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Eastern Insurance
Holdings is a company of high integrity with an expandable strategic plan that can be
duplicated in other geographic areas
Financial
Property & Casualty
(EIHI-NASDAQ)
Eastern Insurance Holdings, Inc.
25 Race Avenue
Lancaster, PA 17603
Phone: 717-396-7095
Kevin M. Shook
Treasurer and CFO
Interview conducted by:
Lynn Fosse, Senior Editor
CEOCFOinterviews.com
Published – April 12, 2007
BIO:
Kevin M. Shook
Treasurer and Chief Financial Officer
Mr. Shook has 12 years of insurance industry experience. He joined the Eastern family
of companies in 2001 and serves as Treasurer and Chief Financial Officer of Eastern
Holding Company, Ltd. and its subsidiaries. Mr. Shook serves as a board member and as the
Treasurer of the Lancaster, PA division of the American Cancer Society and regularly
volunteers with the National Cancer Institute. In addition, he serves on the Board
Selection committee of Junior Achievement of Central PA. Mr. Shook is a graduate of Fairfield
University, with a Bachelor of Science degree in Accounting. Mr. Shook is a member of the
Pennsylvania Institute of Certified Public Accountants and American Institute of Certified
Public Accountants.
Company Profile:
Eastern Insurance Holdings, Inc. (EIHI) is a holding company that through its subsidiaries
offers insurance and reinsurance products and services to business and organizations. At
EIHI, we win with integrity – for the benefit of our loyal employees, shareholders,
agents, brokers, policyholders and their own employees. We win by bringing fresh
perspectives to the market place and the work place that clearly differentiate us as a
uniquely progressive insurer and employer.
EIHI owns and operates Eastern Alliance Insurance Group, Eastern Life and Health Insurance
Company, Employers Alliance, Inc., and Eastern Re Ltd., S.P.C
CEOCFO: Mr. Shook, there have been some
changes in the structure of the company recently. Would you tell us what has happened and
why you have changed course?
Mr. Shook: “We, on June 16th
of 2006, completed the first transaction of its kind in the insurance industry. We did a
reverse demutualization with Educators Mutual Life Insurance Company (now known as Eastern
Life and Health). Educators Mutual Life converted from a mutual to a stock form and formed
a holding company, Eastern Insurance Holdings, Inc., which is the registrant listed on
NASDAQ, and contemporaneously acquired the Eastern Holding Company family of companies,
which includes the workers’ compensation and specialty reinsurance companies. The
primary purpose of that transaction was to provide a very economical way to raise capital
and profitably expand our workers’ compensation and other lines of business.”
CEOCFO:
What are your main lines of business and why is this the time to do a capital raising
initiative?
Mr. Shook: “We are primarily a
workers’ compensation insurance company. In 2007, we will write about $90 million of
workers’ compensation insurance. We historically have been very profitable in the
workers’ compensation line of business. In addition, specializing in that business
gives us a competitive advantage, because we believe that we handle workers’
compensation claims better than anyone else. A desire to expand this profitable line of
business was one of the reasons that we entered into this capital raising
initiative.”
CEOCFO:
Who are your typical customers?
Mr. Shook: “Typically, we write
businesses and organizations primarily in the state of Pennsylvania and we are in
expanding into Maryland and Delaware. Strategically, we would also like to expand into
some other contiguous states. Our typical customer is a business with very solid
return-to-work controls, a desire to control safety in their business and a desire to
manage their workers’ compensation premiums on a going-forward basis.”
CEOCFO:
Do you sell directly to your customers?
Mr. Shook: “We have a group of about 50
independent agents that we refer to as business partners. Our belief is that we like to
establish strong relationships with a smaller group of agents and do higher volume
business with them. It is our intent to be the largest writer of workers’
compensation in each of these independent agencies. By doing that, we can further leverage
relationships; we can provide better service to our customers, and hopefully on a
perspective basis, help control workers’ comp premiums and provide great
service.”
CEOCFO:
Do businesses typically buy workers’ comp as a stand-alone service, not tied to other
insurance?
Mr. Shook: “I think in today’s day
and age there is a lot of that. I think some of the larger companies may try to package
all of their insurances, but in workers’ comp, what you will find is that a lot of
people buy it separately because it is a very specialized line of insurance and it is not
a commodity like homeowners or automobile insurance. Another thing that is important in
workers’ compensation is to have a steady marketplace, meaning we do not want to
write a customer for one year and have them price shop the next year for a company that
writes multiple products that may be in the workers’ compensation market for a year
or two. We try to stress to our agency partners and our customers the importance of
establishing a long-term relationship, because over the long haul we believe that we are
going to be more competitive, help them control their costs better, and ultimately save
them premium dollars. Therefore, in workers’ comp it is probably more important to be
with someone that is specialized than it is to be with someone that does workers’
comp, automobile, business liability insurance, homeowners and all of those other
things.”
CEOCFO:
Will you explain your motto “Fresh Outlooks, Better Outcomes”?
Mr. Shook: “What we try to do is look
at each account and each relationship we have on an individual basis by taking a fresh
perspective on things and treating everything individually. We believe better outcomes
will result from that.”
CEOCFO:
What is the financial picture of the company?
Mr. Shook: “We just released our 4th
Quarter 2006 earnings on February 16, 2006. The earnings release is posted on our Web
site, www.easterninsuranceholdings.com. We had a very good quarter and our earnings per
share was .41 cents for the three months ended on a fully diluted basis, which is very
competitive. We are very happy with our earnings. As we entered into this transaction
trying to secure additional capital, the nature of the transaction got us a little bit
more capital than we needed immediately; we are in the process of putting that capital to
use. We are actively seeking candidates for us to purchase and
profitably expand from that perspective. From an expansion perspective, you will see us
grow organically, look at acquiring books of business and look at acquiring other
companies in order to use that capital. Therefore, 2006 ended very strong. We are excited
for 2007 and some of those initiatives that I just mentioned are points of focus from a
financial perspective.”
CEOCFO: Do you need to add to your
management team for your growth?
Mr. Shook: “We will take that one step
at a time. Right now, we have the systems in place. We have an excellent chief information
officer, Harry Talbert, who enables us to grow through technology without having to add as
many people as you might think. We take it on a one off basis. We are extremely customer
service focused and we will continue to maintain that high customer service focus
prospectively. It is going to depend on the situation and we will evaluate that on a
day-by-day basis.”
CEOCFO:
What is new in the workers’ comp industry?
Mr. Shook: “With regard to
workers’ compensation, we are entering what we refer to as a soft market, which is
typically characterized by increased price competition. Workers’ compensation is
regulated on a state-by-state basis; we are primarily a Pennsylvania corporation, and
there is really nothing new from a regulatory perspective. We just need to adhere to our
underwriting standards entering into the soft market. We will not write those accounts on
which we do not think we can achieve an acceptable return on equity. I think the key in
2007 for workers’ compensation is underwriting discipline.”
CEOCFO:
You mention that you win with integrity; what sets you apart?
Mr. Shook: “For us, winning with
integrity means doing the right thing all of the time, whether you’re looking at the
situation from an underwriting, a financial reporting, or a claims perspective. That is
what we have taught our employees and how we operate our companies. I think “winning
with integrity” best describes our employee base, how we treat our employees, how we
treat our shareholders and the great relationship we have with our board.”
CEOCFO:
It is a difficult time since Sarbanes-Oxley; will you give us your take on the role of
CFO?
Mr. Shook: “I just read an article that
they are expecting high turnover in the CFO ranks again in 2007, somewhere in the range of
20 to 30%, which is staggering. When we were a private company (I came from the Eastern
Holding Company side, not the Educators Mutual, now Eastern Life and Health, side), our
CEO Bruce M. Eckert had always challenged me to run the company as if it were a public
company from a financial reporting and internal controls perspective. Therefore, going
public for us was tedious, but not as tedious as it can be for some other private
companies in making that transition. I think from a Sarbanes-Oxley perspective, we are
well under way with this project. We need to be compliant by December 31, 2007, and we do
not anticipate any problems with that because we had many of the protocols in place prior
to going public. It was a matter of formalizing a lot of those policies and integrating
the Eastern Life and Health business as part of that process. From being a CFO in a public
environment, when you have increased scrutiny, increased corporate governance and
Sarbanes-Oxley, I am all for it. I would rather work more collaboratively with the audit
committee and the board of directors. A lot of these things can be viewed as positives,
and as long as you have high integrity and you are willing to do the right thing, I do not
see any of it as being incredibly intrusive on what I do on a daily basis.”
CEOCFO:
Will you tell us about Eastern’s other product lines?
Mr. Shook: “We are primarily a
workers’ comp insurance company. The other product offerings we have are with Eastern
Life and Health, our group benefits company, where we offer dental insurance and short and
long-term disability coverage. Eastern Life and Health also has a small group term-life
book of business. In the Cayman Islands, we own Eastern Re, Ltd., SPC, a re-insurance
company. A reinsurance company is an insurance company of insurance companies that
reinsures certain environmental lines of business from a large unaffiliated insurance
company.”
CEOCFO:
There is certainly lot going on!
Mr. Shook: “Yes and it has been a lot
of fun. I spent ten years at PricewaterhouseCooper (PwC) in a very competitive
environment. Things have not slowed down at all in the five years that I have been here,
so I could not be happier.”
CEOCFO:
Why should investors be interested in Eastern Insurance Holdings?
Mr. Shook: “First of all, we are
trading under our book value. We believe that we have a strong balance sheet, so when you
look at our book value per share, we think it is a high quality book value per share and
we continue to trade underneath that book value. Having said that, June 16th
was the close of the transaction, which was a Friday, and on June 19th, the
Monday when we began trading, the stock went out at $10.00 a share and is right now in the
$14.00 to $15.00 a share range. Therefore, in a matter of six or seven months, our
investors that were part of the IPO were up about 40%. If you look at our core businesses
and you look at the capital that we have allocated to those core businesses, we have very
impressive returns on equity. Therefore, it is only a matter of time between now and when
we effectively utilize our capital that I believe the book value of the company is going
to increase nicely over the next couple of years. We also have a company of high
integrity, as I said earlier, and a very expandable strategic plan that can be duplicated
in other geographic areas and other product lines, which I also think will be attractive
to investors.”
CEOCFO:
In closing, what should our readers remember most about Eastern Insurance Holdings?
Mr. Shook: “I think they should
remember that we are very employee and shareholder focused. We treat our
shareholders’ money as if it is our own. We have an excellent track record and we are
certainly poised for profitable growth in all lines of business.”
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