Foresters, by far the biggest fraternal benefits insurer in Canada, inked a deal in August to acquire Unity Life of Canada as part of what Foresters’ CEO calls “a transition.”

“We’re changing our strategy,” says George Mohacsi, president and CEO of Foresters in Toronto. “Part of the move to acquire Unity was to tap into its fairly solid presence in the Canadian market and its good distribution relationships.”

Foresters is the trademark of The Independent Order of the Foresters, the fraternal benefits society. Although its head office is in Toronto, 60% of its premiums come from the U.S. and another 15% from Britain.

Foresters has traditionally sold its insurance products through a captive or dedicated sales force. But the firm’s experience with growth in the U.S., where it works mainly with independent advisors, has demonstrated that independent insurance advisors are craving new manufacturers and options. With all the consolidation in insurance manufacturing, there’s room for a difference, Mohacsi says.

But the new strategy has dealt a blow to Foresters’ bottom line. It earned $33 million in net income in 2006 — down 50% from $66 million in 2005, largely because of an $18-million restructuring charge to convert its workforce to an independent model. Foresters has assets of about $5.7 billion and liabilities of $4.5 billion.

If your client buys an insurance product from a fraternal, he or she gains access to further benefits, including, for example, a small critical illness and disability policy. The benefits differ from fraternal to fraternal, but at Foresters, your client also gains access to a local branch, from which local community events and volunteer programs are run. There are three branches in Toronto and one in each of Calgary and Edmonton, as well as many more in small towns across Canada.

Given Foresters’ change in distribution strategy, Unity looks very attractive. Unity deals with about 5,000 Canadian advi-sors through a network of managing general agents. Foresters, by contrast, has about 100 advisors in five sales offices — three in Ontario and one in each in of Alberta and British Columbia.

“There’s no question about it” says Mohacsi. “[The acquisition] will increase our sales capabilities in Canada tenfold.”

The acquisition is part of Foresters’ larger strategy to grow its market share, which it has struggled to do in the past 20 years, says Mohacsi. As soon as the deal with Unity closes, Foresters plans to “toot its horn” to independent producers, something it has never done before. Its $1.2 billion in surplus capital, on a relative basis, gives the company the strongest balance sheet of any insurer in Canada, he adds.

“We have a good story to tell, as far as financial benefits go,” says Mohacsi, noting Foresters’ “A” rating from A.M. Best Co. Inc. (That rating agency assigns ratings from A++ to F, with A++ being a superior rating, and A and A- being excellent ratings.)

The Unity deal is subject to regulatory and policyholder approval. Unity is still a mutual insurer, so its policyholders must vote to “demutualize” before the deal can close. A mutual can take a year to unwind, but when it is done Unity will be a subsidiary of Foresters, which will pay the cost of the demutualization.

Foresters will then buy Unity Life’s shares, and Unity Life will essentially become Foresters’ Canadian operation. The Unity brand will prevail and, once the deal closes, Foresters advisors will be offered contracts with the new subsidiary.

“It has demonstrated the ability to be creative in its marketing,” Mohacsi says of Unity. “It’s gone from a very small level of sales five or six years ago to doing $50 million in new sales a year.”

Foresters aims to provide “middle-market families” with basic term, universal life and whole life insurance, as well as annuities and segregated funds. It offers some critical illness and disability riders on these product, but will expand its living-benefits lineup with Unity’s CI product. Foresters will compete against the big public insurers by offering the same suite of products in a competitive pricing structure with the family-oriented twist it can offer as a fraternal benefits society, Mohacsi says.

Advisors interested in selling Foresters’ products don’t need to be members themselves, but do need to verse themselves in its mission, benefits and programs.

@page_break@Foresters funds about 300 branches in Canada and the U.S. with $17 million for volunteer and charitable work. It is also the chief corporate sponsor of the Children’s Miracle Network, a non-profit organization that raises money for children’s hospitals in Canada and the U.S.

Foresters provided members who lost their homes in the hurricanes in the southern U.S. in 2005 with a few hundred dollars each. “It’s not a huge amount, but it wasn’t contractual and it’s something that helped them get through the night,” says Mohacsi.

About 320 North American members, who aren’t required to volunteer, can win “competitive scholarships” of $2,000, renewable for four years, for tuition for themselves or for their children. Members may also receive CI and disability benefits, plus “special dividends, sort of,” as Mohacsi says: “There are some things we can do because we’re a member-based organization. If we have a surplus, we try to return it to members.”

Last year, for example, Foresters spent $24 million paying up members’ policies, or increasing the face amount on policies in both the U.S. and Canada. Some of the costs of such programs may be incurred by product pricing, Mohacsi says, but: “At the end of the day, you still have to offer a competitive product.”

Fraternals are among three types of insurers regulated by the Office of the Superintendent of Financial Institutions of Canada. Mutuals and public companies are well known, but fraternals tend to fly under the radar, Mohacsi says.

The Knights of Columbus, based in Connecticut, holds $1.3 billion in Canadian assets. Other fraternals include ACTRA, a fraternal for the Canadian actors’ union, the Canadian Professional Sales Association and the Order of Italo-Canadians. The subindustry has consolidated in the past few of decades, Mohacsi says: “It’s gradually changed into mutual insurers or stock companies. It’s a fairly good chunk of the market, but not like it used to be.”

Unity Life had been snapping up smaller blocks of $10,000 to $50,000 policies, and Foresters will continue along that strategic path.

“Some smaller fraternals realize they can’t continue, given their size, and they’re looking for consolidation opportunities,” Mohacsi says. “But we’re very strongly capitalized. We’re looking for opportunities in the U.S. and Britain.”

According to recent data from the Canadian Life and Health Insurance Association, fraternals tallied $532.9 million in premiums in Canada in 2005, or less than 1% of the $62.8 billion total for the national life and health insurance industry. The figure includes general and segregated fund premiums as well as premium equivalents for administrative services-only plans.

“The important thing to understand is how we’re different,” Mohacsi says, addressing advi-sors considering selling the product: “The products are similar, the compensation is similar; what’s unique is our mission, which is good to talk about at the point of a potential sale.” IE