A Lancaster, Pa., mutual life insurer has agreed to convert to a stock charter and use its new stock to pay for a neighbor.[@@]

The life insurer, Educators Mutual Life Insurance Company, hopes to acquire Eastern Holding Company Ltd., also of Lancaster, by the end of the year.

Educators Mutual, a policyholder-owned life insurer that sells group benefit plans to school districts and other employers, was formed in 1935 and now has $112 million in assets.

Eastern, a company that got its start in 1987 by insuring asbestos-removal contractors, now specializes in selling workers’ compensation products and services. Eastern has $154 million in assets.

Robert McAlaine, the chairman of Educators Mutual, will be the chairman of the holding company board, and Bruce Eckert, the chairman of Eastern, will be the chief executive of the holding company.

Eckert describes the deal as an opportunity to help each company expand its marketing reach.

“Both Eastern and Educators Mutual have a similar focus on providing basic business insurance products to small and medium-sized companies in selected markets,” Eckert says in a statement about the Educators Mutual deal.

Before Educators Mutual can acquire Eastern, Educators Mutual must get permission from state regulators and 66.7% of its policyholder-owners to convert to a stock company charter, the companies say.

The new Educators Mutual holding company will list its stock on the NASDAQ stock market and use the stock to pay for Eastern, according to Eastern and Educators Mutual.

Current Educators Mutual policyholders will have the first right to buy stock in Educators Mutual’s new holding company, according to Eastern and Educators Mutual.

“Shares not subscribed for in the subscription offering will be offered to the general public in a community offering conducted concurrently with the subscription offering, with preference given to residents of Lancaster County, Pa.,” the companies say.

An independent appraisal will determine the value of stock in the temporary Educators Mutual holding company, the companies say.

Educators Mutual then will pay Eastern shareholders enough cash and holding company stock to give Eastern’s owners 1.28 times Eastern’s fully diluted Sept. 30, 2005, book value, the companies say.