USF&G head quits dividend to be slashed Widespread layoffs loom for Baltimore insurance giant

November 08, 1990|By Peter H. Frank

USF&G Corp., one of the most prominent corporate citizens in Maryland, said yesterday that its chairman and chief executive, Jack Moseley, would resign and that it was slashing its dividend and preparing for widespread layoffs to save hundreds of millions of dollars a year.

The Baltimore-based insurance giant said that its quarterly payout to stockholders -- which has increased each year for at least a decade -- will be reduced to 25 cents a share from 73 cents in an effort to save $160 million annually.

"Staff reductions at all levels and all segments" will be used to help trim an additional $75 million in expenses, the company said.

USF&G, one of many insurers reeling in an industrywide financial crisis, attributed the moves to what it called "the present trough in the property and casualty market and the economic uncertainty resulting from a general business downturn."

The company also announced yesterday that it had lost $15 million, or 22 cents a share, during the third quarter, compared with a loss of $17 million, or 25 cents a share, during the same period last year.

With $13.9 billion in assets, USF&G operates primarily through its largest unit, United States Fidelity and Guaranty Co., and provides property and casualty insurance, life insurance and financial services.

For months, rumors had circulated that Mr. Moseley, 59 -- a 37-year veteran of the company -- might retire, given the growing likelihood that the company would cut its dividend, a hallmark of his tenure as chairman.

"Jack Moseley was the architect and developer of the dividend strategy and in the end couldn't manage effectively with a dividend cut," said G. Alan Zimmerman, an insurance analyst with Smith Barney, Harris Upham & Co. in New York. "In a practical matter, falling on his sword was the noble thing to do."

Mr. Moseley's resignation came six weeks after that of Alan P. Hoblitzell Jr., chairman of MNC Financial, another corporate victim of the economic downtown.

Although the company declined to identify Mr. Moseley's successor, the company said its board, which met Tuesday afternoon, had chosen "an executive of national stature" to replace him and would announce the appointment within a few weeks after the executive had notified his present employer. Mr. Moseley plans to remain in his current positions until his replacement has been appointed, the company said.

The appointment of an outside executive to the helm of chairman of USF&G would be just the second time in the company's 94-year history that someone who did not rise through the ranks of the company had held that position.

Edwin G. Pickett, senior vice president of finance and corporate controller, said the steps to reduce $75 million in operating costs were not expected to result in "massive" employment cuts among the company's 11,800 workers nationwide -- 3,000 of whom work in the Baltimore area.

The company said the cost-cutting moves -- many of which would come in time for savings next year and all by 1992 -- would be announced in coming weeks when the new chairman takes over.

"It certainly wouldn't be appropriate to launch that ship until the replacement has come on board," Mr. Pickett said.

Yesterday's dividend and earnings announcement came as little surprise to analysts who have watched as the insurance industry struggles to pull out of a widespread downturn that has squeezed profits and sent stock prices reeling in recent months.

Travelers Corp. said a month ago that it would cut its dividend 33 percent and post a $500 million quarterly loss because of troubled real estate investments. Less than two weeks ago, Aetna Life and Casualty Co. followed suit, announcing a 51 percent quarterly income drop and saying it would cut 2,600 jobs.

Although it had come to be widely expected, the dividend cut at USF&G remained an extraordinary move by Mr. Moseley, who had elevated the company's promise of ever-increasing dividends to a virtually sacred level.

Since being named president, chief executive and chairman of USF&G in 1981, Mr. Moseley had led an unbroken string of annual dividend increases, even during the company's unprofitable years in 1984 and 1985.

"We have learned over the years that increasing our dividend to our shareholders through both good and bad cycles is sound business practice," Mr. Moseley told stockholders at the company's annual meeting May 2. "We have long understood the intangible values of trust and stability, and the board's action with regard to the dividend supports this."

But USF&G had been failing to earn the amount it was paying in dividends over the past two years, and analysts had long expected it was only a matter of time before the company would be forced to trim its quarterly payout.

Given the combined squeeze of shrinking profits and high dividends, the company's ability to finance internal growth and maintain much-needed capital surpluses in its insurance subsidiaries had been sorely tested, analysts said.

The state's insurance commissioner, John A. Donaho, whose staff has been conducting a regular examination of the company, said the moves yesterday reflected a continuing decline in profits among property and casualty insurers.

"Hopefully," Mr. Donaho said, "early caution by responsible management will result in a strengthening financial position of USF&G or any company of its kind."

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