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PHILADELPHIA-Alexander Bratick has a new job these days, after spending more than eight years as the rehabilitator of Mutual Fire, Marine & Inland Insurance Co.

Mr. Bratick now is guiding the reincarnation of the Philadelphia-based insurer as its president and chief executive officer and holds the same title with Mutual Fire's subsidiary, Franklin Homeowners Assurance Co.

Mutual Fire, after emerging late last year from rehabilitation, is starting a new life as an underwriter of Pennsylvania homeowners insurance. Once a leading U.S. surplus lines insurer that spiraled into a $500 million insolvency, Mutual Fire now is gearing up to resume business on a much smaller scale.

"We will be in the homeowners business," Mr. Bratick said. "Nothing exotic." Mutual Fire chose to write homeowners coverage partly because "it's a simpler line than most of the other coverages the company was writing," Mr. Bratick explained. "It doesn't require as much sophistication."

Some personal lines insurers have left the Pennsylvania market, and Mutual Fire and Franklin are helping fill that void, he added.

The insurer still faces about 200 claims related to the rehabilitation. Those claims currently are valued at about $70 million, an amount that is fully reserved, Mr. Bratick said.

Mutual Fire began insuring homeowners risks in Pennsylvania in May and has written approximately 70 policies. Its capital and surplus stood at $28 million at the end of June.

Mr. Bratick said $5 million of that figure represents the capital and surplus in Franklin Homeowners. That insurer writes a type of homeowners coverage that allows buyers to pay for coverage with an up-front deposit instead of paying annual premiums.

The coverage deposit remains as long as the policyholder wants to keep coverage in force. The money is held in a trust account, and the insurer collects investment income on the amount.

"Claims don't impact the deposit," Mr. Bratick explained. Claims are paid by the insurer and the deposit is 100% refundable when coverage ends.

As sometimes happens in these situations, the board of directors offered Mr. Bratick the position of president and CEO of the rehabilitated company. He assumed those responsibilities in March, not long after Mutual Fire was discharged from rehabilitation at the end of last year by the Commonwealth Court of Pennsylvania. "I think it is a great challenge to take a company from ground zero and make it profitable," Mr. Bratick said. "The principle challenge is marketing and sales, building up a sales and distribution force. It's got to be efficient."

According to Pennsylvania regulators, the $500 million insolvency represents the largest among U.S. insurers that were ordered into rehabilitation rather than forced into liquidation. They call the rehabilitation a unique success, notable for the fact that all claims approved by the judge overseeing the case were paid in full.

Linda S. Kaiser, Pennsylvania's insurance commissioner when Mutual Fire was discharged, said at the time that full payment of claims "is unprecedented in a rehabilitation of this size."

Thomas Manisero, an attorney with Wilson, Elser, Moskowitz, Edelman & Dicker in New York, which represented Mutual Fire in the rehabilitation, said the rehabilitation is unique simply because it succeeded.

Liquidation is a more common result of insurer insolvencies, he explained.

Mission Insurance Co., for example, was ordered liquidated in 1987 and Transit Casualty Co. was placed into liquidation in 1985. Both those insolvencies each totaled more than $500 million.

In the case of Mutual Fire, the "motivating force" to rehabilitate was the specter of surplus lines policyholders left holding the bag, Mr. Manisero pointed out.

"The thing that made rehabilitation the more palatable option than liquidation was because most of the policies were excess and surplus lines casualty policies for which there was no guaranty fund protection," he explained. "Policyholders would have had no where to turn to get claims paid."

That wasn't the case with Mission and Transit, both licensed in all states and thus afforded guaranty fund protection for policyholder claims.

The Mutual Fire rehabilitation was "a real success story" because the policyholders eventually had their claims paid, Mr. Manisero said.

That success did not come without pains.

Senior Judge Charles A. Lord of the Commonwealth Court wrote in his order discharging Mutual Fire of the "enormity of this undertaking and the complexity of the entire rehabilitation. There were disputes between the policyholders' committee and the rehabilitator, the rehabilitator and claimants, and the rehabilitator and cedents who owed money and were owed money."

Considering the amounts involved, the cooperation of the parties "has been outstanding," he wrote.

Mutual Fire in 1985 was ranked as the fifth-largest U.S. surplus lines insurer, based on $72.9 million in non-admitted premiums written in 1984.

The company's problems began in 1986 with defaults by limited partnerships on loans the insurer had guaranteed and growing underwriting losses on reinsurance business it assumed. The insurer was placed under voluntary supervision of the Pennsylvania Insurance Department that summer.

At that time, Mutual Fire showed surplus of less than $10 million.

If the company had been liquidated, policyholders of surplus lines coverages would not have been the only ones out in the cold. No guaranty fund coverage was available for reinsurance and only about nine states' guaranty funds could have covered the financial guarantee claims.

Defaults among the 620 partnerships left gross losses of $60 million at the time, and assumed reinsurance losses during 1982 through 1984 added to the insurer's woes.

After surviving legal challenges by policyholders, the plan was approved by the Pennsylvania Supreme Court in 1992.

Rehabilitators "didn't just sit around" waiting for the court to rule on the plan, Mr. Bratick said, but "operated as if the plan was in place."

That meant raising cash to pay claims by selling assets and recovering reinsurance through "negotiation, voluntary and court-supervised settlements and, where necessary, litigation to trial," Judge Lord wrote in discharging the insurer.

The court papers indicate that reinsurance collectibles alone from 1989 through 1996 amounted to $258 million.

"In this day and age," the judge wrote, "when the courts and lawyers seem to be under constant criticism, this case is a tribute to the system and an example of what can be accomplished with industry, patience and constant attention to the problem presented."

Mr. Bratick said, "If there is one thing that was unique, it was that the Commonwealth Court appointed one judge to supervise the rehabilitation."

Judge Lord took over in 1991 when Judge James Crumlish left the case to retire because of health problems.

Judge Lord "didn't play favorites," Mr. Bratick emphasized. Disputes were resolved soon after they arose and the judge kept the process on track, he said.

In a recent telephone interview from his chambers in Philadelphia, Judge Lord credited the "competency of the personnel who were running the company during rehabilitation."

And, the judge added, "without blowing my own horn, it was constant supervision by me and my staff," that kept the rehabilitation on track.

"There has to be constant supervision over everything" to make a rehabilitation work, Judge Lord said. "Attorneys fees, claims, third-party actions-everything."