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GuideOne latest specialty P&C insurer to pursue mutual conversion

The additional financial, operational and strategic flexibility afforded by the mutual insurance holding company structure continues to prove attractive to midsized U.S. property and casualty insurers.

The Iowa Insurance Division is scheduled to convene a public hearing on Feb. 17 to consider the latest reorganizations, which would have GuideOne Mutual Insurance Co. and GuideOne Specialty Mutual Insurance Co. become stock subsidiaries of an intermediate holding company formed under the newly established GuideOne Mutual Holding Co.

A review of department records suggest it would mark the first Iowa conversion of its kind outside of the context of a merger agreement in nearly a decade, but momentum for the structure has been gathering steam in other states over the past several years. Wisconsin has been a particularly active jurisdiction, with five completed conversions since American Family Mutual Insurance Co. SI's landmark reorganization took effect at the start of 2017. The former Connecticut Medical Insurance Co. reorganized in its namesake state during 2020 as Integris Insurance Co., a subsidiary of mutual holding company Integris Group Inc.

A greater ability to engage in mergers and acquisitions and a wider array of options to raise capital receive frequent mention in lists of conversion benefits. At a high level, the structure strengthens an insurer's ability to retain its independent and mutual heritage against an increasingly complex and competitive market backdrop.

"The flexibility is an important benefit to the insurance company and its members," said Morgan Tilleman, a Foley & Lardner LLP partner who provided counsel to Sentry Insurance A Mutual Co. and SECURA Insurance A Mutual Co. on separate mutual holding company conversions that took effect at the start of 2021.

The ability to gain ownership of ancillary, noninsurance companies at a time insurers see a future in the development of synergistic technologies is also key to the value proposition that the structure provides, said Foley & Lardner partner Anne Ross.

American Family's post-conversion activities might offer the best example of that approach. Not only did the group merge with another mutual holding company, Main Street America Group Mutual Holdings Inc., and acquire the personal lines P&C business of Ameriprise Financial Inc., it also ventured deep into the insurtech realm. It purchased data and analytics software company Networked Insights Inc. in 2017 and, more recently, agreed in January to acquire commercial insurance exchange developer Bold Penguin Inc.

Tilleman said that 35 states have conversion clauses, though New York's statute only applies to life insurers. Iowa's enabling statute has been in place since 1995, and arguably its most notable mutual holding company conversion occurred in 1998 involving a predecessor of Principal Life Insurance Co. That insurer would later engage in a full demutualization in connection with the initial public offering of Principal Financial Group Inc.

The most recent Iowa conversion conducted outside of the scope of an M&A transaction was the 2012 reorganization of CUNA Mutual Insurance Society as stock insurer CMFG Life Insurance Co. under the newly formed CUNA Mutual Holding Co.

The mutual redomiciled to Iowa years prior to the conversion citing, among other things, that its statute had been tested on multiple occasions including through the Principal transaction, while Wisconsin's had not. The tables have turned in recent years; Tilleman pointed to two Wisconsin companies that converted in recent years as the closest parallels to the GuideOne business model: Church Mutual Insurance Co. SI and Jewelers Mutual Insurance Co. SI. All three specialty insurers' fates are tied to trends affecting customers in particular industries.

The GuideOne group operates nationally through independent agents, providing commercial P&C coverage for churches, educational institutions, senior living communities and nonprofit organizations. It also writes program and excess-and-surplus lines business.

The company said in its Iowa conversion application that the reorganization would allow it to "realize its strategic objectives" of achieving greater financing and structural flexibility along with improving its ability to conduct acquisitions and other strategic transactions. GuideOne Mutual would change its name to GuideOne Insurance Co. in connection with the conversion; its affiliate would be renamed GuideOne Specialty Insurance Co.

Planning for a mutual holding company conversion and realizing the associated benefits each takes several years, Ross said. She noted that the structure "has become even more compelling" at a time when the pandemic has "accelerated some trends already pushing small and mid-sized companies to look at consolidation."

"Interest continues unabated," Tilleman added.