TIG Holdings, Inc.

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TIG Holdings, Inc.

65 East 55th Street
New York, New York 10022
U.S.A.
(212) 446-2700
Fax: (212) 371-8360
Web site: http://www.tigl.com

Public Company
Incorporated: 1993
Employees: 1,100
Total Assets: $6.86 billion (1997)
Stock Exchanges: New York
Ticker Symbol: TIG
SICs: 6331 Fire, Marine & Casualty Insurance; 6339 Insurance Carriers, Not Elsewhere Classified; 6719 Offices of Holding Companies, Not Elsewhere Classified

TIG Holdings, Inc. is engaged primarily in the business of property/casualty insurance and reinsurance, mainly through its TIG Insurance Co. and TIG Reinsurance Co. subsidiaries. The major lines of coverage, in the late 1990s, were workers’ compensation, automobile liability and physical damage, general and other liability, and commercial multiple peril. Policies were being sold through independent agents and brokers. TIG Holdings’ initials derived from Transamerica Insurance Group, a unit of Transamerica Corporation before 1993.

Transamerica’s Property/Casualty Holdings: 1928-84

Transamerica Corporation was the holding company founded by A. P. Giannini in 1928 to control the Bank of America and other properties, including Pacific National Fire Insurance Co., which was founded in 1911 and commenced business in 1915. Based in San Francisco, Pacific National Fire Insurance was, in 1940, conducting business in all 48 states, offering fire, motor vehicle, inland marine, aircraft, and numerous other kinds of property/casualty insurance, including damage from earthquakes, tornadoes, explosions, and riot and civil commotion. In 1932 it acquired all business of the Associated Fire Marine Insurance Co. except for automotive. Pacific National Fire Insurance earned $5.1 million in premiums in 1940 but lost $301,000. In 1950 it earned $11 million in premiums and had net income of $1.1 million.

Transamerica acquired Philadelphia-based Manufacturers Casualty Insurance Co. in 1950. This company was incorporated in 1915. In 1950 it earned premiums of $12 million and recorded a net loss of $1.1 million. It controlled Manufacturers Fire Insurance Co., also of Philadelphia, which in 1949 earned premiums worth $1.3 million and had net income of $134,511. Also in 1950, Transamerica acquired more than 92 percent of Paramount Fire Insurance Co. Based in New York City, this company was incorporated in 1938 and wrote a variety of property/casualty policies. In 1949 it had total earnings of $950,252.

Transamerica was considerably slimmed down in 1958, after a congressional law forced the holding company to divest itself of its banking interests. Among what remained were seven insurance companies: Occidental Life Insurance Co. and six fire and casualty companies writing nearly all forms of insurance other than life. Manufacturers Casualty and Manufacturers Fire were merged into Pacific National Fire in 1958, and Paramount Fire Insurance was merged into it in 1959. The company changed its name to Pacific National Insurance Co. in 1962 and Transamerica Insurance Co. in 1963.

Among Transamerica Insurance’s holdings was American Surety Co., 93 percent acquired by Transamerica Corporation in 1960. Incorporated in New York in 1881, this large company and its affiliates wrote almost every kind of insurance. In 1960 American Surety earned $53.2 million in premiums and had net income of $2.6 million. This company, which included Canada Surety Co., was merged into Transamerica Insurance at the end of 1963.

In addition, when parent Transamerica Corporation purchased Pacific Finance Corporation in 1961, it also acquired four property/casualty subsidiaries: Olympic Insurance Co., Mt. Beacon Insurance Co., Marathon Insurance Co., and Spartan Insurance Co. These companies were still part of Pacific Finance when it became Transamerica Financial Corporation in 1968, but the following year they passed to Transamerica Insurance, which also controlled Premier Insurance Co., Wolverine Insurance Co., and Wolverine’s subsidiary, Riverside Insurance Co. of America. In 1970 Transamerica Insurance collected $220.7 million in insurance premiums and had net income of $2.2 million. By this time the company had moved from San Francisco to Occidental Life’s quarters in downtown Los Angeles.

During the 1960s the parent Transamerica became a conglomerate by purchasing several businesses unrelated to financial services, including the United Artists movie studio and Trans International, a charter airline. Occidental Life remained Transamerica’s most lucrative unit, but the property insurance companies accounted for only about five percent of earnings. During the early 1970s this line of business became even less important to the parent. Transamerica Insurance’s revenues grew from $246.7 million in 1971 to $328.6 million in 1974, but net income, after rising to $11.3 million in 1972 and 1973, fell to $7 million in 1974. In 1975 the company’s $354.5 million in direct premiums written accounted for 15 percent of the company’s total revenues, but its net income was only $5 million.

Specialized Forms of Coverage: 1984-92

During the late 1970s Transamerica Insurance’s earnings improved markedly, reaching a peak of $53.6 million in 1979 on $701.6 million in net premiums written. By the mid-1980s, however, the entire property/casualty industry was suffering from nearly six years of rate-cutting and underwriting losses. Transamerica Insurance reported an after-tax loss of $58.8 million on net premiums written of $856.6 million in 1984, forcing parent Transamerica Corporation to contribute $100 million of new capital to the subsidiary.

Some of the money was being allocated to specialized, potentially more profitable lines of insurance. The company, for example, wrote the property and liability coverage for the 1984 Summer Olympic Games, held in Los Angeles. To reduce its liability, the company required the Olympic Committee’s drivers to attend a special safety training program stressing defensive driving techniques. By the end of the summer, Transamerica Insurance had received a little more than 1,900 claims, which was considered tolerable in terms of its exposure to loss. But the company took on this role as its civic and patriotic duty and did not expect to make money.

In 1986 property and casualty insurance accounted for just one percent of the parent company’s record $194.2 million in income from continuing operations. Property and casualty volume came to about $1 billion that year, split almost evenly between commercial, personal, and specialty lines. That year Transamerica Insurance began writing coverage for sports and leisure events jointly with K&K Insurance Group. The agreement began with auto racing but grew to cover professional and amateur athletics, including the professional golfers’ tour, the National Football League, the National Basketball Association, further Olympic Games, and college basketball’s final four. It also covered fairs, theme parks, country festivals, and theater.

In addition, Transamerica Insurance covered the National Trust for Historic Preservation, which owned and cared for 17 historic house museums open to the public, including George Washington’s estate in Mount Vernon, Virginia. It also provided coverage for about 60 historic properties operated by National Trust member organizations. In 1987 Transamerica Insurance Group was established and incorporated as the parent of Transamerica Insurance Co. That year it acquired Fairmont Insurance Co. and its subsidiaries, Fairmont Reinsurance Co. and 51-percent-owned River Thames Insurance Co., Ltd. Transamerica Insurance Group moved its headquarters in 1988 from Los Angeles to a suburb, Woodland Hills.

In 1990 Transamerica Insurance Group was the nation’s 27th largest property and casualty insurer and included the ninth largest reinsurance company. It had 48 offices in the United States and in the United Kingdom and 4,600 employees, not counting 4,100 independent insurance agents and brokers with whom it did business. Revenues that year came to $2.13 billion, and earnings were $61.1 million, or 23 percent of Transamerica Corporation’s total. (The parent company had shed many of its acquisitions and was once again primarily a financial services firm.)

Transamerica Insurance Group entered the movie business in 1989 or 1990 by acquiring Completion Bond Co., a firm that insured financial backers that a movie would be delivered on schedule and within budget, or the firm would pay to finish the movie itself. By 1990 Completion Bond had guaranteed more than 500 films with aggregate budgets exceeding $1.6 billion. Through a U.S. insurance broker and a British entertainment carrier, Transamerica Insurance also was offering coverage for live theater, television production, and concerts, including cast insurance. These lines of coverages were extensions of its established lines of specialty insurance, including sports, leisure, and venues. Other specialty markets in which the group was engaged included excess workers’ compensation and reinsurance.

In 1991 Transamerica Insurance Group accounted for nearly a third of the parent corporation’s revenue and had 65 offices nationwide, but its earnings of $63 million were considered insufficient. Premiums had fallen about 25 percent because of price-cutting in the property/casualty field, and the group had suffered losses because of fraud in the southern California workers’ compensation market and movie cost overruns. Transamerica Corporation announced the following year that it would sell or spin off the unit to focus on its finance and life insurance businesses.

Company Perspectives:

The Company is committed to being an efficient provider of reinsurance and specialty insurance products and services while generating attractive returns for its shareholders.

TIG Holdings: 1993-98

Transamerica Insurance Group became TIG Holdings Inc. in 1993, when 44.2 million shares of common stock were sold at $22.63 a share in an initial public offering that raised $1 billion. The holding company’s headquarters were installed in New York City, while the Woodland Hills operation—renamed TIG Insurance Co.—was moved to Las Colinas, Texas, a suburb of Dallas. Transamerica Corporation initially kept a 27 percent stake in the new company but sold it before the end of 1993.

Aided by $70 million in deferred tax liabilities, TIG decided to build on one of its major strengths: reinsurance, which in 1992 accounted for 23 percent of Transamerica Insurance Group’s net premiums. That division had a profitability ratio considerably better than that of the overall industry. On the other hand, workers’ compensation had accounted for 25 percent of net premiums, and 56 percent of that business was in California, where an observer said the “regulatory climate has been an absolute disaster for insurers.” In 1993 TIG Holdings lost $128 million on total revenues of $1.88 billion. The following year the company slashed expenses and had net income of $51.5 million on revenues of $1.78 billion. In 1995 TIG had net income of $118.3 million on revenues of $1.88 billion.

Despite the 1994-95 turnaround, TIG Holdings’ return on equity remained below the 15 percent generally regarded as acceptable. In February 1996 the company announced it would lay off 550 of its remaining 1,920 employees. TIG’s chairman cited “sustained rate pressure in every segment” of its business, worsened by falling interest rates, which reduced the amount of income generated on invested premiums. The company took a $100 million pretax charge to cover outlays for severance, office lease terminations, and the write-off of some capitalized expenses and said it would discontinue certain coverages failing to meet profitability standards, including some lines of workers’ compensation. Gross written premiums in the California workers’ compensation market already had fallen from $180 million in 1993 to $64 million in 1995. In all, about 12 percent of overall net premiums written in 1995 were unprofitable.

The company’s efforts to raise its profit margin did not bear fruit. Expenses actually rose in 1996 because of the restructuring charge, and TIG Holdings had net income of only $79 million that year on revenues of $1.83 million. Expenses fell $55 million in 1997, but revenues dropped by $68 million, and net income came to only $52 million. In early 1998 the company took a $145 million pretax charge to increase its reserves for claims. This was made necessary, TIG officials said, by the poor performance of the reinsurance unit, which had high-risk professional liability coverages on its books. Following this announcement a class action suit against TIG was filed by two firms, alleging violations of federal securities laws on the ground that the company’s reserves had been understated.

TIG Holdings was, in 1997, primarily engaged in the business of property/casualty insurance and reinsurance through 14 domestic insurance subsidiaries and 45 offices writing basically all lines of such insurance in all 50 states. Commercial specialty insurance accounted for 41 percent of net premiums, reinsurance for 36 percent, and retail for 23 percent. Twenty-six percent of direct written premiums were written in California.

Based in Stamford, Connecticut, TIG Reinsurance Co. tended to underwrite lines of business in which it had specific expertise, such as general liability, auto liability and physical damage, and workers’ compensation. TIG Insurance Co. had two divisions, Commercial Specialty and Retail, both based in Irving, Texas. Workers’ compensation accounted for more than half of all commercial specialty net premiums written in 1997. Other specific units in this division included sports and leisure, primary casualty, excess casualty, special-risk operations, and Lloyds’ syndicates. Retail provided property and liability coverage for individuals and small businesses, with the main market automobile liability and physical damage. Homeowners’ insurance was offered mainly by the division’s independent agents unit, which was sold to Nationwide Mutual Insurance Co. on the last day of 1997.

Principal Subsidiaries

TIG Holdings 1, Inc. (including its subsidiary, TIG Excess & Surplus Lines, Inc., and this subsidiary’s subsidiary, TIG Specialty Insurance Co.); TIG Insurance Group (including among its subsidiaries TIG Insurance Co., which included among its subsidiaries Countrywide Corporation, TIG American Specialty Insurance Co., TIG Lloyds Insurance Co., TIG Premier Insurance Co., and TIG Reinsurance Co.).