Nodak Mutual Seeking to Convert to a Stock Company

A North Dakota mutual insurer with ties to the Farm Bureau is awaiting a decision from the state insurance commissioner as to whether it can proceed with a plan to convert to a stock insurance company.

Nodak Mutual Insurance Co. was founded by the Farm Bureau in 1946 to provide insurance products to farmers and ranchers in North Dakota, according to Nodak Mutual Executive Vice President and CEO Jim Alexander. Testifying at a hearing before North Dakota Insurance Commissioner Adam Hamm in mid-November, Alexander said the company wants to convert in order to raise capital for growth and expansion.

Without the conversion, Alexander said the primary method of raising capital as a mutual insurer is through borrowing. The capital raised through a stock offering would “allow us to further our plans [and] our strategy of growth through acquisitions and internal expansion,” Alexander said.

Nodak was created to offer property/casualty insurance products to members of the Farm Bureau organization in North Dakota. Today, through around 65 exclusive Nodak Mutual agents, the company writes automobile, farm owners, homeowners, crop/hail, commercial property and liability insurance in the state, Alexander said.

The conversion would essentially create three entities — Nodak Insurance (NI) Holdings, Nodak Mutual Group and Nodak Insurance Co.

Special counsel to Nodak Mutual, Scott Spenser with the law firm of Stevens & Lee, testified at the hearing that should the conversion be approved, NI Holdings “will be majority controlled by the mutual holding company. It is that company, NI holdings, that will engage in offering stock. Then there’s the conversion of Nodak Mutual into a stock company, the result of which would be that Nodak Insurance Company would be 100 percent owned by NI Holdings.”

Alexander said the relationship with the Farm Bureau would continue as it is today. “Under the new structure Nodak … will maintain the royalty agreement with the Farm Bureau. … In order to purchase from Nodak Insurance Company you will have to be a member of the Farm Bureau.”

The royalty agreement allows Nodak use of the Farm Bureau logo, Alexander said. The agreement “provides payment of 1.3 percent of written premium on an annual basis, not including the multi-peril crop insurance. … Multi-peril crop insurance is not a membership line of business because it is regulated by federal government.”

Nodak currently has affiliate relationships with three other companies, Alexander said — North Dakota-based American West Insurance Co.; Nebraska-based Battle Creek Mutual Insurance Co.; and Primero Insurance Co., which is headquartered in Nevada. These companies market some of their products through the independent agency system.

The Conversion Plan

Ed Moody, director of insurance company licensing and examinations for the North Dakota Insurance Department, testified that Nodak is adequately capitalized and is expected to remain so if and when the conversion takes place, as the proceeds from the stock offering would cover the conversion expenses.

Under the plan, Nodak Mutal Group would hold at least a 55 percent share of NI Holdings, Alexander said. The remaining 45 percent share would be offered to policyholders, then to members of the employee stock ownership plan (ESOP) and, later, to other investors.

The company hopes to raise around $90 million with the sale of stock in NI Holdings. Feldman Financial Advisors appraised Nodak at a value of $200 million, plus or minus 15 percent. The $90 million represents 45 percent of that appraisal amount, Alexander said. He added that the company has no immediate plans for use of the capital.

On Jan. 21, 2016, when Nodak went on record with its conversion plan, the company had 27, 915 policyholders. Those policyholders would be given subscription rights to purchase stock at $10 per share.Each eligible policyholder would receive the exact same number of subscription rights — 322, Alexander said. If policyholders choose not to not to participate and buy stock, they may redeem their subscription rights for a value of 67 cents each, or for a total of $216.

The Nodak hearing took place on Nov. 15. In an email to Insurance Journal on Dec. 7, Sara R. Behrens, an attorney for the insurance department, said there is not an exact timeline for a decision on Nodak’s application to convert to a stock company. However, she said she anticipated a decision by the commissioner in the “next few weeks.”