Seeking partner, insurer finds target

Last summer, Joseph Sargent, president of the Guardian Life Insurance Co. of America, inspected a list of small mutual life insurance companies to find a strategic partner for the New York-based company.

He had eyes only for the company at the top of the list.

It was Berkshire Life Insurance Co., a $1.5 billion Pittsfield, Mass., life insurance company. What attracted Mr. Sargent to Berkshire was its strong disability income insurance business that protects customers against financial losses stemming from illness or injury – one of Guardian’s fastest-growing businesses.

Mr. Sargent picked up the phone to discuss the idea of a strategic partnership with James Zilinski, Berkshire’s president. It didn’t take long for their conversation to turn into a discussion about a potential merger between two of the nation’s oldest insurance companies.

Mirror image

“There are enormous similarities between both companies,” says Mr. Sargent. “We have similar cultures, belief systems and expertise, and we are both mutual life insurance companies.”

Last month, Guardian, the nation’s fourth-largest mutual life insurance company in terms of assets – with $31.6 billion and 6,000 employees – announced its merger with Berkshire.

The deal, which must be approved by the policyholders of both companies, is expected to close within the next 10 months. There will be no exchange of cash, but Guardian will assume responsibility for Berkshire’s operations, which it will continue under its own name.

Mr. Sargent, who will serve as the chief executive of the combined companies, says that Guardian sees two major benefits from the deal. One is being able to add 150 of Berkshire’s agents to Guardian’s own 2,400 financial representatives in 93 agencies all over the country.

The deal’s other advantage, Mr. Sargent says, is boosting Guardian’s fast-growing line of disability insurance, making it one of the biggest players in the business.

“We had combined new premiums of $40 million in disability insurance last year,” says Mr. Sargent. He says that that will make Guardian No. 2 in the field, behind UnumProvident.

All of that is added to Guardian’s main business lines of life and health insurance for individuals and employers, and variable annuities for individuals. Last year, the company’s operating income rose 4.3% to $289.4 million. Rating agency Fitch signaled its approval by placing Berkshire on credit review for an upgrade because of its merger with Guardian, which it rated AAA.

“Berkshire was growing quickly in the disability insurance product line, and while the results have been favorable, it has been a volatile line of business for everybody,” says Douglas Pawlowski, a Fitch analyst.

Long tradition

Both companies have long and proud traditions. Berkshire Life Insurance was founded in Springfield, Mass., in 1851 by George Nixon Briggs, a former long-term governor of Massachusetts.

Just nine years later, a German immigrant founded Germania Life Insurance Co. in New York. Its name was changed to the Guardian Life Insurance Co. of America in 1917 when the United States decided to fight Germany in World War I.

Even before its merger with Berkshire, Guardian made several moves to expand its operations. In May, it set up a Manhattan broker-dealer subsidiary called Park Avenue Securities that has $10 billion in assets. The new unit allows insurance agents to sell securities, mutual funds and other services to the company’s life insurance clients.

It also has made a number of small acquisitions, including Fiduciary Insurance Co. of America and First Choice Dental Network in New York, and Innovative Underwriters Services in Philadelphia.