United Fire & Casualty studies forming holding company

CEDAR RAPIDS -- Fresh from the largest acquisition in its history, United Fire & Casualty Co. is considering the formation of a holding company.

The Cedar Rapids-based property, casualty and life insurance company completed the purchase of Mercer Insurance Group of Pennington, N.J., on March 28 for $191 million. The merger expanded United Fire's market into New Jersey, Pennsylvania, Arizona, California, Nevada and Oregon.

Randy Ramlo, United Fire president and chief executive officer, said company management and the board of directors have been working for more than six months on the formation of a holding company.

"There's probably half a dozen companies in the United States that don't operate with a holding company," Ramlo said. "We've always been able to make it work. We haven't had to raise capital very many times.

"You can raise capital a bit more expensively without a holding company and there's a few more regulations that you have to go through. For years, we've been saying that we really should develop a holding company."

Ramlo said United Fire has no plans to do anything in terms of raising capital with the holding company structure.

"It's kind of a more modern, streamlined corporate structure that we probably should have done years ago," he said. "Ultimately, if we were to experience another Hurricane Katrina, we could go out and raise capital easier under the holding company structure.

"We're a larger organization now (with the Mercer Insurance merger) and it makes even less sense to be unique."

One of the advantages of a holding company is that shares of stock in a subsidiary company are held as assets on its books and can be used as collateral for additional debt financing. 

Ramlo said a special shareholders meeting will likely be called later this year to consider approving formation of a holding company and updating United Fire's corporate bylaws.

Ramlo, speaking at the company's annual shareholders meeting Wednesday in Cedar Rapids, said 2010 was a fairly good year for United Fire and its subsidiary, United Life Insurance.

"We maintained our focus on the fundamentals and began seeing positive results because of it," he said. "Underwriting profitability was much improved, due to lower losses and loss settlement expenses. We're making sure our underwriters know when pricing has gone too low on accounts or lines of business.

"We've continued to resolve litigation from Hurricane Katrina, reducing our exposure even further. As a result, our combined ratio  (claims and operating expenses as a percent of premium income) dropped from 114.2 percent to 99.9 percent."

Ramlo said United Fire is gathering information about its exposure from severe storms that ripped through South in April. He said initial reports indicate the company will sustain catastrophic losses of $7 million to $9 million.

While there have been reports of premium increases topping 7 percent for homeowners. Ramlo said commercial insurance premiums should remain stable for at least another year, depending severe  weather.

"We didn't see any pricing hardening in the first quarter, but we heard a few people claiming to know of some,'" Ramlo said.