Just the right size: Lititz Mutual seeks to manage growth in tough homeowners market.

Nestled in the heart of Pennsylvania Dutch country in Lancaster, Pa., Lititz Mutual Insurance Co. has been selling insurance to farmers and others since 1888, when the mutual was founded by 25 residents who needed insurance for their farm property. Since 1890, the insurer has been guided by members of one family--the Gibbels--starting with Henry R. Gibbel (1890-1927).

Consistency and commitment to stakeholders are what the current president and chief executive officer, Henry H. Gibbel, said makes Lititz Mutual a company with staying power. Gibbel is only the third CEO the company has had. He succeeded to the top spot in 1959, following his father, Henry B. Gibbel, who was CEO from 1927 to 1959.

The company is one of only 15 to be ranked A+ or higher by A.M. Best Co. for the past half-century.

"Our mutual focus on owner ship best serves our clients," said Gibbel.

While Lititz Mutual focuses on the consistent manner in which it deals with policyholders and agents, the company also has been willing to change with the times, to achieve enough growth to thrive, said Gibbel. For example, Lititz Mutual has gradually shifted the focus of its business from farm property exclusively to residential and commercial property. Homeowners insurance now accounts for 65% of the company's business.

The company's "progressive, but conservative" business plan emphasizes profitability and financial integrity. Lititz holds the line on its premium-to-surplus ratio, currently at 0.5%. The company has also expanded geographically over the years. In 2003, it has projected direct premium written of $53 million, a 20% rise over 2002, and writes business through 600 professional agents in nine states--Pennsylvania, Delaware, Kansas, Maryland, Missouri, North Carolina, South Carolina, Virginia and West Virginia.

Proper management of growth is a critical aspect of the business for Gibbel. Premium income rose 1.1% in 2000, 7.5% in 2001, 16.3% in 2002 and 19.7% in the first half of 2003. "You see the trend in a marketplace where we have done nothing different," Gibbel said in the July/August 2003 edition of his newsletter to policyholders and agents, "Lititz Contact."

Even as the market continues to harden, Gibbel said Lititz will "curb growth beyond the 20% level as a prudent business decision."

Coupled with that growth are increased exposures to risks in the homeowners business, such as mold damage and storm losses. In the first six months of 2003, the insurer's combined ratio in homeowners rose to 118.3 from 104.7 a year earlier, due to severe winter conditions in the Northeast and tornado losses in the Midwest in May.

"It's a tough market out there," said Gibbel. "Even the big boys--the State Farms and the Allstates--have shut down some of their homeowners businesses. But it's a critical market, and we're determined to provide those services."

Lititz Mutual
Insurance Co.

                  Ratio Comparison

         Combined Ratio    Operating Ratio

1998         98.8               88.4
1999        112.8              101.7
2000        111.9              101.3
2001         99.8               90.6
2002         99.9               92.4

Note: Table made from bar line graph.

Then and Now

                      1953            2002

Assets        $4.5 million    $159 billion
Net Premium   $9.5 million   $45.4 billion

Source: A.M. Best Co. Executive Summary
Report; A.M. Best Company Report