The leadership of 20th Century Industries, in the aftermath of an earthquake that wiped out nearly two-thirds of its surplus, on Tuesday broached for the first time the idea of putting the 35-year-old insurance holding company up for sale.
Addressing shareholders at the firm's annual meeting, Chief Executive Neil H. Ashley said management's goal is to try to "recharge" the capital base without going on the sales block. It would do this through a combination of hoped-for rate increases, plus a victory in its pending Proposition 103 legal challenge.
But if those efforts fall short, Ashley said, "people are standing in line" for a chance to recruit potential investors to buy all or part of the Woodland Hills-based parent of 20th Century Insurance Co. The firm has not sought any buyout offers or hired an investment banker, but it has listened to proposals from investment bankers, a company spokesman said later.
Such talk is surprising from a company that prides itself as being an independent, California-grown firm whose streamlined insurance business consistently ranks among the nation's most profitable.
20th Century has long been regarded as an attractive merger partner, but a sale or takeover seemed unthinkable while founder and Chairman Louis W. Foster was in control. However, Foster, 81, last year stepped down as chief executive and has since taken a less active role in the company.
An estimated $600 million in claims from the Jan. 17 Northridge earthquake caused 20th Century to declare a record $340-million first-quarter loss.
In an action that will save about $16 million, 20th Century directors voted Tuesday to suspend the dividend on the company's shares for the final two quarters of this year. The second-quarter dividend, already declared at 16 cents a share, will be paid as scheduled June 5.
Meanwhile, state Insurance Commissioner John Garamendi has yet to act on 20th Century's emergency request for a statewide 172% increase in its earthquake insurance rates. The rate hike is designed to generate an additional $36 million in premiums and to discourage many customers from buying earthquake coverage.
At a May 11 hearing on the request, Insurance Department spokesman Bill Schulz said a decision would be made in about a week. On Tuesday, he said the request remains a high priority, but he could give no explanation for the delay.
About 275 shareholders crowded a conference room at the Marriott Hotel in Woodland Hills for the 2 1/2-hour annual meeting. The venue seemed appropriate because of the huge crane parked outside the hotel to repair quake damage.
Several shareholders sharply criticized 20th Century's performance. Some questioned why it stays in the homeowners and earthquake insurance business when auto insurance provides the vast majority of its revenue and profit.
Ashley said it would be difficult to drop 240,000 homeowners policyholders (about 75,000 of whom also carry earthquake coverage) without inviting a backlash from the Legislature and regulators.
Jerry Shapiro, who described himself as a longtime shareholder, asked whether the board is too old to be "up to the challenge" of overseeing 20th Century. The all-male, 11-member board has an average age of 67.
Ashley, 71, defended the directors' capabilities. Ashley, who retired as president in 1989, was brought back as chief executive last year in what was meant to be an interim move until a new management team could be named. He said the quake has temporarily forced the board to put aside work on the succession plan.
One shareholder drew applause by suggesting that the board slash management's "bloated bonuses."
According to the proxy statement, Foster was awarded a $500,000 bonus this year in addition to his salary of $507,250 and other compensation of about $130,000. Ashley drew a $200,000 bonus on top of his $215,000 salary. The next four highest-ranking officers received bonuses totaling $235,000.