Vericity Holdings Inc Ipo

A handful of small-to-midsize mutual insurers and mutual insurance holding companies have pursued subscription rights conversions over the past 25 years, but the size and nature of the underlying business make the latest transaction of this kind unique.

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Vericity Inc on June 4 filed a registration statement for an initial public offering of 20,125,000 shares of common stock at a proposed price of $10 apiece as part of the stock conversion of Members Mutual Holding Co.

in what could rank as the largest subscription rights offering on record by a demutualizing U.S. insurer, depending upon the number of shares ultimately purchased.

The transaction will include two phases: a subscription offering to officers, directors and eligible members of Members Mutual who were policyholders of Fidelity Life Association as of July 31, 2018, and a community offering for eligible Members Mutual employees and potentially a limited number of other investors.

The transaction is contingent upon the sale of at least 14,875,000 shares of Vericity common stock; the company struck a standby purchase agreement with a J.C.

Flowers & Co. LLC affiliate to ensure that threshold is reached.

The J.C. Flowers fund will have the right to acquire a majority of the shares sold and designate a majority of the nominees for the Vericity board.

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Fidelity Life offers term life, accidental death and final expense products to middle-market consumers primarily through retail call center-based affiliate Efinancial LLC, as well as independent distributors. The company markets a RAPIDecision life product that allows for many underwriting decisions to be made without the completion of an initial medical exam. Fidelity Life's direct first-year life premiums totaled $23.9 million in 2018.

Founded in 1896, Fidelity Life operated under a third-party management agreement for decades.

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It terminated that agreement in 2005 and engaged in mutual-to-stock conversion in 2007. That transaction resulted in the creation of Members Mutual Holding Co.

General form for registration of securities under the Securities Act of 1933

and the establishment of a closed block of participating policies that offered experience-based dividends.

Members Mutual in its plan of conversion said it considered a range of alternatives, ranging from the status quo to mergers and various other forms of demutualization, prior to deciding to pursue the subscription rights deal.

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It said that the structure proposed "best suits Members Mutual's circumstances."

Subscription rights conversions have been more traditionally associated with property and casualty companies, but there is some precedent for life insurers pursuing that approach.

Federal Life Group Inc. effected the conversion of Federal Life Mutual Holding Co. through a December 2018 transaction.

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More than 12 years earlier, Eastern Insurance Holdings Inc. executed the conversion of Educators Mutual Life Insurance Co., a provider of group dental, disability and life insurance products, through a subscription rights deal.

However, the combined gross proceeds of the two resulting IPOs is less than the minimum amount that Vericity is due to raise should its transaction succeed, even when adjusting for inflation. And only two subscription rights conversions and concurrent IPOs by U.S.

insurance companies across sectors since the start of 1996 have raised as much as $100 million on a gross basis: a March 2017 deal by home, auto and farm insurer NI Holdings Inc. and a December 2000 transaction by medical professional liability insurer American Physicians Capital Inc.

NI Holdings raised gross proceeds of $103.5 million in a transaction linked to the mutual-to-stock conversion of the former Nodak Mutual Insurance Co.

The American Physicians Capital deal generated gross proceeds of $154.6 million as Mutual Insurance Corp.

of America converted into stock company American Physicians Assurance Corp.

Certain previous subscription rights deals have included standby purchase agreements with third-party institutional investors. In the Federal Life offering, for example, Insurance Capital Group LLC emerged as the company's controlling shareholder as the New York-based investor acquired approximately 80% of its outstanding common shares.

Insurance Capital Group took on a similar role in the most recent insurance industry subscription-rights conversion and IPO.

It claimed beneficial ownership of 63% of the outstanding common stock of Positive Physicians, the new holding company for three medical professional liability-focused reciprocal exchanges that converted to stock insurers and combined into Positive Physicians Insurance Co.

Funds advised by J.C. Flowers count several investments in insurers and reinsurers within their overall portfolio, including medical stop-loss managing general underwriter consolidator ELMC Risk Solutions LLC and Enstar Group Ltd.

One of the individuals slated to serve on the Vericity board is the CEO of AmeriLife Group LLC, a J.C.

Customer Center

Flowers portfolio company focused on the distribution of annuity, life and health insurance products.

Members Mutual said the backing of the standby purchaser offers several strategic advantages beyond certainty of execution. The company added that its history of GAAP losses might have led to "difficulty" in the execution of a stand-alone subscription rights deal and its existence as a public corporation.

Vericity engaged Raymond James & Associates and Griffin Financial Group to advise on the offering.