Fidelity & Deposit to lay off workers

September 07, 1994|By Kevin L. McQuaid | Kevin L. McQuaid,Sun Staff Writer

Fidelity & Deposit Co. of Maryland will eliminate about 30 percent of its local work force by the end of this year as part of a restructuring, the insurer's chairman said yesterday.

The cutback of nearly 170 employees come as F&D is struggling to control expenses and implement an automated data collection system, brought on by industry competition and the lackluster economy of the past two years.

"We're hoping to improve the cost of our operations and increase our competitive advantage to meet customer expectations," said Joseph C. Eanes Jr., F&D's chairman and chief executive, in an interview yesterday. "We don't want to lose our edge, and our competitors are certainly re-engineering."

F&D, the nation's second-largest surety company providing bonds for large commercial contractors, had an expense ratio of 52.2 percent in 1993, according to industry analysts A.M. Best Co. In other words, for every $1 taken in, F&D spent more than half to maintain its operations.

"Our costs have run higher than the average in the industry for years,and our business has been flat for several years," Mr. Eanes said. "Like everyone in the industry, we've been reorganizing to concentrate on our core customer. This is really a process that should and is going on in every company, taking a look at yourself and at your business through the eyes of your customer."

He declined to specify the amount the company hopes to save.

In all, the layoffs will trim about 14 percent of F&D's 1,250 employees nationwide, located in offices in 31 cities. In 1993, F&D generated $350 million in premiums, for an after-tax profit of about $28 million, Mr. Eanes said. As of January, its assets totaled $614 million, an 8.6 percent gain from the previous year.

The majority of the layoffs will affect F&D's information systems employees, who compile credit and other data on behalf of company underwriters. F&D recently concluded a six-year effort to automate various functions in that division, investing millions in the process.

"The surety business is the furthest behind in regards to automation," said Gary Ransom, senior vice president of Hartford, Conn.-based Conning & Co., an insurance analyst. "They have issues, they need pieces of information such as collateral, which other insurers don't require. Most surety underwriters are departments of other, larger companies, so they have automated systems already in place. With no one to copy, they need to start from the ground up."

The changes are expected to have little effect on its financial services division, which provides insurance to lenders such as First National Bank of Maryland, Mercantile-Safe Deposit & Trust Co., and others.

F&D becomes the latest local white-collar firm to streamline operations through layoffs. Most recently, Citicorp announced plans to eliminate 300 jobs in Towson, on the heels of similar actions in recent years by USF&G Corp. and NationsBank Corp.

Between June 1993 and June 1994, insurance employment in Maryland dropped 3.3 percent, according to figures compiled by the state's Department of Economic and Employment Development agency.

That job loss follows downsizing experienced by the insurance industry as a whole, which in recent years has been rocked by pressure to maintain profitability. Aetna Life & Casualty Co. and Travelers Inc., two of the nation's largest property and casualty insurers, have announced plans to terminate roughly 5,000 employees each in an effort to shave expenses.

"The business is certainly becoming more competitive, and it looks like it's going to get worse before it gets better," said Thomas P. Gorke, an executive vice president of the St. Paul/Seaboard Surety Co., the nation's largest surety firm, which underwrote $178 million in 1993. "And the only way to improve the bottom line is to do things more efficiently. We're continually looking at ways to increase the efficiency of our branch network because we regard F&D as good competition."

Founded in 1980, F&D in August 1993 was fully acquired by the Zurich Insurance Group, a giant Swiss insurer that also owns the Maryland Casualty Co. Zurich had held a 50 percent stake in F&D before purchasing the remaining interest from the Swiss Reinsurance Group.

The bulk of the laid-off employees at F&D will be phased out by year-end, Mr. Eanes said. The company is providing assistance to help those affected find other jobs and is attempting to relocate many within the company.

"There will be expansions within many segments of the company in the next year," he said. "Unfortunately, some of the people affected by this don't possess the talents necessary to take advantage of the opportunities."

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