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CALIFORNIA INDEMNITY CLAIMS-PAYING ABILITY LOWERED TO 'BBB-' BY FITCH -- FITCH FINANCIAL WIRE --

    NEW YORK, Nov. 16 ~PRNewswire~ -- California Indemnity Insurance Co.'s claims-paying ability rating is lowered to 'BBB-' from 'BBB+' and removed from FitchAlert.  The lower rating reflects the insurer's reduced financial flexibility after substantial loss reserve strengthening.  In addition, the California workers' compensation insurer continues to operate in a weakened environment.  However, the insurer has taken drastic steps to reposition its operations and return to profitability.  California Indemnity remains adequately capitalized with good liquidity.
    The insurer was victim to a rapid acceleration of claims that began late in 1991 and continued into the second quarter of 1992.  This resulted from a confluence of conditions including deterioration in the southern California economy, increase in fraudulent claims, greater costs of investigating claims, weak regulatory structure, and the insurer's concentration in the hardest-hit areas of Southern California. The financial outcome to California Indemnity was a total of $63 million in loss reserve strengthening.
    California Indemnity's operating response has been equally dramatic. High midterm surcharges were assessed on policies with the worst loss experience.  Policies that did not accept surcharges were canceled.  The insurer also reorganized its agency sales system to place a much heavier emphasis on northern California, where loss experience is better and fraudulent claims are lower.  Most characteristic of this change is relocation of the insurer's headquarters to northern California from the Los Angeles area.
    Beginning in the third quarter of 1992, California Indemnity began to witness a major improvement in loss reporting, particularly for troublesome stress and strain-type claims.  This is likely a result of the insurer's re-underwriting efforts as well a slowdown in unemployment growth.  Nonetheless, the insurer continues to closely monitor and reserve conservatively for new business it is writing.
    Asset quality remains very high, with virtually all investments in 'AA' quality fixed income securities and short-term obligations. Operating leverage is reasonable with premiums-to-surplus at 2.22 times at Sept. 30.  This should allow ample capacity for growth through 1993. Debt obligations at the insurer's parent company, CII Financial, Inc., should be funded through 1993 without the need for dividends from California Indemnity.
    -0-             11~16~92
    CONTACT:  David P. Wells of Fitch, 212-908-0517 CO:  CALIFORNIA INDEMNITY INSURANCE CO. IN:  INS SU:  RTG ST:  CA


-- NY082 -- X365 11~16~92
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Publication:PR Newswire
Date:Nov 16, 1992
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