ISO Proposes Change to For-Profit; Part of Managed Evolution to Better Meet Customer Needs

September 26, 1996 / 6 min read

NEW YORK, Sept. 25, 1996 — In a move designed to retain and enhance Insurance Services Office, Inc.'s (ISO) value to customers, ISO's board of directors has voted unanimously to convert the company to a stock, for-profit corporation, ISO announced today.

The proposed conversion, which includes creating two classes of stock and an Employee Stock Ownership Plan, requires the approval of two-thirds of ISO members' votes. ISO, presently a non-stock, nonprofit membership corporation, is the country's premier source for property and casualty insurance information. ISO's members are U.S. property and casualty insurers. If the conversion is approved, the change would become effective Jan. 1, 1997.

"This is a key step in the process of managed evolution we began in earnest some nine years ago in response to changing marketplace realities and customer needs," said Fred R. Marcon, ISO's chairman, president and chief executive officer.

"Operating as a for-profit corporation will provide greater incentives for cost control, efficiencies and customer responsiveness," Marcon said. "The recapitalization also will provide long-term financial flexibility and access to sources of capital that are more readily available to for-profit companies. Those financial advantages are needed to develop and support new products in a more technology- and capital-intensive business environment."

Marcon added that under the corporation's new financial structure, the availability of ISO products and services, and its pricing structure would continue unaffected.

As a for-profit stock company, about 85 percent of ISO's outstanding shares will be owned in the form of Class B common stock by property/casualty insurers that are presently ISO members. About 10 percent will be owned by the company's newly established Employee Stock Ownership Plan in the form of Class A common stock. About five percent will be owned by ISO management, also in the form of Class A common stock, through purchase or awards under newly established management-incentive plans. Ownership of ISO's Class A shares will be restricted to present and former directors and employees of the company, and to the company's Employee Stock Ownership Plan.

Neither class of shares will be available to the public.

Following the conversion, seven ISO directors not affiliated with insurers will be elected to the board by the holders of Class A shares. Three directors will be senior insurer officers and will be elected by holders of the Class B shares. Currently, three directors who are senior insurer officers are elected by ISO's insurer members. After the conversion, ISO's chief executive officer will serve as chairman, as currently. After the conversion, ISO's current directors will continue to serve.

ISO is to conclude its membership vote by Nov. 18.

The vote by ISO's directors to convert the organization to for-profit status is the latest step in ISO's evolution from an insurer-controlled rate bureau to an insurance information services provider. Last year, insurers transferred control of ISO to a board with a majority of independent, non-insurer directors.

Insurance Services Office, Inc., headquartered in New York, serves 1,500 property and casualty insurance companies and their agents, as well as state insurance regulators and through them, the public. The organization, which has 2,200 employees, was established in 1971 and is licensed or registered in all 50 states, the District of Columbia and Puerto Rico. In 1995 ISO's revenues totaled $237 million. ISO products and services are available to any U.S. property and casualty insurer.

BENEFITS OF INSURANCE SERVICES OFFICE, INC.'S PROPOSED CONVERSION TO A FOR-PROFIT CORPORATION

Insurance Services Office, Inc., (ISO) said its proposed conversion to a for-profit stock corporation from a nonprofit membership corporation would not affect the continued availability of its products and services for insurers, regulators, agents and other customers, or ISO's pricing structure. But ISO said the conversion would:

Provide ISO with profit incentive for cost control and efficiencies.
Facilitate negotiations with strategic partners.
Allow incentives to attract, reward and retain top management talent.
Provide long-term financial flexibility and access to sources of capital that are more readily available to for-profit companies. Such financial advantages are needed to meet greater capital needs to develop and support new products in a more technology- and capital-intensive business environment.
Provide ISO's employees a stake in the company's success through an Employee Stock Ownership Plan.
Extend ISO's evolution as an information-services provider.

BACKGROUND INFORMATION:

ORIGINS AND EVOLUTION OF INSURANCE SERVICES OFFICE, INC.

1866
National Board of Fire Underwriters, the first nationwide rating bureau, established by 75 insurers after several citywide fires led to numerous insurer insolvencies. In an attempt to curb intense competition that led to inadequate rates and insufficient reserves to pay claims, bureaus set rates and policy language that insurers must adhere to. If an insurer uses one of the bureau's services, it has to use them all. Some states mandate insurer membership by law. Intense competition among bureau members and non bureau members causes this bureau to dissolve in 1877.

1879
Western Union, later known as Western Underwriters Association, established as the first of the new-generation rating bureaus that are organized locally and regionally.

1896
Bureau of Liability Insurance Statistics, later known as the Insurance Rating Board, organized. This first cooperative casualty insurance organization pools statistics on forerunners of workers compensation insurance.

1920s
Cartel restrictions on fire insurers lead to their inability to compete with unregulated insurers such as the offshore Lloyd's of London. This eventually encourages a move toward competitive rating — rates set primarily by the marketplace instead of by the bureaus.

1950s
States begin permitting deviations from bureau-filed rates and partial subscribership to bureaus.

1971
Insurance Services Office, Inc. (ISO) formed, replacing a number of state property-insurance bureaus and regional and national bureaus for various lines of property/casualty insurance. ISO's charter prohibits requiring insurers to adhere to its advisory rates and policy language. Insurers are free to select among ISO's services. Buying one service doesn't require buying all. ISO begins eliminating insurer committee decision-making in establishing advisory rate levels in competitive rating states for personal automobile and homeowners insurance.

1982
ISO begins providing personal auto and homeowners insurance advisory prospective loss costs (estimates of future claims payments) instead of advisory rates in all competitive-rating states.

1984
ISO eliminates insurer-committee decision-making for all statewide advisory rate and loss-cost level decisions.

1989
Insurers ease control of ISO by providing for three noninsurer directors to serve on ISO's board, and transferring complete decision-making authority on all rate-related matters, including actuarial methodology, to ISO staff from insurer committees.

ISO begins phase-in of advisory prospective loss costs in place of advisory rates for all lines in all states.

1994
Insurers relinquish control of ISO to an 11-member board that includes seven noninsurer directors. Decision-making committees of insurers are eliminated.

1995
ISO's Board of Directors establishes Special Committee on Corporate Structure to evaluate governance issues and alternative corporate structures.

Sept. 1996
ISO's Board of Directors approves converting ISO to a for-profit stock corporation, with two classes of stock and an Employee Stock Ownership Plan.

Release: Immediate

Contacts:
Giuseppe Barone / Erica Helton
MWW Group (for ISO)
201-507-9500
gbarone@mww.com / ehelton@mww.com</p