Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: WEDNESDAY, June 28, 1995 TAG: 9506280050
SECTION: BUSINESS PAGE: B-6 EDITION: METRO
SOURCE: MAG POFF STAFF WRITER
DATELINE: LENGTH: Long
Policyholders would become stock owners in the process but their health and hospital insurance would not be affected by the change, the company said.
Trigon said it filed the plan, call demutualization, with the Virginia Corporation Commission, which must approve it before the change would take effect.
The application was expected. In early May, Trigon canceled its annual meeting and rescheduled it for July 19 in Roanoke. At the time, there was speculation that the company was postponing the meeting while it prepared a proposal to sell stock, raising as much as $1 billion in capital for new ventures.
The Richmond-based company said the application is one of several steps the company is taking to convert from a mutual insurer - owned by policyholders - to a stock insurance company - owned by stockholders. There have been similar conversions by several U.S. insurance companies in recent years.
Trigon has a regional headquarters in Roanoke that employs 1,000 people. The company has 1.7 million policyholders and, under the proposal, they would receive shares of the new stock or, in some cases, cash, to replace their membership in the mutual company.
Trigon Chairman Norwood H. Davis said the change would result in a stronger company better able to meet the "massive change and restructuring" in the health care industry. He cited the appearance of several new health maintenance organizations, including one in Roanoke in which Trigon is a partner, as an example of that change.
"The status quo is not an option," Davis said. Trigon, he added, is going to be aggressive in strengthening. The alternative, he said, is that weaker companies would be absorbed. Davis predicted that, of the current 68 Blue Cross and Blue Shield companies, only 10 to 20 will survive after coming consolidations.
Davis said officials of the Virginia company are "keeping our eyes and ears open" in the ongoing consolidation discussions.
Retail and banking businesses have consolidated, Davis said, and, by converting to a stock company, Trigon will be "in a position to capitalize on the opportunity."
Davis said policyholders would benefit by receiving stock. "In addition," he said, "all customers benefit because their coverage would be backed by a company with greater access to capital for continued growth and expansion."
The plan, which was approved by Trigon's board, will not become effective until it is approved by the Virginia Corporation Commission following a public hearing.
It also must be approved by more than two-thirds of the company's policyholders at a meeting held for that purpose.
No date has been set for either the hearing or the meeting of policyholders. The company said it would notify policyholders as soon as the dates are set.
Del. Clifton "Chip" Woodrum, who as a member of a House of Delegates committee overseeing insurance companies received early notice of Tuesday's filing, said he doubts the General Assembly would take interest in the matter as long as Trigon maintains its open-enrollment policy of selling health insurance to any Virginian who applies.
That is despite recent fines of $5 million Trigon has paid to the corporation comission to settle complaints about how the company administered co-payments and over alleged fraudulent advertising. The company did not admit any wrongdoing but paid $23 million in restitution to policyholders.
"They've got 30 percent of the market in Virginia," Woodrum said. "Ethics aside, if you're an investor and want a share of the health care industry, it suggests it could be a good investment."
Shortly after its stock has been distributed, Davis said, Trigon would offer stock to the public. "Demutualization provides the access to the equity capital markets that is required to meet our customers' need and manage our business in this rapidly changing and highly competitive environment," he said.
Trigon has established a toll-free telephone information center to answer customer questions about the proposal. The number is 1-800-619-1697.
George Shipp, who follows the health care industry for Scott & Stringfellow Inc. in Norfolk, said it is too early to speculate on the value of Trigon stock. But he said the change in corporate structure would "not mean anything in terms of health insurance. It will not mean much in terms of coverage."
A stock company structure, Shipp said, "is not going to be much change" for policyholders. For the company, he predicted, "it will be more or less business as usual."
J. Tyler Pugh, senior vice president and manager of the Roanoke office of Wheat First Butcher Singer, said he feels confident that the stock will one day be attractive to investors. He could not advise present policyholders, he said, but the company should send full information to them.
Several other stockbrokers declined comment because they had no first-hand knowledge of the proposed transaction.
If the plan is approved and Trigon converts to a stock company, its legal name would become Trigon Insurance Co. The company would become a wholly owned subsidiary of a new parent company, Trigon Healthcare Inc. But it would continue to operate in Virginia as Trigon Blue Cross Blue Shield.
Steven T. Foster, the SCC's commissioner of insurance, said his office would thoroughly review the application.
``We intend to ensure that management's plan of demutualization is fair and reasonable and in the best interests of the policyholder-owners of Trigon,'' Foster said. ``If the proposed plan is not in their best interests, we will vigorously oppose it at the commission's hearings.''
Attorney General James S. Gilmore III, whose office earlier investigated Trigon, said that, as the state's consumer counsel, he will seek to have a say in the matter.
``Demutualization of Trigon will be in the public interest only if we can be assured that the behavior of the new Trigon will be better than the behavior of the old,'' he said.
The Associated Press contributed information to this story.
by CNB