Thursday, November 8, 2007
Homeowners’ Defense Act will help spur debate on growing issue
WASHINGTON, D.C., Nov. 6, 2007—The Independent Insurance Agents & Brokers of America (the Big “I”) applauds Senators Hillary Clinton (D-N.Y.) and Bill Nelson (D-Fla.) for introducing the Homeowners' Defense Act of 2007, intended to address the growing problem of the availability and affordability of natural disaster insurance.
The legislation introduced by Sens. Clinton and Nelson is companion legislation to H.R. 3355, introduced earlier this year by Reps. Ron Klein (D-Fla.) and Tim Mahoney (D-Fla.). The proposal contains two titles, one to create a National Catastrophe Risk Consortium and one to create a National Homeowners Insurance Stabilization Program. Both programs are intended to help prevent potential insolvencies and make the private insurance market more stable, ultimately making catastrophe insurance more available before and after a major disaster. The Consortium program would allow multiple states to pool their catastrophic risk, thereby hopefully achieving an economy of scale and risk diversity that will lead to a lower cost of reinsurance than states could achieve independently. The Stabilization program would allow the Treasury Department to make loans to states and their reinsurance plans to ensure their continued liquidity in the aftermath of a natural catastrophe.
“The Big ‘I’ is pleased that Senators Clinton and Nelson have introduced this legislation aimed at easing the natural disaster insurance crisis facing many communities,” says Charles E. Symington, Jr., Big “I” senior vice president of government affairs and federal relations. “Natural disaster risk requires a national solution, and we applaud the Senators for advancing a proposal to attempt to solve this problem. Introduction of this legislation in the Senate, coupled with expected House action on the issue this week, is focusing attention on the severity of the problem. The Big ‘I’ thanks Senators Clinton and Nelson for proposing a concrete solution.”
The Big “I” has been a leader in advocating for natural disaster solutions, testifying on several occasions before the House Financial Services Committee and the Senate Banking Committee on the need for Congress to consider legislation to stabilize the insurance market for natural disaster risk.
“As the representatives of the independent insurance agents who sell homeowners’ insurance, we are grateful to Senators Clinton and Nelson for their leadership in advancing an idea that could encourage both a healthy and vibrant private market as well as secure state and regional reinsurance programs,” says John Prible, Big “I” assistant vice president for federal government affairs. “Specifically, the creation of a National Catastrophe Risk Consortium could offer both states and private market participants an opportunity to benefit from a pooling of catastrophic risk diversified by type of peril and geographic region. The creation of a National Homeowners’ Insurance Stabilization Program, meanwhile, could provide for a level of stability for state and regional reinsurance programs that is currently absent.“
Founded in 1896, IIABA (the Big “I”) is the nation’s oldest and largest national association of independent insurance agents and brokers, representing a network of more than 300,000 agents, brokers and their employees nationally. Its members are businesses that offer customers a choice of policies from a variety of insurance companies. Independent agents and brokers offer all lines of insurance—property, casualty, life, and health—as well as employee benefit plans and retirement products. Web address: www.independentagent.com.
The legislation introduced by Sens. Clinton and Nelson is companion legislation to H.R. 3355, introduced earlier this year by Reps. Ron Klein (D-Fla.) and Tim Mahoney (D-Fla.). The proposal contains two titles, one to create a National Catastrophe Risk Consortium and one to create a National Homeowners Insurance Stabilization Program. Both programs are intended to help prevent potential insolvencies and make the private insurance market more stable, ultimately making catastrophe insurance more available before and after a major disaster. The Consortium program would allow multiple states to pool their catastrophic risk, thereby hopefully achieving an economy of scale and risk diversity that will lead to a lower cost of reinsurance than states could achieve independently. The Stabilization program would allow the Treasury Department to make loans to states and their reinsurance plans to ensure their continued liquidity in the aftermath of a natural catastrophe.
“The Big ‘I’ is pleased that Senators Clinton and Nelson have introduced this legislation aimed at easing the natural disaster insurance crisis facing many communities,” says Charles E. Symington, Jr., Big “I” senior vice president of government affairs and federal relations. “Natural disaster risk requires a national solution, and we applaud the Senators for advancing a proposal to attempt to solve this problem. Introduction of this legislation in the Senate, coupled with expected House action on the issue this week, is focusing attention on the severity of the problem. The Big ‘I’ thanks Senators Clinton and Nelson for proposing a concrete solution.”
The Big “I” has been a leader in advocating for natural disaster solutions, testifying on several occasions before the House Financial Services Committee and the Senate Banking Committee on the need for Congress to consider legislation to stabilize the insurance market for natural disaster risk.
“As the representatives of the independent insurance agents who sell homeowners’ insurance, we are grateful to Senators Clinton and Nelson for their leadership in advancing an idea that could encourage both a healthy and vibrant private market as well as secure state and regional reinsurance programs,” says John Prible, Big “I” assistant vice president for federal government affairs. “Specifically, the creation of a National Catastrophe Risk Consortium could offer both states and private market participants an opportunity to benefit from a pooling of catastrophic risk diversified by type of peril and geographic region. The creation of a National Homeowners’ Insurance Stabilization Program, meanwhile, could provide for a level of stability for state and regional reinsurance programs that is currently absent.“
Founded in 1896, IIABA (the Big “I”) is the nation’s oldest and largest national association of independent insurance agents and brokers, representing a network of more than 300,000 agents, brokers and their employees nationally. Its members are businesses that offer customers a choice of policies from a variety of insurance companies. Independent agents and brokers offer all lines of insurance—property, casualty, life, and health—as well as employee benefit plans and retirement products. Web address: www.independentagent.com.
Wednesday, November 7, 2007
If a storm hits, are you covered?
There are a lot of events that a typical home insurance policy don't cover
By Gerri Willis, CNN
August 24 2007: 3:57 PM EDT
NEW YORK (CNNMoney.com) -- The floods and rain in the Midwest continue to cause severe problems there. We spoke with one family whose home was destroyed by a mudslide.
The Partingtons' have had State Farm Insurance for about 35 years. They pay $1,300 a year in premiums. They even had an earthquake rider on their policy. What the Partingtons' didn't have was any mudslide coverage - something no basic homeowners insurance has. Now, with their home wiped out, they probably won't be covered for any of the damage.
Just because you have homeowner's insurance doesn't mean you are fully covered during a storm.
You may wonder why something like this isn't covered by insurance. But in fact, there are a lot of events that insurance doesn't cover. Typical homeowner policies do not cover floods, earthquakes, mudslides, sinkholes, war or nuclear accidents.
In the case of mudslides, you may be covered if you have flood insurance. A policy may cover mudslide damages as long as the mud is carried by a river or stream of water. So if a dam breaks and picks up a hillside and carries it into your home, you may be covered.
But a flood policy will not cover damage if a hillside becomes saturated as a result of rainfall and slowly begins to move. That's considered earth movement.
Like earthquake insurance, the only people who buy this kind of insurance are those who are at a high risk of it happening. Unless the risk is spread out, insurance companies don't want to touch this.
There are some products that cover landslides. But they are very expensive. On a $500,000 house, the deductible for a landslide is $1,000. The premium is $2,500 a year, according to Independent Insurance Agent Jerry Miller.
You might also be able to get mudslide insurance from a higher-end company, but again it will be very pricey.
If you live near (or on) a severe hillside, or if you live in a hilly area that has heavy rainfall or an area that has experienced a mudslide in the past, you might consider these expensive options.
Get flood insurance if you're worried about flood risk. The National Flood insurance program has preferred pricing for people who don't fall within a flood zone. It may only be a couple hundred bucks a year.
You may also want to talk to a soil engineer. They would be able to examine the ground and determine how stable it is. If you're really worried about a mudslide, it might be time to move.
There are a lot of events that a typical home insurance policy don't cover
By Gerri Willis, CNN
August 24 2007: 3:57 PM EDT
NEW YORK (CNNMoney.com) -- The floods and rain in the Midwest continue to cause severe problems there. We spoke with one family whose home was destroyed by a mudslide.
The Partingtons' have had State Farm Insurance for about 35 years. They pay $1,300 a year in premiums. They even had an earthquake rider on their policy. What the Partingtons' didn't have was any mudslide coverage - something no basic homeowners insurance has. Now, with their home wiped out, they probably won't be covered for any of the damage.
Just because you have homeowner's insurance doesn't mean you are fully covered during a storm.
You may wonder why something like this isn't covered by insurance. But in fact, there are a lot of events that insurance doesn't cover. Typical homeowner policies do not cover floods, earthquakes, mudslides, sinkholes, war or nuclear accidents.
In the case of mudslides, you may be covered if you have flood insurance. A policy may cover mudslide damages as long as the mud is carried by a river or stream of water. So if a dam breaks and picks up a hillside and carries it into your home, you may be covered.
But a flood policy will not cover damage if a hillside becomes saturated as a result of rainfall and slowly begins to move. That's considered earth movement.
Like earthquake insurance, the only people who buy this kind of insurance are those who are at a high risk of it happening. Unless the risk is spread out, insurance companies don't want to touch this.
There are some products that cover landslides. But they are very expensive. On a $500,000 house, the deductible for a landslide is $1,000. The premium is $2,500 a year, according to Independent Insurance Agent Jerry Miller.
You might also be able to get mudslide insurance from a higher-end company, but again it will be very pricey.
If you live near (or on) a severe hillside, or if you live in a hilly area that has heavy rainfall or an area that has experienced a mudslide in the past, you might consider these expensive options.
Get flood insurance if you're worried about flood risk. The National Flood insurance program has preferred pricing for people who don't fall within a flood zone. It may only be a couple hundred bucks a year.
You may also want to talk to a soil engineer. They would be able to examine the ground and determine how stable it is. If you're really worried about a mudslide, it might be time to move.
Tuesday, November 6, 2007
As Auto Insurance Changes Approach, Massachusetts Insurers Add Perks
By Sarah Shemkus, Cape Cod Times, Hyannis, Mass.
(Note: All MA Auto insurers will begin to announce their new "perk" offerings in the coming weeks/months. This is only the beginning! - The Howes Insurance Agency)
Nov. 2--With managed competition in auto insurance just weeks away from becoming a reality in Massachusetts, some companies have already started adding new services to their policies to help attract and retain customers.
"We are already seeing competition; we are already seeing new products," state insurance Commissioner Nonnie Burnes said this week at a meeting of the Property Casualty Insurers Association of America in Boston.
"It's a way of binding their customers to them."
Traditionally, Massachusetts' auto insurance system has limited what products insurance companies could offer and how much they could charge.
These restrictions have been blamed for the fact that only 19 companies now offer auto insurance in the state.
This year, however, Burnes introduced regulations that will open up the market to competitive rates and products. It is hoped this will attract new insurers to the state.
Though consumer advocates have been skeptical about the benefits of competition, state officials are optimistic.
"We're confident that good drivers everywhere will benefit from lower rates, better services, and more choice under managed competition," said Division of Insurance spokeswoman Kim Haberlin.
Insurance companies that already write auto policies in the state are beginning to take advantage of the pending changes.
Liberty Mutual announced yesterday that, as of Jan. 1, 2008, all new and renewed auto policies in Massachusetts will include, at no added cost, four benefits previously unavailable in the state.
Insurance policies offered under the managed competition system are scheduled to become available April 1, 2008. Companies intending to offer competitive products on that date must file their rates with the state Division of Insurance by Nov. 19.
"We're giving our existing customers and customers that come on before April 1 a head start on receiving some of those benefits," said Liberty Mutual spokesman Glenn Greenberg.
With these additional features, policyholders will be able to receive the full replacement cost of a new car that is totaled in an accident or stolen within a year or 15,000 miles after purchase. Currently, the car's value would quickly depreciate and a policyholder could end up receiving less than it would cost to replace the vehicle.
The new package will also enhance rental car insurance, expand towing coverage and offer full replacement cost for certain mechanical parts damaged in an accident.
"This is what competition is all about," said Greenberg, calling the new benefit package one of the first innovations in Massachusetts auto insurance policies in decades.
MetLife Auto & Home last week announced that it has added complimentary identity theft resolution services to the auto policies of 200,000 Massachusetts customers.
The company already offered this protection in 48 states, said director of product management Matt Cullina.
The added service has received "overwhelmingly positive response" from customers, he said.
MetLife is also hoping to file additional enhancements with the state over the next month, which could add features similar to the ones that Liberty Mutual just introduced, Cullina said.
These benefits would be offered at no additional cost as a way to distinguish MetLife auto insurance as the Massachusetts market becomes more competitive.
"We really strive to be different in the marketplace, and we do it with product differentiation," Cullina said.
Though he could not guarantee that these new features would be approved, he said that the company has "gotten some indications that there's promise."
Another company positioning itself for success in the state's impending competitive market is Travelers, whose subsidiary Premier Insurance currently offers auto coverage here.
Earlier this month, Travelers announced that Premier would be renamed Travelers of Massachusetts in order to take advantage of the parent company's positive brand image and high level of name recognition.
The move to managed competition was the catalyst for the change, said Susan Scott, senior vice president and general counsel with Travelers.
"I believe that with the more generally recognized name it will help us compete in the more aggressively competitive market," Scott said.
By Sarah Shemkus, Cape Cod Times, Hyannis, Mass.
(Note: All MA Auto insurers will begin to announce their new "perk" offerings in the coming weeks/months. This is only the beginning! - The Howes Insurance Agency)
Nov. 2--With managed competition in auto insurance just weeks away from becoming a reality in Massachusetts, some companies have already started adding new services to their policies to help attract and retain customers.
"We are already seeing competition; we are already seeing new products," state insurance Commissioner Nonnie Burnes said this week at a meeting of the Property Casualty Insurers Association of America in Boston.
"It's a way of binding their customers to them."
Traditionally, Massachusetts' auto insurance system has limited what products insurance companies could offer and how much they could charge.
These restrictions have been blamed for the fact that only 19 companies now offer auto insurance in the state.
This year, however, Burnes introduced regulations that will open up the market to competitive rates and products. It is hoped this will attract new insurers to the state.
Though consumer advocates have been skeptical about the benefits of competition, state officials are optimistic.
"We're confident that good drivers everywhere will benefit from lower rates, better services, and more choice under managed competition," said Division of Insurance spokeswoman Kim Haberlin.
Insurance companies that already write auto policies in the state are beginning to take advantage of the pending changes.
Liberty Mutual announced yesterday that, as of Jan. 1, 2008, all new and renewed auto policies in Massachusetts will include, at no added cost, four benefits previously unavailable in the state.
Insurance policies offered under the managed competition system are scheduled to become available April 1, 2008. Companies intending to offer competitive products on that date must file their rates with the state Division of Insurance by Nov. 19.
"We're giving our existing customers and customers that come on before April 1 a head start on receiving some of those benefits," said Liberty Mutual spokesman Glenn Greenberg.
With these additional features, policyholders will be able to receive the full replacement cost of a new car that is totaled in an accident or stolen within a year or 15,000 miles after purchase. Currently, the car's value would quickly depreciate and a policyholder could end up receiving less than it would cost to replace the vehicle.
The new package will also enhance rental car insurance, expand towing coverage and offer full replacement cost for certain mechanical parts damaged in an accident.
"This is what competition is all about," said Greenberg, calling the new benefit package one of the first innovations in Massachusetts auto insurance policies in decades.
MetLife Auto & Home last week announced that it has added complimentary identity theft resolution services to the auto policies of 200,000 Massachusetts customers.
The company already offered this protection in 48 states, said director of product management Matt Cullina.
The added service has received "overwhelmingly positive response" from customers, he said.
MetLife is also hoping to file additional enhancements with the state over the next month, which could add features similar to the ones that Liberty Mutual just introduced, Cullina said.
These benefits would be offered at no additional cost as a way to distinguish MetLife auto insurance as the Massachusetts market becomes more competitive.
"We really strive to be different in the marketplace, and we do it with product differentiation," Cullina said.
Though he could not guarantee that these new features would be approved, he said that the company has "gotten some indications that there's promise."
Another company positioning itself for success in the state's impending competitive market is Travelers, whose subsidiary Premier Insurance currently offers auto coverage here.
Earlier this month, Travelers announced that Premier would be renamed Travelers of Massachusetts in order to take advantage of the parent company's positive brand image and high level of name recognition.
The move to managed competition was the catalyst for the change, said Susan Scott, senior vice president and general counsel with Travelers.
"I believe that with the more generally recognized name it will help us compete in the more aggressively competitive market," Scott said.
Monday, November 5, 2007
Thursday, November 1, 2007
Commerce sale the end of an era
By Bob Kievra TELEGRAM & GAZETTE STAFF rkievra@telegram.com
WEBSTER— The Spanish insurer seeking to buy Commerce Group Inc. sketched out an ambitious road map for the property and casualty insurer yesterday as local investors tallied their profits from a business founded 36 years ago behind a Main Street restaurant.
Shares of Commerce jumped 17 percent yesterday, closing at $36.49 a share, slightly below the $36.70 a share Mapfre SA of Madrid said Tuesday night it would pay for Commerce Group, the largest automobile insurer in Massachusetts.
In a conference call with analysts yesterday, officials with Mapfre, Spain’s largest insurer, said the $2.2 billion deal, which represented an 18 percent premium over Commerce’s closing price Tuesday, was fairly priced and came at a time when the exchange rate is highly favorable compared to the U.S. dollar.
Commerce directors will recommend approval of the transaction and Mapfre executives hope to close the deal in the second quarter of 2008 following a positive vote by Commerce shareholders at a meeting tentatively scheduled for January.
Mapfre Vice Chairman Domingo Sugranyes said Commerce was a perfect fit for his company, the 10th largest nonlife insurer in Europe. Mapfre had been seeking an entry point in the United States and found one in Commerce, a company with strong brand recognition, excellent agency relationships and a market leader in Massachusetts.
Officials at Commerce did not return calls seeking comment yesterday. The deal includes a provision that would require Commerce to pay Mapfre $68 million if the merger is terminated under certain circumstances, according to documents filed with the Securities and Exchange Commission.
In a presentation, Mapfre officials said it intends to retain Commerce’s management team while designing a growth strategy in a number of new states, including providing dedicated services to the Hispanic community.
Commerce, with annual premiums of $1.9 billion, has been trying to grow its market outside of Massachusetts but the company, founded by Arthur J. Remillard Jr. behind a Friendly’s, still generates 88 percent of its premiums from Massachusetts.
Mr. Sugranyes said Commerce had many of the attributes his company was seeking. “What we’ve found with this proposed transaction with Commerce is an excellent platform to do precisely that much better than we could do on our own,” he said. “This will be a very good and profitable investment immediately.”
Mapfre said yesterday its profit for the first nine months rose 11 percent to $730 million, or 505.2 million euros, compared with a pro-forma profit of 456.6 million euros a year ago.
Commerce posted net earnings for the first nine months of $171.4 million, down from $182.1 million for the same period a year earlier.
Mapfre, which does some business in Florida and New Jersey, has skills and products useful to Commerce, Mr. Sugranyes said.
Mapfre has diverse product lines, an integrated information technology platform, and a small bilingual operation in Florida that can be used in other states. The company may also aid Commerce in purchasing reinsurance products.
Commerce, which once produced a company brochure describing itself as “The Opportunity Maker” was not thought to be up for sale, but the deal makes sense for several reasons, some analysts said. Commerce, which controls 31.5 percent of the Massachusetts automobile market, prospered under a 30-year-old system in which state regulators established annually a rate that all automobile insurers had to charge the state’s 4 million drivers.
But Gov. Deval L. Patrick has led an effort to scrap that system and his administration has authored a so-called managed competition plan that will enable insurers to establish their own rates beginning April 1, 2008.
Keefe, Bruyette & Woods analyst Dean Evans yesterday raised his rating on Commerce from “underperform” to “market perform” and said in an interview Commerce was facing significant headwinds because of declining rates and deteriorating loss trends.
“I tend to think the switch to managed competition was a negative for them,” he said. “I view this deal as richly priced, and for Commerce shareholders, they should jump at the offer.”
Mapfre executives said they would retain Commerce’s existing management but did not specify, what, if anything, would happen to the company’s 2,200 employees, including 1,800 in Webster. Commerce officials said Tuesday night Mapfre has indicated it would maintain Commerce’s employees in Central Massachusetts.
That scenario makes sense as there is no labor consolidation savings, as Mapfre does not have any U.S. operations, said FTN MidWest analyst Charles D. Hamilton. Employees are likely surprised by the deal but they won’t see any impact, he said.
Mr. Hamilton said he expects Commerce will alter its premium base both demographically and geographically. Mapfre wants to add revenues from the Hispanic community which likely means Commerce will enter markets in Florida, Puerto Rico, and elsewhere, he said. “I expect this will push the accelerator down a lot harder,” he said.
Webster Selectmen Chairman Mark G. Dowgiewicz said company officials called him and Town Administrator Raymond W. Houle Jr. Tuesday to alert them to the sale. “That was real nice of them. When it comes to jobs in Webster, Commerce is it,” Mr. Dowgiewicz said. “To lose them would have been a catastrophe, but they assured me nothing was going to change in town. The employees are staying. The upper management are staying.”
Commerce is the town of Webster’s biggest taxpayer, with taxes of $455,117 in fiscal 2007, according to Tax Collector Maryann C. McGeary. That tax bill accounts for about 3 percent of the total $14.8 million that Webster raised in taxes for fiscal 2007.
The all-cash deal prompted a flurry of phone calls yesterday from local investors, said Gary H. Sherr, vice president of Carl P. Sherr & Co., a Worcester investment advisory and brokerage service company. Before Commerce was listed on the Nasdaq Stock Market and the New York Stock Exchange, Mr. Sherr’s company was the sole market maker for Commerce, Mr. Sherr said. “Investors should like this deal but it creates some uncertainty because they’ll have to pay taxes,” said Mr. Sherr. “But it’s a good problem to have.”
Mr. Sherr echoed Mr. Hamilton’s comments, suggesting the sale, while unexpected, is a positive outcome for a company whose founder had retired and was facing a change in how it needed to do business.
Mr. Remillard’s earliest investors included white-collar professionals from Worcester and blue-collar laborers from Webster, everyone from lawyers to janitors, Mr. Sherr said. “Like Microsoft has been to Seattle, Commerce has been to Webster,” he said. “They all put their own money up. It really is an American success story right here in Central Massachusetts.”
Telegram & Gazette reporter John Dignam contributed to this story.
By Bob Kievra TELEGRAM & GAZETTE STAFF rkievra@telegram.com
WEBSTER— The Spanish insurer seeking to buy Commerce Group Inc. sketched out an ambitious road map for the property and casualty insurer yesterday as local investors tallied their profits from a business founded 36 years ago behind a Main Street restaurant.
Shares of Commerce jumped 17 percent yesterday, closing at $36.49 a share, slightly below the $36.70 a share Mapfre SA of Madrid said Tuesday night it would pay for Commerce Group, the largest automobile insurer in Massachusetts.
In a conference call with analysts yesterday, officials with Mapfre, Spain’s largest insurer, said the $2.2 billion deal, which represented an 18 percent premium over Commerce’s closing price Tuesday, was fairly priced and came at a time when the exchange rate is highly favorable compared to the U.S. dollar.
Commerce directors will recommend approval of the transaction and Mapfre executives hope to close the deal in the second quarter of 2008 following a positive vote by Commerce shareholders at a meeting tentatively scheduled for January.
Mapfre Vice Chairman Domingo Sugranyes said Commerce was a perfect fit for his company, the 10th largest nonlife insurer in Europe. Mapfre had been seeking an entry point in the United States and found one in Commerce, a company with strong brand recognition, excellent agency relationships and a market leader in Massachusetts.
Officials at Commerce did not return calls seeking comment yesterday. The deal includes a provision that would require Commerce to pay Mapfre $68 million if the merger is terminated under certain circumstances, according to documents filed with the Securities and Exchange Commission.
In a presentation, Mapfre officials said it intends to retain Commerce’s management team while designing a growth strategy in a number of new states, including providing dedicated services to the Hispanic community.
Commerce, with annual premiums of $1.9 billion, has been trying to grow its market outside of Massachusetts but the company, founded by Arthur J. Remillard Jr. behind a Friendly’s, still generates 88 percent of its premiums from Massachusetts.
Mr. Sugranyes said Commerce had many of the attributes his company was seeking. “What we’ve found with this proposed transaction with Commerce is an excellent platform to do precisely that much better than we could do on our own,” he said. “This will be a very good and profitable investment immediately.”
Mapfre said yesterday its profit for the first nine months rose 11 percent to $730 million, or 505.2 million euros, compared with a pro-forma profit of 456.6 million euros a year ago.
Commerce posted net earnings for the first nine months of $171.4 million, down from $182.1 million for the same period a year earlier.
Mapfre, which does some business in Florida and New Jersey, has skills and products useful to Commerce, Mr. Sugranyes said.
Mapfre has diverse product lines, an integrated information technology platform, and a small bilingual operation in Florida that can be used in other states. The company may also aid Commerce in purchasing reinsurance products.
Commerce, which once produced a company brochure describing itself as “The Opportunity Maker” was not thought to be up for sale, but the deal makes sense for several reasons, some analysts said. Commerce, which controls 31.5 percent of the Massachusetts automobile market, prospered under a 30-year-old system in which state regulators established annually a rate that all automobile insurers had to charge the state’s 4 million drivers.
But Gov. Deval L. Patrick has led an effort to scrap that system and his administration has authored a so-called managed competition plan that will enable insurers to establish their own rates beginning April 1, 2008.
Keefe, Bruyette & Woods analyst Dean Evans yesterday raised his rating on Commerce from “underperform” to “market perform” and said in an interview Commerce was facing significant headwinds because of declining rates and deteriorating loss trends.
“I tend to think the switch to managed competition was a negative for them,” he said. “I view this deal as richly priced, and for Commerce shareholders, they should jump at the offer.”
Mapfre executives said they would retain Commerce’s existing management but did not specify, what, if anything, would happen to the company’s 2,200 employees, including 1,800 in Webster. Commerce officials said Tuesday night Mapfre has indicated it would maintain Commerce’s employees in Central Massachusetts.
That scenario makes sense as there is no labor consolidation savings, as Mapfre does not have any U.S. operations, said FTN MidWest analyst Charles D. Hamilton. Employees are likely surprised by the deal but they won’t see any impact, he said.
Mr. Hamilton said he expects Commerce will alter its premium base both demographically and geographically. Mapfre wants to add revenues from the Hispanic community which likely means Commerce will enter markets in Florida, Puerto Rico, and elsewhere, he said. “I expect this will push the accelerator down a lot harder,” he said.
Webster Selectmen Chairman Mark G. Dowgiewicz said company officials called him and Town Administrator Raymond W. Houle Jr. Tuesday to alert them to the sale. “That was real nice of them. When it comes to jobs in Webster, Commerce is it,” Mr. Dowgiewicz said. “To lose them would have been a catastrophe, but they assured me nothing was going to change in town. The employees are staying. The upper management are staying.”
Commerce is the town of Webster’s biggest taxpayer, with taxes of $455,117 in fiscal 2007, according to Tax Collector Maryann C. McGeary. That tax bill accounts for about 3 percent of the total $14.8 million that Webster raised in taxes for fiscal 2007.
The all-cash deal prompted a flurry of phone calls yesterday from local investors, said Gary H. Sherr, vice president of Carl P. Sherr & Co., a Worcester investment advisory and brokerage service company. Before Commerce was listed on the Nasdaq Stock Market and the New York Stock Exchange, Mr. Sherr’s company was the sole market maker for Commerce, Mr. Sherr said. “Investors should like this deal but it creates some uncertainty because they’ll have to pay taxes,” said Mr. Sherr. “But it’s a good problem to have.”
Mr. Sherr echoed Mr. Hamilton’s comments, suggesting the sale, while unexpected, is a positive outcome for a company whose founder had retired and was facing a change in how it needed to do business.
Mr. Remillard’s earliest investors included white-collar professionals from Worcester and blue-collar laborers from Webster, everyone from lawyers to janitors, Mr. Sherr said. “Like Microsoft has been to Seattle, Commerce has been to Webster,” he said. “They all put their own money up. It really is an American success story right here in Central Massachusetts.”
Telegram & Gazette reporter John Dignam contributed to this story.
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