Case Study 1

Sale of Pawtucket Mutual Insurance Company from Rehabilitation

Pawtucket and its subsidiary were placed in rehabilitation by the Rhode Island Insurance Department on May 1, 2003 with surplus falling in 24 months from $60 million to $6 million.  Founded in 1848, Pawtucket wrote personal and commercial lines in 12 New England (NE) states. On May 4, 2003 AIM was appointed the “Special Deputy Rehabilitator” to revitalize the company. Constrained to raise equity as a mutual company and with an A.M. Best “E” rating, options to revive Pawtucket were not apparent.  However, AIM's evaluation found yearly reserve redundancy, a sound infrastructure; talented line management and 156 years of agency goodwill and performance data. Also, the Providence area was favored as a low-cost city and strategically placed to write insurance in NE.

AIM saw Pawtucket as a potential base for an insurer desiring to expand into NE or a start-up insurer seeking an established platform. To achieve this, Pawtucket needed to be demutualized. AIM created and presented a plan to the court to demutualize Pawtucket as a stock company upon its recapitalization. Gaining court approval, AIM launched its marketing plan to find a buyer to recapitalize Pawtucket. With operations enhanced, assets maximized and controlled claim liabilities, five qualified buyers were found from which the Commissioner selected the best bid.  Pawtucket was recapitalized with $8 million and subsequently $20 million. Creativity and diligent effort enabled AIM to lift Pawtucket from rehabilitation with fresh capital, retain key staff and reestablish this 156 year old institution as a strong going concern.

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