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CALIFORNIA INDEMNITY 'BBB+' CLAIMS PAYING RATING ON FITCHALERT NEGATIVE -- FITCH FINANCIAL WIRE --

CALIFORNIA INDEMNITY 'BBB+' CLAIMS PAYING RATING ON FITCHALERT NEGATIVE
 -- FITCH FINANCIAL WIRE --
 NEW YORK, May 22 /PRNewswire/ -- California Indemnity Insurance Co.'s 'BBB+' claims-paying ability rating is placed on FitchAlert with negative implications. This action is taken following the California insurer's report of a first quarter operating loss of $22.1 million, the result of substantial loss reserve strengthening for workers' compensation claims. Fitch will have in-depth discussions with the insurer's management in coming weeks to determine the fundamental causes for this adverse development.
 This is the company's second reserving action in as many quarters and is due to a rapid rise in the severity of workers' compensation claims. The run-up in severity is the result of a weakening economy in a six county area near Los Angeles where the insurer has above-average risk exposure. The deteriorating economy has led to a rise in claims, particularly fraudulent ones that manifest themselves as "stress and strain" claims as well as claims that remain open longer than anticipated, resulting in higher losses. These types of claims are at times difficult to dispute and at the very least produce high expenses associated with forensic medical exams conducted as part of their investigation.
 The company has also engaged two consulting actuaries to review its loss reserve position twice in the past two quarters. In each case, the actuaries' recommendation was for the addition of loss reserves to make the insurer's position adequate. The additions were largely to cover the higher loss severity projections. Also, the California workers' compensation market remains in need of administrative and legal reforms to curb abuses of the system, as well as meaningful rate increases to address the increase in loss costs.
 California Indemnity has responded to these developments in several ways. The company has begun instituting mid-policy term surcharges on accounts where the loss experience warrants a rate increase. When the insurer is unable to charge a premium rate that it believes is adequate for the risk assumed, the policy is allowed to lapse. California Indemnity is also dramatically shifting its marketing efforts for new business out of the affected six county area into the northern parts of the state where loss experience is far better. The insurer is in the process of relocating its headquarters from the Los Angeles area to Northern California. Unfortunately, the positive effects of repricing and shifting its book of business will likely not be realized until later this year.
 Financially, California Indemnity's position in general terms remains adequate. The insurer continues to post positive cash flow and statutory policyholders' surplus (capital) at the end of the first quarter was $56 million. Roughly three-quarters of its invested assets remain in high quality fixed income securities with an average credit rating of 'AA.' In addition, another 20 percent of invested assets is in liquid short-term investments and cash. Nonetheless, Fitch will carefully review the insurer's operating prospects to determine if the rating should be lowered based on California Indemnity's business and financial outlook.
 -0- 5/22/92
 /CONTACT: David P. Wells of Fitch, 212-908-0517/ CO: California Indemnity Insurance Co. ST: California IN: INS SU: RTG


CK -- NY033 -- 3302 05/22/92 12:16 EDT
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Publication:PR Newswire
Date:May 22, 1992
Words:529
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