Driven by the same pressures affecting their clients, the three Factory Mutual companies are to merge, but they will remain mutual and continue to concentrate on loss prevention. Dennis Pilsbury talks to senior executives.
Believing they were not being given enough recognition for loss prevention measures, independently minded New England mill owners in the last century set up their own mutual insurance companies. The Factory Mutual System dates back to 1835 when Manufacturers' Mutual Fire Insurance Co (predecessor of Allendale Mutual Insurance Co) was formed.
Today, these mutual insurance companies provide property insurance, loss prevention engineering and other risk management services. Factory Mutual is a recognised leader in research and training into property loss prevention and operates the largest fire test centre in the world. The Factory Mutual system created the concept of “highly protected risk” to mitigate the perils faced by those New England mill owners a century ago, which is still in use.
However, while the mutual structure and emphasis on loss prevention remain, the Factory Mutual companies are subject to the same pressures that have led to consolidation in many industries. The three companies in the system, themselves the product of earlier mergers, are merging to form a single new company, Factory Mutual Insurance Co. The initial target date to effect the merger of 1 January 1999 proved overly ambitious, but it should be completed early this year.The constituent parts of Factory Mutual Insurance are Allendale Mutual Insurance Co, Johnston, Rhode Island; Arkwright Mutual Insurance Co, Waltham, Mass.; and Protection Mutual Insurance Co, Park Ridge, Ill. They jointly own Factory Mutual, a property loss prevention engineering and research firm, and Factory Mutual Insurance Co Ltd, London, both of which will be integrated into the new company. Factory Mutual Insurance will have its headquarters in Johnston, RI, but will retain significant operations in the other two locations.
The new company will have assets of approximately $5.3 billion and policyholder surplus of about $2.3 billion. According to the A.M. Best Company, Factory Mutual Insurance will be the 24th largest insurance organisation in the United States and the sixth largest property/casualty mutual. Allendale Mutual currently has just over 1,000 employees in 24 offices around the world, Arkwright Mutual has 950 employees in 28 offices around that world and Protection Mutual 600 employees in 26 offices.
Shivan S. Subramaniam, who has served as chairman, president and ceo of Allendale Mutual since March 1995, has been designated president and ceo of the new company. He says the merger is a response to “the same kinds of pressures affecting our customer base, which consists almost exclusively of large corporations. A single balance sheet is more useful in today's market. Bringing three balance sheets together lessens the need for reinsurance and reduces cost structures.”
Mr Subramaniam points out that the merger continues a history of consolidation. “At one time, there were close to 49 companies in the Factory Mutual System. The system has a history over time of consolidating when it made sense for its policyholders. It is a part of our culture.”
James W. Black, president and ceo of Protection Mutual, says the merger will make the company “more efficient and more responsive.” He has been designated chief operating office and vice chairman of the board of directors of the new company. “The rapidity of change mandates that we become more responsive, more quickly,” says Mr Black. “Our customers face an ever increasing need for speed. Merger is something that has never been off the table, but, in the past, it was decided that the structure was fine. The decision to merge now was customer-driven.
“We deal mainly with large, global companies and can do the best job of providing services and products to them.” he explains. “It is very expensive for us to actually put a product in front of the client. It can cost well over $100,000 just to provide a quote.”
Mr Subramaniam adds that this merger “will allow us to expand within our core competencies of fire protection, engineering and underwriting. We plan to continue to improve our offerings in these areas. We are a very specialised company where some 1,800 companies comprise most of our business. That is really a fairly small group.”
The company will continue to focus on what its founders established from its inception more than 160 years ago, says Mr Subramaniam. “Industrialists wanted a company whose focus was on not having a loss. Our policyholders today continue to believe that loss prevention, not insurance, is the answer.”He believes the merger offers great opportunity to further improve loss prevention. “We have the best research in the world in the field of property loss mitigation. Technology has created an enormous opportunity for us to use that information even more effectively. We are planning to roll out engineering and loss prevention over the internet.”
Mr Black adds that the company plans to develop new products and policies that reflect the changes in industry. He notes that technology and the general business climate have brought about changes in the way industrial firms do business, citing the propensity for companies to use “just-in-time inventory” today. “That does not mean that we will move away from what we do best. We plan to continue to stay within first-party coverages, focusing on areas where we have a clear expertise.”
He says that this a unique merger in that its purpose is strictly to benefit the customer. “These are three mutuals merging into another mutual. It is the intention of the boards of directors of all three companies to make this a merger of equals. We will be working very diligently to provide a seamless transition for our policyholder-owners by bringing together the best business practices of each organisation.”
William J. Poutsiaka, president and ceo of Arkwright Mutual, was instrumental in initiating the merger, but will not be affiliated with the new organisation. He is part of the transition team and stresses that the merger will be beneficial to customers and employees. “The bottom line is that, by joining forces, we are able to offer our customers the cost-effective, higher-quality products and services they are demanding. And our employees will be given the opportunity to work for an organisation that is much better positioned for long-term success.”
Shivan Subramaniam's career with Allendale began in 1974. He has held numerous management positions with the insurer, including senior vice president and chief financial officer (1983); executive vice president (1991); president (1992); and president and ceo (1993). He has a degree in mechanical engineering from Birla Institute of Technology, India; a masters degree in operations research from the Polytechnic Institute of New York; and a masters in management from Sloan School of Management at Massachusetts Institute of Technology.
James Black began his career with Protection Mutual in 1968 as a sales representative in Cleveland, Ohio. He rose within the local and then regional offices until 1990 when he moved to the home office as vice president and director of operations. He was promoted to executive vice president and chief operating officer in 1995 and to his current position one year later. Mr Black holds degrees in management and marketing from the State University of New York and Cleveland State University.
John A. Luke, Jr., a director of Arkwright Mutual and chairman, president and ceo of Westvaco Corp., has been designated chairman of the board of directors of the new company. Having begun with Westvaco in 1979 in the comptroller's department, Mr Luke has risen through the organisation becoming executive vice president in 1990. In addition to serving as a director of Arkwright Mutual, he is active in trade, education and public service organisations. He holds a BA from Lawrence University and an MBA from The Wharton School of the University of Pennsylvania.
Dennis Pilsbury is a freelance writer specialising in risk management and insurance.