The Hand-in-Hand: After 257 years, time for change?
The Philadelphia Contributionship, a profitable property insurer which says it was founded by Benjamin Franklin in 1752, has asked Pennsylvania regulators to let it reorganize as a stock company
Philadelphia's customer-owned Contributionship - a profitable mutual property insurer, founded by Benjamin Franklin in 1752, also known from the plaque that marks insured homes as the Hand-in-Hand - has asked the Pennsylvania Insurance Department to let it reorganize as a stock company.
Why? To "enhance the Company's strategic and financial flexibility by creating a corporate structure that will enable it to perform certain actions presently unavailable to the Company," such as "engaging in mergers or consolidations," according to its proposal here.
The Contributionship earned $18 million last year, down from $23 million the year before. Net premiums were flat at $112 million. The common stock portfolio tumbled in value to $144 million, from $212 million. But whose didn't? The company trimmed its surplus but kept its A+ rating from A.M. Best. The company also owns home-alarm chain Vector Security Holdings, which has acquired four smaller firms since 2006. Annual report here.
Carl Esser, retired partner at the law firm Reed Smith, doesn't like how management is pushing this plan. He laid out his concerns in a letter to Contributionship chief executive Robert G. Whitlock Jr. and Pennsylvania Insurance Department company licensing chief Robert E. Brackbill Jr. Excerpts:
"Together with my wife, I am an insured, policyholder, member and owner of The Philadelphia Contributionship for the Insurance of Houses from Loss by Fire (the "Contributionship") by virtue of having paid the requisite deposit to insure our home at that location. We have been member/owners of the Contributionship since 1975...
"It is a wonderful organization, does a wonderful job providing great insurance, and pays a terrific dividend [a little over $1 million in each of the past two years].
"Being over 250 years old, it has a long and distinguished history. It is a unique entity and any changes to it must be undertaken with great care. In my view, it is so great that I wonder why anyone would want to change it. Ben Franklin and his co-founders got it 'right' and I doubt that anyone can improve upon Ben's genius.
"We strongly encourage the Pennsylvania Insurance Department to require the Contributionship to provide all member/owners with a copy of the Plan (rather than require member/owners to request it) and, more importantly, to also provide all member/owners with a full description of the effects of the Plan...
"The notice states that the conversion 'will not have any effect on your insurance coverage or your premium.' The notice is completely silent regarding the other rights of the member/owners: for example, the right to vote for directors and to receive dividends (if and as declared)...
"When the Contributionship converts to stock form, why don't the member/owners receive all the stock? What will happen to our voting rights? What will happen to the dividend?
"The timeline stated in the notice is also cause for concern. The notice says "Comments on the Plan should be mailed with thirty (30) days of the date of this notice." ... Before a member/owner can provide comments on the Plan, the member/owner must request a copy of the plan in writing, and then be mailed a copy of the plan. So the notice period is really 30 days minus three mail delays. If each mail delay is four days (as was the first), the comment period is reduced to 18 days. Why the rush?...
"Even great companies have warts. The Contributionship's Proxy Statement that is provided to its member/owners each year is the world's worst proxy statement. The objective of a proxy statement is to convey information and the Contributionship's one-page Proxy Statement gets the prize for providing the least information...
"We encourage the Department to not restrict its oversight of this Reorganization to the 'insurance' aspects but to also consider this from the perspective of how ALL of the rights of the member/owners are effected. Failure to do so might require review in another forum..." A lawsuit?
" In summary, we believe that the Contributionship should provide its member/owners with: 1) A full description of the Plan and its effects. 2) Sufficient time to carefully consider the Plan and its effects. 3) Statements from any opponents of the Plan... because the Contributionship controls all the administrative machinery involved in communicating with member/owners..." We're trying to get the Contributionship's side of this, too.