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Fremont Michigan Insuracorp: High Quality Platform at a Bargain Valuation

Sometime ago I replied to your article entitled “Fremont Insurance – The Anti-AIG.”

As I continue to read your articles, I understand how you draw your conclusions. Except for my 19 years in the business and getting to know Fremont Insurance Company very well over the past 8+ years that we’ve represented them, I would draw the same conclusions as you. However, my time in the industry has taught me a lot about other factors that make insurance companies successful and the unique challenges that our industry faces.

At the core of Fremont’s success is that they have assembled an ambitious leadership team, motivated their associates, developed a sound strategy (including their technology platforms) and built trusting relationships with the agents that represent them.

I’ve spoke about the quality of their leadership team before. Their CEO & President, Richard Dunning brings financial leadership to this company and was able to successful navigate a course out of troubled financial times not so very long ago. Mr. Dunning has also had the wisdom to promote and hire the right people for the right positions in his leadership team and has empowered them with his trust to do what is required to accomplish their jointly developed objectives.

Kent Shantz, now COO for Fremont Insurance Company, is the most recent addition to this strong leadership team. His background of executive positions with other insurance companies as well as time spent as an agent bring unique insights to developing their strategy. It also enhances the trust between agent and company – which is at an all time high for us right now. Kent was, is and always will be a loyal friend of independent insurance agents. He also has the technical expertise, smarts and savvy to work constructively with re-insurer’s, A.M. Best Company, etc. – giving confidence in the leadership team that these related organizations want to see.

Kevin Kaastra serves as Vice President of Finance and brings rock solid stability to the investment portfolio of Fremont’s surplus, timely and accurate reporting for the SEC and other required filings, and too has learned the value of trusting relationships with the independent agents that represent Fremont Insurance Company. I expect that when 4th quarter results are posted, that we will be pleased with Kevin’s conservative approach to capital investment. Sure, I expect that surplus will show some impairment given the investment market, but I suspect it will be pleasing to us how minor those impairments will be. I do not have specific knowledge of this, but rather this is the trust I place in Kevin’s values and abilities. I don’t believe Kevin is one to bet the farm on the possibility of short term gains.

Dave Mangin – CIO continues to accomplish groundbreaking progress for Fremont’s automation platforms. As evidenced by a recent award from Applied Management Systems (a popular agency software program used for managing an insurance agencies data, files, etc.) Fremont is working proactively to provide efficiencies for their agents that few other companies can match – even those companies 50 times the size of Fremont Insurance Company. As insurance companies make it easy for their agents to do business with them, agents reward them with more business. In fact, industry journals publish ease of doing business studies because of the paramount importance that this plays.

Kurt Dettmer – VP of Marketing is a dynamic individual who has been promoted through the company ranks – starting first as a claims representative. Again, he is a friend of the agents who represent him. He works tirelessly with his staff and agents, helping to develop marketing strategies that will benefit his agents. His team also serves as troubleshooters when needed and they all carry forward Kurt’s passion when in the field in everything they do. There is a clear message that Fremont is open for business and they want to be their agent’s preferred insurance company. Kurt positively believes that nobody does it better than Fremont Insurance Company – and he is committed to that vision. He is instrumental in all levels of strategy development at Fremont and brings a charged and can-do attitude to everything.

Skip Massuci serves as Vice President of Personal Lines & Product Development. He is the actuarial backbone of the company. In addition to his extensive experience and expertise, he also plays a role in developing strategies for increasing their profitable market share. His promotion to Vice-President clearly demonstrates the success he has had and the company’s confidence in his abilities. Fremont’s profitability is not by chance, and Skip plays an important role in this success.

Marv Deur is Senior Vice President and recently took responsibility for the claims division of Fremont Insurance Company. Marv has proven a versatile and loyal leader of the company as he successfully transitioned from Finance to Claims. One of Marv’s first initiatives in the claims department was to implement a client satisfaction survey on all of their claims. Briefly a customer ranks their claim experience and returns them. Much like Olympic judges, you probably need to throw out the high and low scores, but it has served as a valuable tool in two ways – it has reinforced a culture of taking care of customers and is helpful in performance reviews for the claim associates. In the end, Marv knows that the claim experience is where the rubber meets the road. It is why our customers have paid their premiums year in and year out and it should be our hallmark interaction with our clients.

In addition to their leadership team, the associates at Fremont are all truly enthusiastic about their work. It is a pleasure to work with them as an agent – their enthusiasm shines through the telephone lines and it has become apparent over the past year or two that people really like working at Fremont Insurance Company. The leadership team has done a terrific job of engaging the entire organization in developing strategies, monitoring results and rewarding success. As agents, we find the underwriters are anxious to assist us in writing profitable business, the associates who assist us with rating and changes are quick & pleasant to help and when billing matters arise – they are always willing to accommodate a good, common sense request.

Fremont’s strategy is paying off. They are getting closer to their agents and they are reaping the rewards. An agent considers many factors for recommending an insurance company to their client. First and foremost, can we trust the insurance company to take care of our customer in time of need? Trust is not easily earned and it can be lost in the blink of an eye. I look at several factors when placing my trust in an insurance company to take care of my customers. I look at values of the company – how do they treat their employees? Do they treat them fairly? Have they earned the trust of their associates? How have they treated us (their agent)? Do they treat us fairly? How have they treated our customers in the past with claims or other needs? A company must hit on all cylinders to pass this test. I don’t believe a company can be trusted to take good car of my customers if it is not their core value to be good to everyone they do business with – including their associates or agents. You either do it right all the time, or you can’t be trusted to do it right just for our customers. Perhaps a little folksy, but at the end of the day it is just common sense and a basic cornerstone that an agent should never overlook.

As an agent, some of the quickest ways to lose our trust is to either compete against us, set up a direct business model or merge / sell to another insurance company. Those companies that we represent (we have just one) that utilize a dual channel method for distribution are used ONLY when they offer an overly clear benefit to our client. For example, our client is not eligible to be insured anywhere else - and then only with great caution to our customer. Again, experience has taught me that when an insurance company splits its attention between its agents and its direct business, that we will not be #1 with them. I’ve experienced this with many decisions the one dual channel company we represent has made. For example, they promulgate our rates differently between their direct and agent placed business. This builds mistrust with our customers if obtaining a quote both ways – even though we are assured that 60+% of the time our rates are lower. This practice just doesn’t make good sense to the general public and it hurts our reputation in our communities as agents. As this company has turned a deaf ear toward us on this issue, they’ve lost our trust. How can I expect them to take care of our customer, when this value seems absent in our relationship? To make matters worse, this same dual channel company also advertises in such a manner as to lead consumers to believe that the best way to buy insurance is over the internet – further undermining the important role that insurance agents play as an advocate and trusted advisor to our clients. There are several more detrimental decisions that this company has made – which I will not elaborate on. Suffice to say, trust is a cornerstone for doing business with independent agents.

Another concern I have is your suggestion that an equity investor should consider purchasing Fremont Insurance Company. I couldn’t disagree more. First, if the purchaser were another insurance company, it would cause us to quickly begin moving our clients away. I’ve witnessed several insurance company acquisitions and without exception, I’ve never found an agent that said “that went well.” In fact, in every circumstance I’ve heard grumblings of mistrust throughout the entire process. The acquisition process is accompanied by business being re-underwritten, philosophies changing, compensation changes, relationships broken, etc. It is much more like a divorce than a marriage of two good parties. As for logical candidates, there are none that will embody the character, trust and resolve of Fremont Insurance Company. I recently turned down an appointment with what was once a favorite company of insurance agents. I talked extensively with my peers and they confided in me the many bad experiences they’ve had. Some have even moved all of their customers away and terminated their relationship with this company. Obviously we would do the same if they were a buyer of Fremont Insurance. In spite of every acquirers promises of “business as usual” we’ve found in every case it is only a matter of whether it takes 1 or 3 years to dramatically change.

Fremont’s success today is predicated on the trusting and rewarding relationships they’ve built with everyone they touch – their leadership team, their associates, their agents, the external parties – such as reinsures and AM Best Company, etc. Their plan to increase agency ownership of the company is a strong move for success in this direction. Agents understand best the cyclical nature of the industry and are patient. It brings us both closer together and aligns our interests for the good of the insurance consumer. When we work together in lock step, we accomplish greater results. This move is long over due if anything – and will add to the value for stockholder, company and agency. I for one hope that it is met with tremendous success – as I know the results will be rewarding for all of its constituents. In fact, the agents should have been more resolute in purchasing >50% in the IPO. In addition to the purchases by company management, we could have bought the remaining stock for around $35,000 per agency. I did my share as did many of my peers. Unfortunately some of this got away from us. I can’t blame you as a stockholder for promoting the strategies that you do. I think if you were to combine the practical insider experience with your strong financial analytical skills, it would enhance your ability to see the importance of the agent stock purchase plan and how it will further long term success.

Although I am not a director of Fremont Insurance Company, as an agent, I urge a little caution in your writings – there are a lot of us who feel that it affects the hard work that many of us are doing to make this company successful. Suggestions of acquisitions spook us a little – as well as the leaders and associates of Fremont Insurance Company who have devoted so much to putting Fremont Insurance Company back in a place of prominence. They’ve demonstrated that they know and understand their business, the challenges they face and they’ve navigated admirably through challenges. I further trust them to know when the time is right to expand beyond Michigan, which surely one day it will happen. However, given their small market share in Michigan, they are committed to profitable growth here before reaching into the uncertainties of new states and the unique challenges that come with such expansion. The extra scale and stability of becoming a $100,000,000 company and “A” rated by A.M. Best Company will make Fremont Insurance Company more successful when it is time for them to expand to other states.