Pawtucket Mutual reborn after 3 years

Ten months after acquiring the failed Pawtucket Mutual Insurance Co., the company’s new owners say they have written 3,200 policies already, and they expect to attract 800 more policies and $4 million to $6 million in additional revenue by the end of the year.

Blackstone Financial Group, an investors’ group led by insurance veteran Stewart H. “Nick” Steffey Jr., bought the now-158-year-old Pawtucket Mutual from the state last December for $5 million.

The insurer had been taken over by the R.I. Department of Business Regulation in May 2003, after large losses, the depletion of capital and low investment income had reduced the company’s reserves to just $8.5 million, from $49.3 million in 1998.

By the time Blackstone took over, the insurer had no policies still active.

Steffey and his partners turned Pawtucket Mutual into a stock company, renamed it the Pawtucket Insurance Co., refocused the company’s mission, and this spring, began writing policies again. So far, said Steffey – the new company’s CEO – their progress is in line with their plans.

“We’re starting small, and we’re trying to be sure all our rates and rules are up and working,” he said. “Next year, we’ll be able to grow by 50 percent. We think the tools and the rates and forms we’ve developed will allow us to provide a competitive product in Rhode Island.”

Part of the expected growth, Steffey said, will be due to the recent acquisition – by Narragansett Bay Insurance Co., a Pawtucket Insurance subsidiary – of 1,500 Rhode Island policies from Worcester-based Hanover Insurance Co.

Pawtucket Insurance, which offers only homeowners’, dwelling fire and family dwelling policies, is taking on “high-risk” policies as others back away from them, Steffey said. “A whole lot of insurance companies have changed their catastrophe models, and they showed that under certain circumstance, the loss would be much greater than they thought it would be before,” he said. “They’re looking at what the 1938 hurricane would do today.” Concerned about the revised loss estimates, he noted, Mass.-based firms Hanover, Quincy Mutual Fire Insurance Co. and Andover Insurance Cos. have all cut back on their homeowners’ insurance policies.

“And while we can’t fill the entire void,” Steffey said, “we think we can fill some of it. We have a company that we designed to do one thing – to take over the business that others are canceling.”

Pawtucket Insurance can do this, he said, because it has fewer policies and less exposure. “It has to do with aggregate exposure – and as of Jan. 1, we had none,” he said. “If we were the same size, we might have the same problem.”

Another way that Pawtucket Insurance is able to handle the risk is its system of inspection services, called ShelterPride, Steffey said.

“With ShelterPride, we inspect every home at our cost and share those results with the homeowner and with the agent,” he said. “The key is, we think that part of what we can add is that we’re proactive to help people live safer lives.”

Fire safety is one of ShelterPride’s priorities.

“We think that some of the issues in Rhode Island have to do with fires, so we are passionate about the fact that homes should be safer than they are,” Steffey said. “Twenty-five percent of Americans don’t even own a fire extinguisher. But we’re going to help people buy them and learn how to use them.”

Tactics such as these have helped earn the company a financial rating of “A” – exceptional – from Demotech Inc., a rating agency for homeowners’ insurance companies.

Steffey considers this quite a success story, considering Pawtucket Mutual’s troubles in recent years. “I think it’s the first time in Rhode Island, and maybe the Northeast, that a company has come back from rehabilitation,” he said.

Joseph L. Torti III, associate director of the DBR and state insurance superintendent, agreed. He added that most companies in that situation end up being liquidated. “In the 20 years I’ve been here,” Torti said, “this is the first time I’ve seen a company come out of rehabilitation and begin writing again.”

Pawtucket Insurance has beaten those odds with support from the state, Steffey said, and by staying small and trying to be the best at what it does.

“Our principal goal is to become a leading provider of specialty personal line products in the northeastern U.S.,” he said. “We have an experienced management team leveraging a small player in a big market opportunity.”

The company is planning to expand its market to some extent, however. It now provides insurance only in Rhode Island and New York; by the fourth quarter of this year, it also will be writing policies in Massachusetts.

Steffey said he believes expanding into other states will lead to more employees and agents. Currently, the company has 20 employees and 78 agents, 72 of whom were added through the recent Hanover Insurance deal.

“We hope to be a company with somewhere between $150 million to $200 million revenue in the next four or five years, and that would require a significant increase in our employee base,” he said. “We also expect to expand into other states, and certainly will need agents in those states as well.”

Pawtucket Insurance has the capital it needs to finance its plans “for the next year or two,” Steffey said. “But we’re looking to add another $5 million to $10 million [in reserves] for the 2007 business year.”

The company has about 24,000 square feet of unused space in its two buildings in downtown Pawtucket, which it is trying to lease. That would bring in some additional revenue.

As for expanding into other types of insurance – Steffey said that for now, the partners are happy with their niche, and there is more than enough business out there to keep them busy.

“We think that it’s really hard to do one thing well. We’re a small company that is very focused, and we think for the foreseeable future, we have our hands full,” he said. “But if we do this well, we’ll earn our right to do more.”