PAULA, GNU Begin Process Toward Eventual Consolidation

Pasadena, Calif.-based PAULA Financial (PAULA) and the managing general agency Great Northern Underwriters (GNU) of Portland, Ore., recently entered into a partnership, the first step of which entails the incorporation of PAULA’s Oregon underwriting personnel into GNU’s operations. The long-term goal of the strategic collaboration is that PAULA will acquire GNU.

The genesis of the new partnership is rooted in the friendship between PAULA’s Chairman and CEO Jeff Snider and GNU President and CEO Bob Baumann, which goes back a number of years. The idea for the collaboration has been bouncing around for a few months and was formally announced on June 14.

Michelle Kennedy, operations manager for GNU, explained that the company previously had a relationship with PAULA about five years ago. The two companies parted ways in late 1996, but Baumann and Snider remained friends.

“Earlier this year, with the workers’ comp market being in such turmoil, we were looking at different avenues we could take to expand the business,” Kennedy said. During a discussion with Baumann, Snider talked about PAULA’s office in Lake Oswego, Ore., which is part of PAULA Insurance Co., a risk-bearing entity specializing in workers’ compensation products and services for agribusiness.

“It’s very difficult to have an outpost so far away from the home company,” Kennedy said. “The people there end up being very much outside of the management loop. In that discussion and subsequent discussions over the past six months, Bob and Jeff decided that they could create a lot more synergy in the company by having PAULA’s underwriters working with our underwriters.”

Turmoil in the workers’ comp market is not exclusive to California. When referring to the Oregon market, Kennedy discussed her personal observations over the past several months.

“The industry people that I’ve spoken to seem concerned that a lot of companies seem to be getting out of the workers’ comp market,” she said. “That’s creating a lot of turmoil. Then you have the fact that rates are continuing to drops even though it seems the claims activity would warrant price increases to counter that. Also, the Oregon State Fund has just issued an announcement that they’re not paying a dividend this year.” Kennedy added that in Arizona, the state is also dropping rates, making it harder for private carriers to compete.

For now, the focus of the PAULA/GNU partnership is completing the merger of the two Oregon operations—that is, physically moving all of PAULA’s underwriting and claims personnel to GNU’s space in Portland, within which there will be a separate facility to house the PAULA Insurance employees. However, PAULA Insurance claims staff, although they are also moving locations, will remain PAULA Insurance employees.

“The only folks that are switching employers are the underwriting folks and their support,” said Debbie Maddocks, vice president, finance and investor relations for PAULA. “That is already done…The next step is to physically get everyone into the same office and get all of the logistics worked out. Beyond that we just need to set about the task of building the business.

“GNU has consistently demonstrated the ability to generate premium flow [in Oregon]. We bring some underwriting expertise to some classes that they didn’t have before, some additional service capabilities they didn’t have in-house before, and the PAULA Insurance Co. to place premiums with.”

PAULA also has retail agency operations in California, Arizona and Oregon; a wholesale agency operation; and a third-party administration provider. Companywide, PAULA has a staff of approximately 250 spread out through the states of California, Arizona, Oregon, Idaho, Texas and New Mexico.

Kennedy described GNU a family of companies that was started in 1988 by Baumann as a commercial real estate firm, Granite Equity. When the real estate market started to slump in the early 1990s, the company grew to include a division called Granite Insurance Services.

“Our initial goal was to have it provide insurance for the commercial real estate transactions that we were doing in-house,” Kennedy said. “That grew into an insurance marketing company …Through doing that, mostly P&C and outsourcing workers’ comp, we realized the potential for bringing a wholesale workers’ comp division under our wings, and founded GNU in late 1994.”

And while the ultimate goal of the partnership is that PAULA will acquire GNU, that acquisition is not expected to take place until 2003 at the earliest.

“The goal that we have is to grow our book of business because of the way that the market is,” Kennedy said. “We have much greater strength together. Our goal is to grow the business rapidly with some intense marketing focus provided by GNU in the Northwest. Then once we have reached a size which is more self-sustaining…we can transfer that book of business, those personnel and those skills back to PAULA. They would have the increased energy, efforts and larger book of business while allowing us to grow through the next several years.”

Topics California Workers' Compensation Underwriting Oregon Arizona