Five more local insurers come under rater's scrutiny.

Quake losses throw insurers into 'under review' status

Five L.A. County-based companies are among seven insurance firms nationwide that were placed "under review" by the major financial safety and soundness rating agency A.M. Best Co. because of large losses in the Northridge earthquake.

Santa Monica-based Western Mutual Group, North Hollywood-based Century National Insurance Co. and Century City-based Topa Insurance Co. were placed under review by A.M, Best last week, the Oldwick, N.J.-based rating agency reported. Topa may be "taken off review" in the near future because it has recently supplied A.M. Best with additional information which shows its losses are not as severe as first thought, said Carl Altenburg, A.M. Best senior analyst.

Woodland Hills-based 20th Century Industries Inc. and Los Angeles-based Farmers Insurance Group of Cos., as previously reported, are the other two L.A.-County-based companies under review by A.M. Best.

Under review

(Insurance companies under review by A.M. Best Co. as a result of Northridge
earthquake losses)

Company/                  Pretax          % of          Current
group                    net loss        capital      best rating

Century                    $4.6            7.2            A
National Ins.

Farmers                   574.9           20.9            A
Ins. Group

Topa                        2.4(**)        9              B++
Ins. Co.

20th Century              173.7           31.1            A+
Ind.

Western                     2.4           22.8            A-
Mutual Ins. Group

(Dollar figures in millions)

* Loss after effect of reinsurance
** Company states loss was actually $2.1 million

Source: A.M. Best Co.

The two non-California insurers under review are Secaucus, N.J.-based Homestead Insurance Co. and New York-based Navigators Group, according to the ratings firm.

John H. Snyder, senior vice president of A.M. Best's property-casualty division, said these seven companies represent all of the primary insurers the rating agency expects to review as a result of earthquake losses. He said A.M. Best may later place under review several reinsurance companies, which insure portions of insurers' policy coverage.

Of the seven primary companies placed under review by A.M. Best, "none of them are in danger of becoming insolvent," Snyder said. "There may be a chance of having their ratings drop a notch or two. In the next two weeks we will complete the ratings process and either affirm their current rating or downgrade their ratings to the appropriate level."

Ratings by A.M. Best and other rating agencies are used by insurers in advertising, to sell insurance to policyholders and to attract investors. A poor rating could adversely affect a company's ability to sell insurance.

A.M. Best has 15 ratings from A-plus-plus to F. Any rating of B-plus or above is considered to be a "secure" company, Snyder said. "The better the rating, the better the ability to pay claims from a catastrophe," he said.

Paul Rubicam, senior vice president of Western Mutual Insurance Group, said the company had 1,640 claims with total losses of $14 million resulting from the earthquake. With reinsurance, the Santa Monica-based insurers' net loss, before taxes is $2.4 million or 22.8 percent of its capital, according to A.M. Best.

The insurer, which specializes in selling homeowners' coverage through relationships with financial institutions such as Home Savings of America, currently has the highest safety and soundness rating, A-plus-plus from A.M. Best.

"We don't anticipate a change in our rating," Rubicam said. "Ratings from Best are very important."

Ivan Solti, chief financial officer for Century National Insurance, said his company received 1,300 claims for total losses of $11 million and reinsurance payments will bring down that loss to $4.6 million. That figure represents 7.2 percent of A-rated Century's capital, A.M. Best noted.

Solti noted Century's actual loss will be about $3.1 million after taxes. "I'm sure we'll come out (of the ratings review) all right," he added.

Nosh Marfatia, president and chief executive of Topa Insurance, said the company had gross losses of $9.1 million on about 20 claims. After reinsurance, the losses are expected to total $2.1 million and about $1.4 million after taxes, Marfatia said.

The insurer, which specializes in writing coverage for high-value homes, apartments and commercial buildings, currently has a rating of B-plus-plus with A.M. Best. Marfatia said A.M. Best placed Topa under review based on initial estimates that it would lose $2.4 million or 9 percent of its capital in earthquake losses.

Marfatia said it was "unfortunate" that A.M. Best took that action before getting the insurer's revised, pretax loss figure of $2.1 million. Topa expects to be able to pay all earthquake claims out of earnings, instead of capital, Marfatia added.

Also last week, 20th Centuries Industries announced it doubled its reinsurance coverage to $200 million. The coverage has a 25 percent deductible with 75 percent reimbursable after the company has $10 million in losses.

The insurer, which has an A-plus rating from A.M. Best, suffered losses of $173.7 million after reinsurance, but before taxes. It suffered total losses of $325 million.

Farmers Insurance Group suffered losses of $574 million after reinsurance but before taxes, which represents about 20.9 percent of the insurer's capital, according to A.M. Best. Its total losses before reinsurance tallied $622 million, A.M. Best reported.