State Seizes Control of Workers’ Comp Firm Superior National
In the largest government takeover ever of a workers’ compensation company in California, state insurance officials Friday seized control of financially troubled Superior National Insurance Group.
Industry experts say the takeover stemmed from Superior’s management mistakes but also reflected a broad downturn in California’s $5-billion-a-year workers’ compensation insurance business.
Officials of the California Insurance Department, citing Superior’s worsening finances, shut down the insurer at 8:01 a.m. They also ushered out the company’s top executives and managers from their headquarters in Calabasas.
Insurance Commissioner Chuck Quackenbush said that the company, the No. 2 workers’ compensation carrier in the state, will reopen under state management Monday, and that coverage for employers and insurance benefits for their injured workers will continue without interruption.
Quackenbush said that he already has received inquiries from potential buyers, and that he anticipates Superior will be sold to another company.
As part of the takeover, state officials fired the company’s top four executives. They included William L. Gentz, president and chief executive, and J. Chris Seaman, Superior’s second-ranking official as chief financial officer. Neither they nor other Superior representatives could be reached for comment.
Quackenbush said there was no evidence of wrongdoing by Superior officials, who he said cooperated with state officials in recent months to try to work out the company’s problems.
“This is just the culmination of a series of bad business decisions,” Quackenbush said. “We’ve come to the end of the line.”
Some industry sources questioned, however, why Quackenbush failed to act sooner. Solid evidence that the company was crumbling financially surfaced Nov. 17, when Superior reported that it suffered underwriting losses of $61.9 million in its third quarter ended Sept. 30.
It also posted a net loss of $39 million during the quarter on revenue of $67.1 million. That contrasted with a profit of $2.1 million on revenue of $14.2 million in the same period a year earlier.
Quackenbush, however, defended his actions. “This was a last resort,” he said. “We had been attempting to work things out with them. . . . There was no attempt by management to hide the problem.”
He said that an industry-financed fund will cover any remaining losses at Superior, and that taxpayers will not have to pick up any of the cost.
Superior commanded a 9% share of the market for workers’ compensation coverage in California. It is one of many such insurers in the state to report losses recently.
Those losses, industry analysts say, largely reflect the sharp price-cutting that began in 1995, when the state repealed rate regulation for workers’ compensation insurance. It saved employers huge sums in recent years.
Then, early this year, insurers began imposing a new round of rate increases on employers. Analysts said more hikes could be on the way, especially in view of the problems at Superior.
“This may be a pretty big wake-up call for many of the players in the market,” said Darin Feldman, an analyst who covers the industry for Standard & Poor’s, a financial rating agency.
Still, many of Superior’s problems appeared to be of its own making. Its finances began to sink after its December 1998 acquisition of a group of insurance concerns including a major competitor, CalComp.
Even then, CalComp was regarded as a troubled operation, widely considered to have set aside insufficient financial reserves.
“CalComp should have been seized years ago, but when Superior bought it, there was a lot of hope that Superior’s management could straighten it out. Unfortunately, they didn’t,” said J Dale Debber, publisher of Workers’ Comp Executive, an industry newsletter.
Superior employs 1,200 workers at its 11 offices in California and 26 offices elsewhere.
The Nasdaq Stock Market halted trading in Superior National’s stock at 2:06 p.m. Eastern time. The stock, which hit a 52-week high of $30.25 in June, fell to $1.59 on Friday, down from Thursday’s close of $4.13.