Zenith Insurance Revises Profit Report Downward 12%

Zenith National Insurance Corp., a workers’ compensation insurer, cut its previously reported 1998 profit 12% after reviewing business bought from a financially troubled rival.

Zenith last week revised net income to $19.1 million, or $1.11 a share, from $21.6 million, or $1.26, reported in February.

On April 1, 1998, Zenith bought the workers’ compensation insurance business of Florida-based Riscorp Inc. Zenith also acquired a Riscorp system for managing treatment of on-the-job injuries.

The initial price paid for the business was $35 million in cash and $15 million of assumed debt. Zenith said at the time a final price would be set later, after an audit of the acquired business.

Zenith Chairman and President Stanley R. Zax in a press release last week said he was “pleased that the uncertainty” over the cost of the Riscorp purchase “has been removed.”

Last month, Zenith said the audit determined that the total purchase price would be $92.3 million, including the $35 million already paid.

When it initially reported 1998 earnings, Zenith said its purchase of Riscorp reduced profit by $5.7 million, or 33 cents a share. Zenith on April 9 raised that estimate by 32% to $7.5 million, or 44 cents a share.

“Riscorp’s book of business was worse than they had originally anticipated,” said Ira Zuckerman, an analyst at Nutmeg Securities Ltd. in Westport, Conn.

Riscorp, like other companies in the workers’ compensation insurance business, lost money by charging too little for the coverage.

“They didn’t know how to underwrite,” Zuckerman said. “With workers’ comp, you don’t know what the losses are going to be for a couple of years.”

Zenith bought the business to gain policy renewal rights that will help build its Florida business, Zuckerman said. It’s expected to raise premiums on the policies.