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FOCUS E & W is a subsidiary of the leading insurer, FOCUS Insurance
Corporation. Although its performance had been satisfactory till 1990, it
suffered huge losses ($1 billion) between 1990 and 1993.
This was mainly due to huge payments made by the company (towards claims for
catastrophes as varied as floods, hurricanes, riots and environmental
clean-ups). Moreover, the company's combined ratio had risen to 140% which
meant that for every dollar received as premium, the company was paying out
$1.40 as claims.
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Therefore, the company's financial rating was downgraded from A to B+.
The losses could partly be attributed to the company's outdated and
unfocused business strategy.
The company issued policies to any and
every individual, without obtaining required details (like the safety
measures taken by the company to avoid fire accident in its
manufacturing plant, to prevent damage to machines, etc.) to boost the
volume of business. As a result, underwriters failed to understand the
risk involved in the transaction... |
Please note:
This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.
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