We write you today to provide our perspectives on the recent announcement that now that activistinvestor Gregory Shepard has built a 5.09% stake in EMCI, he will be pushing to increase the valuation offered by the mutual parent Employers Mutual.
This transaction is representative of the increase in activity we are seeing in the mutual sector. Whether it is pursuing affiliations and acquisitions, raising capital by issuing surplus notes, or especially more recently, restructuring as mutual holding, mutual insurers are increasingly looking for ways to broaden their options as they face increasing market competition and industry restructuring. In the past 3 years, Nodak Mutual went public with NI Holdings, and American Family, Standard Mutual, Illinois Casualty, MLMIC, and Federal Life have formed private mutualholding companies with many more being planned for the new future.
The rationale seems to be straight-forward: to compete on product, invest in innovation, and to have additional options in raising capital, business as usual may not be the most desirable option. To be clear: most mutuals still loving being mutuals and all that entails – the ability to think and plan long term, a policyholder-orient business approach, a sense of shared values – and do not plan to abandon the premise entirely.
With Greg Shepard’s track record (e.g., Donegal, Meridian, Nationwide), it will be interesting to see how the EMCI transaction takes shape. Shepard’s interest in mutuals seems also to represent the market’s broader interest in mutuals as a source of unlocked value (read economic value) with sometimes little overlap with mutual’s policyholder-centric priorities.
About Stonybrook Capital
Stonybrook Capital is the preeminent expert on the mutual sector and has helped many mutuals raise capital, grow inorganically, and invest in the InsureTech Sector. Ravi Arps, a Managing Director and Board Member of Stonybrook, was recently featured in an interview by AM Best TV discussing surplus note securities and the market for them. Click here to watch the interview.
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Managing Director, Board Member