20th Century Industries Shares Fall Nearly 25% : Insurance: Plunge is reaction to ruling that means the firm, already hit by claims from the Northridge quake, must rebate $119 million.
Shares of 20th Century Industries lost nearly a quarter of their value Friday, a day after the California Supreme Court rejected the Woodland Hills-based insurer’s constitutional challenge of regulations for Proposition 103.
Twentieth Century’s stock closed at $12.75 a share, down $3.625, or 22%, in heavy trading on the New York Stock Exchange.
While some other insurance stocks were down slightly, Wall Street singled out 20th Century as investors had another day to digest Thursday’s legal defeat, under which the company--already battered by an estimated $685 million in claims from the Northridge earthquake--is required to rebate $119 million to policyholders.
Opinion diverged Friday on whether the California ruling might embolden other states to pursue similar rate rollback measures.
20th Century has not yet decided whether to appeal the California decision to the U.S. Supreme Court and won’t decide “for a while yet,” a spokesman said. The firm has 30 days to apply for review by the high court.
The stock of Mercury General Corp.--the other major, publicly traded auto insurer whose business is concentrated in California--closed down 75 cents at $27.50 after dipping as low as $26.875. Unlike 20th Century, Mercury has already settled its Proposition 103 rebate liability, voluntarily returning $46 million, or an average of $173 apiece, to its policyholders in 1992.
Rick Dinon, senior vice president of 20th Century, said the dozens of shareholders who called him Friday were less concerned about the rebates than about whether the company will be able to earn a reasonable profit in California in the future.
In Thursday’s ruling, the court affirmed state Insurance Commissioner John Garamendi’s authority to impose an across-the-board cap on insurers’ profit levels when setting rates or determining Proposition 103 rebates.
If regulators focus on insurers’ profits rather than on whether their prices are reasonable, it will suppress competition, innovation and cost-control, analysts said.
“I would like to think courts in other states are more sensible,” Merrill Lynch analyst Gerald Lewinsohn said in predicting that the rate rollback wave will ebb at the California border.
But Wall Street analysts are out of touch with real people, consumer advocate Ralph Nader said Friday.
“The insurance industry has exhausted its appeals and (Proposition) 103 is now free to be at large throughout the country,” Nader said. In the past, whenever a state has considered Proposition 103-style reforms, the industry has responded that the approach was unconstitutional, he said. Thursday’s ruling proved otherwise, Nader said.
California property-casualty insurance stocks were generally lower Friday, after the state Supreme Court upheld rebate orders.
1994 Fri. close Stock hi-lo and chng. Aetna 65 3/4-48 7/8 49 5/8, -1 1/4 Allstate 29 7/8-22 5/8 24 3/4, - 1/2 GEICO 57 5/8-49 1/8 49 3/8, - 1/8 Mercury Genl. 31 1/2-25 1/2 27 1/2, - 3/4 20th Century 28 1/8-14 1/4 12 3/4, -3 5/8 SAFECO 59 3/4-48 1/2 54 1/4, - 5/8