THE HOME INSURANCE COMPANY History

Company History:

The Home Insurance Company is the 23rd-largest property and casualty company in the United States. Home provides virtually all lines of insurance, with the bulk of its business being industrial property insurance and liability for large accounts. The company has undergone numerous changes over the course of its history, and has contributed significantly to the face of modern property and casualty insurance.

When Home was founded in 1853 insurance was very different from what it is today. Property owners purchased insurance to hedge the risk of loss. Claims were not expected to cover more than the value of the lost property, and sometimes covered less. Only a few types of insurance were available, and insurance companies were generally limited in the types of coverage they could offer. Indeed, many merchants had trouble getting enough protection for their property. To help solve this problem, a group of New York City merchants established The Home Insurance Company. Paid-in capital was $500,000, large for an insurance company in those days.

Simeon Loomis was Home's first president. Loomis brought some insurance experience with him when he came to New York from Hartford, Connecticut. After two years, Loomis left Home over matters of policy, and was replaced by secretary Charles J. Martin. Martin led Home Insurance for the next 33 years.

One of Home's most significant contributions to the insurance industry was its popularization of the insurance agency system. Insurance companies were warned by state commissioners not to expand too widely. The comptroller of the state of New York cautioned mutual companies against selling insurance outside of their own counties. The promoters of Home, however, named 18 agencies in the first month of operations, and 128 throughout the United States and Canada by the end of the year. Only one other company in New York used independent agents to sell its insurance in 1853, and the concept caught on quickly. Thirty years later, in 1883, Home's president, Charles Martin, reported that 37 of the city's 57 insurers sold through agencies.

Another innovation in property insurance instituted during Home's early years was the concept of safety engineering and risk management. A position for a surveyor was included in the company's original bylaws. Among the surveyor's duties was attending "to the interests of the company in surveying buildings and watching risks which the company may be insured."

About one-third of Home's premiums were written in the South, and when the Civil War started in 1861, the loss of this income slowed the company's growth. Home honored all policies, Union and Confederate. In 1864, another $1 million was added to Home's capital base, through subscription. With total paid-in capital of $2 million, Home was the largest fire insurer in the country.

Nineteenth-century fire-control techniques were not adequate to protect U.S. cities, which had grown rapidly. New York City, for example, did not have a full-time fire department until 1865. Several major conflagrations in the latter half of the century resulted in the payment of hundreds of thousands of dollars to claimants. In 1866 big fires in Portland, Maine; Glens Falls, New York; and Vicksburg, Mississippi, put a strain on insurance companies' resources, but the biggest blow came in 1871, in Chicago.

The Great Chicago Fire destroyed $200 million worth of property and bankrupted 68 insurance companies. Home paid $2.5 million in claims. The company's stockholders injected another $1.5 million in capital to keep Home going. A year later a fire in Boston forced 30 more insurance companies into insolvency. The Home Insurance Company paid claims of $750,000, and in the late 19th century insurers began to promote the development of better fire protection and risk management.

Home's business expanded with the westward expansion of the United States. Home commissioned architect William Le Baron Jenney to design an office building for its Chicago-based operations. The Home Insurance Building was completed in 1885 and, at ten stories, was the world's first skyscraper--its weight was supported by a steel skeleton rather than by walls.

In 1903, as Home celebrated its 50th anniversary, it had premiums totaling $147 million. A year later a major fire in Baltimore, Maryland, cost Home $600,000 in claims but brought about changes in fire protection. Equipment sent to Baltimore from New York and other cities proved useless because hose fittings were not standardized. Insurance companies lobbied for national uniformity in fire-fighting equipment, and Home, which had been the leading insurer in Baltimore, led the movement. In 1906, the San Francisco Earthquake and Fire resulted in property losses of $250 million. Home paid $2.2 million in claims. Great fires became rare in the 20th century because of more effective building codes and improved fire-fighting technology.

In the early 1900s automobile insurance was a growing field. Home's automobile division became the foundation of its casualty insurance business. In 1930 a subsidiary, The Home Indemnity Company, took over Home's casualty lines.

Home's assets grew 50% during World War I. In 1918, after the war, Home was one of the founders of the American Foreign Insurers Association, which offered coverage to European industries. After a brief dip in the postwar economy, Home grew steadily through the 1920s as well. The Depression, which followed the stock market crash of 1929, caused a downturn in Home's premium income. By 1935 the economy had improved considerably, and World War II brought full economic revival.

In 1944 the United States Supreme Court ruled against the industrywide practice of cooperating to set premium prices in United States v. Southeastern Underwriters Association. Insurers argued that most companies were too small to rely solely on their own experience in setting premiums. As a result of these protests the McCarran-Ferguson Act was passed by Congress in 1945, exempting insurance-rate fixing from the Sherman Antitrust Act, and placing responsibility for industry regulation in the hands of state governments.

After the war Home's automobile insurance business began to grow quickly. Along with the larger number of cars, however, came a larger number of accidents. Home decreased its automobile underwriting as a result.

During the 1950s new laws allowed underwriters to sell a wider variety of insurance, and Home began selling insurance packages, which included several types of coverage for a monthly premium. Homeowners' and industrial packages were marketed, as record numbers of Americans bought homes in the 1950s and 1960s.

In the 1960s insurance company stocks were priced low at a time when most stocks were doing well. Home's stock portfolio soared in value while the company's market value remained low. As a result, in 1968 Northwestern Industries, a diversified railroad holding company, announced it would attempt to take over the insurance company. Home's president, Kenneth E. Black, turned to City Investing Company, a diversified holding company. City Investing's chairman, Robert Dowling, had long been a director of Home, and Home Insurance became a subsidiary of City Investing in 1968.

Civil unrest in the late 1960s resulted in a large number of damage claims in urban areas. Government-imposed FAIR (Fair Access to Insurance Requirements) plans, and assigned risk plans spread the risk of undesirable underwritings among a number of insurance carriers. This system gave protection to customers who would otherwise have had trouble getting insurance.

John H. Washburn, great grandson of an earlier Home president of the same name, was elected president in 1968, CEO a year later, and chairman in 1973. Robert H. Tullis, became president in 1973.

In 1974 a severe recession, characterized by high inflation and descending stock prices, reduced the value of Home's surplus and investments. At the same time, average claim settlements were rising rapidly. Home experienced record losses from underwriting, particularly as a result of writing high-risk casualty policies and failing to reserve adequately. The situation was so severe that some analysts speculated that Home was on the verge of bankruptcy, but the period of record losses was followed by a period of record gains for Home. The cyclical property and casualty markets rebounded in the latter half of the 1970s.

In 1975 Cityhome Corporation, a subsidiary of City Investing, was incorporated to parent The Home Insurance Company and its affiliates. In 1978 Cityhome became known as The Home Group. City Investing also decided that The Home Group was overdue for restructuring. Home's reputation had begun to suffer, and the head of City Investing's financial division, Peter C.A. Huang, undertook the task of cleaning up Home.

Huang, the son of a former Chinese minister of finance, is a brilliant financier, but had little patience with Home's existing management, and fired 434 employees--mostly senior staff--while assuming the duties of chairman and later president himself. Huang instituted major changes in the company's top management, its corporate structure, and its accounting system. Management was decentralized by region, and the memo-writing approach to strategic policymaking was abolished. New financial accounts included detailed breakdowns of all business areas. Huang's purge left Home without a core of experienced insurance managers, but, as Huang told Institutional Investor in 1981, Home Insurance was "the only non-inbred insurance company, the only one run by non-insurance people."

In 1982 the Home Reinsurance Company began operations, reinsuring risks domestically and internationally. By 1988 its assets totaled more than $485 million. Home Insurance and its subsidiaries recorded devastating underwriting losses in 1984 and 1985. Combined operating losses for the two years totaled $396.9 million.

In May 1984 a group of investors headed by Merrill Lynch Capital Markets, and including City Investing chairman George Scharffenberger, bid to take Home Insurance Company's parent private. A week later a second group, headed by Miami investor Victor Posner, offered City an even more favorable deal. The Posner group's bid allowed for equity participation by City's current management, and was given a favorable recommendation by the City board. By summer, however, neither group had successfully raised the necessary funds to complete the transaction. In September, the Merrill Lynch group, assisted by leveraged buyout specialists Kohlberg Kravis Roberts & Company, offered to buy just three of City Investing's major manufacturing units. The price was right and the deal was accepted. The rest of City was split up; some assets being sold outright, and others, including Home Insurance, being temporarily spun off to shareholders until a buyer could be found.

Scharffenberger hired his attorney, Marshall Manley, to head City Investing during the transition. Manley was then asked to stay on as president of the Home Group. Under Manley, two life insurance subsidiaries, PHF Life and Federal Home Life, were sold in 1985 for $130 million. In 1986 James J. Meenaghan, formerly president and CEO of Fireman's Fund, became president and CEO of Home. He focused company strategy and sought to strengthen senior management. In August 1987, a brokerage house, Gruntal and Company, was purchased for $148 million. In 1988 Carteret Savings Bank was acquired by Home Group for $266 million. Home incurred significant debt to make these purchases, and its preferred stock was downgraded. Home's debt increased from $94 million in 1985 to $479 million in 1989. The company's shares dropped from a high of $31 1/2 in 1986 to $7 in 1990.

In 1989 Hurricane Hugo battered the southern Atlantic coast and territories of the United States, and the second great earthquake in a century rocked San Francisco. Home's losses for the year were $50 million, relatively low compare to other carriers, some of which had claims totaling ten times that amount.

In May 1989 The Home Group changed its name to AmBase Corporation. The company organized its subsidiaries into three groups: insurance, consisting of The Home Insurance Company and its subsidiaries, Commonwealth Insurance Company--Home's Canadian affiliate--and U.S. International Reinsurance; banking, made up of Carteret Bancorp, Imperial Premium Finance, and Carteret Mortgage; and investment services, built around Gruntal Financial Corporation and Home Capital Services. A fourth unit of AmBase was its Sterling Forest Corporation, a real estate development near New York City valued at over $35 million.

In 1989, AmBase Chairman George T. Scharffenberger announced that the company planned to sell its insurance operation. Proceeds were earmarked to reduce the holding company's debt. AmBase would continue to operate its banking and investment-service units, while the Home Insurance Companies and affiliates, around which the firm had grown, would continue to conduct their business as either a subsidiary of another company or independently.

In February 1991 Home Insurance was purchased by TVH Acquisiton Corporation, an investor group whose principal partners include Trugg-Hansa Holding AB--Sweden's second-largest insurer--and Industrial Mutual Insurance--Finland's second-largest insurer.

Few insurance companies have survived as long as The Home Insurance Company. Home has weathered the great storms; despite the financial turmoil of the 1980s Home is in sound financial condition and appears ready to face the challenges of the future.

Principal Subsidiaries: City Insurance Company; Cityvest International, Limited; The Home Indemnity Corporation; The Home Insurance Company of Illinois; The Home Insurance Company of Indiana; Home Lloyd's Insurance Company of Texas; U.S. International Reinsurance Company; Commonwealth Insurance Company (Canada).

Further Reading:

• "Home Observes Its 125th Anniversary," National Underwriter (Prop/Cas), April 14, 1978.
• Tullis, Robert H., The Home Insurance Company: Men of Vision During 125 Years, New York, The Newcomen Society in North America, 1978.

Source: International Directory of Company Histories, Vol. 3. St. James Press, 1991.

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