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150 Federal St., Boston, Mass. 02110; 617-526-7600; fax: 617-526-0600;

1997 1996

Premium volume $238,310,000 $245,483,000

Gross revenues NM NM

Employees 225 234

Commercial lines 100% 100%

Admitted business 18% 18%

Non-admitted 82% 82%

NM: Not meaningful.

First State Management Group Inc. continues to pare unwanted lines of business as the ongoing soft market leads it to focus on profitable specialty casualty and property catastrophe risks.

Weakening rates contributed to a 2.9% slide in premium volume at First State to $238.3 million in 1997. Based on that volume, First State ranked as the fourth-largest underwriting manager and ninth-largest wholesaler.

Despite the lower premiums, the news is far from bleak, according to Ralph J. Palmieri, president of the underwriting management unit of The Hartford Financial Services Group Inc. First State has seen tremendous growth in an array of professional liability lines it has sought to expand in the last few years, including employment practices liability, real estate agents errors and omissions, and architects and engineers liability, he said.

While rates for property cat business are still weakening, they haven't fallen as much as First State feared, and the business still is profitable, he added.

Favorable catastrophe experience in the last year has allowed First State to keep its combined ratio "very comfortably under 100%," according to Mr. Palmieri.

"1997 was an excellent year from the standpoint of operating profitability for First State," he said.

First State is the exclusive underwriting manager for Hartford's Pacific Insurance Co. Ltd., a surplus lines insurer, and Trumbull Insurance Co., Pacific's admitted market counterpart. It derives no revenues from underwriting management services to non-Hartford companies.

The manager also produces business for Hartford's Twin City Fire Insurance Co. unit, but only in states where Trumbull has not yet been licensed and received rate and form approvals. Trumbull is now licensed in 43 states and the District of Columbia but still needs licenses in seven states, including California, Florida and Louisiana, "very important states for us," Mr. Palmieri said.

When that process is completed -- in another two to three years -- Trumbull will become First State's exclusive admitted market.

As it emphasizes property cat and specialty casualty business that is less prone to rate-cutting, First State has also eliminated lines it considered marginal.

In January, it completed the sale of its Burlington, N.C.-based truck insurance operation to Lancer Insurance Group of Long Beach, N.Y. The operation, which generated about $14 million in annual premiums in 35 states, provided bodily injury liability coverage on an admitted basis and physical damage coverage on a non-admitted basis.

First State entered the trucking physical damage market in 1993, expecting a turn in the market, Mr. Palmieri said. Five years later, while satisfied with the quality of the operation, First State decided that "the profits we were making were just not sufficient to encourage our making more of an investment," he explained.

Meanwhile, First State also stopped writing liability coverage for residential construction contractors on the West Coast, a potentially loss-prone line. The manager is still writing commercial contractors on a risk-by-risk basis, he said.

Overall, 82% of First State's business is written on a non-admitted basis, while 12% is written on an admitted basis.

In addition to its Boston head office, First State maintains offices in Atlanta, Chicago, Los Angeles, New York and San Francisco.

First State's staff declined slightly to 225 employees last year from 234 in 1996.

The company's top management, in addition to Mr. Palmieri, includes Peter Coghlan, executive vp.

First State is a member of AAMGA, NAPSLO and PLUS.