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695 E. Main St., P.O. Box 10354, Stamford, Conn. 06904-2354;
203-328-5700; fax: 203-328-6131; www.genre.com
Gross premiums $322,502,210 $299,338,485
Non-admitted $311,434,771 $293,228,768
Commercial risks 97% 98%
Net premiums $245,098,139 $222,386,129
Paid-in capital $5,000,000 $5,000,000
Capital & surplus $330,026,971 $327,790,817
Employees 0 0
Combined ratio 96.6% 93.8%
Rating agency 96.3% 93.5%
Net income $45,479,447 $41,065,501
Best's rating A++ A++
S&P rating AAA AAA
The soft market finally has caught up with General Star Indemnity Co. and slowed down its premium increases.
For 1997, non-admitted gross premiums grew 5.8%, significantly less than the 23.6% increase registered in 1996 and the 11.1% increase in 1995 over the previous year's figure. Despite the slower growth, though, General Star still held on to its fifth-place position in Business Insurance's ranking of the largest U.S.-based surplus lines insurers.
The slowdown was attributable mostly to market conditions, said Kevin Brooks, chairman and president of the Stamford, Conn.-based insurer.
In addition, the soft prices cut into General Star's underwriting income, which fell 14.8% to $6.6 million in 1997, Mr. Brooks said.
Net income, however, moved up to $45.5 million in 1997, a 10.7% increase over 1996 profits. The gain was mostly due to strong investment returns.
Statutory combined ratio for the company was 96.6% in 1997, compared with 93.8% in 1996.
Particularly hard hit by falling prices was the company's property coverage for Southeast wind-related risks, executives say.
General Star vigorously jumped into that market when admitted insurers pulled back from the region after Hurricane Andrew losses in 1992. But as more insurers, both admitted and surplus lines, returned to writing property coverage for windstorm risks, capacity has swelled and prices have slumped.
"It's pretty plain that there's enough new capacity in that marketplace to drive pricing down," Mr. Brooks said.
As "the prices in 1997 began to give way, some of that business was lost," he added.
Falling rates not only have lowered premium volume on existing accounts but also have driven some business to competitors offering even lower prices.
Large accounts "were under serious siege," he said.
In the current market, any six- or seven-figure account can obtain 20% to 30% price reductions with increases in limits, noted Patricia Roberts, senior vp.
"As we move forward we have to decide which accounts we're going to try to hold and which ones we're going to let go," Ms. Roberts said.
At General Star, the tough times have continued into the first half of this year.
Non-admitted premiums dropped 0.73% in the first six months of 1998 compared with 1997. In addition, the company's underwriting income for the period was $3.26 million, a 32% drop from the same period in 1997.
Net income for the first half of 1998, however, was $22.7 million, up 1.9% from the year earlier.
"I'd say in the large accounts it's been pretty brutal this year," Ms. Roberts said.
As it has for a number of years, General Star looks to field new products, to tap markets with less competition where prices are firmer and to expand existing products to meet the demands of current policyholders.
"If we see a hole in the marketplace, we usually move in pretty quickly at this stage of the game," Ms. Roberts said.
An example of an expansion of an existing product was adding an occurrence-based option for environmental contractors where in the past General Star Indemnity offered the coverage only on a claims-made basis. The hope is that the new contract will stem the loss of contractors moving to other insurers already offering an occurrence-based policy.
The policy is designed for companies that install or remove underground storage tanks.
"We call it our yank-a-tank program," Ms. Roberts said.
The occurrence policy offers primary limits of $10 million with no excess coverage, while the claims-based policy also has a $10 million excess feature.
Jumping into a new area, earlier this year General Star Indemnity launched a general liability and professional liability policy for nursing home operators. The new program covers the whole gamut of long-term care providers, from home care companies to assisted living facilities to full nursing homes, she said.
"The beauty on that program is we've developed a risk management feature to it so that when we bind the account, we're going to be sending someone out to try to do an inspection of the facility and try to help with the documentation that needs to be there," Ms. Roberts said.
The policy offers primary limits of $2 million with excess limits up to $25 million and is now offered in Florida and Louisiana.
Nursing homes in Florida have had a hard time finding liability coverage, she noted.
Another new product is designed to cover losses within municipalities' self-insured retentions as well as provide high excess limits. The policy covers general liability, professional liability and auto liability claims for police, fire, school and other public officials.
"These are big municipalities that can take a fairly significant retention" of $500,000 to $1 million, Ms. Roberts said.
Launched last year, General Star has written $2 million to $3 million in premiums for the program to date. Limits are $25 million and can be increased to $30 million through reinsurance.
This year General Star also formed a partnership with Swett & Crawford to market an employment practices liability product for midsize companies. It is a claims-made policy with primary limits up to $1 million and excess limits up to $25 million.
Many of the programs the insurer introduced in the past few years have flourished.
A professional liability product for biotechnology companies has been received well. "That's a line of business that we're actually trying to expand and offer more coverage to maintain our edge in the marketplace," Ms. Roberts said. Excess limits on the program have increased to $25 million from $10 million, due to demand.
Also, because of strong response, the limits on a pharmaceutical clinical trials policy have been upped to $25 million from $10 million.
Success with an oil well blowout liability program also has led the surplus lines insurer to increase limits to $25 million from $10 million while adding a property insurance aspect that covers the entire value of the policyholder's equipment up to $5 million.
But not all the new products have been winners. Losses suffered with a crop insurance program in 1996 continued into 1997.
"We wrote it, we lost and we're still writing it," summed up Mr. Brooks. He said General Star is in the business for the long term.
Also, last year's introduction of a copyright, product and professional liability program for software developers did not see sizable demand. In addition to continuing to offer that product, the company is looking to use the expertise for other industries, such as a company whose World Wide Web site might have copyright and trademark infringement exposure.
Despite the grinding soft market, the company sticks to its philosophy of making an underwriting profit.
"That's the goal today. That's the goal tomorrow. That's the goal next year and forever after that," Mr. Brooks said.
As a result, the company has pulled out of the long-haul trucking business and increasingly is walking away from accounts in other lines rather than match a competitor's price.
The number of MGAs producing business for General Star has jumped to 65. The company has about 225 producers in the United States, unchanged from last year.
General Star Indemnity has no employees of its own. All employees work for General Star Management Co., which also underwrites for General Star National Insurance Co., an admitted affiliate.
Besides Mr. Brooks and Ms. Roberts, General Star Management's principal officers include Senior Vp Sam Anderson and Vps William Murray, Craig Ott and Adin Tooker.