USF&G to offer reinsurance via Lloyd's of London F&G UK Underwriters is new subsidiary of Baltimore firm

'Potential is enormous'

Expansion involves insuring other insurance companies

January 03, 1996|By Bill Atkinson | Bill Atkinson,SUN STAFF

USF&G Corp. said yesterday that it has become among the first companies in the world to receive approval to establish a syndicate at Lloyd's of London.

The move allows the Baltimore-based company to expand its profitable international reinsurance business through a newly formed wholly owned subsidiary called F&G UK Underwriters Ltd.

The subsidiary, which will underwrite risk taken on by insurers that operate throughout the world, will be operated by a newly formed management agency called F&G UK Agency Ltd., a joint venture between another USF&G entity and Ashley Palmer, a Lloyd's managing agent.

John R. Berger, president of F&G Re, a Morristown, N.J.-based subsidiary of USF&G that has underwritten more than $4 billion in premiums, said F&G Underwriters will write about $27 million in reinsurance this year.

"The [business] potential is enormous," he said. "When the time is right we will be bigger." Mr. Berger said the reinsurance business is crowded with competitors, but in the long term he expects considerable business opportunities for F&G UK Underwriters.

The unit will focus on business in Western Europe, Japan, Australia, South Africa and the Caribbean, Mr. Berger said.

Reinsureres underwrite some of the risk taken on by insurance companies, with their revenues coming in part from premiums insurance companies pay them.

The approval by Lloyd's of London was important because its name alone gives the new subsidiary entree to business opportunities around the globe.

But Lloyd's is also struggling for its own survival. The 300-year-old insurance mar ket lost billions of dollars over the years from disasters such as Hurricane Andrew, Hurricane Hugo, the Exxon Valdez oil spill and litigation surrounding asbestos clean-up.

In 1993, Lloyd's began restructuring, and in an effort to attract new capital, it allowed corporations to invest in the market, a measure traditionally reserved for individuals.

"They have had several terrible years," Mr. Berger said. He said the subsidiary will not incur any risk for Lloyd's current problems, and F&G UK Underwriters has its own underwriter with 25 years of experience.

Elizabeth C. Malone, an analyst with Legg Mason Wood Walker Inc., said the move is a good one for USF&G because reinsurance has been a sound business for the once troubled company.

"There is a huge international market for insuring risk, and Lloyd's continues to be a primary source for where those risks are coming to," she said. "What buyers of insurance want is stability and quality. If they can identify you with a certain name that is going to add to that perception."

USF&G's reinsurance division earned $15 million in underwriting profits in the third quarter of 1995, up 36 percent from the same period in 1994. The company's combined ratio for the first nine months of 1995 was 94.1 percent, which means that the company is making about 6 cents of underwriting profit for every dollar of premium taken. Many insurance companies write insurance at a loss.

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