Fremont Cuts P/C Staff, Focuses on Thrift & Loan Profits

As part of a cost-cutting initiative, Santa Monica, Calif.-based Fremont General Corp. has reduced the production and claim service offices of Fremont Compensation Insurance Group from 41 to 24. Of these remaining offices located in 17 states, 16 are full service, and eight are production only. Moreover, the property/casualty employee head count, which was a little more than 2,100 at the beginning of 2000, is now down to 1,580.

Wayne R. Bailey, executive vice president and CFO of holding company Fremont General, indicated that this 25 percent reduction in the property/casualty operations workforce equates to approximately $30-35 million in annual savings.

Speaking during a conference call following release of the corporation’s third-quarter 2000 results on Nov. 14, Bailey reiterated figures that showed a third-quarter 2000 net income for the parent company of $10,936,000. Part of that total, net income from continuing operations of $6,272,000, compares to a net loss from continuing operations of $60,913,000 reported for the third quarter 1999.

In terms of the workers’ comp book of business, Bailey noted that a combination of rising prices and Fremont’s “B” A.M. Best rating has caused many larger accounts to move away from the company. In any case, he indicated that the company’s current focus is to concentrate at the smaller end of the market (i.e. accounts that are $50,000 and less), “where it is not as price-sensitive, and we get the rate increases we feel necessary to return this book back to profitability.” He also indicated that during November and December 2000 and January 2001, Fremont will be making a push to get further rate increases in California.

“Fremont General really is turning into a financial services company based upon its thrift and loan operations,” Bailey said. “That’s where we’re going to be generating income and increases in income going forward. The insurance operation is going to be a smaller operation that we’re trying to turn around and put into the black… Fremont General Credit Corp. is Fremont General Corp. right now, and will be for the near future.”

Profitability at financial services subsidiary Fremont General Credit Corp. was up substantially in the third quarter 2000, with a recorded pre-tax income of $28,131,000 compared to $17,417,000 for the corresponding period one year ago.

“I think we can attribute that to both business opportunities being good as well as significant expense reduction going on at the thrift,” Bailey said.

A third-quarter 2000 pre-tax loss of $6,379,000 was recorded for Fremont’s property/casualty operations. The recorded loss for the third quarter one year ago was $104,361,000. The combined ratio for the p/c operations for the third quarter 2000 was 114.8 percent, down from 163.8 percent for the third quarter 1999.

With regard to Fremont General’s pending adverse development reinsurance agreement between an insurance subsidiary of XL Capital Ltd. and Fremont’s workers’ comp subsidiaries, Bailey stated that all necessary filings or those requested by the California Department of Insurance (CDI) had been made.

“They have asked for additional supporting financial data, which we will be supplying them within the next few days,” Bailey said. “The [CDI] and the company have been working closely to develop an appropriate solution to mitigate the company’s recent loss reserve action. Management feels confident that an acceptable solution is at hand. This is just taking some time.”

Standard & Poor’s (S&P) put Fremont General Corp. as well as the p/c operations of Fremont Comp on CreditWatch earlier this year, following heightened concern in the California workers’ comp market about loss reserve deficiencies in the state.

“At this point, it’s hard to evaluate and clearly identify what the true earnings of the company are because the company is in need of significant overhaul,” said Darin Feldman, director-financial services group for S&P. “There are so many changes going on-large account business falling off the books, recently announced employee layoffs, and regulatory scrutiny. The current situation makes it difficult to determine whether or not the company’s earnings are improving, stabilizing or deteriorating.”

Feldman said that the pending XL agreement is a critical transaction for Fremont’s p/c operations. “Without this transaction, you’re looking at a company that’s probably bordering on insolvency,” he said.

“The earnings for Fremont’s investment and loan operation have been strong, but the problem is that has been overshadowed by tremendous difficulty in the p/c operations,” Feldman continued.

Highlighting Fremont’s efforts to return its property/casualty operations to profitability, Bailey said: “I think if the rate increases hold, and we can get our expenses in line, that we’ll produce some reasonable results out of this company.”

Topics California Profit Loss Workers' Compensation Property Casualty