Norman P. Blake Jr., USF&G Corp.'s effusive leader, held forth yesterday on topics ranging from the insurance company's remarkable three-year turnaround, to its continuing effort to strengthen its branch office system, and even his frustration at being locked into an expensive Sugar Bowl sponsorship contract.
But in his fourth appearance before shareholders at USF&G's annual meeting yesterday, Mr. Blake quickly laid out the company's top post-turnaround priority.
"It is now our challenge to mobilize our newly acquired capabilities," and leverage them into a more consistent source of earnings growth, said Mr. Blake, who since November 1990 has served as USF&G's chairman, president and chief executive officer.
"The mettle of our organization will surely be tested," he said.
It was a blunt assessment from the head of a company that already seems to have survived a prolonged crucible.
After losses of $569 million in 1990 and $176 million in 1991, the company managed to eke out a $28 million profit the next year. Last year, it reported a profit of $165 million (though $38 million of that was from a one-time accounting change).
The restructuring overseen by Mr. Blake that cost the Baltimore insurer more than 4,000 jobs is largely over, though some departments are still being hit with scattered layoffs.
And the company's stock, which hit a low of $5.75 a share in late 1991, increased 19 percent last year -- in contrast with a 3.6 percent average decline for property/casualty companies. USF&G's stock closed at $13.375 yesterday, up 50 cents.
But first-quarter profits (excluding the accounting change) were flat, partly because of unusually large losses stemming from natural catastrophes. Operating earnings were down, and net written premiums of $550 million in the first quarter were $137 million lower than a year ago.
That decline wasn't all bad. It included the reduction of some undesirable business, such as pools of unwanted customers in several states, and resulted in part from the company's "Operation Rolling Thunder," a yearlong restructuring of the national branch system, Mr. Blake explained.
"One of the costs of becoming a more competitive organization," he said, "was near-term premium growth."
Another cost that has been dogging the company is its sponsorship of the Sugar Bowl. The 10-year contract, signed in 1986, includes 12 percent annual price increases, Mr. Blake said, noting that the next game will cost more than $6 million.
Despite a generally flat insurance market, USF&G's business should grow in the second quarter, Mr. Blake said. He told shareholders to expect continued improvements in revenues, profitability and balance sheet strength. He said after the meeting that he was comfortable with analysts' estimates of 83 cents to 85 cents a share in earnings this year, which would equal about $115 to $120 million in net income.
Another sign of USF&G's stronger prospects is the shift in compensation for its top executives. When they came on board, top management's pay was weighted heavily toward cash, rather than stock options. In addition to his $1 million salary last year, Mr. Blake received a bonus of $1.36 million, of which $713,283 represented an incentive award earned over three years.
Mr. Blake agreed to cut his salary from just over $1 million in each of the next two years to $750,000 and $800,000, respectively. Instead he'll receive 300,000 stock options, plus a cash award of $1.95 million, all of which will be deferred for several years, and depends on the company's performance.