Venture Fair

Contracts Awarded


Leaving Town

Off the Radar


Corrections or additions?

This article by Barbara Fox was prepared for the March 26, 2003 edition of U.S. 1 Newspaper. All rights reserved.

Life in the Fast Lane

Medical insurers are feeling the sting from New Jersey’s

medical malpractice insurance crisis as they scramble to soothe nervous

customers and investors while their reputations are getting eclipsed

by the threat of exorbitant payouts resulting from malpractice suits.

Last month the influential insurance rating company A.M. Best downgraded

the financial strength indicator of Princeton Insurance Companies

based at 746 Alexander Road. This is the second downgrade for the

major New Jersey insurer within six months. Company officials say

the medical malpractice situation in the state is contributing to

its financial woes.

In February A.M. Best downgraded Princeton Insurance’s financial strength

rating from B-plus (good) to B-minus (fair), after a previous downgrade

last September from A-minus (excellent). Best had also downgraded

Princeton’s parent company, the New York City-based MLMIC Group, the

country’s largest medical malpractice insurer, from A-minus to B-plus-plus

(very good), saying the companies’ financials were "still under

review with negative implications."

"If the company is unable to improve its capitalization and profitability

in the near-term, the company’s rating could be lowered further,"

A.M. Best said in a press release. The downgrade, A.M. Best said,

"reflects Princeton Insurance’s marginal capitalization and deteriorating

operating performance."

Princeton has seen mounting losses — a 1998 net income of $13.2

million fell to a 2002 net loss of almost $58.8 million. The policyholders

surplus, from which claim payouts are taken, fell sharply from $141.6

million in 2001 to $107.2 million last year.

While some of the language used in these types of ratings might sound

like Aramaic to the average reader, a lowered rating ultimately puts

into question the insurers’ ability to pay claims. For medical liability

companies like Princeton Insurance, the root of the capitalization

problem is New Jersey’s medical malpractice crisis, now receiving

attention from state lawmakers and even from President George W. Bush.

As the threat of multimillion-dollar jury awards drives premiums up

and forces some doctors to leave the state or limit their practices,

insurers are expected to commit increasingly large amounts of money

just in case of the multimillion dollar suits.

"It has everything to do with the medical liability experience,"

says Bob Schultz, Princeton Insurance’s vice president of corporate

and customer relations. "We’re seeing significant increases in

loss severity and, as a result of that, the independent actuaries

that review our loss reserves have been asking not only Princeton

but companies across the medical liability industry to strengthen

their reserves because the payouts that we may have predicted we’d

be making in the future will probably be higher than predicted."

Princeton Insurance says it made some capitalization moves in the

fourth quarter last year, selling its workers compensation business

and withdrawing activities in four other states to cushion the fall.

"We initiated the sale of that workers compensation book of business

not to generate income to strengthen surplus but to remove premium

from our books, which improves the premium-to-surplus ratio,"

says Schultz. The premium-to-surplus ratio, he explains, reflects

the company’s ability to pay claims.

Princeton Insurance also withdrew its lines of business, particularly

in medical liability coverage, in four other core states — Pennsylvania,

Delaware, Virginia, and Maryland. This move will take another $45

million of premiums off of its books, Schultz adds.

Those factors could help during a review by A.M. Best that Princeton

Insurance hopes will take place at the end of this month.

"What they have done by reducing their premium base is they have

alleviated some of their leverage on their balance sheet. That does

give some relief from the standpoint of capitalization," says

Angela Quinn, a financial analyst with A.M. Best.

However, Princeton Insurance doesn’t expect its capitalization measures

to help it regain its former stellar Best ratings. "We think it

will be doubtful that they will make any adjustment upward," says

Schultz. "But certainly they will remove the `under review’ label.

They are putting that `negative implications’ on every medical liability

insurer because there is too much uncertainty that goes along with

those loss reserve issues."

Also hurting Princeton Insurance is the formation of

alternatives insurers like NJ PURE (U.S. 1, November 20, 2002), as

well as MIIX Advantage and a just-founded company in Woodbridge, Conventus

Inter-Insurance Exchange.

"The reality is we’ve got a situation with this medical liability

crisis where Princeton Insurance Companies in New Jersey is sort of

the big guy on the block and we have the most experience of any of

the carriers that are in this state," says Schultz. "We insure

by far the majority of doctors (over 8,100) and hospitals in this

state. I think all of our insureds are concerned to some extent. Not

only the crisis but also our A.M. Best rating gives them reason to

look at options."

Created in the midst of a similar medical liability crisis in the

mid 1970s, Princeton Insurance originally operated as a reciprocal

(in which the insureds effectively pool their premiums to pay claims)

called the Health Insurance Exchange. This entity was formed by New

Jersey hospitals at a time when there were no commercial insurers

willing to insure them. It changed its moniker to Princeton Insurance

after its decision to become a closed stock company still wholly owned

by hospitals.

Another firm opening around the same time as the Health Insurance

Exchange that also operated as a reciprocal and has ended up hitting

a similar skid in recent years was MIIX (Medical Inter-Insurance Exchange)

formed by Garden State doctors, which saw part of its problems stem

from a decision to go public in the late `90s.

The MIIX Group (still traded on the NYSE as a penny stock but undergoing

a voluntary run-off) is currently readying itself for a possible class

action suit against it by shareholders angered by its decision to

stop writing new policies last year and reorganize into a new entity,

MIIX Advantage, which began operations last September, confining itself

only to insuring doctors in New Jersey.

The lawsuit was filed by a shareholder who had earlier filed an unsuccessful

suit against MIIX’s 1999 IPO. MIIX Chairman and CEO Patricia A. Costante

said in a press statement that she believes the new suit "is without

merit and we will defend it vigorously."

For 2002, MIIX saw a net loss of $116.0 million, or $8.67 per share,

down from $157.6 million, or $11.66 per share, for 2001. Its share

price has plummeted over 75 percent over the last year to $0.66 as

of close on March 16.

The firm attributes its financial pains to the same beast ravaging

other players in the medical liability community: the cost of payouts.

"We are currently operating in the most volatile medical malpractice

environment in recent history. There are at least a dozen states feeling

the serious effects of the medical malpractice insurance crisis, including

New Jersey, Pennsylvania, Ohio and New York. And a crisis is looming

in as many as 30 other states," she said.

"The average MIIX Insurance Company payout per case in New Jersey

has increased by 88 percent in the last five years. In February, we

experienced a $24.2 million jury verdict in Philadelphia, which is

reflected in the company’s fourth quarter financial results. Unpredictable

and extraordinary jury awards drive up settlement values of similar

cases and remove the stability that is essential in setting rates

and reserves," she said.

Best’s Quinn says the malpractice insurance problem is "definitely

a contributing factor" in the financial health of quite a few

medical liability companies. "I think in certain marketplaces

there is that evidence of weakened financial strength," she adds.

Medical liability players in one particular market — California

— have not been stung by the malpractice dilemma, she points out.

The Golden State, known by pundits pushing for legislative changes

to malpractice law as "the gold standard," is the only state

to have passed malpractice tort reform, putting caps on damages.

In this state, pressure from doctors and medical groups as well as

insurance companies has helped malpractice legislation make the rounds.

Last week the State Senate approved a bill that would put a $300,000

limit on doctors’ liability for so-called "pain and suffering"

in malpractice cases and the creation of a state fund that would pay

patients up to another $700,000. However, with the assembly unlikely

to pass the bill — seen as a compromise — many still feel

this will be an uphill battle.

"From our perspective," says Schultz, "we’d like to see

caps on non-economic damages but whether or not that ultimately will

be passed is probably unlikely. Trial attorneys are pushing very hard

from the other side, saying caps on economic damage probably won’t

have the effect that everyone’s telling them it will have. And

the debate goes on."

— Peter Mladineo

Top Of Page
Venture Fair

Five Princeton area companies have been chosen to exhibit

at New Jersey Technology Council’s Venture Fair, and three will be

making presentations. The fair is on Monday, March 31, 10 a.m. to

6:30 p.m. at Liberty Science Center in Jersey City. Cost: $190. Call

856-787-9700. But if five companies from Princeton sounds impressive,

consider that they represent less than 10 percent of the 57-company


Fidelia Technology offers NetVigil software for locating and identifying

problems on data networks and Internet sites. Knite, Inc., manufactures

ignition systems. Founded by Paul Kydd, Paralec develops and markets

very low temperature thick film material used to make printed wiring

boards on polymer substrates. Quantiva offers wide area network management

services for Internet businesses.

NanoOpto Corporation is one of the two firms founded by Stephen Chou,

the nano guru at Princeton University. NanoOpto designs and makes

components for optical networking with a process that is biologically

clean and can also be applied to data storage and other fields. A

sister company on Deer Park Drive, Nanonex, is making the machines

that NanoOpto and other companies can use for their nano manufacturing


A Sarnoff spinoff that has moved to Pennsylvania, Lamina Ceramics,

will also be represented.

Fidelia Technology Inc., 300 Alexander Park, Suite

205, Princeton 08543. Vikas Aggarwal, CTO and founder. 609-452-2225;

fax, 609-452-2662.

Knite Inc., 1 Deer Park Drive, Suite 1-H, Princeton

Corporate Plaza, Monmouth Junction 08852. Michael Krupit, president

and CEO. 732-329-0505; fax, 732-329-8334.

Parelec Inc., 5 Crescent Avenue, Building C, Box

236, Rocky Hill 08553-0236. Steve Ludmerer, president. 609-279-0072;

fax, 609-252-1288. Home page:

Quantiva Inc., 100 Village Boulevard, Princeton

08540. Al Fink, president and CEO. 609-514-9540; fax, 609-514-8505.

Home page:

NanoOpto Corporation, 1600 Cottontail Lane, Somerset

08873. Barry Weinbaum, CEO. 732-627-0808; fax, 732-627-9886. Home


Top Of Page
Contracts Awarded

The Chauncey Group International, 664 Rosedale

Road, Princeton 08540-0001. Judith D. Moore, president & CEO. 609-720-6500;

fax, 609-720-6550. Home page:

The Chauncey Group International won the contract to provide full

examination and registry services in New York State’s certification

program for nurse aides working in nursing homes. It will develop,

deliver, score and report both a written test and a clinical skills

performance-based test. This program is similar to those that the

Chauncey Group manages in Michigan, Florida, and Arkansas.

Princeton Optronics, 1 Electronics Drive, Mercerville

08619, Box 8627, Princeton 08540. Andy Quinn, CEO. 609-584-9696; fax,

609-584-2448. Home page:

Princeton Optronics, Inc. will partner with Agility, Alcatel Optronics

and Bookham Technology to provide equipment manufacturers with standardized

tunable laser modules. Each will separately develop and market fully

compatible tunable sources, providing customers greater security of

supply while lowering their overall cost of ownership, says the press


Top Of Page

Rosetta Marketing Strategies Group, 502 Carnegie

Center, Suite 100, Princeton 08540-6235. Christopher B. Kuenne, president.

609-750-0347; fax, 609-580-4044.

The marketing consulting company moved from 103 Carnegie Center and

went from six to 25 employees. It offers marketing strategy development

based on high resolution segmentation.

Top Of Page
Leaving Town

Fire House Inc., 314 North St. Joseph’s Avenue,

Evansville, Indiana 47712. Ron Bonger, owner. 812-425-1099; fax, 812-425-1069.

An Indiana-based firm, Fire House, expanded to Princeton at Princeton

Meadows Office Center in 1992. Now it has moved that office back to

Indiana. It does graphic design and marketing, specializing in sales

promotion, event planning, and corporate identity development.

Photon Kinetics/GN Nettest/Nettest, 9305 Southwest

Gemini Drive, Beaverton 97008. Francis Sladen, vice president. 503-644-1960;

fax, 503-526-4700. Home page:

Formerly known as GN Nettest, this eight-person office changed its

name to Photon Kinetics and moved from 139 Wall Street at the beginning

of January. The company has fiber optic instrumentation technology

for the telecommunications industry to analyze fiber and has also

been known as York Technology. "The office in Princeton has been

a satellite office for seven years," says Francis Sladen, vice

president of engineering. He has been with the company for 20 years.

Hospitality Consulting Group LLC, 230 Nassau Street,

Princeton 08540. Stuart Smith, managing partner.

After one year at this location, the consulting group closed. It did

restaurant design, building, and development, also core consulting

for the hospitality industry, with 50 employees nationwide.

Walsh Automation, 3300 Boulevard Cavendish, Suite

670, Montreal, Quebec, Canada H4B2M8. 800-267-6611. Home page:

An office of Walsh Automation closed at HQ in Forrestal Village

last year and its business is being handled in Montreal. An Invensys

company, it works on process, IT, and automation projects for pharmaceutical

and petroleum industries.

Magnetic Specialties Inc., 164 Keystone Drive,

Telford 18969. Bruce Ruhf, president. 215-258-5730; fax, 215-258-3353.

Home page:

Magnetic Specialties Inc., which designs and fabricates components

that sense, control, and manage electrical energy, was bought by William

Jones and is now a division of Solar Atmospheres Manufacturing Inc.

The firm moved from 10,000 square feet at Albemarle Avenue in Trenton

to 7,000 feet in Telford, Pennsylvania, last fall. It has 10 employees.

Scepter Publishers Inc., 8 West 38th Street, Suite

802, Box 211, New York 10018. John G. Powers, publisher. 212-354-0670;

fax, 212-354-0736. Home page:

John Powers closed the Princeton office of the publishing company

last fall. The firm publishes Catholic books and materials.

First Union Insurance Services, 499 Thornall Street,

Box 2189, Edison 08818. Janice Fox, office manager. 732-632-6100;

fax, 732-632-9575.

Last fall the insurance services firm moved from Rossmoor Drive in

Jamesburg. Formerly known as the Tribus Financial Group, it was bought

out by First Union and is now called First Union Insurance Services.

About 50 people work in this office, which does employee benefits,

pension administration, cafeteria plans, executive compensation, and

group insurance.

Top Of Page
Off the Radar

Funworks Animation Studios Inc., 428 Gambocz Court,

Monmouth Junction 08552. Home page:

This graphic arts business has closed. It did clay and stop motion

animation for commercials, entertainment, and education.

New Jersey Low-Level Radioactive Waste Disposal Facility

Siting Board, 44 South Clinton Avenue, Station Plaza III, Box 410,

Trenton 08625-0410. Paul Wyszkowski, chairman. 609-777-4247; fax,


This office was searching for a community to volunteer to host New

Jersey’s federally mandated low-level radioactive waste facility,

and it closed on December 2. Further information is available at

Planet V.O.S., 85 Miry Brook Road, Hamilton Square

08690. 609-586-3566; fax, 609-586-3152. Home page:

This office support system has closed. It did editing, data entry,

and basic web design.

Princeton Business and Professional Women, Box

8267, Princeton 08543-8267. 609-683-8513; fax, 609-683-8560.

This professional women’s group disbanded in January.

Top Of Page

Robert B. Hargraves 74, on March 21. He had been a faculty member

in the geology department at Princeton University.

Edward T. Sullivan 38, on March 23. He was a detective

with Princeton Borough Police.

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