Even though it was painful, USF&G Corp.'s decision to terminate 900 workers yesterday was necessary to make the troubled insurance company competitive, according to stock analysts who follow USF&G.
"They are competing against companies who have lower cost structures and companies that have downsized already," said Ira H. Malis, an insurance analyst for Alex. Brown Inc., a Baltimore investment bank. "I can't think of another way," he said.
Of the 900 employees let go, 360 worked in Baltimore at the company's headquarters at 100 Light St. or its complex in Mt. Washington. There are 2,300 workers in the Baltimore operations, said spokeswoman Kerrie Burch-DeLuca.
The terminations amounted to 8 percent of USF&G's 11,800-person work force.
More terminations are expected after the company completes a business review and strategic realignment, which is expected to be done in early March, according to Burch-DeLuca.
All terminated workers will receive 8 weeks of salary plus two weeks for every year that they worked at the company, Burch-DeLuca said. They also will continue to have health insurance for two months, she said.
A letter included in employees' severance packages contained information on two job-hunting workshops that are to be held at Cross Keys Inn by Drake Beam Morin Inc., a national career management consulting organization based in New York. The free workshops are scheduled for the weeks of Jan. 21 and 28.
Norman P. Blake Jr., USF&G's president, chairman and chief executive officer, is holding a series of meetings with employees today to explain the reasons behind the terminations and to answer questions from employees, according to W. Minor Carter, a USF&G senior vice president.
The sessions, which will be about 35 minutes long, are being held every hour from 7 a.m. to 3 p.m., except 1 p.m., at both the downtown headquarters and the Mt. Washington complex, Carter said.
USF&G is the holding company for subsidiaries involved in property and casualty insurance, life insurance and the sale of financial services. Its primary subsidiary is United States Fidelity and Guaranty Co., a major writer of property and casualty insurance. USF&G has assets of $13.9 billion.
Battered by a downturn in the insurance business cycle and problems with real estate and junk bond investments, USF&G announced at the beginning of November that staff reductions would be coming.
Malis noted that other larger insurance companies have already had massive terminations to reduce their costs. "They need to be more productive," he said.
This assessment is shared by Robert H. Branche, the managing director of Branche Research Group of Morris, Pa. "I think it was overdue," he said, noting that the need to pare the work force was probably obvious a year ago.
But cost-cutting alone will not solve USF&G's problems, he said. Rather, he said, the company has to decide whether it will focus on its property and casualty insurance business or its financial services division.
The terminations, which were effective immediately, hit all levels of the corporation. "It goes from vice presidents to clerical workers," said Burch-DeLuca.
Burch-DeLuca said efficiency of operations and duplications were considered in making the terminations, but she declined to elaborate on the criteria.
The company also said it has cut $28 million in advertising and promotion funds, frozen salaries, put its corporate jet up for sale and eliminated the home-office executive dining room.
Part of the reduction in advertising expenses includes ending the company's sponsorship of a Formula One Grand Prix race car team and the USF&G Classic golf tournament that is held in New Orleans at the end of March. However, USF&G will sponsor the golf tournament this year because of contractual commitments, Carter said.
The company will continue to sponsor the USF&G Sugar Bowl, a college football bowl game held on New Year's Day in New Orleans.
Supervisors held meetings yesterday with small groups of workers to give them the news, according to USF&G employees. Other workers said they were contacted earlier.
Laid-off employees left immediately after getting the news, though they were given the opportunity to clean out their desks if they wished, Burch-DeLuca said.
"It is always expected to ask the employee to leave because their job has ended," Burch-DeLuca said. "We are trying to be as sensitive as we possibly can."
In a letter to USF&G employees, Blake said: "Although our strategic plan has not been completed, one fact has emerged. We are not competitive because expenses are too high."
He said that in the past five years productivity in the company's property and casualty insurance operation has declined by 20 percent.
USF&G workers got a more detailed explanation Blake's efforts in a letter distributed to employees last week.
"1991 is going to be a year like none we've ever seen," he said in the letter. "Changes in the economy, changes in the markets we serve and changes in customer demands, to name a few, will require that we become highly efficient, highly effective, and highly adaptable in order to become more competitive."
To determine how the company can become more efficient, Blake has assembled a "performance-improvement team" of managers in all parts of the company, he said in the letter. USF&G has also retained the consulting firm of Towers Perrin and McKinsey and Co. to help in the effort, he wrote in the letter.
Blake on Nov. 26 replaced Jack Moseley, 59, who stepped down as chairman after nine years. USF&G announced on Nov. 7 that it would embark on a $75 million cost-cutting program.