A new holding company called Geico Corp. was created yesterday when shareholders approved a plan to reincorporate and reorganize the Government Employees Insurance Co.
The new corporate framework is designed to give Geico new options for raising capital and to allow it to expand into businesses in which an insurance company alone could not operate.
It also takes away Geico shareholders' rights to buy any new stock the company issues and protects the company's management from an unwanted takeover by requiring that 80 percent of shareholders approve mergers under certain circumstances.
As a result of the change, stockholders of Geico will become stockholders of Geico Inc., and all common and preferred shares of Geico will be converted into an equal number of shares of Geico Inc. The stock switch will be handled automatically by the company; no action by shareholders is necessary, executives said.
Geico also announced yesterday it is raising its cash dividend on common stock by 60 percent, from 5 cents per share per quarter (20 cents per year) to 8 cents per share per quarter (32 cents annually.)
The complex reorganization took several hours, beginning and ending at the Shoreham Americana Hotel, with a trip to the District Building in between.
First Geico stockholders voted to reincorporate the company under provisions of a District of Columbia law that was changed in December at Geico's urging.
Then company executives went downtown, filed the reincorporation papers, and returned to the Shoreham, where shareholders approved the reorganization creating the holding company.
Formation of a holding company was not permitted under Geico's original articles of incorporation, which were based on a District law adopted in 1901. The law was changed in 1954, but auto insurance holding companies were still not permitted in the District until the city council changed the law late last year.
There was no organized opposition to the corporate renovation, and Geico officials said 98 percent of the company's shareholders who voted, voted in favor of it.
GEICO President John J. Byrne called the changes "a coordinated step designed to give us a general-purpose parent corporation."
Insurance companies are legally restricted from diversifying into unrelated fields, but those limitations do not apply to insurance holding companies.
Most major insurance companies reorganized as holding companies a decade or more ago, Byrne noted.
For the time being, the holding company, Geico Corp., will own only one firm -- Geico, the insurance company, vice president Paul J. Hanna told shareholders.
Geico will continue to own major interests in three affiliated companies, Government Employees Life Insurance Co., Government Employees Financial Corp., and Criterion Insurance Co. The new structure, however, would allow those affiliates to become subsidiaries of the holding company, but Hanna said there are no plans to make that change at present.
The holding company structure also will allow Geico to organize or acquire additional operations. Bryne said the first priority for diversification is into "family lines" of insurance, including family liability insurance, boat owners insurance, and accident, health and life insurance.
The second priority, is insurance on commercial property, workers compensation coverage and commercial reinsurance.
The third area for potential expansion is financial services, such as mortgage banking, commercial leasing, financing and the savings and loan business.