Historical Overview On The Motor Club Of America

Based in Paramus, New Jersey, Preserver Group, Inc. is a restructured insurance company that grew out of the insurance businesses assembled by the Motor Club of America (MCA). The company provides property and casualty insurance through its five wholly owned subsidiaries, which primarily serve the northeastern United States. Although MCA became involved in the underwriting business by providing car insurance to motor club members in New Jersey, the company in recent years has looked to cut back its involvement in the state, or to abandon it completely, the result of New Jersey's auto insurance regulations that have caused a number of insurers to cease conducting business in the market.

Motor Club Origins in 1926

The Preserver Group's roots reach back to 1926 when three brothers established a motor club. William, David, and Samuel Green were born in Atlantic City, New Jersey, the children of Russian immigrants. William, the second eldest, was the one who took the lead in the motor club business, after having worked a brief time as an accountant. He would serve as chairman of the motor club and its businesses for more than 50 years. As automobiles became more common in the 1920s, drivers looked to pool their resources to provide mutual assistance, leading to the rise of motor clubs that could provide maps and help with emergency repairs and towing. Initially the Greens conducted business in a one-room office in Newark, New Jersey. In short order, they began to sell affordable auto insurance as part of their offerings to club members. In 1933 the company became known as the Automobile Association of New Jersey and moved to a storefront location. The motor club began attracting members beyond New Jersey as it created operations in 13 other states, as far north as Maine, as far south as Florida, and as far west as Ohio, Michigan, and Kentucky.

In the late 1950s the company expanded beyond the automobile business to start Garden State Life Insurance Company. It also began to offer fire and homeowners insurance, as well as expanding on the club's travel services. The company changed its name to Motor Club of America in 1958, and also separated out its insurance businesses by creating Motor Club of America Insurance Company (MCAIC). It subsequently built a five-story headquarters in Paramus, New Jersey, to house the motor club operations and insurance businesses. It created a real estate subsidiary, Fairmount Central Urban Renewal Corp., to own the building and property, and then leased the facilities.

By 1970 the MCA Group consisted of Motor Club of America, three fire and casualty insurance companies, Garden State Life, three insurance sales agencies, two finance companies for car loans, a real estate company, and a travel business. The company in the late 1960s also began an effort to become involved in the hospital services industry by initiating a plan to build the New Jersey Rehabilitation Hospital in East Orange, New Jersey. By running all of these businesses out of one building, the company was able to save on overhead costs. In 1970 MCA enjoyed the most profitable year of its existence, posting net earnings of more than $1.56 million, or $1.41 per share. Premiums from motor club memberships were up by some 27 percent, as were fire and casualty premiums. Garden State Life, with increased sales through the company's fire and casualty agents, was enjoying robust growth. It was now licensed to do business in 49 states, as well as the District of Columbia and Puerto Rico. In 1972 Garden State Life exceeded the $100 million-in-force plateau. To fuel growth in its insurance businesses the company made an initial public offering of the MCAIC unit in June 1972, selling 412,500 shares at $15 each.

Passage of New Jersey's "No Fault" Insurance Laws in 1972

Although most of the company's operations would continue to be profitable, the passage of New Jersey's "no fault" insurance laws in 1972, which went into effect a year later, would soon begin to have an adverse impact on MCA. During the four years from 1976 to 1979, MCAIC endured $27 million in underwriting losses. In addition to the no-fault provisions, the company was hurt by the increased rate of inflation that caused high automobile repair costs. Clearly, the company was overly dependent on New Jersey auto insurance. In 1979 almost 90 percent of MCAIC's net premiums came from New Jersey business, and 77.3 percent of that amount came from automobile premiums. The company sought relief from the state and on January 1, 1980, the New Jersey Insurance Commissioner discontinued assigning high-risk drivers who were distributed among state insurers. The financial state of the company was so compromised by this point that it agreed with both the States of Massachusetts and Connecticut to not write any new insurance or renew policies upon their expiration. MCAIC also withdrew its certificates of authority from several states in which it had yet to begin selling insurance. The company sought additional state relief, including a rate increase and permission to drop certain lines of automobile insurance. Although a general 11 percent rate increase was announced, the Commissioner did not grant any other relief to MCA. In October 1980 the company filed suit against the Commissioner and the State of New Jersey, seeking compensation for the injury caused by the New Jersey regulations.

Other aspects of MCA's business that had been holding up also began to suffer in the early 1980s. Motor Club memberships had enjoyed steady growth, with operations now spreading to include 29 states. Much of this out-of-state growth was fueled by a program with AVCO Financial Services, Inc. With the country enduring higher interest rates, however, the number of loans that AVCO generated dropped significantly, and as a result the opportunity to sell motor club memberships decreased as well. MCA's attempt to enter the healthcare business also failed to pan out. In 1975 the company's subsidiary, Moderncare Centers of America, Inc., opened the 152-bed New Jersey Rehabilitation Hospital in East Orange, New Jersey. The operation had been modestly profitable in the late 1970s, but in February 1982, MCA sold the hospital for $7 million, receiving a cash payment of $2,650,000 after the purchaser assumed the mortgage. Moreover, in 1982 the company sold Garden State Life to the GEICO Corporation, receiving $15 million in total compensation.

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