Nationwide, Harleysville CEOs Say Merger All About Growth

The merger of insurer Nationwide Mutual with regional carrier Harleysville Mutual is all about growth, not only for the companies but also for their independent agents, according to the CEOs of the two insurers.

Harleysville is a “perfect match” for his company, said Steve Rasmussen, chief executive officer of Nationwide Mutual, which he said has been looking to expand into the Northeast, add to its independent agency distribution channel, and gain accounts in commercial lines – all three of which Harleysville brings to the table.

For Harleysville, the merger is an opportunity to grow by expanding where Nationwide is strong, which is in the West and Midwest and in personal lines, and by giving its independent agency force access to a fuller menu of products, according to Michael Browne, president and chief executive officer of the Pennsylvania-based regional carrier.

Nationwide Mutual announced recently that it will acquire Harleysville Group for about $760 million. Harleysville Mutual policyholders will become policyholders and members of Nationwide Mutual. The combined organization will have an estimated net surplus of more than $13.5 billion and over $16 billion in annual direct written premiums.

Harleysville will continue to operate as an independent agency company under Nationwide, with Browne at Harleysville’s helm, out of the Harleysville, Penn., office. Nationwide Mutual’s headquarters is in Columbus, Ohio.

In an interview with Insurance Journal, both CEOs stressed that they do not see major cuts in either their agency forces or in the number of company personnel. Rasmussen said the companies’ footprints are so different that there are only about 100 agencies for the two insurers that are in the same areas.

“Frankly, we want to continue with all of our agency partners. We’re not looking to cut back. Actually, we’re looking for more,” said Rasmussen.

Nationwide Mutual is known for its personal lines and Main Street commercial lines business in the West and Midwest, whereas Harleysville is known in the Northeast and Middle Atlantic states, with about 75 percent of its business in commercial lines.

“We have been looking for some time to find an effective way to get into the Northeast, which we do not have any presence in, to really give us a national footprint,” the Nationwide CEO said. “We were looking for a relationship that had commercial expertise that Harleysville has. In the end, Harleysville became the really perfect match for us, in terms of getting us that significant Northeast footprint and also knowledge and expertise in the commercial arena. Both of those help our objective of getting our independent agency brands, particularly what I’ll call a retail independent agency brand of Allied, and now Harleysville, a national scope to put us out there.”

Rasmussen said Nationwide is often only looked at as a personal lines exclusive agency company and is not typically recognized as an independent agency company, or even as a multiple channel company, but in fact its independent agency division (including Allied, Scottsdale, Titan and Nationwide Agribusiness) produces one-third of its business.

Nationwide has about 4,500 independent agents, which is about the same number of exclusive agents it has, according to Rasmussen. Its independent agents are primarily with its Allied Insurance affiliate.

Browne said this is a “great opportunity” for Harleysville to grow, something he said the insurer has not been able to do easily.

“[I]f you look at our record over the last, really since I’ve been CEO [2004], we’ve had a great run. Our operating return on equity has been double digits. But we’ve had trouble growing,” Browne said. “Part of that is the recession, part of that is the commercial lines fell off market. But this is an opportunity for us to grow. I think it’s a very exciting opportunity and I think that as our independent agents learn about this, they’re going to be very excited, too.”

The merger appears to be a great opportunity for Browne, too.

Reuters reported that as of the company’s last proxy filing, Browne owned 2.5 percent of Harleysville Group’s shares, worth about $18.6 million, based on the stock’s one-day gain. The proxy said Browne also had vested but unexercised options on 443,005 shares, according to Reuters.

Browne is a former Pennsylvania insurance commissioner and practicing attorney.

Rasmussen was elected CEO of Nationwide in 2009. Prior to that, he was president and chief operating officer of property/casualty operations for Nationwide from 2003 to 2009.

He previously served as president and chief operating officer of Allied Insurance and held the same positions with CalFarm Insurance, an affiliated company.

Multiple Distribution

Rasmussen said Nationwide, while it is pigeonholed as an exclusive agency company, believes the future is in multiple distribution channels.

“When you really think about where the product portfolios are headed today, there’s no question that personal lines is heading more towards direct and that’s just been a reality over the past five plus years,” he said “The other side of the coin is the independent agency ranks continues to secure their foothold in the commercial portfolios. We actually want to be across all those product lines and so we really need to be in the locations where we can get the best in breed.

Independent agents are a part of the Harleysville tradition and the merger has some of those agents worried. What does a CEO of a traditional independent agency company tell its agents about joining with a company that is not known for its independent agency distribution?

According to Browne, “You just tell them the truth and the truth is very simple, which is that we’re going to continue to remain inexorably committed to our independent agents,” said Browne. “We’re not diluting our commitment in any way. We’re partnering with Allied, which is a premier, independent agency company, and we’re creating one of the most formidable independent agency companies in the United States. So this is a great message.”

Topics Trends Mergers & Acquisitions Agencies