Summary Business: Insurance Headquarters: Woodland Hills CEO: Stanley R. Zax Market Cap: $450 million Dividend Yield: 3.9% Total Liabilities: $1.162 billion P/E: 93.4 Long-Term Debt: $58.4 million The insurance industry was just beginning to see the light at the end of the tunnel following regulatory changes in the late 1990s that lifted minimum pricing requirements for workers’ compensation coverage, essentially creating new competition in the marketplace and setting off a price war. The lower insurance rates coupled with an emerging economic decline took a toll on the industry as a whole, and companies like Woodland Hills-based Zenith National Insurance Corp. took deep financial hits during most of 2000. Now industry analysts are predicting that insurers’ losses on both workers’ comp and property-casualty claims resulting from the Sept. 11 terrorist attacks will be more than $35 billion, once comprehensive reports on company exposures are fully calculated. Despite the expected losses, experts say the workers’ comp insurers are well financed and can expect a swift recovery. But primary insurers with reinsurance subsidiaries will carry a large percentage of the losses, and Zenith is no exception. Because workers’ compensation claims represent roughly 90 percent of Zenith’s business, and roughly 90 percent of that business is in California and Florida, Zenith’s losses will come primarily on the reinsurance side. Following the attacks, Zenith executives said they estimate losses on reinsurance claims of between $4.6 million and $9.8 million in connection with the attacks, or 26 cents to 56 cents a share. Zenith’s stock, trading at around $30 just before the attacks, dropped to $27 when the stock market reopened Sept. 17 and hovered in the $26 range most of the following two weeks. On Sept. 28, it traded at $24.35 But Zenith competitor Chicago-based CAN Financial’s stock went from a high of $40.24 in June to below $24 following the attacks, and PMA Capital of Philadelphia went from a pre-attack high of $18.94 to $15.19 afterward. “I think Zenith has done better than others percentage-wise,” said Gary Ransom, an analyst with Fox-Pitt, Kelton in New York. “Many other companies have had far worse plunges ranging from 30 to 40 percent, so in the grand scheme of things the losses for Zenith have been pretty mild.” And preliminary fourth-quarter revenues indicate, while the industry was reacting to a slowing economy before the attack by raising rates and overwriting policies, Zenith remained conservative in both areas. For the quarter ending June 1, Zenith’s earnings were $2.9 million on revenues of $154.5 million, compared to a loss in the same quarter of 2000 of $19.6 million on revenues of $110.8 million. Ransom said he is predicting modest increases in earnings for Zenith in the fourth quarter. “I think they are relatively less exposed and they have a pretty good market yield of about 3.9 percent, which is attractive in today’s market of low interest rates,” Ransom said. Charles Titterton, an analyst with Standard & Poor’s in New York, agreed. He added that, though the brunt of the losses will be borne by the reinsurance operators, Zenith will probably not take too deep of a hit because its reinsurance “treaties” are based on an “excess of loss” tier system, as opposed to a pro rata percentage of total losses. “They have assumed reinsurance from various carriers for more than 25 years,” said Titterton. “But, because they have a conservative policy limit and keep their policy numbers limited to a modest percentage of their surplus, they are able to give loss estimates at below the $15 million mark. For others, that number will be much, much higher. I think even after paying out this reinsurance they will be modestly profitable for the year.” According to Zenith’s financial reports, premiums written in 2000 totaled $308.1 million, an increase of 15 percent over the previous year. Underwriting losses were $87.9 million in 2000 and $122.5 million in 1999. But even with projected losses for Zenith at much lower levels than many of its competitors, the damage in New York is expected to have long-term implications for the industry, which means that it could be several years before insurers including Zenith can say how badly they’ve been hit.
