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CORPORATE FOCUS: 21st Century Sees End to Problems From Earthquake

21st Century Sees End to Problems From Earthquake CORPORATE FOCUS By SHELLY GARCIA, Senior Reporter 21st Century Insurance Group changed its name when the 1990s ended. But it’s taken a few more years for the company to really leave the last century behind. Nearly 10 years after the Northridge Earthquake and long after the company exited from the homeowner’s insurance business, 21st Century is still feeling the effects of the tremor it pulled down what was otherwise a strong quarter ended March 2003. But the March quarter might be the last in which the Woodland Hills-based insurer is dragged down by the events of the last decade. If consensus estimates are accurate, 21st Century will report earnings per share between $0.17 and $0.18 on July 23 when its second quarter financials are released, an improvement that may signal that the company has finally closed the books on the last 10 years. “What we have is a pretty impressive story of a turnaround,” said Mel Spinella, the company’s new chief financial officer, of the first quarter results. (Spinella was unable to comment on the forthcoming financials because the interview took place prior to their release.) “If you look at the rate of growth, it has been steadily increasing for five straight quarters of profitable underwriting. So overall we had a tremendous first quarter growth and profit.” For the quarter ended March 31, 21st Century reported a net loss of $6.7 million or $0.08 per diluted share, on revenues of $287.7 million, compared with earnings of $8.3 million or $0.10 per share on revenues of $228 million for the first quarter of 2002. But the bottom line numbers don’t tell the whole story. The company’s direct premiums increased 27 percent to $293.6 million compared to $230.4 million in the prior period, reflecting an all-time high in the company’s history. Were it not for additional reserves the company set aside as a result of the passage of California Senate Bill 1899, which extended the deadline for filing claims related to the earthquake, 21st Century would have recorded a profitable quarter. “The Northridge claims are more than we expected,” said Charlie Titterton, a director at Standard & Poor’s, a financial research company, of the $37 million pre-tax charge. “But on the other hand, their basic business continues to do well. It’s a company that has very, very low expenses and writes a very nice policy.” Litigation reserves 21st Century has not provided details on the claims it now faces as a result of SB 1899, except to say that the reserves are primarily earmarked for litigation to fight them. 21st Century, which changed its name from 20th Century Insurance, had teetered on the brink of bankruptcy because of claims resulting from the 1994 quake, but the company had since resolved most of them and reorganized its business solely around auto insurance. Then the California legislature passed a bill extending the deadline for filing through 2001, and reserves set aside and payouts as a result of that legislation have affected several of the company’s more recent quarters. But if no further surprises surface as a result of the legislation, 21st Century is now well-positioned to move forward, analysts say. “They’re seeing the same favorable loss trends that everyone else is seeing,” said Matthew Carletti, a research analyst with Fox-Pitt, Kelton Inc. in Hartford, Conn. “And those are very good right now.” For reasons that no one can fully explain, the industry experiences periods when the frequency of property damage claims declines. This is one of those periods, combined with what Carletti called a “manageable” severity factor, how high the average cost of a claim runs. The company’s investment in online technology is also paying off. 21st Century officials say that, while most customers are not yet completing insurance purchase transactions using the Internet, they are using the site to research choices, and that has provided a cost savings for the company. “The Internet is definitely the least expensive avenue for us to deal with our customers,” said John Lorentz, controller for 21st Century. “The number of customers who are comfortable doing business on the Internet is steadily increasing.” Finally, 21st Century has seen substantial sales increases from pursuing market niches, such as the Latino market, which now accounts for about 20 percent of its new customers. “The company had a difficult 10 years, but I think it’s got an incredibly bright future when you look at the core business and you see how successful we’ve been in it,” said Spinella.

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