1,000 face layoffs at St. Paul

Number in Baltimore yet to be determined, chief executive says

1,700 employees here

Fourth staffing cut since Minn. company bought USF&G in 1998

August 04, 1999|By Robert Little | Robert Little,SUN STAFF

The St. Paul Cos. Inc. announced yesterday that it will lay off 1,000 employees by the end of the year, a move that could carve still deeper into staffing at the former USF&G offices that it acquired last year.

Company officials said the layoffs -- more than 7 percent of its nationwide work force -- are designed to reduce costs by $100 million a year, as the Minnesota-based insurance company fights declining rates and heightened competition.

Chief Executive Officer Douglas W. Leatherdale said workers will be cut throughout the company, and that he had not determined how many of the 1,700 employees in Baltimore might lose their jobs. But he said administrative positions likely will be affected most, so "there might be proportionately more impact on our main office, in St. Paul."

The staffing cut was the fourth announced by St. Paul since it bought USF&G for $3.5 billion in April 1998.

The number of employees at the company's Mount Washington complex already has fallen from 2,500.

Yesterday's action is in addition to St. Paul's pending sale of its personal insurance operations to MetLife Auto & Home. That sale, announced last month, is expected to result in the transfer of about 1,700 employees to MetLife Auto & Home and the elimination of 500 to 600 more jobs at St. Paul.

However, analysts said, unlike previous job cuts, which were mostly designed to eliminate redundancies from the acquisition, yesterday's move represents a shrinking of the company's business scope.

Leatherdale said in an interview yesterday that he regretted having to cut jobs, but that the company's expenses were too high -- and in the insurance industry, the primary expenses are salaries and benefits.

"This is a very tough insurance market we're operating in, and it became apparent to me that our costs were still higher than I'd like them to be in order for us to be competitive," Leatherdale said.

"I can't predict when the next hurricane or tornado is going to hit, but I can control my costs."

The company plans to offer severance packages and out-placement services to the employees who lose their jobs, and to take a third-quarter charge to pay for them. The move comes as profit at St. Paul has shown signs of improving. The insurer announced last week that its second-quarter operating profit more than tripled from the year before, to $159 million, or 65 cents a share.

Part of Leatherdale's corporate strategy has been to increase prices and reject business that is too costly to turn a reasonable profit. That caused revenue to fall more than 6 percent last quarter to about $2 billion, precipitating the need for reductions in costs, Leatherdale said.

Competition and low rates in the property/casualty industry have driven premiums and profits down everywhere, and analysts called the company's announced layoffs a good boost for its bottom line.

"Unfortunately, I think it's the right decision -- unfortunate because of all the people whose jobs are involved," said Harry Fong, an analyst for Deutsche Banc Alex. Brown.

"The industry is showing very poor results -- no one is doing well. And in order to maintain a viable business plan and format over the long term, the short-term prescription is exactly what the St. Paul is doing."

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