USF&G Corp., the troubled Baltimore-based insurance giant, announced today that its chairman will resign and that the company is beginning a massive cost-cutting program that includes laying off workers and paying a smaller dividend to shareholders.
The announcement accompanied the release of financial results that show the company lost $15 million in the third quarter but remains profitable for the year to date.
Jack Moseley, 59, president and chairman since 1981, will take early retirement as soon as his successor is appointed. The board has picked his replacement, but the company would identify the person only as "an executive of national stature" whose name will be revealed in a few weeks.
A $75 million cost-cutting program will include staff reductions "at all levels and all segments of the corporation," the company said in a statement. A spokeswoman said that would include some of the company's 2,500 workers in Maryland, although a precise estimate was not available.
The cuts will come through both layoffs and attrition, with details to be announced in coming weeks. The benefits of the cost-reduction program for the corporation will begin to be felt in 1991 and be fully felt by 1992, USF&G said.
The next dividend, payable Jan. 31, will be 25 cents per share of common stock, instead of the current 73-cent payout. The dividend is payable to stockholders of record as of Dec. 21. Over a year, the cut would save USF&G about $160 million, the company said.
The previous dividend level of $2.92 a year was yielding in excess of 20 percent on the stock, an analyst said. Average for the market is about 4 percent.
The company's stock tumbled 1 3/8 to close yesterday at 12 1/4 , a 10 percent drop, amid speculation that a dividend cut was in the offing. USF&G has repeatedly said it would maintain its 10-year tradition of raising its annual dividend, but economic realities, including big investments in real estate and junk bonds, forced a change of course.
By midday today, the stock was selling at 11 3/4 , down 1/2 .
Over the past year, the common stock has been as high as 30 5/8 and as low as 10 5/8 .
"The market felt this was a necessity; however, the stock continues to drift south today," said Michael A. Lewis, an analyst with Dean Witter Reynolds in New York. "The cost-cutting might not be of sufficient magnitude to change the bottom line."
Lewis blamed USF&G's troubles in part on the company's making unacceptably high dividend payments that have led to an erosion of capital, and the company's attempts to diversify into asset management.
The decision to replace Moseley, he said, could help Wall Street regain faith in the company. "A new broom sweeps clean, as they say."
USF&G said the changes will help it survive the downturn and benefit from the next upturn.
"While for more than two decades USF&G successfully implemented a policy of sustaining dividend and employment levels . . . the extended duration of the present trough in the property and casualty market and the economic uncertainty resulting from a general business downturn required these extraordinary actions," the company said.
USF&G, whose principal subsidiary is United States Fidelity and Guaranty Co., is a major writer of casualty and life insurance and also provides financial services. The company said today it has assets of $13.9 billion.
During the three months ended Sept. 30, USF&G lost $15 million, or 22 cents a share, compared with a loss of $17 million, or 25 cents a share, in the same period a year ago.
The quarterly operating loss, which excludes realized gains and losses from investments, was $19 million, or 27 cents a share, compared with a loss of $8 million, or 15 cents a share, a year ago.
For the first nine months, USF&G had $41 million, or 35 cents a share, in consolidated profit. That compares with $15 million, or 3 cents a share, for the 1989 period.
For the nine months, operating income was $38 million, compared with $94 million a year ago.
The third-quarter loss included a $9 million gain on the sale of investments, amounting to 11 cents a share. That compares with realized losses on investments of $9 million in the third quarter of 1989.
For the first nine months of 1990, realized gains on investments were $3 million, compared with realized losses of $79 million during the same period in the prior year.
Consolidated third-quarter revenues were $1.15 billion compared with $1.14 billion a year ago.
The board also declared a regular quarterly dividend on its preferred stock of $1.025, payable Jan. 31 to holders of record on Dec. 21.