HIH Sells Renewal Rights to Argonaut, Alaska National

In the latest action in the volatile workers’ compensation arena, Argonaut Insurance Company announced it will acquire the renewal rights and other tangible assets associated with the workers’ comp business of HIH America Insurance Group in its Southwest, Midwest and Hawaii regions.

“You’ll notice the deal did not involve California comp,” emphasized Mark E. Watson III, president and CEO of Argonaut Insurance Company and Argonaut Group. “The transaction between HIH and Argonaut is for seven states that does not include California. That’s for two reasons: one is that they’ve already announced the transaction with Alaska National; and secondly, we’re not interested in growing our book in California right now because [the workers’ comp market] is a little shaky.”

On Oct. 30, Alaska National Insurance Company reached a letter of understanding to buy HIH America’s renewal rights and other tangible assets associated with its large account California workers’ comp business. That process is “proceeding smoothly,” according to Trip Ames, HIH executive vice president and managing director.

HIH Insurance is a specialty workers’ compensation insurer with $200 million in annual premium revenues generated through its North and South American underwriting companies. HIH America ceased writing new business in the U.S., effective Oct. 30, through HIH America Compensation & Liability Insurance Company; Great States Insurance Company; HIH America Compensation and Liability Company of Illinois; and HIH America Insurance Company of Hawaii Inc. In order to ensure an efficient runoff, HIH established a managing general agency to continue its California specialty product operations.

“We continue to be a fully functioning insurance company except for the fact that we are not writing new business nor renewing accounts as they expire,” Ames said. “So we’re technically continuing to operate the company and we’re paying claims, accepting new claims and servicing and managing in-force policies until they expire.”

The sale to Alaska National, which is rated “A” by A.M. Best, is aimed at providing continuity of staff, distribution and clients. Anchorage-based Alaska National is the largest writer of workers’ comp and commercial auto liability in Alaska.

How will these changes affect the staff of HIH? “We expect that most of the employees will either continue to work for the run-off company, or some will likely be offered positions with Alaska National,” Ames said. “The bulk of our employees are claims and accounting folks anyway, so they’ll continue to manage the claims which will go on for quite some time.” Headquartered in San Francisco, HIH also has offices in Sacramento, Irvine, Chicago, Detroit, Milwaukee, Phoenix, Denver, Las Vegas, Honolulu and Buenos Aires.

Watson was noncommittal as to staffing changes. “We’re not acquiring HIH, we’re only acquiring the right to underwrite their book of business onto Argonaut as their business renews. We think they have some key people that we’d like to bring onto Argonaut, but we’re not obliged to do so.”

Based in Menlo Park, Calif., Argonaut Insurance Group provides specialty insurance products on a national basis for specific niches of property/casualty insurance. Argonaut currently holds an “A” rating from A.M. Best.

For the nine months ended Sept. 30, 2000, Argonaut Group recorded a consolidated net loss of $44.3 million on total revenue of $162.8 million, compared to a net income of $21.7 million on total revenue of $142.8 million for the same period in 1999. The company reported that the current year-to-date net loss is primarily a result of significant strengthening of loss reserves for workers’ comp business recorded during the first quarter.

“The purpose of [the HIH] transaction isn’t to turn around the financial condition of Argonaut…but we clearly think that we can bring on this book of business without bringing on the same level of expenses associated with it,” Watson said. “So we do think that this will reduce our expense ratio overall going forward.

“HIH has a good book of business in Nevada, Arizona, Colorado, Michigan, Illinois, Wisconsin, Hawaii—all states that we’ve been writing business in for several years. This gives us a chance to get a little bit more critical mass in our book of business in the Southwest and Midwest regions of the country.”

Ames said that HIH still has plenty of assets to sell. “We have a number of other special programs and projects that haven’t yet been consummated…The market is very strong right now; we’ve got good people and excellent accounts so there’s a lot of interest from the marketplace.”

In August, S&P put HIH Insurance Ltd.’s financial strength and counterparty credit ratings on CreditWatch Developing. The move came after the announcement that HIH would be reviewing its personal lines operations with the possibility of entering into a joint venture or sale.

HIH is a wholly owned subsidiary of HIH Insurance Ltd. of Australia, a worldwide insurance company that is going through a “reorganization and a reallocation of capital on a worldwide basis,” according to Ames. “They are influenced on a worldwide basis by Standard & Poor’s, not by A.M. Best. They’ve made a number of strategic changes in their company structure in the last two or three months, in part to maintain an acceptable S&P rating in Australia. Part of that involved the shutdown and runoff of operations outside of Australia in a number of different countries including the U.S.”

Topics California Mergers & Acquisitions Carriers Workers' Compensation Hawaii Australia Alaska Human Resources