USF&G chief sees job half done

January 22, 1995|By David Conn | David Conn,Sun Staff Writer

When Norman P. Blake Jr., the energetic turnaround artist and Vince Lombardi sound-alike, came to town four years ago, nobody missed the meaning of the display he set up behind his desk: a pair of Japanese samurai swords.

The new chairman and chief executive's job was to save a dying USF&G Corp.

From his 35th-floor office in the USF&G Tower, he executed his mission with cold efficiency, excising irrelevant businesses, slashing the work force by more than 5,000 people and stopping the bleeding that threatened the life of the 94-year-old insurer. Just last week, in his latest cost-cutting move, Mr. Blake said the company will abandon its signature Inner Harbor headquarters for its suburban-like Mount Washington campus.

Mr. Blake has saved USF&G from collapse, but he concedes that his job is only half done. He has yet to prove he can take a mediocre performer and, to borrow Mr. Blake's rhetoric, play the game to win.

"I sure haven't demonstrated an ability to grow the company yet," he said, "and I certainly don't want to leave here until I've been able to convince people that we're able to grow it responsibly, and bring value to the company."

The insurer's operating profits remain well below the industry average, and growth is still barely noticeable. Employment stands at about 6,500, almost 2,300 of whom are in the Baltimore area -- 767 in the Inner Harbor office tower, 1,265 at the Mount Washington campus and 265 at a facility in Owings Mills.

But USF&G, which has started to hire and even acquire again, is only half its peak size in the mid-'80s, when it was one of Baltimore's most visible, powerful and philanthropic corporations. In terms of net written premiums, it is ranked 24th by A.M. Best Co., down from 13th in 1990.

Mr. Blake, who is 53, earned a reputation as a skilled financier at GE Capital Corp. and then enhanced it as a turnaround artist at Heller Financial Corp. in Chicago.

But the next three years may do more to shape the judgments on his career than any other project he has tackled.

The primary goal is at least a 15 percent return on the shareholders' equity, up from just under 10 percent in the first three quarters of last year. Mr. Blake said his game plan should get the company there in two or three years.

Unless he can quickly turn USF&G into an earnings powerhouse, one whose stock is pricey enough to ward off potential suitors, Baltimore runs the risk of losing yet another major corporate headquarters.

"I am concerned -- I don't want this opportunity taken away from us," Mr. Blake said. With much of the cost-cutting "dirty work" done, the remaining work force far better trained than before, and $375 million in accumulated future tax write-offs, a takeover attempt can't be ruled out, he admitted.

"I just hope nobody gets too interested, that's all."

Mr. Blake will have plenty of other worries along the way to remaking the property-casualty insurer, best known to many as sponsor of the Sugar Bowl, including:

* Outdated computer systems that must be upgraded, to the tune of roughly $50 million during the next four years;

* A work force still partly shell-shocked from a downsizing that cut almost half the employees since 1991;

* A steadily diminishing demand for many of USF&G's traditional products;

* And most important, a prolonged down cycle in the intensely competitive insurance industry that has kept prices unusually low for more than seven years.

Skeptics still abound. "They're not big enough, strong enough to profit in a market like this," said Ira L. Zuckerman, an analyst with SBS Financial Group in Westport, Conn. "They're out of the woods," he added, "but whether they're home free, it's too early to say."

Finding the way out of the woods was a major undertaking.

In 1990 and 1991, USF&G lost a combined $745 million, which amounted to more than half its shareholders' equity during that period. USF&G's stock fell from the mid-$30s in 1989 to a low of $5.75 in December 1991.

Mr. Blake was hired in November 1990 to save the company after Chairman Jack Moseley was forced out. He wasted no time in administering the bitter medicine. Aside from cutting employees and perks, such as the executive dining room, he severed business ties with about 1,400 of USF&G's least productive independent agents.

He cut almost all of the company's money-losing ventures, such as investment managers, oil and gas explorers and even a windmill farm, that had been picked up in a frenzy of acquisitions in the 1980s.

And he revitalized the balance sheet by shrinking the quarterly dividend from 75 cents a share to a nickel, jettisoning most of the recession-wracked junk bonds and real estate in the investment portfolio, and raising hundreds of millions by selling preferred stock.

Retreating from losing states and agents and tightening up underwriting standards have helped the company reduce its loss ratio, or the percentage of each premium dollar that is paid out in claims, from 84.1 in 1991 to 73.7 as of Sept. 30.

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