A&A lost $20 million after special charge

November 09, 1994|By David Conn | David Conn,Sun Staff Writer

Alexander & Alexander Services Inc. capped its first period under new management by reporting a third-quarter loss yesterday, but it was due entirely to a special charge related to a business sold years ago.

The world's second-largest insurance broker, which has its administrative headquarters in Owings Mills, lost $20.8 million, or 58 cents a share, in the three months that ended Sept. 30, compared with a loss of $2.6 million, or 11 cents a share, a year ago.

Revenues were up slightly in the quarter, to $333 million from $327 million last year.

"Nobody expected anything from the third quarter," said analyst Joanne A. Smith, of Fox-Pitt, Kelton Inc. in New York.

The company hired a new chairman and chief executive officer in June, after several years of losses stemming from legal problems and from what Alexander now acknowledges were bad management decisions. The new executive, former Smith Barney Chairman Frank G. Zarb, has promised an extensive restructuring, including cost cutting and a refocused effort to serve middle market customers rather than the biggest companies.

The first step came last month when Alexander announced a $12 million charge in the fourth quarter to pay for up to 400 job cuts in its U.S. operations. The 526 employees at Alexander's offices in Owings Mills were not affected, but there were five layoffs in the company's Baltimore sales office, which had 290 people.

The third-quarter, one-time charge of $20.9 million was taken to resolve some indemnity problems left over from Alexander's 1987 sale of its Sphere Drake Insurance Group subsidiary in London. A&A said that under the agreement, not yet finalized, it would receive a $5 million cash payment from Sphere Drake and take the $20.9 million loss in order to write down the value of some zero-coupon notes it will receive from the British insurer.

"The transaction is part of A&A's program to address contingencies and reflects the company's current restructuring process," Alexander said in a statement.

Despite the latest results, Alexander's stock gained 25 cents to close at $20 yesterday, partly on the basis of higher revenue in the company's insurance consulting business.

"People are getting a little more confident that they're not losing so much business," Ms. Smith said.

Operating income for the third quarter was $4.2 million, up from $200,000 in the 1993 third quarter. The 1993 results included a $13.5 million charge to income when reserves were increased to cover some professional indemnity claims.

One factor depressing earnings is a $200 million investment in Alexander's convertible preferred stock that insurer AIG Group made in June. The stock pays an 8 percent dividend, which has raised total preferred dividend payments to $4.8 million per quarter from $2 million a year ago, Ms. Smith noted.

She said that while consulting revenues continue to rise industrywide, the basic insurance products that Alexander sells for various carriers won't provide much growth until prices start to rise.

"It's very soft," she said, ". . . and until that changes we're not going to see growth in the insurance industry's revenues."

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