Motor Club Announces Completion of Mountain Valley Indemnity Aquisition
1 March 2000
Motor Club of America Announces Completion of Mountain Valley Indemnity Company Acquisition
PARAMUS, N.J., March 1 -- Motor Club of America
("Motor Club" or the "Company") announced today that it had
completed its acquisition of Mountain Valley Indemnity Company ("Mountain
Valley"), formerly known as White Mountains Insurance Company, from Unitrin,
Inc. for $7.5 million in cash.
Patrick J. Haveron, Motor Club's Chief Executive Officer responsible for
mergers and acquisitions said, "We are very pleased to complete the
acquisition of Mountain Valley. In tandem with our acquisition of North East
Insurance Company ("North East") in 1999, this acquisition fully establishes
Motor Club as a regional company in New England and the Mid-Atlantic writing
commercial lines. Our commercial lines premium revenues will now approach
$30 million and we look forward to building profitably on this base."
Mountain Valley, formed in 1995, presently writes approximately
$16 million of small and medium-sized commercial lines business in New York
and all of New England except Connecticut. Statutory surplus as regards
policyholders at December 31, 1999 was $7.3 million. Motor Club also
announced that B. Kim Martin had been named Chief Operating Officer of
Mountain Valley.
Stephen A. Gilbert, President and Chief Executive Officer of Motor Club,
added, "We look forward to working with Kim Martin and the other outstanding
Mountain Valley staff and agency plant. Combined with our profitable Preserver
operations, our commercial lines initiatives in Maine with North East and our
plan to recommence the New York operations of American Colonial Insurance
Company in the second quarter of this year, we will be able to offer the
commercial lines markets in New England and the Mid-Atlantic a strong, healthy
competitor which is positioned for growth."
Under the terms of the purchase, Mountain Valley will run-off its present
100% intercompany quota share reinsurance agreement; thus at closing there are
no net loss and loss expense reserves for claims occurring prior to closing,
including those which develop subsequently. Mountain Valley will be assuming
the unearned premium at closing (subject to certain adjustments).
Haveron said, "We believe the terms of the agreement position both the
Company and Mountain Valley to take advantage of the product and operational
synergies available to them to become a truly regional company. We look
forward to Mountain Valley being a significant contributor to the continuing
growth of the Motor Club of America Group of Companies."
Motor Club announced that it intends to pool the operations of Preserver
Insurance Company ("Preserver"), Mountain Valley and American Colonial
Insurance Company in order to maximize its commercial lines operations. These
pooled operations will have a premium base of over $30 million, almost all of
which will be small and mid-sized commercial lines premium, supported by
nearly $30 million in surplus. This surplus includes a new $3 million surplus
contribution to Preserver by Motor Club.
"The Company also reported that its three Executive Committee members, who
presently own 42% of the Company's outstanding shares, had extended unsecured
debt financing in the amount of $11.5 million to finance the transaction and
to provide additional working capital. This debt will mature in two years and
pay interest quarterly at a rate of 10.605%. The Company will be pursuing
longer-term financing options to replace this debt during that period. At the
Company's election, if acceptable financing is not identified by Motor Club
during the two-year period, the debt can be extended for up to five years
utilizing successive one-year renewals, in exchange for an increased interest
rate on the debt.
The Company also announced that it preliminarily expects to report a
consolidated net loss for the three months ended December 31, 1999, the result
of significantly higher Accident Year 1999 New Jersey private passenger
automobile ("PPA") losses, specifically PIP (No Fault) claims. Additional
reserves have been provided for these losses. The Company believes that this
development may not be indicative of longer term trends and may be
attributable to the 1999 implementation of the New Jersey Automobile Insurance
Cost Reduction Act ("AICRA"), which was designed to reduce both premium and
losses in that line of business in that State. The reduction in PPA premium
associated with the AICRA rate rollback was in line with the Company's
expectations. New Jersey PPA losses in Accident Year 1999 in coverages the
Company offers other than PIP were only modestly higher as compared to prior
years, and loss development of prior accident years for all coverages
including PIP was not materially different than that previously experienced.
Motor Club further reported that its Preserver and North East units were
expected to report profits for the fourth quarter 1999.
Motor Club expects to report on its fourth quarter and year-end 1999
results of operations no later than March 15, 2000.
Motor Club of America is a property and casualty insurance holding
company. Preserver Insurance Company writes small commercial and homeowners
insurance in New Jersey. Motor Club of America Insurance Company writes
personal automobile insurance in New Jersey. Both are separately rated B+
(Very Good) by A.M. Best. North East Insurance Company writes personal
automobile and small commercial lines insurance in the State of Maine and is
presently rated B (Fair) by Best, American Colonial Insurance Company,
domiciled to write insurance in the State of New York, plans to commence
operations in the second quarter of 2000, writing commercial lines in tandem
with the products offered by Mountain Valley.
Mountain Valley Indemnity Company is a property and casualty insurer
licensed in ten states and is located in Manchester, New Hampshire.
Philo Smith Capital Corporation and Cochran, Caronia & Co. served as
financial advisors to Motor Club of America.
Forward-Looking Statements Disclaimer: This press release contains
statements that are not historical facts and are considered "forward-looking
statements" (as defined in the Private Securities Litigation Reform Act of
1995), including statements concerning the expected benefits of the merger and
the expected future satisfaction of conditions to consummation of the merger.
These statements can he identified by terms such as "believes," "expects,"
"may," "will," "should," "anticipates," the negatives thereof or by
discussions of strategy. Certain statements contained herein are
forward-looking statements that involve risks, uncertainties, opinions and
predictions, and no assurance can be given that the future results will be
achieved since events or results may differ materially as a result of risks
facing the Company. These include, but are not limited to economic, market or
regulatory conditions as well as catastrophic events. Consummation of the
merger and future benefits therefore involve various risks and
uncertainties, including the risk of material adverse changes in financial
markets or the condition of Motor Club; risks of the imposition of
unanticipated regulatory conditions to the merger; risks associated with Motor
Club's entry into new markets; and state regulatory and legislative actions
which can affect the profitability of certain lines of business and impede the
companies' ability to charge adequate rates. Accordingly, Motor Club of
America's premium growth and underwriting results have been and will continue
to be potentially materially affected by those factors.