COMEBACK FOR 20TH CENTURY INSURANCE; COMPANY ENDURES DISASTER PAYOUTS.

Byline: Ben Sullivan Daily News Staff Writer

It took less than a minute of shake, rattle and roll to undo nearly four decades of growth at 20th Century Industries.

While the company's steel-and-glass Warner Center headquarters took some licks in the 1994 Northridge Earthquake, the homes of thousands of 20th Century policyholders were destroyed or nearly so in the magnitude-6.7 shaking.

Like the San Fernando Valley as a whole, 20th Century was blindsided, caught woefully underprepared for the scale of the devastation. But also like the Valley, the Woodland Hills insurer has staged a stunning comeback in five years.

Before the earthquake, 20th Century officials thought the company was ready for any calamity.

Consulting the California Department of Insurance and an outside specialist, ``we'd done our reinsurance calculations on probable maximum losses,'' said 20th Century Chief Executive William Mellick.

The best estimates were that the company would need to pay out $90 million to $110 million in a worst-case disaster. ``So we went out and bought $100 million in reinsurance,'' Mellick said.

In the months immediately after the January quake, 20th Century was forced to pay out more than $800 million in claims, a figure that would rise to more than $1 billion by the time the dust had settled.

Ironically, homeowner insurance at the time accounted for just 10 percent of 20th Century's revenues, proving to be a loss leader of the worst sort. The company's bread and butter had always been - and still is - automobile insurance, in which it is one of the state's largest and lowest-priced players.

In the Northridge aftermath, 20th Century faced its share of disgruntled customers, highlighted in 1997 by a court order for the company to pay a Tarzana couple $6.75 million in punitive damages for repeatedly denying the claim on their destroyed house. Scores of others filed complaints or simply stewed at what they considered to be the company's slow or tight-fisted response to the disaster.

But, for the most part, 20th Century fulfilled its obligations thoroughly, Mellick said, as evidenced by the $498 million loss it recorded for the year, its first loss in company history. In fact, 20th Century's losses, stemming from nearly 46,000 claims, were so heavy that the company's very future was thrown into question.

With cash quickly running out and more claims pouring in, ``we were at the edge of a cliff looking down,'' Mellick said.

As part of a plan worked out with state regulators to stave off insolvency, the company agreed to eliminate its homeowners business and significantly boost cash reserves, which had dropped from more than $500 million just before the quake to less than $200 million two months after the disaster. In exchange, the state allowed 20th Century to raise its auto insurance rates.

To increase its dwindling reserves, 20th Century took out loans and sought out a strategic partner. It found one with American International Group Inc. of New York, one of the nation's largest commercial property and casualty underwriters. In exchange for $432 million, AIG got a 43 percent stake in the Woodland Hills company.

And that has made all the difference.

With the stability and cash flow the AIG investment provided, 20th Century finished paying off the bulk of the claims by mid-1995. Thanks in large part to the auto-rates hike, the company even managed a second-quarter profit of $14.6 million and was $70 million in the black by year's end.

By 1996 it was clear that 20th Century had backed away from the brink, definitely turned around and was facing financial success again. The company opened an office in Arizona - its first foray outside of California - and continued to increase its revenues in California. Encouraged by growth, the company asked for and received approval to lower its auto insurance rates again.

Not surprisingly, the success made 20th Century all the more appealing to white-knight AIG. Exercising 16 million warrants for 20th Century common stock, AIG last July took a controlling interest in the company, boosting its total ownership to 50.27 percent.

By the end of 1998, 20th Century had expanded to Nevada, Oregon and Washington, and its share price had rebounded from roughly $9 in the months after the Northridge Earthquake to $21.50 on Tuesday.

A second office tower, expected to open by the end of the year, is under construction to accommodate 20th Century's growing business. Once again, the insurer is among the Valley's largest firms in both market capitalization and employees.

``You can see: Not only did we come back, but we've grown,'' said Mellick. ``It's a happy ending.''

CAPTION(S):

3 photos, 2 charts

PHOTO (1 -- color) The 20th Century logo survives on Woodland Hills headquarters for an insurer that returned from the brink of doom after the Northridge Earthquake in 1994.

(2) MELLICK

(3 -- color) no caption (collapsed house)

Chart: Road to recovery

(1) Net income

(2) Revenues