If anyone has seen for himself how money can be made and lost in the insurance business, it's Stanley Braun.
Between 1976 and 1984, Braun was an executive of Mission Insurance Group in Los Angeles, then one of the nation's biggest providers of workers' compensation insurance and a company that made a disastrous move into the reinsurance business. The year Braun left, Mission incurred a $198-million loss, and in 1985 it was declared insolvent and seized by regulators in one of the state's biggest insurance failures.
Yet as Mission was crashing, Braun--who disclaims any role in Mission's problems--was tapped to be president of Burbank-based Fairmont Insurance Co., another workers' compensation insurer then headed by Joseph G. Havlick. Shortly thereafter, Fairmont was sold to Transamerica Corp. for $132 million of Transamerica stock, including about $7.5 million and $1 million that went to Havlick and Braun, respectively.
Both used those profits to start separate workers' compensation insurers. Havlick formed CII Financial Inc. in Burbank, successfully took it public last year, watched its stock soar and earned more riches for himself.
Now, Braun is trying to do the same. Braun, 53, is founder and president of Pac Rim Holding Corp. in Encino, whose main operating unit is Pacific Rim Assurance Co. Since beginning operations in late-1987, Pac Rim has been profitable and growing rapidly, and last week Braun took it public.
Pac Rim sold 2.75 million common shares for $7.25 apiece Friday, raising $19.9 million for the company before underwriting fees. In its first day of over-the-counter trading, the stock rose to $7.75 a share as 1.5 million shares changed hands, and on Monday it closed at $7.25 a share.
Because the stock is just reaching the public, Braun declined comment on Pac Rim's strategy beyond what is in the company's prospectus, which states that Pac Rim wants the cash mainly to enlarge its business.
Pac Rim already has expanded quickly under its own inertia. In just its third full year in business, Pac Rim reported 1990 revenue of $74.1 million, up 79% from $41.4 million the previous year. Its profit last year was $4.8 million, nearly double the $2.6 million earned in 1989.
Braun tried to take Pac Rim public during 1990, but his timing was inopportune. Pac Rim announced the offering in August--the same month Iraq invaded Kuwait. The stock market went into a slump that lasted through October, and the initial public offerings of Pac Rim and many other companies were shelved.
The environment is kinder this time around. With the stock market having gained about 14% this year, the IPO market is reawakening and Pac Rim tried again.
Braun, as Pac Rim's biggest stockholder, had owned 9.9% of its shares but the sale diluted his stake to 7%. Still, his remaining holdings now have a current market value of about $4.6 million.
Even before the stock sale, Braun hadn't scrimped on his own pay. Last year, Pac Rim paid him $721,324 in salary, plus a $212,849 bonus and fringe benefits totaling $110,580--or $1.05 million in total compensation, or roughly 20% of the company's total 1990 profit.
Compared with other insurance executives, Braun is very highly paid. Heidrick & Struggles, an executive compensation consulting firm in Los Angeles, said its most recent nationwide survey of chief executives' wages in the property/casualty insurance field--in 1987--showed the average salary to be $259,800.
And lest there be any doubt that Braun is the one who makes Pac Rim go, the company has an $8.7-million "key man" life insurance policy should he die.
Despite Braun's success with Pac Rim to date, the company remains a second-tier player in the $8-billion workers' compensation market in California, the nation's largest. Roughly 450 companies overall are licensed to provide workers' comp coverage in the state, where the biggest insurer is the State Compensation Insurance Fund, a state-operated but self-supported agency with annual revenue approaching $2 billion.
Employers by law must provide insurance for workers injured on the job, and minimum rates and benefits of that insurance are in effect set by the state Department of Insurance. But in practice, workers' compensation insurers do charge different rates.
That's because they offer rebates, known as "policyholder dividends," to their customers at the end of each policy year depending on how well the employer keeps its safety record high and its workers' compensation claims low.
Some insurers have griped lately that high medical and legal costs are making the workers' comp business in the Los Angeles area simply too expensive. But Pac Rim claims its profitable growth reflects its narrow focus of insuring mostly service businesses--restaurants, convalescent homes and the like--and light manufacturers in Southern California only, and by keeping a tight lid on costs.