If there's any doubt that the life insurance industry is being jolted out of a sleepy past, take a look at the Fidelity and Guaranty Life Insurance Co., a unit of Baltimore-based USF&G Corp.
Although F&G Life officials say that the company is fundamentally sound, nervous customers are withdrawing nearly as much each month as they did all last year. The company has let go one-third of its employees. It has shed more than $4 billion in life insurance policies through the sale of operating divisions. And top executives are trying to turn a tough paradox to their advantage: increasing profits by decreasing sales.
The wrenching changes seem to be paying off. The financial results for the first six months of this year are encouraging. Profits at F&G Life are up, and important ratios that indicate stability and strength have improved. Company executives and state regulators say alarm is unwarranted.
"We are a long way from a point that we feel would be a critical juncture," Richard P. Campagna, assistant vice president and controller for F&G Life, said Wednesday. "The doomsday scenario that some people are professing out there is just not going to materialize."
Charles Siegel, an associate insurance commissioner at the Maryland Insurance Division, said his office has been keeping tabs on the company but sees little reason to worry. He welcomed the sweeping changes at F&G Life, even though they might be adding to customer anxiety. "It shows a violent change in direction toward a more conservative book," an approving Mr. Siegel said.
Still, any hint of trouble is disturbing for an industry that has had to absorb some serious shocks in recent months. Mutual Benefit Life Insurance Co. in New Jersey was taken over by regulators July 16 as a series of negative reports spurred policyholders and other customers to remove $450 million from the company during the first six months of this year, James Berzok, a spokesman for the New Jersey insurance department, said.
Regulators there projected that another $1.2 billion would leave the company by the end of the year and took control of the $13.8 billion life insurer. They were concerned that a "run on the bank" would leave the company unable to convert its long-term assets into cash quickly enough to pay its expenses.
Neither regulators nor executives at F&G Life believe the same ++ nightmare is coming. But they are watching carefully. The state Insurance Division has ordered all life insurers based in Maryland to begin reporting in October how much money is being pulled out each month by customers.
At F&G Life, with $4.6 billion in assets as of June 30, the increase has been dramatic.
During the first half of 1991, the dollar amount of annuities and life insurance policies surrendered by F&G Life's customers leaped more than fourfold, to nearly $240 million from $46 million a year ago, according to Ihor W. Hron, president of F&G Life. Nearly three-quarters of the amount cashed in by customers this year was pulled during the second quarter. Since then, company officials say, money is being withdrawn at a rate of between $50 million and $60 million a month.
Both Mr. Hron and Mr. Campagna stress that, while the amounts being taken out of the company are larger than they'd like, the health of F&G Life is not in jeopardy.
Cash flow -- the level of funds available to the company to pay claims and other expenses -- remains sufficient, though down dramatically from last year, they said.
They point to the fact that only $125 million of the company's assets are held by pension plans, which are more likely to take their business elsewhere when times get tough.
In addition, USF&G has shied away from writing guaranteed investment contracts, a type of annuity that has become particularly sensitive when determining the stability of a life insurer.
L In the operating trenches, the reshaping has been wrenching.
In the midst of its own corporate-wide restructuring, USF&G needsprofitable subsidiaries. The parent company lost $569 million last year, mostly because of its restructuring efforts, and an additional $56 million during the past three months, primarily because of heavy losses in its core property and casualty unit, which accounts for two-thirds of the company's assets and historically the bulk of its earnings.
The life insurance subsidiary, which lost $46.6 million last year under a different accounting method used by state regulators, needed a turnaround.
Norman P. Blake Jr., elected chairman and chief executive of USF&G less than a year ago, and Mr. Hron, promoted to president of the life insurance unit in March, have been attempting just that.
While Mr. Blake was ordering the cut of 25 percent of the parent company's work force, Mr. Hron's division was pared to 500 employees from almost 750. The subsidiary closed six of its 53 offices and shrunk the size of another 18.