Palisades In N.J. Assumes GHS Auto Book

HGS was making money in New Jersey and is not "some company that is leaving the state with its tail between its legs," Mr. Wilson noted.

A number of auto insurers, most notably State Farm, have applied to leave the state saying they cannot make money in New Jersey.

Mr. Wilson said his company will receive $4.7 million, after taxes, to serve as surplus to support the transferred business from HGS.

Mr. Wilson said his New Jersey-only company was looking to expand. The New Jersey Department of Banking and Insurance, he said, gave its approval for what was called a consolidation on Jan. 17.

The company trades as Palisades Safety and Insurance Association and Palisades Insurance Company (Palisades).

Acquiring HGS renewal rights "will enable both Palisades and Harleysville to continue focusing on our respective core markets," Mr. Wilson said.

"As a New Jersey only company writing only automobile insurance, adding the HGS business serves to further solidify our position in the New Jersey auto market," Mr. Wilson added. Palisades currently insures between 60,000 and 65000 vehicles, he said.

"Since its inception, Palisades has remained committed to providing a market for our agents and providing safety conscious drivers with a great value. We look forward to welcoming our new customers into the Palisades family and sharing with them our commitment to customer service," Mr. Wilson concluded.

Over the past several years, Harleysville has pursued the development of small commercial insurance as its primary focus. As part of this effort, the company said it has reduced, or has taken actions to reduce, personal lines writings in many states, including Florida, Ohio, and Tennessee, as well as a number of mid-Atlantic states.

Harleysville's personal lines business comprises less than 35 percent of its countrywide premium volume and an even lower percentage of its New Jersey business.

The transaction calls for Palisades to issue renewal policies to all HGS policyholders who are "eligible persons" as defined by law. Eligible persons are those insureds with less than nine motor vehicle points in the last three years.

"The system worked as it was intended to work," Mr. Wilson said in a statement. "Insurance regulations have established a system whereby willing companies can come together to negotiate transactions to consolidate business; allowing one company to shift resources to focus on other business opportunities, and the other to expand its presence in New Jersey auto," Mr. Wilson continued.

He said his company learned about HGS' desire to leave the business about the same time that HGS learned that Palisades was looking to expand. Negotiations between the two firms took several months and once they reached agreement it took "a couple of months with the department," he said.

The company said all HGS policyholders will be sent notice of the transaction within the next few days. HGS policies will remain in full force and effect until such time as customers receive and accept their renewal offers from Palisades.

Palisades' renewal offers will be mailed to HGS customers 60 days before the expiration of their in-force policies. At that time, their HGS policies will be non-renewed.

Palisades operates two companies Palisades Safety and Insurance Association, a membership organization for safety conscious drivers, and Palisades Insurance Company, a higher-risk subsidiary insuring drivers who do not qualify for the membership organization.

Palisades said it currently writes approximately $65 million in premium.

HGS, Harleysville Mutual Insurance Company's subsidiary writing only New Jersey automobile insurance, currently insures over 16,000 vehicles and writes approximately $17 million in premium.

Harleysville Mutual Insurance Company, and its other affiliates including Harleysville Insurance Company of New Jersey, will remain in the New Jersey market focusing on small commercial insurance, which comprises the vast majority of its New Jersey business, the company said.

HGS policyholders will be charged Palisades premiums in accordance with Palisades' currently approved rates and tiers. The transaction contains a three-year transition period during which Palisades will gradually phase-in its rates.

In order to minimize disruption to the HGS policyholders, renewal rates will be capped at no more than plus or minus 10 percent per year for the first two years of the transaction for PSIA and plus or minus 15 percent for PIC. Approximately 90 percent of the HGS policyholders are expected to qualify for PSIA, with the remaining 10 percent to be offered renewals through PIC.

"Given the similarity in our overall rate structures, most HGS policyholders will see either no change to their rates or even a decrease," Mr. Wilson said.

Most HGS agents will continue to be able to service their clients after Palisades' issues renewal coverage. HGS agents will not automatically be granted new business authority with Palisades, although interested agents will be evaluated on a case-by-case basis, the company said.

The relatively small number of policies currently written through out-of-state agents of HGS will be handled separately.

Palisades said its 130 agents are located in virtually every community where there is an HGS agent and none is further than seven miles from an HGS location.