Fremont's Back in Town…Putting out "A" Paper
By Robert Warne - August 14, 2001So far, so good. Even though the year is half over, Fremont General remains on track to break even with its workers’ compensation line at year’s end.
The reality of potentially breaking even was revealed in its 2001 second quarter general earnings release conference call Aug. 10, in which Executive Vice President and Chief Financial Officer Wayne R. Bailey made statements and fielded questions on the status of Fremont’s game plan.
Since the inauguration of the fronting arrangement with a unit of Clarendon Insurance Group May 1, Fremont has seen the financial pendulum reverse and start to swing back in its favor. With the fronting agreement underway Bailey said, "Rolling that out for the June and July business, it went reasonably well.
"I think that it’s really getting out into the market-place, the fact that we have the fronting agreement and the A paper to put out… The management feels that they’ve made a lot of inroads into the agency force in letting them understand how this works—what the fronting arrangement is all about—the fact that obviously we’re back in the market with A paper.
"So they feel fairly confident that the premium volume with that paper will start to pick up over the next several months."
The cost of the fronting arrangement for Fremont is 6% on net premiums written.
In respect to its loss ratio, Bailey explained how expenses directly impact the ratio. "The actual loss component of [loss ratio] is holding for us at about 65%. What’s driving the other part of the loss adjustment is expenses."
When you see expense ratios running high, he said, the loss adjustment expenses ratio runs high because certain components of that ratio are allocated to that line.
"We have to be expense conscious in that [WC] operation, and the management is working on the expense side of that equation and has actually done a pretty good job to date," said Bailey.
Fremont has been pushing the rates up and has been very cautious on the pricing side of the equation, he said, which can be attributed to why Fremont’s premium volume is down.
"There’s still a lot of competition out there. The State Fund is a big player in the market-place and they are very difficult to deal with. Staying at the level that we are, the small policies under $15,000, we find that there is opportunity there for profitable growth—and that’s really our target market and where we are pushing forward."
On track to reach its goal of breaking even in 2001, Bailey admits that there will have to be further expense reductions.
For the second quarter, Fremont’s overall gross written premium was $75 million. Its total premium in force under the Clarendon fronting agreement was $25 million. Compared to market standards, Fremont’s average policy is small—currently is $9,000.
Fremont recorded a pre-tax loss of $122,000 and a combined ratio of 132.8% for the second quarter of 2001.
| 
__May11th2017.gif)
