USF&G sale of preferred stock close Proposal before SEC would raise capital

May 14, 1991|By Ted Shelsby

USF&G Corp. announced yesterday that it intends to raise up to $300 million in capital through preferred stock placements that could open the door for the Baltimore insurer to either write more insurance policies or increase premiums on current policies.

In announcing its plan, which was filed with the Securities and Exchange Commission late yesterday afternoon, USF&G said the majority of the proceeds would be used to strengthen the policyholder surplus of its primary unit, United States Fidelity and Guaranty Co.

Policyholder surplus is the financial base that permits companies to sell insurance. Industry regulators like to see the upper limit of how much insurance a company can sell at no more than three times its policyholder surplus, meaning that they can sell $3 of BTC insurance for each $1 set aside in surplus for the protection of policyholders. USF&G ended 1990 with a 2.3-1 premium-to-surplus ratio.

An additional $300 million in surplus funds would allow the company to write about $900 million more in insurance or increase the premiums on current policies, assuming the market allows for a price increase.

The insurer said the additional capital is expected to be raised through issues of two series of convertible preferred stock. Their terms are to be determined in light of market conditions and other factors at the time of the sale. There would be a public offering and a separate private placement.

In its registration statement filed with the SEC, USF&G disclosed plans for a public offering of up to 3 million shares of Series C Cumulative Convertible Preferred Stock (plus an additional 450,000 shares to cover an over-allotment option granted to the underwriter), proposed to be offered at $50 per share.

A prospectus relating to the proposed public offering may be obtained from Kidder, Peabody & Co. Inc., which will underwrite the offering.

The preferred stock, which is expected to be sold in June, is expected to raise $150 million in proceeds with a like sum coming from a private offering.

SEC rules prohibited company officials from commenting on the offering beyond its press statements released yesterday.

In November, USF&G announced plans to save up to $160 million a year by slashing its dividend from 73 cents a share to 25 cents. Staff reductions to save another $75 million were announced.

Further layoffs were announced in April.

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