Cautious but not stodgy St. Paul: Though long known for its conservative, Midwestern values, the company that will acquire USF&G Corp. has modernized its approach in the 1990s.

January 25, 1998|By William Patalon III | William Patalon III,SUN STAFF

When Mrs. O'Leary's apocryphal cow set Chicago ablaze, the St. Paul Fire and Marine Insurance Co. found itself in a smoldering quandary.

It could pay out, "dollar for dollar," its $140,000 in claims -- though that loss was nearly double what it had secured in premiums that year. Or it could keep its coffers full and settle for pennies on the dollar, as many of its counterparts were doing.

Of the 202 insurance companies on the hook for the fire, 80 paid out as little as 4 cents for every dollar of claims. Fifty simply shut their doors, according to one published account.

The Great Chicago Fire of 1871 killed 275 people, destroyed nearly 18,000 buildings and caused nearly $200 million in damage. It could also have ruined St. Paul's reputation. The company's directors, at a hastily convened meeting, voted unanimously "to pay its losses in Chicago promptly."

Company President James Crawford Burbank and corporate secretary Charles H. Bigelow even rushed to the city to personally ensure that the edict was carried out.

By paying promptly, and completely, "the St. Paul," as it came to be known, proved itself a top-shelf insurance company. It predicted -- correctly -- that it would profit handsomely from that pristine reputation.

In 1906, disaster hit again, this time in San Francisco, where an earthquake and subsequent fires caused $1 billion in damage. The $1.3 million in claims against St. Paul exceeded the $1 million surplus it had taken the company all the 35 years since the Chicago fire to amass.

Again it paid in full, cementing a reputation for solidity that caused new business to pour in, according to a 1996 article about the company in Ramsey County History magazine.

This year, according to an agreement announced last week, the Minnesota-based St. Paul Cos. will accept the keys to Baltimore's USF&G Corp., an insurance company with a venerable history of its own. With nearly $6 billion in revenues, $450 million in profits and 10,200 employees, St. Paul no longer stands just one fidgety cow from business oblivion.

In spirit and deed, however, the company clings to those early lessons and embraces its solid Midwestern values. Each year, for instance, it sets aside 2 percent of its pretax profits for its charitable endeavors.

"You people are getting the best of the best," said St. Paul, Minn., Mayor Norm Coleman, who says the $1 billion in downtown redevelopment his city is seeing was cued by the St. Paul Cos. and its chairman and chief executive, Douglas W. Leatherdale.

Said Tom Kingston, head of that city's philanthropic Wilder Foundation, "Your community could not link up with a more civic-minded organization."

Leatherdale, the CEO, promises that sense of civic duty will take root in Baltimore, just as it did in St. Paul, even as the USF&G name largely fades into memory.

"That's part of your job -- as a CEO -- to be involved in the community," said Leatherdale, the company's 10th chief executive and the first outsider to head St. Paul since it was formed in 1853. "I ask all of the officers, in our company, to become involved in the community on their own time. We will bring that to Baltimore."

Leatherdale, a Canadian by citizenship and a farmer at heart, raises Hanoverian work horses and starts each day before 6 a.m. to muck out barn stalls and feed his horses.

The merger won't be all smooth sailing. First, there's the issue of jobs. Together, the two companies employ about 16,300 workers. For the $3.5 billion marriage to be blissful, as many as 2,000 positions will have to go, the companies say. Natural turnover will take care of some, Leatherdale insists. But some layoffs will result, he says candidly, noting that it's too early to say when or where those cuts will come.

The combined company, to carry the St. Paul name, will be the eighth-largest property-and-casualty firm in the United States. While size has advantages, particularly in the slow-growth insurance industry, it also brings closer scrutiny from Wall Street, says Michael A. Lewis, an analyst who follows the company for SBC Warburg Dillon Read Inc.

"Management has not had a high profile on the 'Street,' " said Lewis. "That's the way they've done business. They feel like, 'You do things quietly, and let the results speak for themselves.' With this change, however, they've moved up the food chain, up into the major leagues."

Lewis rates St. Paul shares a "buy" and says the $87 stock will hit $95 within 18 months. That's partly because the analyst senses a resolve to more consistently court Wall Street. That can boost confidence in, and demand for, a company's shares -- resulting in a higher stock price.

The tale of St. Paul is like the tale of two different companies, says Sean Mooney, an economist for the industry-financed Insurance Information Institute.

"There's kind of two St. Pauls," Mooney said. "There's the solid, conservative St. Paul -- until the early 1990s. In the 1990s, they became a lot more innovative, a lot more interested in global exposure."

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