Small Insurance Company Makes Big Move

April 24, 2006
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FREMONT—Very few companies in Michigan have gone public in recent years. In fact, according to Renaissance Capital, only eight of the thousands of privately owned businesses in the state have done so since 2001.

But one small property and casualty insurance firm in West Michigan took that big leap nearly two years ago. Fremont Michigan InsuraCorp Inc. began trading publicly on Oct.15, 2004 — eight months after first filing its initial public offering.

In October 2004, the Fremont Insurance Co. converted from a “mutual” to a “stock” insurance firm, and then became the wholly owned subsidiary of Fremont Michigan InsuraCorp. Executives said they went ahead with the conversion because it would be easier for them to access capital as a stock company than as a mutual firm.

“We were an organization that was stressed quite heavily and needed to bring in more capital,” said Richard Dunning, president and CEO, who spent 24 years as an executive at Gerber before he joined FMIC in 1997, the same year the company issued surplus notes.

“In the conversion, we took a large number of our surplus notes and converted those into permanent equity. There were some limitations. No one individual could convert to own more than 5 percent of the company,” he added.

Dunning told the Business Journal that going public has proven to be a very good decision for the company, despite having to add a large amount of transparency to the business, having to give up a good dose of autonomy, and having to adhere to stricter accounting regulations.

“We do have a nice block of stock that is owned by our officers and directors, and our agent participation continues to expand. They have the ability to purchase stock on a monthly basis with a portion of the commission that we pay them, and once a year, if they earn profit-sharing, they can take all or part of that profit-sharing and purchase additional stock in the organization,” said Dunning.

“So it creates what we feel is a unique partnership with the agencies that we have around the state of Michigan and (who) support our organization.”

Company Vice President of Finance Kevin Kaastra said 170 agents throughout the state sell the multiple products offered by Fremont Insurance. Personal and commercial auto, homeowners and small business polices account for the company’s top tier of products.

But the firm also does a solid business with farmers, as it provides coverage for small and mid-sized farms and offers an estate program for rural homeowners. Topping off the product line is marine insurance and inland marine policies.

The company had its best financial year last year, which included these highlights:

**Direct premiums written rose 8.4 percent to $45.5 million, up from $41.9 million in 2004. Net premiums written went up 8.2 percent to $39.5 million, up from $36.5 million in 2004.

**Revenues rose 43 percent to $41.2 million, up from $28.8 million in 2004.

**Net income grew to $9 million, up from $1.5 million in 2004, due to the growth in underwriting profit and a $3.8 million federal income tax benefit.

**Shareholders’ equity rose 49.2 percent to $25.8 million, up from $17.3 million in 2004.

Fremont Michigan InsuraCorp is traded over the counter under the symbol FMMH. The company hasn’t dismissed eventually being listed on a board, but the insurer isn’t set to do that in the immediate future.

“We are a relatively small offering, really, when you look at the grand scheme of things, and we’ve had some question us as to why we’re not listed on one of the big boards. But clearly there is a cost associated with doing that — not only the cost to be listed, but there are also certain requirements from a regulatory standpoint,” said Kaastra, whose background includes public accounting and who joined the firm in 2003 to help with the IPO process.

But, as Kaastra pointed out, once the company gains more exposure in the market, the additional costs to be listed on a “big board” could be seen as an investment in the firm’s future — one that would allow the company to expand its reach even further.

The growth Fremont Michigan InsuraCorp has had since it went public falls just short of phenomenal. On conversion day, the company sold 862,118 shares of common stock at $10 per share and raised about $7.4 million in net proceeds. As of April 6, a share was selling for $30.50.

“We’re very pleased with what has happened,” said Dunning. “The permanency of capital has allowed us to grow our top line faster than what we would have been able to do under the traditional mutual structure.”   

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