St. Paul Cos. posts 6.3% decline in quarterly earnings

You can't get beyond the fact their top line is eroding,' analyst says


May 01, 1999|By BLOOMBERG NEWS

ST. PAUL, Minn. -- St. Paul Cos., one of the largest U.S. commercial insurers, said yesterday that first-quarter earnings fell 6.3 percent as property and casualty premium income declined.

Operating profit, which excluded gains on investments and a charge, fell to $152.5 million, or 62 cents a share, from $162.8 million, or 64 cents, a year ago. The result was 1 cent shy of the average analyst forecast in a First Call Corp. poll.

Premiums net of reinsurance dropped 5 percent to $1.57 billion and overall revenue at the St. Paul, Minnesota, company fell 3.4 percent to $2.24 billion.

"You can't get beyond the fact their top line [or revenue growth] is eroding," said Cathy Seifert, an analyst at Standard & Poor's Corp. "Over the next six to 12 months, I don't see any compelling reason why this stock is going to outperform the market."

St. Paul stock fell 62.5 cents to $28.6875.

St. Paul said its combined ratio, or claims and expenses as a percent of premiums, swelled to 107.8 percent from 107 percent, a sign of eroding profitability. Pretax property and liability insurance oper- ating profits fell 12 percent to $183.9 million.

The report had some bright spots. In St. Paul's life insurance and asset management units, respectively, profits rose 5 percent to $19.1 million and 22 percent to $28.7 million.

Weather-related, or "catastrophe," losses fell to $30 million in the latest quarter from $51 million a year earlier. Also, a pretax loss linked to the parent company and other costs dropped 23 percent to $38.8 million.

Douglas W. Leatherdale, chairman and chief executive officer, said the company's purchase of Baltimore-based insurer USF&G Corp. a year ago has allowed for cost cuts. "We are realizing the benefits of scale and efficiency that were key to this merger's success," he said in a news release.

St. Paul expects to reduce annual combined costs $260 million, up from an initial estimate of $200 million, according to Weston M. Hicks, an analyst at J. P. Morgan Securities Inc.

Net income, which included gains on investments of $42.3 million and a charge of $29.9 million for an accounting change, fell 15 percent to $164.9 million, or 67 cents, from $194.7 million, or 77 cents. The year-earlier results included investment gains of $31.9 million.

Pub Date: 5/01/99

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