A reinsurer will take on a portion of a risk for a portion of the premium.
Reliance Reinsurance got out of several less attractive lines of business and as
they did not act soon enough as significant reserve adjustments will be made in
the third quarter of 1999. Reliance Re grew premiums by offering reinsurance for
crop losses. Despite a high level of Catastrophic losses in 1998 in this line,
Reliance Re was able to lock in profit by offering reinsurance to other
companies, actually reinsure the reinsurer. Reliance Surety Business grew over
20% in 1998 due in large part to the formation of Reliance Specialty division.
In 1997 two competitors merged, when St.Paul purchased United States Fidelity
and Guarantee USF&G). The management of USF&G was chosen to lead the combined
surety operations. Reliance Surety hired 7 people in the senior management ranks
of the former St. Paul surety operation and formed the Specialty division. These
individuals were able to capitalize on their existing relationships and bring a
substantial amount of profitable surety business over to Reliance. Viewed as one
of Reliance Group's first specialization success stories. Increased profits as
well through he use of technology in the high volume/low premium sector.
Relaince Surety was quoted in the Wall Street Journal as being the crown jewel
of Reliance Group Holdings (footnote) Personal Auto This is a new venture and
grew very fast in 1998. There was a launch of Reliance Direct, an e-commerce
venture to offer personal auto insurance over the Internet.
This unit had revenue of $201m, with no mention of profit and loss. Two
separate efforts in personal auto were included in these numbers and these
efforts were subsequently merged. RGC Information Technologies This is a
non-insurance related entity, offering computer software services. Started in
response to Y2K concerns and revenue growth in 1998 was 29% to close to $250m.
Strong Financial Position The company had more capital and less leverage than at
anytime in their history. They reduced debt to 35% of equity from 40% of equity,
achieved primarily through the sale of their stake in Commonwealth title. Duffs
and Phelps and Standard and Poor raised Reliance Group's senior debt ratings.
(These ratings were short lived as they were downgraded in the third quarter of
1999). - Insider information. The management of Reliance Group was hoping that
A.M. Best, a key insurance industry rating agency, would raise Reliance's rating
from A- (excellent) to A (superior) in response to the 1998 results. This did
not happen much to the disappointment of senior management. This rating increase
has been a goal of Reliance Group for several years. Outlook Property and
Casualty market will continue to be challenging but the management notes some
signs of a hardening in the market. Reliance plans to continue to differentiate
themselves through disciplined, selected, and sophisticated underwriting and
offering outstanding service. Travelers Property Casualty Corp. 1998 Annual
Report Letter to the Shareholders by Jay Fishman, President and Chief Executive
Officer Revenues and earnings in 1998 achieved all time highs with operating
earnings increasing 11% on revenue increase of 5%. This is before an adjustment
for FAS 115 (I need to find out what this was). Strategy is to build Travelers
as an efficient low cost provider. Commercial lines had an 11% increase in
operating profits. Personal lines had sufficient price increases to invest in
the capital necessary to grow aggressively. Strategies Applied - Create a
culture that recognizes the importance of efficient, low cost provider of high
quality products and services. Reduced operating expenses $300m since the
company's inception in 1996. - Achieve earnings growth while maintaining balance
sheet strength. - Reduction in exposure to areas with high catastrophic
exposure. - Substantially resolve major portion of outstanding environmental
Claims. (These claims are related to Asbestos and other environmental claims on
policies written 20 + years ago.
