Insurer holds on tight through stormy workers' comp market. (Corporate Focus).IT'S a measure of the turbulence in California's workers' compensation workers' compensation, payment by employers for some part of the cost of injuries, or in some cases of occupational diseases, received by employees in the course of their work. market that Zenith zenith, in astronomy, the point in the sky directly overhead; more precisely, it is the point at which the celestial sphere is intersected by an upward extension of a plumb line from the observer's location. National Insurance Corp. tapped its short-term lines of credit in the first quarter for $45 million to raise the financial cushion in case of unexpectedly high claims. The Woodland Hills-based company, considered to be one of the better run insurers, had already set aside $19.5 million in the fourth quarter to beef up a separate pool of reserves it uses to pay expected claims. Although the number of worker injury claims is dropping in Dropping in is a skateboarding trick with which a skateboarder can start skating a half-pipe by dropping into it from the coping instead of starting from the bottom and pumping gradually for more speed. California, the cost per claim is increasing - and the fallout fallout, minute particles of radioactive material produced by nuclear explosions (see atomic bomb; hydrogen bomb; Chernobyl) or by discharge from nuclear-power or atomic installations and scattered throughout the earth's atmosphere by winds and convection currents. that began when insurers under-priced policies to gain market share has spread to those that didn't. "It just goes to show you that a company-trying to price prudently still got bit by bad reserves," said J. Nils Wright, former editor of the California Workers' Comp Executive, an industry newsletter. These kinds of problems have made insurers wary of doing business in the state. Standard & Poor's and Fitch Ratings Fitch Ratings An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris. have each placed a negative outlook on their financial strength ratings for Zenith. Zenith writes workers' compensation insurance in 45 states, but more than half of its revenues in the category came from California last year. Florida is another big workers' comp market, and Zenith underwrites a separate line of property and casualty reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. that accounted for $53.2 million of its $557 million in earned premiums Earned premium is the portion of an insurance written premium which is considered "earned" by the insurer, based on the part of the policy period that the insurance has been in effect, and during which the insurer has been exposed to loss. in 2002. After the California workers' compensation market was deregulated in 1995, rates plummeted in an all-out war to gain market share. Several big names went bankrupt while others left the state. Zenith cut rates, but not as sharply as many competitors. Still, it lost $46.8 million in 2000 and $25.9 million in 2001, though by last year it posted net income of $10.2 million. The fourth quarter reserve charge resulted in an operating loss operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. for all of last year. Zenith appears on track to show a profit this year, provided there aren't more reserve charges coming down the pike. The company earned $11.7 million in the first quarter ended March 31, compared to $2.8 million for the like period a year ago. The stock closed at $28.18 on June 3 after dipping below $20 in March. It also just closed a $110 million long-term convertible note offering that positioned it for further growth. At the same time, its combined ratio - the key measure of any insurer's financial health - fell below 100 percent, another good sign. The company paid out 96.5 cents in claims for every dollar in premiums it collected in the first quarter compared with $1.04.5 cents in the like year-ago period. The ability to charge higher rates in California has been a factor, the company said in Securities and Exchange Commission filings that it plans to further grow its share of the state market. Zenith has a 2.9 percent market share in California, second among private companies behind Everest National Insurance Co.'s 4.6 percent share. The State Compensation Insurance Fund The State Compensation Insurance Fund (SCIF or State Fund) is a workers' compensation insurer that is operated as a public enterprise created by the U.S. state of California. , the public fund of last resort that has taken on huge amounts of business as private companies pulled out, holds half the market. However, Insurance Commissioner John Garamendi John Raymond Garamendi (born January 24, 1945) is a U.S. politician and a member of the Democratic Party. He became the 46th Lieutenant Governor of California on January 8 2007. has questioned the state fund's financial health, and the fund sued Garamendi last month in a pre-emptive pre·emp·tive or pre-emp·tive adj. 1. Of, relating to, or characteristic of preemption. 2. Having or granted by the right of preemption. 3. a. bid to prevent a state takeover. But it's under pressure to increase premiums, and that would make it easier for Zenith to gain market share. "The issues with regard to the state fund very well may be a benefit to Zenith," said Joyce Sharaf, another A.M. Best analyst Zenith has positioned itself for that growth, with the convertible debt issuance that closed on March 31. The debt is structured as senior notes that are not due until 2023, although they can be converted into stock as early as 2010. It also cited a planned increase in its operations as a reason for the $45 million capital surplus increase. Analysts also like the fact that Stanley Zax zax n. A tool similar to a hatchet, used for cutting and dressing roofing slates. [Variant of sax, from Middle English, knife, from Old English seax; see sek- , the long-time president and chairman, remains in control, with a contract that extends to 2006. Zax did not return calls. Concerns remain about the company's reinsurance business, which after years of being profitable, contributed to its losses following two European wind storms in 1999 and the September 2001 World Trade Center tragedy, which cost it $38 million. However, Zax is staying the course in the belief that the reinsurance business is profitable in the long run and provides a measure of diversification, Sharaf said. [GRAPH OMITTED] [GRAPH OMITTED] Zenith National Insurance Corp. YEAR (Dec. 31) 2002 2001 Revenue (millions) $602.2 $537.2 Total Expenses (millions) 603.5 578.5 Operating Loss (millions) (1.3) (41.3) Net Income (Loss) (millions) 10.2 (25.9) Earnings (Loss) Per Share $0.54 ($1.47) RELATED ARTICLE: SUMMARY Business: Workers' compensation insurer Headquarters: Woodland Hills Chairman: Stanley Zax Market Cap: $511.4 million Dividend Yield: 3.7% Total Liabilities: $1.5 billion P/E Ratio P/E ratio Current stock price divided by trailing annual earnings per share or expected annual earnings per share. Assume XYZ Co. sells for $25.50 per share and has earned $2.55 per share this year; $25.50 = 10 times $2.55. XYZ stock sells for ten times earnings. : 27 Long-Term Debt Long-Term Debt Loans and financial obligations lasting over one year. Notes: For example debts obligations such as bonds and notes which have maturities greater than one year would be considered long-term debt. : $185.9 million |
|
||||||||||||||||||||
Printer friendly
Cite/link
Email
Feedback
Reader Opinion