INSIDE:
Business Memos
26
JVS Awards
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Into The Black
Meadowbrook Insurance is shaking off the
economic downturn by going back to the
basics.
ALAN ABRAMS.
Special to the Jewish News
T
hanks to a tremendous team effort by its
management and an activist board of
directors, the Southfield-based
Meadowbrook Insurance Group has
made a remarkable turnaround.
Over its 47-year history, Meadowbrook provided
an innovative concept called alternative risk manage-
ment that allows a degree of risk-sharing on the part
of the insured client.
Meadowbrook specializes in banding together
similar groups of insureds, "similar to Lloyd's of
London with shipbuilders more than 300 years ago.
Traded on the New York Stock Exchange under
the symbol MIG, Meadowbrook lost more than 90
percent of its market value between 1998 and 2002.
The stock plummeted from a high of $34 in 1998
to $3.10 last June, when the company raised $60.5
million in capital in an offering of 21.3 million
shares. Meadowbrook stock traded at $2.45 a share
at the beginning of April.
It reported net income of $2.8 million or 9 cents
a share on revenue of $44.3 million for the first
quarter, which ended March 31. That compares
with income of $910,000 or 11 cents on revenue of
$51 million for the same quarter last year.
Meadowbrook, which has 685 employees in 17
offices across the nation, went public in 1995 at a
time when insurance companies were most competi-
tive, driving prices down. The company weathered
three bad years and is now headed back toward prof-
itability.
The company has gone back to basics and its
roots. Meadowbrook's net worth is now at $147.3
million, compared to its previous high of $119 mil-
lion in 1998.
Turnaround
Board chairman and company founder Merton J.
Segal said Meadowbrook took three major steps to
return to profitability:
• Eliminating businesses that were losing money
and that Meadowbrook managers weren't adequately
experienced to run, such as issuing surety bonds.
(One of the most common types of surety bonds are
performance bonds, which are used to guarantee a
contractor's work on a con-
struction project.)
• Overhauling its man-
agement team.
Meadowbrook replaced six
of 12 top executives since
the company began dealing
with its financial troubles
in 1999, and named Robert
Cubbin, a 15-year
Meadowbrook veteran, as
CEO last May.
• Voluntarily retained
independent actuary
Milliman USA to analyze
Merton Segal and Robert Cubbin have spearheaded the turnaround.
reserves quarterly rather than
annually.
The strong measures insti-
Meadowbrook's revenues rose from $36.9 million
tuted by Segal and Cubbin, with the approval and
in 1993 to $219.3 million in 2001. But then the
input of the board, worked. Analysts and other key
stock market turned bad.
insurance industry figures responded favorably.
Last June, A.M. Best Co. upgraded
Meadowbrook's rating to B+ (very good) from B
Playing Safe
(fair), the rating the company received in August
Fortunately, said Segal, Meadowbrook didn't have a
2001. Segal believes Meadowbrook is only a few
lot of investments that went sour. It had a conserva-
quarters away from returning to a B++ (very good)
tive portfolio, having invested in high-grade bonds.
status and eventually regaining the A- (excellent) rat-
The company's problem was that much of the
ing it held for years.
business it had written was priced low during the
The upgraded rating has had a positive effect on
years when insurance was highly competitive. The
Meadowbrook's ability to attract and retain business.
cataclysmic industry upheaval that followed saw
Segal conceded the firm lost some business, mainly
some firms go out of business while others reorgan-
from clients who were mandated to have insurers
ized.
that meet certain ratings. But he is confident the
CEO Cubbin headed the turnaround from 1999
company will regain that business, and some of it
to 2001 as chief operating officer. Under his direc-
has already returned to the fold. Meadowbrook has
tion, Meadowbrook got out of the surety business.
regained a group of professional real estate apprais-
That involvement incurred a loss of $9.1 million
ers, and a number of workers' compensation clients.
between 1997 and June 2001.
Several other factors contributed to
Said Segal, "We always were successful. We did-
Meadowbrook's turnaround. One may be bad news
n't form our own insurance company until 1985.
for consumers,. but rising insurance prices are good
For our first 12 years in the insurance company
news for Meadowbrook and its shareholders.
business, we made money. But we were like every
Outside factors also played a role in
other of the 1,700 property and casualty insurance
Meadowbrook's decline, but the Sept. 11, 2001, ter-
companies in the U.S. — we succumbed to a
rorist attacks were not the culprit. Segal attributes it
cycle of under-pricing the product. And we had
to an industry wide shakeout. "We had no impact
losses for three straight years — 1999, 2000 and
from Sept. 11, but 2001 was the worst year in the
2001 — after those 12 good years."
history of the industry, with $40-50 billion worth of
losses," he says.
MEADOWBROOK on page 27
6/13
2003
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