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| | Fremont on the Verge of Profitability By Robert Warne - May 16, 2001Fremont Compensation’s announcement of breaking even is evidence that the company is financially moving in the right direction—after being placed under the supervision of the California Department of Insurance in 2000. Wayne Bailey, Fremont General’s chief financial officer, reported first quarter 2001 results and fielded a series of questions, in a conference call, May 11. Among topics discussed were details about Fremont breaking even, and the disclosure of the fronting company’s name.
Harbor Specialty Insurance Co., a unit of Clarendon Insurance Group (See "Little Southern Hospitality in Rancho Cordova," May 9, 2001) will provide "A" rated paper to Fremont. The "A" rated paper will help Fremont renew a larger portion of its book from currently 30% to a target set by management of 60%. This arrangement will help Fremont stabilize revenue flow from a premium perspective in the $200 to $300 million range, according to Bailey.
The agreement with Clarendon is in effect from May 1, 2001 to May 30, 2002. Fremont has made a commitment to write $200 million in premiums—being one of the reasons given for Fremont to write all of its business on Harbor paper. The cost to Fremont is approximately 6 cents on the premium dollar. "This has been a shot in the arm for the insurance operation," said Bailey. "We are pleased on the property/casualty side with this fronting arrangement stabilizing the operation, giving it an opportunity to renew its book of business."
Pricing trends have been favorable to Fremont, with rate increases in the neighborhood of 40-50%. The break-even goal was reached, but at a higher expense ratio than expected. This is due, according to Bailey, to downsizing and lagging expense cuts.
Currently 93% of Fremont’s policies are $25,000 or smaller. Fremont’s average account size is $9,000, down from $14,000 to $15,000 a year ago. These numbers are in line with Fremont’s small account target.
For first quarter, Fremont’s gross written premium was $118 million. Fremont’s current premium in force is $422 million.
Short-term goals for Fremont are to enter 2002 with a newly priced book and to return to profitability again.
"Overall, I think we’ve accomplished a lot in this quarter and are looking forward to the second quarter," said Bailey. |