Preserver Group, Inc.

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Preserver Group, Inc.

95 Route 17 South
Paramus, New Jersey 07653-0931
U.S.A.
Telephone: (201) 291-2000
Fax: (201) 291-2125
Web site: http://www.motr.com

Public Company
Incorporated: 1933 as Automobile Association of New Jersey
Employees: 185
Sales: $90.1 million (2000)
Stock Exchanges: NASDAQ
Ticker Symbol: PRES
NAIC: 524126 Direct Property and Casualty Insurance Carriers

Based in Paramus, New Jersey, Preserver Group, Inc. is a restructured insurance company that grew out of the insurance businesses assembled by the Motor Club of America (MCA). The company provides property and casualty insurance through its five wholly owned subsidiaries, which primarily serve the northeastern United States. Although MCA became involved in the underwriting business by providing car insurance to motor club members in New Jersey, the company in recent years has looked to cut back its involvement in the state, or to abandon it completely, the result of New Jersey’s auto insurance regulations that have caused a number of insurers to cease conducting business in the market.

Motor Club Origins in 1926

The Preserver Group’s roots reach back to 1926 when three brothers established a motor club. William, David, and Samuel Green were born in Atlantic City, New Jersey, the children of Russian immigrants. William, the second eldest, was the one who took the lead in the motor club business, after having worked a brief time as an accountant. He would serve as chairman of the motor club and its businesses for more than 50 years. As automobiles became more common in the 1920s, drivers looked to pool their resources to provide mutual assistance, leading to the rise of motor clubs that could provide maps and help with emergency repairs and towing. Initially the Greens conducted business in a one-room office in Newark, New Jersey. In short order, they began to sell affordable auto insurance as part of their offerings to club members. In 1933 the company became known as the Automobile Association of New Jersey and moved to a storefront location. The motor club began attracting members beyond New Jersey as it created operations in 13 other states, as far north as Maine, as far south as Florida, and as far west as Ohio, Michigan, and Kentucky.

In the late 1950s the company expanded beyond the automobile business to start Garden State Life Insurance Company. It also began to offer fire and homeowners insurance, as well as expanding on the club’s travel services. The company changed its name to Motor Club of America in 1958, and also separated out its insurance businesses by creating Motor Club of America Insurance Company (MCAIC). It subsequently built a five-story headquarters in Paramus, New Jersey, to house the motor club operations and insurance businesses. It created a real estate subsidiary, Fairmount Central Urban Renewal Corp., to own the building and property, and then leased the facilities.

By 1970 the MCA Group consisted of Motor Club of America, three fire and casualty insurance companies, Garden State Life, three insurance sales agencies, two finance companies for car loans, a real estate company, and a travel business. The company in the late 1960s also began an effort to become involved in the hospital services industry by initiating a plan to build the New Jersey Rehabilitation Hospital in East Orange, New Jersey. By running all of these businesses out of one building, the company was able to save on overhead costs. In 1970 MCA enjoyed the most profitable year of its existence, posting net earnings of more than $1.56 million, or $1.41 per share. Premiums from motor club memberships were up by some 27 percent, as were fire and casualty premiums. Garden State Life, with increased sales through the company’s fire and casualty agents, was enjoying robust growth. It was now licensed to do business in 49 states, as well as the District of Columbia and Puerto Rico. In 1972 Garden State Life exceeded the $100 million-in-force plateau. To fuel growth in its insurance businesses the company made an initial public offering of the MCAIC unit in June 1972, selling 412,500 shares at $15 each.

Passage of New Jersey’s “No Fault” Insurance Laws in 1972

Although most of the company’s operations would continue to be profitable, the passage of New Jersey’s “no fault” insurance laws in 1972, which went into effect a year later, would soon begin to have an adverse impact on MCA. During the four years from 1976 to 1979, MCAIC endured $27 million in underwriting losses. In addition to the no-fault provisions, the company was hurt by the increased rate of inflation that caused high automobile repair costs. Clearly, the company was overly dependent on New Jersey auto insurance. In 1979 almost 90 percent of MCAIC’s net premiums came from New Jersey business, and 77.3 percent of that amount came from automobile premiums. The company sought relief from the state and on January 1, 1980, the New Jersey Insurance Commissioner discontinued assigning high-risk drivers who were distributed among state insurers. The financial state of the company was so compromised by this point that it agreed with both the States of Massachusetts and Connecticut to not write any new insurance or renew policies upon their expiration. MCAIC also withdrew its certificates of authority from several states in which it had yet to begin selling insurance. The company sought additional state relief, including a rate increase and permission to drop certain lines of automobile insurance. Although a general 11 percent rate increase was announced, the Commissioner did not grant any other relief to MCA. In October 1980 the company filed suit against the Commissioner and the State of New Jersey, seeking compensation for the injury caused by the New Jersey regulations.

Other aspects of MCA’s business that had been holding up also began to suffer in the early 1980s. Motor Club memberships had enjoyed steady growth, with operations now spreading to include 29 states. Much of this out-of-state growth was fueled by a program with AVCO Financial Services, Inc. With the country enduring higher interest rates, however, the number of loans that AVCO generated dropped significantly, and as a result the opportunity to sell motor club memberships decreased as well. MCA’s attempt to enter the healthcare business also failed to pan out. In 1975 the company’s subsidiary, Moderncare Centers of America, Inc., opened the 152-bed New Jersey Rehabilitation Hospital in East Orange, New Jersey. The operation had been modestly profitable in the late 1970s, but in February 1982, MCA sold the hospital for $7 million, receiving a cash payment of $2,650,000 after the purchaser assumed the mortgage. Moreover, in 1982 the company sold Garden State Life to the GEICO Corporation, receiving $15 million in total compensation.

The insurance business rebounded somewhat over the next few years, and the company looked to expand its product offerings by establishing a new subsidiary: Motor Club Fire and Casualty Company. In September 1986 it began to write homeowner coverage for higher valued owner-occupied single family houses. Despite this and other efforts to rebuild the business, the reality was that MCA was still being run by its founders, who were all well into their 80s. In December 1986 the three Green brothers sold 500,000 shares of MCA stock, their entire holdings, to Trac, Inc., the Tulsa, Oklahoma company that owned Thrifty-Rent-A-Car System, Inc. As part of the transaction, Trac gained five of the eight seats on the MCA board. The Green brothers remained directors and officers of the company, but management effectively changed hands.

Alvin E. Swanner served as chairman of the board on an interim basis before Archer McWhorter assumed the role. Both men had been founders of Thrifty, which now enjoyed the benefit of equity ownership in an insurer that could supply the insurance needs of its rental car business. In 1987 MCAIC and Thrifty had five policies in effect. Two of the policies were paid in advance, while three others provided monthly premium payments, based on a percentage of gross revenues generated by Thrifty locations. On the motor club side of the company, MCA looked to expand the selling of service contracts beyond its New Jersey and AVCO efforts. New management also decided to take advantage of the company’s licenses to sell insurance in other states, while at the same time cutting back on new business in New Jersey. As a result, net income increased 8 percent to $3.23 million over the previous year.

Key Dates:

1926:: Green brothers establish motor club in New Jersey.
1933:: Automobile Association of New Jersey is incorporated.
1958:: The name is changed to Motor Club of America.
1972:: Insurance unit makes initial public offering of stock.
1986:: Green brothers sell interest, turning over control of company to Thrifty-Rent-A-Car System Inc.
1992:: Losses from Hurricane Andrew devastate insurance unit.
1999:: North East Insurance Co. is acquired.
2000:: Mountain Valley Indemnity Company is acquired.
2001:: The name is changed to Preserver Group.

In 1988 MCAIC began to write homeowner and other property coverage in Florida. Despite efforts to reduce its New Jersey business, however, the company’s earnings were undercut by high automobile insurance losses in the state, caused in large part by a major increase in state-mandated assessments, and New Jersey’s failure to provide a timely rate increase. Net income for 1988 fell by 67 percent over the previous year to just $1 million. The situation in New Jersey would only worsen for insurers when the state passed new automobile insurance regulations. Not only did insurers now have to pay surtaxes and an assessment to bail out the New Jersey Joint Underwriting Association, a private passenger insurance fund that was $3 billion in deficit, they were required to accept all applicants for private passenger automobile insurance, unless the applicant met a state-mandated definition of a “bad driver.” This “take all comers” provision led many insurers to simply abandon the New Jersey market. In March 1990 MCAIC attempted to surrender its Certificate of Authority to sell private passenger automobile insurance in the State of New Jersey, as well as submitting a Plan of Orderly Withdrawal from the state, only to have the state take steps to refuse the surrender of the Certificate of Authority. Subsequently, the company reported its net earnings for 1989, which revealed a further 43 percent drop over the previous year, falling to just $452,000. By 1991 the company was reporting a net loss.

1992: Hurricane Andrew Devastating for MCAIC

Losses in New Jersey were creating a drag on the company’s other operations, which were performing fairly well. Management made plans to spin off the automobile insurance unit. Then on August 24, 1992, Hurricane Andrew struck the South Florida coast. MCAIC was essentially wiped out by the losses caused by the storm and placed in receivership. As a result, MCA wrote off more than $23 million in losses. While it canceled its auto insurance spin-off, the company also created a new insurance unit, Preserver Insurance Co., in order to provide coverage for New Jersey customers who had been serviced by MCA Insurance. Also in 1992, two months before Hurricane Andrew, William Green died at the age of 92 in Florida. David Green would then pass away in 1996, and the youngest, Samuel, in 2001.

In addition to the deaths of the Green brothers, MCA lost ties to its original business in 1996 when it sold the longtime motor club to JVL Holding Properties. It now began to reorganize and refashion itself as a commercial insurance company while expanding its business lines outside of New Jersey. A major step in this direction came in January 1999 when MCA and the Maine-based property and casualty insurer North East Insurance Company, incorporated in 1965, agreed to merge. In addition, MCA would acquire North East’s American Colonial subsidiary, which had not written any coverage since 1990. By March 1999 the details of the transaction were finalized. North East shareholders were given the choice of accepting $3.30 for each share of North East common stock, one share of MCA common stock for each 5.25 shares of North East common stock, or a combination of cash and MCA stock. The comparative value of the two companies’ stock price essentially mirrored the differences in premiums written. For the first nine months of 1998, MCA had net premiums worth $43.6 million, while North East had net premiums of $10.7 million. Following the completion of the merger, MCA named its chief financial officer, Patrick J. Haveron, to the title of chief executive officer, in charge of further mergers and acquisitions to further the company’s efforts to diversify beyond New Jersey. He shared the title with Stephen A. Gilbert, who was already serving as the CEO of MCA.

The company’s next step in gaining market share in New England came in December 1999 when it announced plans to buy the Mountain Valley Indemnity Co. from Unitrin Inc. Formed in 1995 as White Mountains Insurance Co., Mountain Valley was based in Manchester, New Hampshire, and wrote $16 million in annual premiums in small and medium-sized commercial lines. Although it conducted most of its business in New Hampshire and Massachusetts, the company also wrote some policies in Maine, Rhode Island, Vermont, and New York. The terms of the deal were finalized in March 2001 when MCA agreed to pay $7.5 million in cash for Mountain Valley.

Because MCA was no longer in the motor club business, in 2001 it changed its name to Preserver Group, Inc. Moreover, the amount of personal auto insurance the company wrote decreased as management focused its attention on expanding its small and midsized commercial lines. In its home state of New Jersey, the company continued to conflict with insurance regulators over the “take-all-comers” requirement. At the very least, Preserver Group would continue to look beyond New Jersey to growing its insurance business in New England, with other small acquisitions a distinct possibility.

Principal Subsidiaries

Motor Club of America Insurance Company; Preserver Insurance Company; North East Insurance Company; American Colonial Insurance Company; Mountain Valley Indemnity Company.