20th Century Stakes Claim to Arizona Insurance Market

To help jump-start its sputtering auto business, 20th Century Insurance ventured outside California for the first time a year ago and started insuring drivers in Arizona.

Using radio and print ads that trumpeted rates lower than State Farm, Allstate and Farmers, and by carefully targeting via direct mail some of its former, transplanted California customers, 20th Century has surprised itself by picking up 7,200 customers in Phoenix and Tucson.

“We’ve kept up where our customers go. We were not starting out cold” in Arizona, said 20th Century spokesman Ric Hill.

20th Century thought it might take five years to turn a profit in Arizona; now it expects to reach that in maybe half that time. “We want to do the same thing with several other states,” Hill said.

So 20th Century is pushing into Oregon, Washington and Nevada in the next few months.

“It’s a great move because they’re a low-cost producer and will keep getting market share away from other companies,” said David Anthony, analyst with Fox-Pitt, Kelton Inc. in New York.

Anthony expects 20th Century’s expansion drive to keep leapfrogging eastward, and within a few years “They will probably have their toes in the Mississippi River, and probably be in Florida too.”

This expansion push, along with its comeback in the California auto market, has turned 20th Century into a hot stock this year, bouncing up 48%. Its shares closed Monday at $25 on the New York Stock Exchange, up 13 cents for the day, which puts 20th Century’s stock within hailing distance of the $27 it was trading for when the January 1994 Northridge quake struck and nearly put it out of business.

20th Century hasn’t quite made it all the way back financially from where it stood before the temblor, but it’s close.

And while their expansion strategy may sound grand, it’s been done on the cheap.

It cost just $2 million in financial reserves for 20th Century to set up shop in Arizona, and they began with only three claims adjusters (the total office staff there is now 11). 20th Century managed this because it doesn’t use insurance agents; it sells by ads and direct marketing--which helps keep its prices low--so customer phone calls from Arizona are fielded by its staff in Southern California.

By the end of this year, 20th Century expects its total Arizona revenues to hit $6 million.

Granted, this is a blip for a company that had $937 million in revenues last year. But analyst Robert Branche, with Branche Research Group in Morrisville, Pa., said that 20th Century’s low-cost, direct marketing insurance should be successful in other states because other insurers, including Geico, have already done it. 20th Century is “very effective at gauging whether they want to underwrite somebody or not. I don’t see this as a dull stock. It’s been coming back for several years now,” Branche said.

After the Northridge quake, 20th Century was swamped with 46,000 quake damage claims, about 75% from its homeowners business. Since then it has paid out about $1 billion in quake claims and it faces more than 100 contentious lawsuits over unresolved quake claims.

The company also needed a major financial rescue by American International Group, an $11-billion New York-based insurance conglomerate, which could end up controlling 43% of 20th Century’s stock.

To help save itself, 20th Century stopped offering quake insurance, and its homeowners business has steadily withered--with 64,000 homeowners policies in force now, compared with 233,000 before the quake. The company was also surprised by how many customers took their auto business away when they couldn’t also insure their homes with 20th Century.

So 20th Century lost ground to various California rivals, notably Mercury General, which has been running ads touting its lower auto insurance rates.

Then last year, 20th Century cut its average auto insurance prices by 11.5%, and is set for another 3.2% overall price cut next month. Analyst Anthony said, “Their profit margins are so good, maybe they will cut rates again in 1998.”

All this maneuvering helped 20th Century win back about half a percentage point in market share last year, according to the California Department of Insurance, where it still ranks as the fifth biggest auto insurer.

As of June 30, 20th Century had 1.05 million total vehicles insured--up 37,000 in 12 months--and closer to the 1.13 million vehicles it had when the Northridge quake struck.

Now the company’s goal, Hill said, is to hit a double-digit growth rate in auto policies a year, and hopes to surpass its previous record number of vehicles in the next year.

All this has helped rejuvenate the company’s profits and net worth, and allowed it to resume paying a dividend. For the six months that ended June 30, 20th Century posted net income of $58.4 million on $466.5 million in revenues, and analysts expect it to earn about $110 million this year, its best showing since 1993.

As for starting up in Oregon, Washington and Nevada, that expansion should cost only about $5 million. And the company isn’t worried about finding experienced hands to set up shop. “I’ve already received a number of calls from employees wanting to get in line to transfer,” Hill said.