20th Century Industries takes a big hit from quake.

Insurer plans charge against earnings of $54.4 million

20th Century Industries, the Woodland Hills-based insurance company with a large concentration of homeowners' policies in the San Fernando Valley, announced last week it will take a $54.4 million charge to earnings this quarter as a result of $160 million in costs and claims from the Northridge earthquake. Meanwhile, two research firms issued new, higher estimates that the Jan. 17 quake will result in $2.5 billion to $3 billion in insured losses.

20th Century expects to take the charge of $54.4 million, or $1.06 a share, for the quarter ending March 30, said Rick Dinon, senior vice president. In addition, the company expects to take a charge of $8.5 million, or 16 cents a share, for the costs associated with reinstating its reinsurance.

Dinon said 20th had not yet determined whether the $8.5 million charge would be taken in the first or second quarter.

The insurer's earthquake losses will exceed its reinsurance policy limit by $50 million, the company announced. Its reinsurance agreement with Lloyd's of London-in effect, insurance to cover an insurer's losses -- repays the company 75 percent of losses up to $100 million, with a $10 million deductible.

Dinon said the company expects the payouts on 26,000 homeowner and auto claims, plus the costs associated with assembling a special catastrophe team of 320 adjusters, will cost the company $160 million.

In addition, it must pay a new $8.5 million premium to be reinstated in its reinsurance program, Dinon said. "Unlike an individual collision coverage on a car, a catastrophic reinsurance program can only be used one time for the given premium," Dinon explained.

Dinon said that the company's financial safety and soundness rating was not currently being reviewed as a result of financial losses suffered be-cause of the earthquake and "we would expect that it would be reviewed in the normal time in the normal fashion," Dinon said.

Dinon added that he did not expect 20th's financial safety and soundness rating of A-plus, according to A.M. Best Co., will change as a result of quake-related losses.

Meanwhile, two research firms have issued estimates that total insured losses for the Northridge earthquake will be $2.5 billion to $3 billion.

Property Claims Services, the insurance industry's source of information on insured losses from natural disasters, last week announced that the quake caused $2.5 billion worth of insured losses, making it the third largest natural disaster for insured losses of all time.

Hurricane Andrew is the largest, having caused $15.5 billion in insured losses, followed by Hurricane Hugo, which caused $4.2 billion in insured losses, according to Property Claims Services.

"Approximately 33 percent of homeowners in the (Northridge earthquake) affected area have earthquake coverage," said Gary Kerney, vice president for the Rahway, N.J.-based insurance service. "Commercial property had a slightly higher rate of coverage."

EQE International Inc., a San Francisco-based consulting firm specializing in natural hazard risk assessment, has estimated that insurers will pay out earthquake claims of $2.5 billion to $3 billion. That figure includes $2 billion to $2.5 billion in claims for property damage from the quake and $500,000 in business interruption losses, according to Charles Scawthorn, an EQE vice president.

The $2.5 billion estimate by Property Claims Services includes business interruption claims, said Jim Welsh, Property Claims spokesman.

In the first few days after the earthquake, EQE, which has been hired by the state Office of Emergency Services to estimate earthquake damage loss, had projected that the quake would cause $1.5 billion to $1.9 billion in property-related claims, Scawthorn noted. That initial projection did not include claims for business interruption, he said.

EQE has also issued a new estimate for total damage caused by the earthquake -- both insured and uninsured -- of $13 billion to $20 billion. EQE had in the first few days estimated there was $15 to $30 billion worth of damage, Scawthorn said.

Northbrook, Ill.-based State Farm Insurance Co., California's largest insurer with 25 percent of the homeowners market, announced last week that it expects to pay out $600 million for earthquake-related damages.

Bloomington, Ill.-based Allstate Insurance Group, the state's second largest insurer with 15 percent of the statewide homeowners market, had earlier announced that it expects to pay out $350 million in earthquake-related claims. L.A.-based Farmers Insurance Group, the state's third largest insurer with about 13.5 percent of the statewide insurance market, had not yet released an estimate of losses for the quake at press time.

In a separate development arising out of the 1989 Loma Prieta earthquake, the state Department of Insurance announced last week that Farmers agreed to pay the department $100,000 to settle charges that it failed to offer earthquake coverage to its policyholders.

That settlement follows an investigation by the department into an allegation from a homeowner policyholder who complained after the 1989 quake that the company did not offer her an earthquake policy. Farmers also settled with the homeowner for an undisclosed amount, the department said.

In June 1993, the department filed charges against Farmers alleging the company had violated state insurance code 10081, which states that insurers may not issue homeowner policies "unless the named insured is offered coverage for loss or damage caused by the peril of an earthquake." The department alleged that Farmers had failed to make accurate and complete earthquake insurance offers in 150 of 200 cases investigated by the department. "We believe that this settlement sends a clear signal to both the company and the insurance industry that earthquake insurance must be offered and we will take strong action to enforce the law against companies which fail to do so," state Insurance Commissioner John Garamendi said in a statement.

John Millen, spokesman for Farmers, said the violations "are merely technical. We are currently in full compliance of the law."

Farmers and the Department of Insurance "reached the substance of the agreement months ago and the department has delayed this announcement until after a major earthquake," Millen added.