USF&G cost-cutting actions signal change of direction

November 08, 1990|By Ross Hetrickand Jon Morgan | Ross Hetrickand Jon Morgan,Evening Sun Staff

In Thursday's Evening Sun, it was reported that a contractor received all of the $3 million the state spends on its oyster promulgation program. Actually, the contractor gets only part of the money.

By cutting its dividend and replacing its chairman, USF&G Corp. is sending a message to Wall Street that it is serious about changing the direction of the beleaguered Baltimore-based insurance giant, according to analysts.

However, it will take more than a change at the top and cost-cutting to get the company back on track, they said.


In dramatic announcements yesterday, USF&G said the following:

* It will cut its its nearly sacrosanct annual dividend by 66 percent, to $1 a share from $2.92.

* A $75 million cost-cutting program will include staff reductions "at all levels and all segments of the corporation," according to the company. At the end of last year, the company had 12,600 employees nationwide with 2,500 in Maryland.

* Jack Moseley, 59, the company's president and chairman since 1981, will take early retirement as soon as his successor is appointed.

* The company lost $15 million, or 22 cents a share, during the third quarter compared with a $17 million loss, or 25 cents a share, for the 1989 third quarter.

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 has assets of $13.9 billion.

USF&G said the planned cuts in employment 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.

Ironically, the company in February launched an unusual television advertising campaign to recruit more workers. At the time, the company said it was trying to reach a broader segment of the population

The company has long been under pressure to cut its dividend, which had been higher than its earnings per share. But the change at the top was also welcomed by analysts.

"Any change would be for the better," said John H. Shaughnessy, the director of research for Advest Group Inc., a financial services company based in Hartford, Conn.

Shaughnessy said Moseley was "not particularly well regarded," but part of that stems from the drop in stock price. USF&G's common stock tumbled from a high of $30.62 1/2 to a low of 10.62 1/2 during the last year. The stock closed at $11.62 1/2 a share yesterday, down 62 1/2 cents.

"The stock is down, therefore you are a bum," Shaughnessy said, summing up the feeling on Wall Street.

But John J. Byrne, the chairman and chief executive officer of Fireman's Fund Corp. of San Francisco, who knows Moseley, said USF&G's leader was a victim of circumstances.

"Jack Moseley is a high quality, knowledgeable professional," Byrne said in a statement. "He just ran into a buzz saw. Lots of other companies are worse off than USF&G," he said. "Jack should be applauded for biting the bullet."

Besides the steps it took yesterday, USF&G also needs to pay closer attention to its property and casualty business and "weed out" the lower-quality risks, Shaughnessy said. "They will have to be more discriminating in the business they take on," he said.

Robert H. Branche, the head of Branche Research, an insurance research firm in Morrisville, Pa., said USF&G's problems stem from its decision years ago to put its property and casualty business on the "back porch" and offset its problems with forays into life insurance and financial services.

"In this very difficult period for property and casualty companies, it caught up with them," he said.

He said the company's board has to decide "if they want to be a financial department store or do they want to say, 'enough of this nonsense. If we want to be a property and casualty company, let's be that, period,' " he said.

Both Branche and Shaughnessy say solvency is not a problem for USF&G.

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