R.I. Officials Still Hoping to Avoid Pawtucket Mutual Liquidation

Rhode Island officials have not given up hope of attracting a buyer for the troubled Pawtucket Mutual Insurance Co., despite seven months of trying and the recent dropout of a prime candidate.

“I’ve still got my fingers and toes crossed,” Marilyn Shannon McConaghy, director of business regulation, said. She is in charge of rehabilitating the financially-strapped insurer and its subsidiary, Narragansett Bay Ins. Co.

On Dec. 16, McConaghy filed a report with Rhode Island Superior Court Judge Michael Silverstein indicating that time and money are running out. The companies’ surplus is declining and “could erode to under $3 million” by Jan. 31, 2004. While that date is not an automatic deadline, McConaghy promised Judge Silverstein that she would report back by then and, unless she had a letter of intent or was close to one with a buyer, the next step would be a “run-off” or liquidation.

More than 20 parties have expressed a desire to acquire either Pawtucket or Narragansett, or both. Eleven of them have gone so far as to sign confidentiality agreements. One potential suitor, Great Northwest Insurance Co., has rescinded its bid. According to state officials, this withdrawal came “as a result of its investment banker’s strict investment guidelines regarding prior liabilities that could not be overcome.”

Even though the deal fell through, McConaghy actually took it as a good omen. She said that the experience “validated” her belief that the companies offer a “reasonable investment opportunity for the right buyer.”

There are four serious investors who are currently looking at the companies. One of these includes “senior executives of several well-known insurance and insurance related companies” whom McConaghy described as fulfilling her “ideal profile of a buyer for this type of entity.”

While she’s not naming names, rumors suggest that potential buyers include a regional bank, with a substantial stake in the homeowners business underwritten by the companies, and a group of Pawtucket’s own agents.

Rhode Island domiciled Pawtucket Mutual writes business in 12 states, mostly in the Northeast. The companies have a seasoned independent agency force of about 300 writing its largely personal lines book of business. Since the rehabilitation was ordered in May 2003, the company has stopped writing business, except for certain renewals in Rhode Island and New York.

The court has already approved a plan to convert Pawtucket to a stock company to facilitate a sale if necessary. But a moratorium on all litigation, which expired Dec. 17, is now being lifted on a staggered basis, first for the oldest cases, those filed on or before Dec. 31, 1998, which constitute about one-third of all litigation against the companies. McConaghy has held regular meetings with the companies’ agents, whom she says have been “extremely loyal” since the takeover; and she remains optimistic.