USF&G Corp. eliminated 900 jobs yesterday in an initial round of layoffs aimed at saving $42 million this year.
The Baltimore-based insurer said the move affected 360 employees in Baltimore, about 16 percent of the local work force, and 540 employees in its branches and subsidiaries outside of Maryland.
The layoffs, announced to employees yesterday morning, were effective immediately. A second wave of layoffs is expected near the end of March, the company said.
Yesterday's move came as part of an intensive review of the company's operations that was begun by its new chairman and chief executive, Norman P. Blake Jr., when he joined USF&G in late November.
At that time, Mr. Blake took over the top posts under a mandate from the company's board to trim expenses by at least $75 million, in part through employee reductions. Directors had previously voted to slash the company's dividend by two-thirds to save $160 million a year and said further steps would be taken to help the company weather a protracted downturn in the property and casualty insurance industry.
Upon completion of that internal review, which is expected near the end of the first quarter, USF&G is expected to announce a revised corporate strategy and additional layoffs, the company said yesterday.
"Although our strategic plan has not been completed, one fact has emerged. We are not competitive because expenses are too high," Mr. Blake said in a letter to employees yesterday. "Although painful, downsizing our work force as part of a broad-based expense-reduction program is absolutely essential to USF&G's ability to compete successfully in the marketplace."
Before yesterday's move, USF&G had 11,800 workers nationwide and 2,300 in its Baltimore headquarters and at its Mount Washington complex. Employees at all levels of the company were affected by the reduction, said a spokeswoman, Kerrie Burch-DeLuca.
USF&G, operating primarily through its largest subsidiary, United States Fidelity and Guaranty Co., has been plagued by industrywide problems of stiff competition and bad investments that have pushed a number of the nation's largest insurers to adopt similar cost-cutting steps in recent months.
Mr. Blake said yesterday that productivity at the company -- as measured by the size of the work force relative to the overall workload -- fell more than 20 percent during the past five years.
With nearly $14 billion in assets, the company lost $15 million, or 22 cents a share, during the third quarter, which ended Sept. 30. It has not yet reported results for the final three months last year.
In other cost-cutting steps, USF&G said yesterday that it already has reduced its advertising and promotion budgets by $28 million. Though the amount of the budget that remains untouched was not clear yesterday, Ms. Burch-DeLuca said the company will continue sponsoring the USF&G Sugar Bowl through 1996, when its contract ends, at a cost of about $2.5 million a year.
The company said it also began a companywide salary freeze at the start of the year, that it will sell one of two corporate jets and that it will close the executive dining room in the company's headquarters at 100 Light St. in downtown Baltimore. Ms. Burch-DeLuca said she did not how much the 120-seat dining room cost the company each year.
Baltimore employees who were released yesterday morning received a severance package consisting of a base payment worth eight weeks of salary, Ms. Burch-DeLuca said.
Workers also received two weeks of pay for each year they have been at USF&G and an extension of health-insurance benefits for two months. Ms. Burch-DeLuca said the company also has hired a consulting firm to help employees find other employment.
Employees outside of Maryland also received a package of severance benefits, but the terms were not available, she said. USF&G said the layoffs will cost the company about $7 million.
The severance packages will be reviewed in coming weeks, she said, and could be changed for the next round of layoffs.
Industry analysts said they had expected yesterday's announcement, given earlier statements from the company that it was seeking to cut $75 million in costs.
"They're doing what they said they were going to do," said G. Alan Zimmermann at Smith Barney, Harris Upham & Co. in New York. "They said they were going to have to go through a process of review, cutting back on the operation and rethinking strategy. This is two out of three, with the rethinking strategy yet to come."
Wall Street reacted calmly to the announcement. USF&G stock, traded on the New York Stock Exchange, closed up 12.5 cents at $7.75 a share.
"It's more a Baltimore issue, especially for the people themselves, than it is a USF&G stock issue," said Ira H. Malis, an insurance analyst at Alex. Brown.