82.1 F
San Fernando
Saturday, Jun 3, 2023

Zenith Focuses on Core Products After Katrina Decision

The devastation caused by Hurricane Katrina along the Gulf Coast prompted Zenith National Insurance to exit its reinsurance business, but its other lines of business are expected to shore up the company in the short term. Analysts believe that the Woodland Hills company’s stock is still a good value. Although most of its business is in writing workers’ compensation policies, Zenith did have a significant reinsurance portfolio. Reinsurance serves to protect individual companies from shouldering the entire burden during a disaster or other periods of excessive claims, essentially serving as insurance for insurance companies. The business can be temperamental, however, and after taking a hit in the gulf, Zenith decided to exit the sector entirely. After making that decision, the company also announced a three-for-two stock split and quarterly dividend. Zenith’s President and Chairman Stanley R. Zax declined to speak with the Business Journal, but did explain the move in a press release on September 7. “This decision to declare a stock split was based on continuing financial success in our workers’ compensation business and a decision made today by our board of directors to exit the reinsurance business in order to reduce the volatility of our net income,” Zax said. “We currently expect the net after-tax loss in the third quarter from Hurricane Katrina to be about $21 million or $0.85 per share. The initial estimate is subject to substantial uncertainty and is based on preliminary information from some ceding companies and a preliminary review of our assumed reinsurance contracts. At this time, no workers’ compensation claims directly related to Hurricane Katrina have been reported to us.” ValuEngine, a stock research company, recently pronounced Zenith’s stock as a very attractive buy for investors that are looking to buy stocks that have sustained recent price increases that will repeat in the short term, or stocks in stable, industry-leading companies. The company expects Zenith to generate a 5.6 percent return on investment, increasing to 6.7 percent over the next year. Heavy in California Zenith writes workers’ compensation premiums throughout California, Texas, Florida and North Carolina, but almost two thirds of its gross premiums written as of the first half of 2005 were in California, which is seeing an incremental improvement in its workers’ comp system as rates start to fall. In August, the company reported that it had reduced premiums by about 22 percent since July of 2003. Although Insurance Commissioner John Garamendi has criticized the state fund and private insurers for not dropping their rates fast enough, industry watchers say that it’s only natural for business to be cautious while waiting to see if reforms work and to close cases which can remain open for several years. As of June this year, Zenith had written $405 million in gross workers’ compensation premiums in California as compared with $378 million in the same period during 2004. “The second quarter benefited from continued favorable cost trends, combined ratios and growth of investment income and provides the basis for optimism about our future. Also, as previously reported, our balance sheet was significantly strengthened by the conversion into equity of $80.3 million of convertible debt resulting in a conservative ratio of debt to debt and equity of 14 percent,” Zax said at the time. He added that cost savings have led to a more competitive workers’ compensation market in California, but that the company is trying to balance customers’ desire for lower rates with shareholders concerns when the company considers future rate reductions.

Featured Articles

Related Articles