Policyholders Vote On Merger Between Berkshire And Guardian

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Policyholders have now cast their votes on the proposed merger between Guardian Life Insurance Company of America and Berkshire Life Insurance Company, and at press time early indications show overwhelming approval. However, a group of disaffected agents and policyholders continued to criticize the move up until the vote.

On June 22, Berkshire policyholders participated in a special meeting to vote on the merger with Guardian.

Many Berkshire policyholders began voting prior to this meeting, with the tally as of press time closing in on 25% of the total vote. Those votes showed 94% in favor of the merger.

Upon completion of the merger, Berkshire will focus on its disability insurance line, making its products available to the entire Guardian field force. “We’ve got the green light on a business we are really good at,” says James Zilinski, president and CEO of Berkshire.

Throughout the transition, Guardian has been interviewing Berkshire agents with the hope of recruiting them. This process took place through December of last year, at which time 92 of the 143 career Berkshire agents signed on with Guardian.

Leon Wynter, manager of public relations at Guardian, says, “Since the plan to merge the companies was announced, our intention has been to recruit as many individual qualified Berkshire agents that wanted to come with Guardian as possible.”

Some former Berkshire agents, however, feel this ‘transition’ was really a termination of the current career field force.

“When they closed the office down, we could have signed on with Guardian, but everyone went elsewhere,” says Clarke Langrall, an insurance advisor formerly licensed with Berkshire, and a current Berkshire policyholder.

“We left for a number of reasons: we didn’t like a forced hand, we didnt like the leadership in the local agency, and we found better opportunities,” says Langrall.

Zilinski says Berkshire wants to maintain good relationships with the agents who left. “We want them to take care of the client, we want them to be brokers for us, and weve given them the best financial package in the industry.”

Zilinski adds, “The door is open to anyone who decided not to join Guardian” to come back at a later time.

The terms of the merger reveal that Guardian will create a separate policy segment, called the “Berkshire Segment.” This segment will use, among other elements, an updated mortality table reflecting the experience of Berkshire’s policyholders.

The disclosure statement Berkshire provided to its policyholders describing the merger states that for this segment “separate tables will be used as long as there is a meaningful difference in experience.”

Langrall feels that this segment will perform poorly as a result of this separate table. Because of the termination of the Berkshire career field force, and their concern for fair policyholder treatment, “we will most likely see a slew of replacements in this book of business,” he says.

“Only healthy people’s policies will be replaced, leaving a pool of high risks with adverse mortality,” Langrall adds. “Berkshire will have adverse experience.”

Another voice of concern comes from Eugene Anderson, a partner at Anderson, Kill & Olick, P.C., who also represents United Policyholders, San Francisco, an organization that attempts to protect policyholders’ rights.

“In a period of 2 or 3 years, there will be a flight of Berkshire policyholders out of the segment,” says Anderson.

“The Berkshire policyholders that are insurable will leave–leaving only adverse risk policies in the segment,” he continues.

An actuarial analysis performed by Tillinghast-Towers Perrin states that once the Berkshire segment is created, mortality loading will be removed, creating an immediate benefit for all Berkshire policyholders. This is expected to have a positive or neutral impact for the vast majority of policies, the analysis says.

The Berkshire disclosure statement reads, “On average, a Berkshire policyholder may expect an increase in dividend of 4% to 10% in 2002 over the dividend he or she would receive if there was no merger.”

However, Anderson contends, “The way this formula works, the first year or so it works OK, but the continued value in the calculation depends upon renewal and rewriting of Berkshire business. Agents will get their policyholders out of Berkshire as fast as they can.”

Zilinski disagrees. “Understand the source of the block. Historically, Berkshire has on average done 50% of its production through brokerage–only half of the block would be coming from career agents in the first place.” Zilinski notes the other half comes from approximately 10,000 brokers.

Zilinski confirms that this may be the one area of risk that Berkshire policyholders are exposed to, but says “there are absolutely conservation efforts in place. We plan to be very aggressive if we see a pattern of replacement activity.”

Overall, Zilinski says, “the policyholder is winning big-time. The result will be a financially stronger, more diversified company.”

“Instead of consolidation and expense reduction,” he adds, “there are long-term strategic reasons for the merger.”

Some benefits of the merger include “more products for agents to sell, which means better service to the client,” Zilinski says. “Not one person has been laid off, new opportunities have been created, and our associate satisfaction is at its highest level ever.”


Reproduced from National Underwriter Life & Health/Financial Services Edition, June 29, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.


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