small size, Phenix has not been able to take advantage of the economies of scale enjoyed by its larger competitors. Affiliating with Motorists will allow Phenix to do so and to expand its offerings and become more competitive in these areas.
Because Phenix writes insurance in a limited geographical area, it is also vulnerable to storms and weather related losses, which can negatively affect surplus. Affiliating with Motorists will allow Phenix to diversify its risk to the states in the Midwest in which Motorists operates.
In addition, due to the events of September 11, 2001, and other events beyond the control of Phenix, the cost of reinsurance has significantly increased. Affiliation with Motorists should permit Phenix to reduce its costs of external reinsurance.
Because Phenix is a mutual company, it does not have the ability to sell stock to increase its capital and surplus and strengthen its financial position and associated rating from A.M. Best. Affiliation with Motorists permits Phenix access to the much larger capital pool of Motorists and its affiliates by way of Phenix participation in the reinsurance pool.
As a result of the Affiliation, Phenix will add its $23,000,000 in written premium to the Motorists Insurance Group (the “Group”), which will result in a better spread of risk geographically. This provides Phenix the chance to use the Group's combined financial strength and expand Phenix's property and casualty operations through independent agencies in New Hampshire, Vermont, Maine, Massachusetts, Rhode Island and South Carolina. With the Affiliation, Phenix gains immediate access to financial resources, reinsurance markets and operational support. The affiliated operation will provide the company the stability and insurance organization ratings necessary to compete for business in the competitive insurance market. The strategic plan will capitalize on the name and good will generated by Phenix over the years and will provide the necessary resources to grow the company in its traditional markets. This same strategy has been employed successfully with all prior Motorists' affiliations.
For the foregoing reasons, the Board recommends below that you vote to approve this proposed Affiliation.
IV. Motorists Mutual Insurance Company
Motorists was founded in 1928 in Columbus, Ohio. It is a multi-line insurance company that has provided coverages for policyholders that have become industry standards, developed a strong working relationship with independent agents and created an environment for employees that rewards performance and innovation.
Motorists is the lead company in the Group, which is comprised of six property and casualty companies, one life insurance company and an insurance brokerage firm. Last year, Motorists was awarded, for the second time, the national Professional Insurance Agents Association’s Company Award of Excellence. Motorists is the only company to receive this award twice. The Group has $1.5 billion in assets and $541.3 million in policyholder security.
The most recent addition to the Group through an affiliation was Iowa. Iowa markets its products through independent agents in Nebraska, Iowa and Illinois. Other property and casualty members of the Group are Wilson, which uses independent agents to market its products in Wisconsin and Minnesota, Hardware, which writes primarily commercial insurance in 35 states, and MICO, Motorists' wholly owned subsidiary.
V. The Process
The proposed Affiliation Agreement, the Amended and Restated Reinsurance Pooling Agreement and the Cost Sharing and Management Agreement, known as the “Transaction Documents”, have all been approved by the respective Boards of Directors of Phenix and Motorists.
The Board has called a Special Meeting of its policyholders to approve the Transaction Documents and vote on a slate of candidates for the New Board. This Special Meeting will be held at the time and place noted above.
Qualified voters will be asked to vote on the following proposals related to the proposed Affiliation: (i) approve the Transaction Documents as have been described herein; and (ii) elect the members of the New Board.
Each person who is, on the record date, the owner of a valid, in force policy of insurance issued by Phenix is entitled to vote in person or by proxy, using the enclosed proxy. The Board of Directors has established the record date to be August 5, 2009. Each qualified voter will only be entitled to one vote, regardless of the number of policies held by the voter.
The proposals are interdependent and must be passed as a unit in order for the proposal to pass. Accordingly, there is just one vote – either in favor of (yes) or not in favor of (no) the proposals.
A majority of the policyholders entitled to vote and present or voting by proxy must vote in favor of the proposals for the Affiliation to be approved.
To ensure your representation at the Special Meeting you must either attend the meeting or complete, sign and date the enclosed proxy and return it to Secretary of Phenix before August 25, 2009. If you return a proxy you can still attend the Special Meeting and, if you desire, withdraw your proxy and vote in person.
New Hampshire law requires that the New Hampshire Department of Insurance approve this transaction. As previously explained, if the policyholders do not approve this transaction, the matter goes no further than the Special Meeting. If the policyholders do approve this transaction, there will be a public hearing held at the New Hampshire Department of Insurance located at 21 South Fruit Street, Suite 145, Concord, NH 03301 at 2:00 p. m. on August 26, 2009.
It is also necessary to obtain approval of the transaction or an exemption from approval from the state departments of insurance in Iowa, Maine, Ohio and Wisconsin.
VI. Candidates for Election to the Board of Directors
The candidates for election to the New Board are as follows below. Biographical information is available on the respective company websites and is available by mail by contacting Sally N. Kallgren, Secretary, Phenix Mutual Fire Insurance Company, 42 Pleasant Street, Concord, NH 03301. Whether the candidate is a Phenix designee or Motorists designee is indicated by the initial after his or her name.
Name:
John J. Bishop (M)
Edward F. Caron (P)
Larry L. Forrester (M)
Rolf H. Gesen (P)
Susan E. Haack (M)
Henry L. Huntington (P)
Robert L. McCracken (M)
Thomas C. Ogg (M)
Linda M. Proulx (P)
Bradley P. Smith (P)
Michael L. Wiseman (M)Term:
2012
2012
2012
2012
2011
2011
2011
2010
2011
2010
2010
VII. Board Recommendation
Finally, the Board unanimously recommends that you vote in favor of (yes) this transaction.
Thank you for your consideration of this matter.
Rolf H. Gesen
On Behalf of the Board of Directors of Phenix Mutual Fire Insurance Company
Proxy (pdf)
Final Affiliation Agreement (pdf)
Amended & Restated Reins Pool Agreement 073009 (pdf)
Phenix & Motorists Mutual Insurance Company Cost Sharing (pdf)
Phenix Bylaws Post Closing (pdf)
Phenix Charter (pdf)
Inter Company Cost Sharing (pdf)
Motorists Mutual Board Designees (pdf)
Phenix Board Designees (pdf)