Love Alone Can’t Keep Pa.'s Perpetual Green Tree in Business Forever

I really do love this company,” said Charles Barber, who is facing the reality that the end is near even while holding out hope that an investor will appear to keep alive his beloved 220-year old insurance company.

Barber’s company, The Green Tree Perpetual Assurance Co., which was founded in 1784 and is one of only a handful of companies still selling perpetual fire and homeowners insurance policies, is going out of business.

Or is it? Barber said that within days of the news of Green Tree’s demise hitting the business press, he fielded four inquiries from possible investors.

Barber, chairman, president and chief executive officer of the Philadelphia-based insurer, sent letters to policyholders Dec. 10 announcing that all Green Tree policies will terminate on Feb. 7.

“It is with the deepest regret that the company must take this action, which has occurred only after all diligent efforts to secure additional capital or find a suitable business partner to allow the company to continue have been exhausted,” Barber wrote.

The company, which reported about $22.5 million in assets in 2003, has been unable to generate sufficient investment returns. In an income statement on file with the Pennsylvania Insurance Department, the company reported a net underwriting loss of $1.5 million and a net investment gain of just under $1 million in 2003.

“While The Green Tree’s overall book of business has continued to be favorable, losses reasonable and manageable in size, and attendant expenses adequately controlled, the economic downturn of the past four years has reduced the company’s capacity to generate sufficient investment return to offset the normal expenses of underwriting insurance,” Barber wrote.

“We have plenty of surplus to give everyone back their deposits but we need to do it while we still can,” he told Insurance Journal.

Since he announced the plan to terminate policies and return deposits, Barber’s sadness has been lifted somewhat as he has received calls from several potential investors. He is tight-lipped about who the suitors are but Insurance Journal has learned that one is a Boston area company. “We’re hoping we might find someone,” he said, “so maybe we can be around for another 200 years.”

Under a perpetual insurance policy of the type sold by Green Tree, policyholders pay a lump sum deposit–for example, 10 times an average annual premium–up front and that money is invested to cover losses. The full deposit is returned to the policyholder if and when the policyholder cancels.

Green Tree invented the perpetual product in 1801 as a way to help policyholders avoid what was at the time a stamp tax on fire policy renewals every seven years. Since perpetual policies do not have expiration dates, they do need to be renewed.

From 1801 until 1972, Green Tree wrote only perpetual fire policies, some of which are still in existence and are passed down within families. Some still in force date back to 1814, according to Barber. In 1972, the company added homeowners policies to its portfolio of perpetual products. It also adjusts policies and collects incremental additional deposits to reflect increasing home values.

According to Barber, Green Tree is the second largest writer of perpetual policies. He declined to comment on the size or fortunes of other perpetual insurers but the largest, with a reported $200 million in assets, appears to be the Philadelphia Contributorship for the Insurance of House from Loss by Fire, which was founded in 1752 by Benjamin Franklin.

Others perpetual insurers include Baltimore Equitable in Maryland and Saucon Mutual in Bethlehem, Pa.

Founded by dissidents
A group of former Contributorship policyholders founded Green Tree as The Mutual Assurance Co. in 1784. The dissidents opposed a Contributorship underwriting rule that banned trees in the yards of insured homes, so they bolted and set up their own company to attract tree-lovers as policyholders.

Green Tree ran into some financial trouble and was acquired by National Grange Mutual Insurance Co. of Keene, N.H., in 1996. It was later acquired by Penn Mutual Insurance Co. of West Chester.

Barber, who started with the company in 1984 and has labored with loyal employees to keep it going, began in 1998 setting up a holding company and by November 2002 he owned all shares of the company. His plans were to grow Green Tree beyond its Pennsylvania roots into four other states: Delaware, Maryland, New York and New Jersey.

But the equity and fixed income markets of the last several years did not produce the investment results Barber says he needed to cover underwriting and pursue expansion.

Barber is not alone in his sadness. He has also been receiving calls from many long-time customers who share his sadness that his unique insurer may not make it.

“We are blessed with fiercely loyal policyholders,” he noted.

With these customers in mind, he said he is only interested in an investor who will keep Green Tree as a perpetual insurer.

Given the cards he was dealt, Barber thinks he has done well to keep the insurer in business up until now. Sadness, not regret, is his chief emotion these days.

Would he do it again the same way? “I would still go down this road,” Barber told Insurance Journal, “but I’d be smarter.”

Topics Carriers