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INSURANCE—Rising Home Prices Send 21st Century Seeking Rate Hike

Woodland Hills-based 21st Century Insurance Group has asked the state Insurance Commission to approve a 28 percent increase in its homeowner insurance rates. Doug Howell, the company’s CFO, said the rate hike is needed to offset increasing costs in the homeowner area. “The last time we requested a rate increase was about five years ago,” said Howell, “so it’s not as if we’re increasing rates all the time.” 21st Century joins a number of insurers who have also requested rate hikes, the result, say analysts, of rising home values. Cathy Seifert, an analyst at Standard & Poor’s Securities Inc. said losses in all segments of the insurance business, but particularly in homeowner insurance have been on the rise for much of the year. “Values of homes have been increasing and they’ve become much more expensive to repair,” she said. Insurers have also been impacted by lowered interest rates, which are reducing the cache of reserves these companies keep for paying claims, Seifert said. 21st Century said the rate hike it is requesting amounts to about $100 per year for the average homeowner. “Since most of our policies are $428, that means the 28 percent rate increase is going to be about $100,” Howell said. “While the percentage seems big, the actual dollar amount is very modest.” Insurer requests for rate hikes must be approved by the state’s Insurance Commission. Approval for the request is expected by the end of the year. Until approval is received, 21st Century has suspended sales of new homeowner policies. “While our method of delivery makes us one of the lowest-cost providers of homeowners insurance, we must have confidence that we will achieve an underwriting profit on a long-term basis,” said Bruce W. Marlowe, company president and CEO of the decision to suspend writing policies. The company’s homeowner business makes up only 3 percent of its overall sales, with automobile insurance accounting for 92 percent of its business and the remainder consisting of personal liability insurance. The company had raised its fees for auto insurance by 5 percent last April. In requesting the rate increase, 21st Century joined Fireman’s Fund Inc. and Allstate Insurance Co., which have requested increases of 17 percent and 22.3 percent, respectively. 21st Century’s third quarter performance was relatively flat against the same period last year. Late last month, the company reported it earned $2.7 million in net income on $229 million in revenue, compared to $2.6 million in net income on $226.3 million in revenue for the same period last year. The company’s stock price has been sliding in recent months from its 52-week high of $19.57 per share. Last week the stock traded in the GET PRICES ON FRIDAY range. 21st Century, which also sells insurance in Arizona, Nevada, Oregon and Washington, has built its own niche in the business by selling directly to consumers instead of using insurance agents. That way 21st Century claims it can offer more competitive prices. The company paid out more than $1 billion in claims due to the Northridge Earthquake, and discontinued writing homeowner and earthquake insurance for about a year after that. It no longer writes earthquake policies.

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