20TH CENTURY PUTS QUAKE TRIALS BEHIND.

Byline: Dawn Yoshitake Daily News Staff Writer

It took 10 seconds to put 20th Century Industries Inc. on the brink of financial ruin and a government seizure.

But since the Northridge Earthquake jolted the San Fernando Valley on Jan. 17, 1994, the Woodland Hills-based insurance company has rebounded.

It has stopped writing earthquake insurance, started posting profits and is now ready to expand its core business of automobile insurance.

``The earthquake threatened to take the company all the way out,'' said William Mellick, chief executive of the $1 billion company. ``We were on the brink of insolvency. And if I looked over the edge, it was a long way down.''

Throughout 1994, the company faced a depleted capital base, a fast-rising tide of claims that eventually topped $1 billion and a massive $498 million annual loss - the first in its history.

It was a high price to pay for its homeowners line of business, which yielded 20th Century only 10 percent of its premium revenues. The remainder came from automobile insurance policies.

``That 10 percent cost us 39 years of profit,'' Mellick said.

Those losses prompted 20th Century to abandon earthquake insurance policies and refocus on its core business - automobile insurance.

20th Century kicked off 1995 with a $432 million capital infusion from American International Group Inc. of New York, one of the nation's largest commercial property and casualty underwriters. AIG, which received a 43 percent stake, agreed to remain an investor for three years without dropping its investment or buying additional shares. AIG officials declined to comment on its investment.

``If AIG had not stepped in, the concern was that the state would,'' Mellick said. ``Some people think we gave AIG a really good deal. That's fine because the alternative was not acceptable.''

The company reached a settlement with the California Department of Insurance over its Proposition 103 insurance rebate battle. Under the agreement, 20th Century paid $78 million - 35 percent less compared with an earlier order to fork over $120 million - and received a green light to raise its auto rates.

``The dollars we saved went back into our capital and helped us get stronger,'' Mellick said.

But one consumer group says 20th Century's return to profitability came on the backs of their auto policyholders.

``They were granted a rate increase that wasn't justified. They were able to turn around and return to profitability in a year,'' said Gina Calabrese, senior counsel for the Prop. 103 Enforcement Action. ``The average increase was 6 percent and as high as 40 percent. After they raised their rates, we got a lot of calls from people who were ticked off.''

They weren't the only ones. Community Assisting Recovery Efforts, a quake-victim support group, has members who are still fighting the insurance company for a settlement.

Azita Rashti, a member of Woodland Hills-based CARE, said a number of homeowners are awaiting settlement from 20th Century.

``They're posting profits and it's the homeowners' profits. They're not turning them over to the policyholders,'' Rashti said.

Mellick said the company has settled 97 percent of the 46,000 claims outstanding.

As mid-1995 rolled along, 20th Century had no remaining earthquake policies on its books and the flood of homeowners claims started to recede. 20th Century posted second quarter profits of $14.6 million - igniting the start of a financial turnaround.

Bankers also took notice. 20th Century renegotiated favorable lending terms and received an expanded credit line of $225 million from $175 million in December.

Poised with a stronger financial footing and a year-end profit of nearly $70 million, the company also sought approval from the Department of Insurance to lower its automobile insurance rates.

As the company rolls through 1996, Mellick said 20th Century is poised for growth.

``The question of making it, or not making it, has passed,'' Mellick said. ``Now we can look forward to going after market share.''

20th Century received regulatory approval in March to lower its rates by 3.15 percent overall, expects to open its first out-of-state office in Arizona and plans to launch its first Northern California office in June.

``Getting a rate reduction was key to getting back into the competition,'' Mellick said. ``Our '94 marketing plan had called for aggressive growth. But the earthquake killed our plans.''

20th Century is the fifth-largest automobile insurance carrier in the state, with 8 percent of the market share. And the company is aiming to achieve double-digit growth this year through its expansion and aggressive marketing of its lower rates.

``We review a reduction on whether it is warranted and with an eye toward the solvency of the company,'' said Milo Pearson, the department's rate regulation deputy commissioner.

Meanwhile, credit rating agency Standard & Poor's is planning to raise the company's credit level from B-minus, vulnerable in its ability to efficiently pay claims, to a secured rating. Before the earthquake, the company maintained an AA, or excellent, rating, said Kristin Brooks, insurance group director.

``Their current rating is a little harsh at this point and time,'' she said. ``We feel the company's financial condition is secure and its ability to meet obligations is more certain.''

The company is awaiting regulatory approval to open a 20th Century office in Phoenix, Ariz. Under the agreement with AIG, 20th Century will oversee the operations and receive 49 percent of the profits.

``It's a research and development project for 20th. We want to see if our concept of selling insurance over the phone is transportable to other markets,'' Mellick said. ``Realistically, it'll be two years before we know where we are and we have no plans at this time to enter other states.''

20th Century, in an effort to keep its overhead low, sells insurance via phone and direct mail, rather than using insurance agents.

20th Century had planned to move into Arizona in 1993, but the earthquake delayed those plans.

And those weren't the only expansion plans to get postponed.

``Our 1994 marketing plan had called for aggressive growth in Northern California,'' Mellick said. ``I don't think we've lost a lot of market share there because a lot of our competitors were also growing slow because of their (homeowners insurance) exposure.''

Analysts also applaud the changes.

``The company has turned the corner and now it's a matter of putting their foot on the accelerator and grow their premium base,'' said Blair Sanford, an analyst with Hoefer & Arnett. ``Their moves indicate that that's where they're headed.''

He noted the company is stronger than it was prior to the earthquake.

``It's primarily because they aren't insuring homes for earthquake and are going back to what they were doing well before - autos,'' Sanford said. ``Although the company's revenues will be reduced without homeowners insurance, its exposure to risk will be lower with autos.''

20th Century's expansion plans come at a time when it will stop renewing homeowner policies beginning in July. And within a year, the company will no longer be in the homeowners insurance business.

``From what we see in our existing business, 42 percent of our homeowners also have an auto policy with us,'' Mellick said.

The company expects to lose a third of those automobile policies as customers shift both products to a carrier that will offer them homeowners insurance, he said. 20th Century currently has 170,000 homeowner policies, down 26 percent from 1994.

And what's in store beyond 1996?

Mellick and AIG officials declined to speculate whether the underwriter will take a larger stake in the company as the three-year clause that prevents such a move is removed.

``If the stock price goes up, it'll be more expensive to buy,'' Mellick said. ``My role is not to be a caretaker, but to make this company better every day.''

And although no new business lines are contemplated, Mellick said he is satisfied with the company's road map.

``We had looked at other things before the earthquake, but we're focused on auto insurance and don't want any distractions,'' he said.

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Photo: (color) William Mellick, head of Woodland Hills-base d insurer 20th Century, says the firm is going to focus on auto coverage.

Terri Thuente/Daily News