Flat rate increases, limited market spur MEMIC expansion
Rebecca Goldfine
John Leonard, president and CEO of MEMIC, says recent acquisitions and expansions will help the workers' comp company grow
Maine's largest provider of workers' compensation insurance is embarking on an expansion plan to push out its southern borders and launch multiple subsidiaries.
The MEMIC Group, headquartered in Portland, will open two offices in New Jersey and in Pennsylvania in 2012, part of the company's plan to continue growing despite flat or declining workers' compensation rates. These offices will operate under MEMIC's 11-year-old subsidiary, MEMIC Indemnity Co., which is based in Manchester, N.H., and has two other offices in Glastonbury, Conn., and Albany, N.Y.
President and CEO John Leonard says the new locations will help position MEMIC to move down the Eastern Seaboard, selling workers' compensation insurance – the company's sole insurance product. He says MEMIC can compete in markets outside of Maine because the company has "distinguished itself as a unique carrier due to its focus on safety," and that MEMIC invests three times the industry standard on loss control – the industry term for reducing workplace injuries.
Part of MEMIC's expansion plan includes acquiring other companies. To form its latest subsidiary, the company in mid-December bought the Vermont business, Granite Manufacturers Mutual Insurance Co., which hadn't been active since the late 1960s. This company was being held by the state of Vermont, from which MEMIC purchased it for approximately $300,000, according to a government spokesman. MEMIC renamed the company MEMIC Casualty Co., and will run it from its Portland headquarters.
MEMIC spokesman Michael Bourque says MEMIC prefers to buy dormant companies rather than start from scratch because "it's less expensive and gives us a head start on regulatory issues. … It was a lot of work to start Indemnity, so this avoids some of that."
Leonard says eventually he'd like MEMIC to have three or four subsidiaries, and to achieve this, will continue to seek acquisitions of companies with good reputations at the right price. Subsidiaries are useful for workers' compensation insurers because they provide flexibility in rates. States limit the prices individual insurance companies can offer employers, no matter how safe or dangerous their workplaces, according to Leonard.
The company's activity next year will result in a "couple of handfuls" of new employees, according to Leonard. But as the company establishes itself in the mid-Atlantic markets, he says he expects to see that number grow.
The need to grow
The creation of MEMIC, short for Maine Employers' Mutual Insurance Co., was authorized in 1992 by the Maine Legislature to help rein in an expensive workers' compensation market. MEMIC launched in 1993 after getting a $500,000 line of credit, and today its network, which employs about 250 people, insures more than 18,000 employers and their 250,000 employees. The company was set up as a private mutual insurance company, owned by its policyholders. As a guaranteed market for workers' comp insurance, the company cannot turn away any Maine company.
Since MEMIC was formed, injuries have declined more than 40%, according to Leonard, and workers' comp rates have decreased by 54%. Leonard credits MEMIC and the work it does with companies to create safer workplaces for much of this decline. The dwindling number of manufacturing jobs could also have played a part, according to Eric Cioppa, superintendent of Maine's Bureau of Insurance.
In 2012, Maine's workers' comp rates, which are set by the National Council on Compensation Insurance Inc. and approved by the state, will decline 7%, saving Maine companies millions of dollars.
While this is good for employers, Bourque says it raises challenges for MEMIC. "You have to deal with rate decreases; it is a reduction in revenue," he says. "And less revenue is always tough – that is part of our interest in expansion."
But MEMIC is far from struggling. MEMIC in 2011 had $120 million in written premiums in Maine, an amount that's grown 15% to 20% since the company was founded, Leonard says. Despite stable rates, the company's premiums grew 5% last year as more people worked longer hours, according to Bourque. Besides signing some new businesses in 2011, MEMIC also grew as its Maine-based clients grew their businesses out of state.
Leonard says he doesn't see great growth opportunities in Maine. Since the early 1990s, MEMIC has insured roughly the same number of Maine employers; the company consistently has held a little under two-thirds of the market share here. In 2011, it had 61.5% of the Maine market; in 2004, that percentage was 65.4%. "Although MEMIC has been successful in retaining business, other insurers are selectively increasing their market share," a 2011 report by the Maine Bureau of Insurance says. Liberty Mutual Group is the next biggest provider, holding 10% of the market share in 2010, followed by WR Berkeley Corp., at 5.2%, and Travelers Group, at 3.9%, according to the report.
While MEMIC's revenues have remained relatively steady, its subsidiary, MEMIC Indemnity, has grown over the last decade, jumping more than 25% to $55 million in written premiums in the past year. "That's a result of increasing our territory," Bourque says. "It's not as if we're growing by 25% and staying in one place."
In 2011, MEMIC gave out $12 million in dividends to about 19,000 Maine employers -- $1 million more than it gave out the prior year. Growing the company helps Maine companies, Bourque says. "This is a real benefit to policyholders in Maine, and it provides stability for us," he says.
Bourque credits the rise of the subsidiary MEMIC Indemnity Co. to its widening recognition in the New York market, as well as the similarity in cultures between the Albany, N.Y., region and Maine. "We're hitting our stride there," Bourque says.
Bourque says the company won't grow too fast. MEMIC has an A rating by A.M. Best, and the company doesn't want to jeopardize that by losing some of its financial strength or seeing its assets decline, Bourque says. "We have the adequate financial backing to [expand]," he says. "The ratings system tells us we're healthy."
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