Quake-Ravaged Insurer Sees Help on the Way : Investments: 20th Century Insurance’s shareholders are expected to approve this week a $216-million infusion by the nation’s biggest commercial property and casualty company.

1994 was a lousy year for 20th Century Industries. Just last Thursday, the Woodland Hills-based insurer once again boosted its total earthquake damage claims, this time to a staggering $900 million, up from the $815 million it estimated in September.

Because of its losses from the January earthquake, 20th Century has been pushed to the brink of insolvency. Under pressure from its lenders and the California Department of Insurance, which warned the company it must boost its flagging cash cushion against losses, 20th Century hopes to make a step in the right direction this week.

A proposed $216-million capital infusion by New York-based American International Group Inc., the nation’s biggest commercial property and casualty company, will be voted on Thursday by 20th Century’s shareholders. The deal, which is expected to sail through, could result in AIG’s investing $432 million in 20th Century and leave it with more than 40% of the beleaguered company.

With AIG’s backing, 20th Century will be poised to expand its successful auto insurance business both inside and outside of California, analysts say. 20th Century has also begun a three-year process to get out of the homeowners’ insurance business, which produced less than 10% of its nearly $1 billion in annual premiums, but which nearly sank the company because of claims from the Northridge quake.

Barring another major earthquake in the Los Angeles area, where 20th Century’s business is concentrated, the company stands to profit quite nicely from its auto business, analysts say. Many expect 20th Century to post a net profit of more than $100 million for 1995--about equal to its 1993 profit. In the nine months ended Sept. 30, 20th Century lost $449.4 million.

“As long as there’s no major quake, they’re going to be very profitable in 1995,” said Jeanne Dunleavy, assistant vice president of property and casualty at the insurance-rating firm A.M. Best.

Nonetheless, analysts expect AIG to impose further management changes at the Woodland Hills company and possibly to install executives handpicked by AIG’s aggressive chairman, Maurice R. (Hank) Greenberg.

20th Century has been guided by its founder and chairman, Louis W. Foster, 81, since he started the company in 1958. 20th Century management now “consists of the old Lou Fosterites,” said analyst Blair Sanford at the San Francisco investment firm Hoefer & Arnett.

Two 20th Century executives have already announced their departure. In October, James O. Curley resigned as president, and group Vice President Paul Castellani, who oversees claims operations, announced his retirement last month. Under the proposed deal, AIG will receive two seats on 20th Century’s 11-member board of directors.

Foster was long praised for his groundbreaking marketing of auto insurance policies directly to consumers, which kept costs low by bypassing agents. But in recent years, Sanford said, the company hasn’t worked as hard to capture new business. While AIG isn’t expected to mess with 20th Century’s proven formula for auto insurance, Sanford, for one, thinks that “the more ambitious AIG style will permeate 20th Century.”

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AIG, which mostly sells property and casualty insurance policies to other companies, is one of the world’s most profitable insurers. It operates in 130 countries and last year had $1.94 billion in profit on more than $20 billion in revenue. While AIG has tended toward internal growth rather than acquisitions, the 20th Century deal would help fulfill its goal of expanding its small personal auto insurance business.

The two companies have announced plans for a joint venture into auto insurance markets outside California, with the start-up capital to be provided by AIG. But so far they haven’t elaborated on how the venture would be structured.

Officials at the two companies declined to comment on the future of 20th Century.

Nevertheless, analysts expect that the companies will move quickly into Nevada and Arizona. Such a move could be made cheaply and efficiently, they say, but it could take years to build a substantial level of premiums in the new areas. “It’s hard to pry business away from existing carriers,” Sanford noted.

What’s more, new insurance business tends to be less profitable than renewals because a company understands the risks better with existing policies, said analyst Ira H. Malis at the investment firm Alex. Brown & Sons in Baltimore.

New York might be another area of expansion targeted by 20th Century and AIG, said analyst Ira L. Zuckerman at SBS Financial Group in Westport, Conn. Not only is it a big auto market, but the state is familiar turf for AIG, he said.

Still unresolved for 20th Century is its longstanding battle against auto insurance rebates required by the passage in 1988 of Proposition 103.

The company last month obtained a stay of a California Supreme Court ruling that approved state Insurance Commissioner John Garamendi’s order for 20th Century to pay a rebate to customers. 20th Century’s potential rebate now stands at $121 million. But Foster has long opposed the Prop. 103 rebates, and was willing to keep the battle up in court.

20th Century says it will file a petition by the end of the year asking the U.S. Supreme Court to consider hearing its appeal. The company said in a recent SEC filing that it has set aside enough funds to pay the rebates if it loses the battle.

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Analysts wonder if 20th Century might again boost its estimate of total earthquake losses. Since the quake, the figure has ballooned from the company’s original estimate of less than $100 million to the $900 million announced last week. As of Thursday, 20th Century said it had paid $722 million to its customers for earthquake damages and expenses, plus another $46 million in claims-adjustment expenses.

Next year will also bring a new insurance commissioner, Chuck Quackenbush, whose relations with the industry are expected to be less contentious than his predecessor’s. But that might not help 20th Century, analysts say, because a more friendly regulatory environment in California might encourage more companies to enter the market, thus creating more competition.

Despite an improved outlook for 20th Century, “it’s going to be a fairly long road,” said David Anthony, an analyst at the New York investment firm of Fox-Pitt Kelton. “1995 is just the beginning of it.”