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| | Paula’s Workers’ Comp Ink Runs Dry Before it Writes Too Much Red
By Robert Warne - February 28, 2002If you were planning on getting a workers’ compensation policy through Paula Insurance Co., you’ve waited too long. Paula Financial announced Feb. 28 that its subsidiary would no longer underwrite workers’ compensation business, effective immediately.
It is too early to tell how this will affect Paula’s claims offices in Pasadena, Fresno and Salinas. Paula’s stock (Nasdaq: PFCO) closed at $.85 per share following the news.
The decision, according to Paula, comes as a result of claims reserve development primarily from claims relating to accident years 1997-1999 on California workers' compensation business. The company plans to focus its ongoing business activities through its agency subsidiary, Pan American Underwriters, and the third party administrator, Pan Pacific Benefit Administrators.
Jeff Snider, chairman and chief executive officer of Paula, said “The company began actively seeking new financing starting late summer 2001 in anticipation of sustainable improving underwriting trends, particularly in California.”
But he said, “Our poor underwriting results for prior periods, not surprisingly, have had the effect of reducing outside confidence levels in what we believe to be exciting current and prospective patterns in core underwriting classifications.
“Reinsurance instability following September 11; uncertainty about the California environment and its largest writer of workers’ compensation, the State Fund; the apparent ripple effect of Enron on actuarial conservatism; and a significant change in legislated benefits for injured workers in California all equate to very expensive, scarce new capital,” contributing to Paula’s decision said Snider.
“We have worked hard to maintain a great deal of transparency regarding the condition of the insurance company with regulators in California, rating agencies and our reinsurers, leading to the decision to exit underwriting,” concluded Snider.
According to its press release, Paula Insurance Co. will post an increase to prior year reserves of $37 million in the fourth quarter of 2001, consistent with the best estimate selection of the company’s outside actuaries. This reserve increase will cause the company’s risk based capital to fall into the “Mandatory Control Level.” For the time being, the company will be permitted to administer claims settlement runoff of Paula Insurance. It is expected that A.M. Best will take appropriate steps to adjust the rating of the company to reflect this current development.
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