Acquisition Q&A ORGANIZATION, LEADERSHIP & TRANSACTION QUESTIONS
What has happened?
Redwoods has found a rare partner in Crum & Forster and its ownership, Fairfax Financial Holdings Limited. Fairfax, based in Toronto, Canada, has earned a reputation as one of Canada’s most successful companies, but as importantly to us at Redwoods, as one of the most people-centered, valuesled companies in the world. (Their name, Fairfax, comes from their philosophy of “fair and friendly acquisitions.”)
On April 1, 2015, The Redwoods Group was acquired by the Crum & Forster family of companies. As an operationally independent member of the Crum & Forster Enterprise, Redwoods is poised to further scale its mission-focused work in youth-serving movements. During the past 18 years, Redwoods has provided insurance and consulting services to YMCAs, Jewish Community Centers and residential and day camps throughout the U.S.
Even rarer, the acquisition leaves Redwoods’ leadership and staff in place with independent operational authority. Together, Crum & Forster and Redwoods will pursue efficiencies in technology, processes, knowledge sharing and relationship- and business-growth opportunities.
We do good, important work, but it has become increasingly clear to us that we need to scale our impact. In order to do that, we need three things:
What changes?
• Access to capital so we can invest in new products and services;
The big change is that we now “write on our own paper”— that’s insurance industry lingo that means we have full authority to assess risks and determine pricing. Comparing us now to before this transaction, we underwrote on a carrier’s paper, (AIG’s for 10+ years and most recently Zurich’s). Additionally, this change means that we are no longer a “program administrator”* (see note below), but rather an autonomous insurance and consulting company. We now underwrite and bear risk within our own organization, and are better positioned to leverage our data, expertise and experience in order to design and deliver our products.
• A more efficient service delivery platform than the model we’ve had for 18 years where we underwrite on behalf of risk bearers; and • Operating autonomy that allows us to shape our own coverage and define our own pricing while remaining a certified B-Corporation. We are excited that we have found a way to satisfy each of these requirements.
*“Program administrator” is a term used for companies, which administer, underwrite and market insurance products on behalf of separate entities like Zurich or AIG.
The new relationship means that Redwoods will now have increased authorities and access to resources that will significantly improve the way we serve our customers, while providing ongoing stability and new opportunities for our employees. This next step in our journey will also significantly enhance our rigorous social enterprise model.
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The ownership has also changed. We are now fully owned by Crum & Forster Enterprise, a subsidiary of Fairfax Financial Holdings Limited.
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Acquisition Q&A What doesn’t change?
The Redwoods Group has always been focused on providing insurance products that meet the unique and specific needs of the child serving organizations we serve, with the ultimate goal of keeping children safe and building stronger communities. It was apparent to us that this acquisition would give us the operating autonomy, the strategic partnership, the capital and the resources we need to fully support our customers in pursuit of their mission, and increase our price competitiveness, too.
Kevin and the senior leadership team will remain in place, and while this move may bring new opportunities within the C&F Enterprise for some of our staff members, we do not envision any meaningful staffing changes at Redwoods. Our brand, mission and our social enterprise model will also continue through this transition (we will remain a Certified B Corp and Green Plus Certified operation), and our coverage forms, claims handling and philosophy, consulting and underwriting will all be carried over to our new role within the Crum & Forster Enterprise.
Why did we sell to Crum & Forster? Crum & Forster is not just a buyer, but an aligned partner. The leadership at Crum & Forster is committed to preserving the values and scaling up the strengths that make The Redwoods Group who we are today.
In Crum & Forster, and their parent group Fairfax, we are fortunate to have found a partner that values the autonomy and unique assets of the companies it invests in. This organizational emphasis on autonomy is illustrated by the recent (March 6, 2015) quote below from Prem Watsa, Chairman & CEO of Crum & Forster’s parent company, Fairfax:
Will Redwoods’ mission or model change? Redwoods is, and will continue to be, committed to our core purpose: To love, serve and transform the communities we work in.
“One of the key reasons for our success over the years is our decentralized structure where each President is responsible for the success of his or her operations.”
Indeed, our work to keep children safe and build stronger communities is a large part of what attracted Fairfax and Crum & Forster to The Redwoods Group in the first place.
The Redwoods Group name will remain intact, as will our focus on providing innovative insurance and risk management solutions to youth-serving organizations.
Similarly, our model—using the data and expertise we gain in the insurance market to promote safety and social mission— will remain unchanged. The difference will be that we now have more operational autonomy, more resources, a more efficient service delivery platform and stronger strategic partnerships that will empower us to better deliver on our mission.
Why did we sell? We didn’t set out to sell. We set out to find an investor to help us scale our work and better serve our customers.
Will Redwoods’ leadership team change? Other Redwoods’ employee changes?
During the course of that search, we engaged more than 20 different potential investors, and as the C&F offer came into focus, it became increasingly clear that the alignments and synergies—in both mission and business—were simply too good for us to pass up.
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The transaction doesn’t bring any staff or senior leadership changes, and there will be a strong focus on continuity of team. Kevin Trapani will continue to lead Redwoods as
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Acquisition Q&A CEO, reporting directly to Marc Adee, with whom he has a relationship going back 23+ years. In fact, Kevin has committed to remain in that role for at least 5 years.
“Mission doesn’t mean very much if it is abandoned as soon as a company’s ownership changes. From the beginning, we envisioned the B Corp movement as a way to ensure that a company’s social mission can persist. Crum & Forster’s acquisition of The Redwoods Group is further proof that publicly traded companies* can and will invest in mission-driven enterprises while retaining and even enhancing what makes them special in the first place.”
Throughout the acquisition process, both Crum & Forster and The Redwoods Group have emphasized that the strengths and expertise of our existing team—at all levels of the organization—are a core part of the value that Crum & Forster is investing in. Additionally, The Redwoods Group is proud to have been voted among B Lab’s “Best for Workers” list in 2013 and 2014, and we will continue our steadfast commitment to our employees’ well-being and security.
* Crum & Forster is owned by Fairfax Financial Holdings Limited, a publicly traded company.
The Redwoods Group will also maintain its status as a Green Plus certified company, and The Redwoods Group Foundation will continue to run the Green Plus program as a means to promote social entrepreneurship among small to mid-sized enterprises and not-for-profits.
How will this acquisition impact The Redwoods Group’s status as a B Corporation and Green Plus certified company? Our commitment to using business, and specifically insurance, as a tool for social good is a core part of why C&F is investing in Redwoods. There has been an emphasis throughout the negotiations on not just preserving our business model, but leveraging it to enhance Crum & Forster’s own positive social impact.
Who is Crum & Forster? Crum & Forster provides specialty and standard commercial lines insurance products through its admitted and surplus lines insurance companies. Crum & Forster distributes products through approximately 1,500 authorized retail and wholesale brokers across the United States, and has been recognized for moving away from an “assembly line” approach to covering insurance risks—preferring instead wherever possible to get a deep and authentic understanding of the risks that it covers so as to better address their unique needs.
The leadership of Crum & Forster have already met with both Kevin Trapani and the leadership at B Lab, and we can confirm that The Redwoods Group will continue to operate as a B Corporation, subject to the additional audit and transparency requirements specified for wholly-owned subsidiaries of publicly traded companies. We will also be actively working with Crum & Forster to assess our new partners’ social and environmental practices, and to explore the possibility of recruiting them as a certified B Corporation.
Crum & Forster is based in Morristown, NJ, with ten regional offices, and is owned by Fairfax Financial Holdings Ltd, based in Toronto, Canada.
B Lab co-founder Jay Coen Gilbert (who has met with Marc and Kevin to discuss this transaction and their shared future plans) welcomed the news as evidence of the B Corp model’s efficacy:
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Acquisition Q&A How sound is Crum & Forster?
We recognize that some stakeholders will be wary of yet another change. But it’s important to emphasize that the new partnership with C&F marks not just a different partner, but rather a fundamental, evolutionary change. As has increasingly been the case with successful social enterprises moving to scale (Ben and Jerry’s and Burt’s Bees come to mind, as well as many merging nonprofits) effective collaboration is the key to low frictional costs and high operating efficacy.
Crum & Forster is rated “A” (Excellent) with a stable outlook by A.M. Best Company and shares a Financial Size Category of Class XIII. Additionally, the leadership of Crum & Forster’s parent company, Fairfax Financial Holdings has a track record of 30+ years that demonstrates a long-term focus and a commitment to value-based investing.
We are now an operationally independent insuring unit of a larger insurance company, not a program administrator of an insurance carrier. This change will result in a more autonomous, efficient, competitive and innovative operating structure, allowing us to better serve the needs of our customers and stakeholders.
The company and its chairman, Prem Watsa, have been widely credited for raising the alarm about the subprime mortgage bubble as early as 2003, and successfully navigating the dramatic economic fallout that followed. In fact, through the financial crisis of 2008/2009, Fairfax was able to grow its common shareholders’ equity base from $4.1 billion to $7.4 billion. This success, which was based on judicious long-term thinking and a responsible approach to growth, was in stark contrast to the performance of most established players in the financial industry.
How will the change affect my premium or my customer’s premium overall? We have always fought for—and in many ways received— considerable authority in how we write our insurance. Still, the carrier-administrator model means we were sometimes subject to the inconsistent appetites and circumstances of our carrier partners.
We are confident that such sound foresight and fiscally responsible financial acumen will help ensure Redwoods’ stability and long-term growth.
Because The Redwoods Group will now be “writing on our own paper,” we will have adequate, independent authority to price according to the actual risks of the organizations we serve. Additionally, we will be able to eliminate many of the frictional costs that have increasingly exerted upwards pressure on our insurance rates.
Why change now, so soon after Zurich transition? 2014’s transition in carriers from AIG to Zurich was motivated by our increasing challenges in working with AIG and the need for a more competitive, flexible approach to writing coverage that our customers deserve. The switch to Zurich addressed those immediate needs, and we’re grateful for their work.
We are confident that, over time, our value proposition will be much more attractive than ever before.
Without exception, Zurich’s people are deeply committed to community, and they worked very hard to support our purpose. Unfortunately, the frictional costs and oversight redundancies inherent in any carrierprogram relationship can no longer support our model or best serve our customers.
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Will Redwoods authority levels change? Yes. The Redwoods Group will now have company-level authority over our coverage and pricing.
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Acquisition Q&A Will broker commissions change?
Does the acquisition mean The Redwoods Group is moving locations?
As this new delivery system demonstrates increased efficiencies, we will evaluate every element of the value chain to ensure appropriate recognition for the essential role of our brokers. It’s important to note that there will be no change to our distribution model: Redwoods will only work through local brokers to serve customers.
No. We will remain rooted in our home community of the Triangle region of North Carolina, and specifically at our headquarters in Morrisville, NC.
RENEWAL QUESTIONS
When will policies move from Zurich or AIG to Redwoods?
How will any non-renewals be handled? Our plan at this time is that we will process the nonrenewal notices for Zurich. They will be sent within the proper timeframe and indicate that the program is no longer available. If anything changes, we will let you know.
All policies written with our previous carriers—both Zurich and AIG—will run to their natural expiration and then be quoted with The Redwoods Group, using the insuring companies of Crum & Forster Enterprise. The first renewals with Redwoods as a part of C&F will be 6.1.15.
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Acquisition Q&A COVERAGE, CONSULTING, TRAINING & CLAIMS QUESTIONS
Will there be any changes in coverage?
What will the coastal property restrictions be?
No material coverage changes are planned. Most of our customers are concerned with the abuse and molestation coverage. We will continue to offer the same limits and will not sublimit this coverage. A full coverage comparison sheet is available. While most of our coverage will remain the same, there will be expanded offerings related to our property and Workers’ Compensation offerings. (see Coastal Property and Workers’ Compensation questions further below).
Coastal property exposures are challenging for every carrier and we are no different. Redwoods will now have greater authority and capacity for coastal property, but we will continue to be responsible about our writings in order to moderate volatility in our business. Still, we are optimistic about our opportunities to provide catastrophe coverage for coastal property in a reasonably sustainable manner.
Will there be a limit on abuse coverage?
Will 12- and 15-passenger vans be covered?
We will continue to provide this important coverage in both the primary policy and the excess policy on an occurrence form. There will be no material change. Abuse coverage will be offered as a separate limit of $1,000,000 per occurrence and $2,000,000 aggregate. The abuse coverage extends into the excess policy on a follow form basis.
The reason why our previous carriers didn’t write coverage for 12- and 15-passenger vans was because of us, not them. These vans are still an unsafe mode of transportation for your community, and we continue to restrict and discourage the use of them for our customers. We will also be continuing our education and awarenessraising efforts to help eliminate 12- and 15-passenger vans from all child serving organizations.
Will you be able to write Workers’ Compensation in all states? Over time, we will be able to offer Workers’ Compensation in most of the 46 non-monopolistic states. There are four “monopolistic” states – Ohio, North Dakota, Washington, Wyoming – where we cannot offer Workers’ Compensation. We’re working on a robust plan for workers compensation and will have additional news soon about our strategy.
Will there be an accident policy? While we might feel differently over time, we haven’t traditionally seen the need for our customers to carry an accident policy. Our medical payments coverage covers about 60% of all our incidents, with an average payment of $550. This has enabled us to maintain our low rate of litigation because we can respond quickly to cover out-of-pocket medical costs and make the injured person or child’s parents feel cared for and supported.
Will Workers’ Compensation be available on a monoline basis or only as part of a package? No. We provide WC when we write the package as a part of our program.
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Acquisition Q&A Will there be earthquake/earthquake sprinkler leakage coverage?
Will independent consulting services still be offered by Redwoods?
Yes. Of course, certain restrictions will apply based on location.
Yes. Our ongoing mission is to create the insurance and risk management delivery system of the future. Consulting is a crucial element in these efforts. We’ll still have our staff of full-time consultants who will work with our customers on strengthening their operating and safety culture and injury prevention programs.
Will bounce houses and items associated with events be covered? Yes. Bounce houses and other event-related items are important programming elements for many childserving organizations. We want to offer guidance and engage in a conversation, but we like to say yes as often as possible to programming ideas that match the mission of our customer.
Will The Redwoods Institute still be available and managed by Redwoods? Yes. Our education and training products are an indispensible part of our overall offering. We will continue to develop and invest in The Redwoods Institute, offering cutting edge online trainings and educational resources designed specifically for youth serving organizations, and we will also be working with Crum & Forster to share our expertise in prevention with a wider audience.
Will claims still be processed and managed at Redwoods? Yes, we will continue managing our customers’ claims in the same manner that we currently do, and because we will now be operating as the risk-bearer—as opposed to a program of a separate insurance carrier—we will have more authority in managing our claims. We anticipate that we’ll continue to manage the open claims filed under Zurich and AIG as well, along with their relevant partners.
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