Foresters to buy Unity Life

Foresters has announced that it has struck a deal to acquire Unity Life of Canada, subject to approval by regulators and shareholders of the target firm. The takeover would result in the demutualization of Unity Life, and the firm would be the spearhead of Foresters’ Canadian insurance operations.

“This transaction will greatly strengthen Foresters’ market position in Canada, which has traditionally been our smallest market,” says George Mohacsi, president and CEO of Foresters. “In Unity Life, we will be acquiring an attractive life insurance operation with strong marketing, product development and distribution capabilities and a demonstrated track record of growth.”

In a press release, Foresters has said it will allow Unity Life to continue operating as a separate entity under its current leadership.

All future sales activities in Canada will be conducted through Unity Life, and Foresters’ current sales representatives will be offered distribution contracts with Unity Life, where they will be able to market both Unity Life and Foresters products.

“It should be a good-news story. Foresters is by far one of the best capitalized companies in Canada with a tremendous financial surplus,” says Byren Innes, senior vice-president and director of NewLink Group Inc. “Unity’s clients and employees will probably benefit big time out of this.”

Innes describes Unity as a niche player, which can now play a much bigger role. The deal signals Foresters’ move from its traditional system of captive agents, to distribution through independent advisors.

“Foresters gets a big benefit out of this. They have a career sales force in Canada, but not in every province. This gives them access to distribution, which they really needed,” he says. “Foresters is extremely efficient, cranking out thousands of policies a week in the U.S. This should be a good thing for anyone who is currently a distributor for Unity.”

Even with Unity’s assets and policies absorbed, Foresters will be a relatively small player in the Canadian market. Innes says the firm may be a “top 15” company, in terms of Canadian sales, when the integration is over.

“We see our partnership with Foresters as a meshing of the complementary strengths of the two organizations,” says Anthony Poole, president and CEO of Unity Life. “Foresters’ size, exceptional financial strength and existing Canadian infrastructure will provide us with access to capital and additional product and distribution capability that will enable us to accelerate our Canadian growth strategy.”

Unity Life is an incorporated mutual life insurance company owned by its participating policyholders. Foresters will be distributing a guide to policyholders explaining the demutualization process, assuring them that their insurance coverage, policy values, premiums and policy dividends would be unaffected by demutualization.

To be eligible for cash payments under the demutualization, policyholders must have one or more eligible policies in force on the August 9 announcement date. The value of the deal has not been disclosed, and the transaction is expected to be completed within 12 months.

Demutualization is nothing new in the Canadian insurance industry. In 1999, the largest players — Manulife, Sun Life, Canada Life, and Mutual Life — got the ball rolling, issuing stock to policyholders and making hundreds of thousands of Canadians shareholders for the first time in their lives.

Foresters is not exactly a household name in Canada, but it has been far more successful in the U.S. and Britain. It is a fraternal benefit society, owned by its members (of which there are over 750,000 worldwide), providing insurance and financial products to its member-owners.

The structure is relatively uncommon in Canada, but receives favourable tax treatment, as profits are redirected into member benefits, such as scholarship funds.

The transaction will actually be a homecoming of sorts for Unity, which originated in 1898 as the Insurance Department of the Subsidiary High Court of the Ancient Order of Foresters. It was incorporated as a mutual company in 1934, and changed its name to Toronto Mutual Life Insurance Company.

In 2002, Toronto Mutual Life amalgamated with its subsidiary, the Western Life Assurance Company, as Unity Life of Canada. The firm currently has 125,000 policyholders, $13 billion of insurance in force and assets of $473 million.

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com

(08/09/07)

Steven Lamb