USF&G faces $80 million in losses from hurricane

October 16, 1992|By Ian Johnson | Ian Johnson,New York Bureau

NEW YORK -- USF&G Corp., one of the nation's largest insurance companies, said yesterday that it faces $80 million in losses from Hurricane Andrew, a figure nearly twice initial estimates and one that could at least temporarily hurt the beleaguered company's efforts to rebuild profitability.

The Baltimore-based company, which has shed 30 percent of its dTC work force and sold off several units since losing $569 million in 1990, said that higher-than-expected construction costs in Florida had driven up the estimate of $45 million for the hurricane, which flattened parts of South Florida last summer.

The projected loss is after-tax and after the amount USF&G expects to collect from insurance policies the company has bought to cushion its own losses from disasters -- known as "reinsurance."

The company, which has not yet announced third-quarter results, earned $6 million in the second quarter, in contrast to a loss of $56 million a year earlier.

Wall Street analysts said that although the new losses would hurt the company, they should not derail its restructuring program.

"This is not a fatal blow for the company," said Jay Cohen, an industry analyst with Salomon Brothers Inc. in New York. "Other insurance companies are having to revise their estimates upwards as well, but of course, this does hurt USF&G because of its previous problems."

As with other insurance companies, most of USF&G's assets are invested in bonds. Analysts said that thanks to the recent run-up in the bond market, the company could use the profits from the sale of bonds to cover the losses from the hurricane.

By reinvesting the principal from the bond sales, USF&G would maintain its level of capitalization on the books. But because interest on the new bonds would be at a lower rate than the bonds it now holds, the company would in the long run make less money.

"No matter how you look at it, they've lost $80 million," said Daniel Murray, an industry analyst with Argus Research Corp. "It will look on the books as if it didn't happen, but in the long term, it's still a loss."

The ultimate effect, Mr. Murray said, is to speed the company's ongoing downsizing. "You'll notice it in your local employment market," he said.

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