USF&G Corp., the Baltimore-based insurance company, is getting back to basics and forgoing much of its diversification efforts of the 1980s, according to Norman P. Blake, who is chairman, president and chief executive officer.
"What we have fundamentally concluded is that [property and casualty insurance] is the foundation of the rebuilding process," Blake said in an interview yesterday. "All our energies in that respect will be channeled into making our P&C business the most competitive it can be and, ultimately, a real winner in the industry."
USF&G's return to the old-time religion comes as it is struggling to improve its capital condition, which is plagued by failing real estate investments and junk bonds. To clean up the balance sheet at the end of last year, USF&G cut its investment portfolio by $357 million, or $4.25 a share, as it sold and revalued junk bonds and problem real estate.
For the whole of 1990, USF&G had a loss of $569 million, or $6.99 a share. This loss, plus dividend payments last year, reduced USF&G stockholders' equity to $1.2 billion, or $11.97 a share, a 40 percent drop from the end of 1989 when stockholders' equity was $2 billion, or $21.60 a share.
Part of the company's problem was that its financial services operations, which are capital intensive, were drawing money away from the insurance companies. That will be the case no longer.
Financial services that are slated to be cut include leasing operations, real estate and travel and marketing. USF&G is already negotiating to sell its leasing firms, Blake said.
However, the company will hold on to its investment management operations, which manage investments for corporations, government agencies and retail customers. That portion of the financial services operation is a "very minor piece," Blake said.
Another part of the company's plan is to split its personal and commercial property and casualty business into two distinct parts. Of these two operations, the commercial lines will be the more important, Blake said.
"The primary engine here is the commercial lines business and that is why, organizationally, we going about getting our house in order in that line of business first," Blake said. He noted that many of USF&G's peer groups have been withdrawing from personal lines. "We have elected to stay in that business, on a different basis, which will be announced during the course of the year," he said.
USF&G's life insurance division will continue to be important, Blake said, because its earnings complement the cyclical earnings in the property and casualty field. However, "it will not be our main driver. The main machine is the P&C company," he said.
Since the beginning of the year, USF&G has announced that 2,825 people, or a quarter of its work force, will lose their jobs by the end of the year, leaving a work force of just under 9,000. In Baltimore, there are now 2,241 workers, a decrease of 585 since Jan. 1.
In its 95 years of operation, USF&G had never before had a mass termination of employees, Blake said.
Blake met with USF&G workers today to talk about the cuts and to give them some good news. As of July 1, the company will lift the wage and hiring freeze that has been in effect since January. But new hires will only be on an "as needed" basis, according to a spokeswoman.
Blake also told the employees that beginning July 1, their work week will increase from 37 1/2 to 40 hours.
The severance package for terminated employees is two weeks' pay for each year of employment plus eight weeks' pay regardless of service, a USF&G spokeswoman said.
Blake said the severance package was one of the most generous in the industry.
But some departing workers got a lot more. In a filing with the U.S. Securities and Exchange Commission, the company disclosed that it paid James A. Flick Jr., chief financial officer, a lump sum severance of $4.2 million.
Blake said it was the "height of hypocrisy" for a company to be talking about cutting costs and at the same time making such severance payments. However, USF&G negotiated the settlement in an effort to eliminate so-called "golden handcuffs" -- agreements negotiated by past management that restricted how the company could deal with five top executives.
Blake said no such future agreements will be made.
The SEC filing also showed that Blake, who was hired in November, will receive a salary of at least $909,500 during his first year; $973,175 in his second year and $1.04 million in his third year. He also received a $250,000 bonus before Dec. 31 for signing the employment contract.
Even though he knew cost-cutting was needed, Blake said he didn't realize at the time he signed up for the job that so much restructuring would be necessary.
"It's been stressful, challenging. But frankly, I feel very confident that we are doing the right things," Blake said. "I'm basically a fighter, and I like a challenge, and that's why I'm here."
Blake said he wants to substantially change USF&G. "I'm here to make this place the best company and I'm here to make this place something that the people who are employed can be proud of," he said.