St. Paul facing possibly large loss over loan to a construction client

October 31, 2003|By BLOOMBERG NEWS

ST. PAUL, Minn. - St. Paul Cos., the sixth-biggest U.S. commercial insurer, said yesterday that it advanced cash to a construction client who missed debt payments in the third quarter, exposing the insurance company to a loss of up to $80 million.

St. Paul Chief Executive Officer Jay Fishman said the insurer expects the advances to be repaid and does not anticipate losing the money.

St. Paul guaranteed that the construction contractor, which the company didn't name, would make good on its obligations by selling surety bonds.

"We do not expect to incur a significant loss with respect to this account," Fishman said during a conference call with analysts and investors. "We had a contractor who hit a particular cash-flow difficulty. We believe that the contractor has all the ability now to complete the projects in accordance with the contract terms."

If the contractor fails to complete the projects, the company will recover some money from collateral and reinsurance, Fishman said. The company's remaining risk is the $80 million.

St. Paul's shares climbed $1.91, or 5.3 percent, to $38.04 on the New York Stock Exchange yesterday after the company reported that its third-quarter profit more than tripled.

Net income rose to $214 million, or 88 cents a share, from $63 million, or 27 cents, in last year's third quarter, the company said.

Profit excluding investment gains and an accounting change was $233 million, or 96 cents a share, almost double the $121 million of a year earlier.

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