New CEO Focuses On Cutting Costs, Hiking Premiums at The
St. Paul
Dee DePass
Star Tribune
Published Oct 24 2001
Terrorism exclusions, premium hikes and expense controls are
just a few of the changes headed for The St. Paul Companies in
the wake of massive third-quarter losses, the company's new
CEO Jay Fishman told analysts in a conference call Tuesday.
Insurance agents who peddle The St. Paul's policies also can
expect a shakeup as the company pushes for more
performance-based commissions, said Fishman, who joined
the company 12 days ago after a 12-year stint at the helm of
the Travelers Insurance Group.
Fishman expects to finish The St. Paul's new strategic plan in
one week, travel coast to coast to meet agents and employees in
four weeks and connect with analysts in St. Paul by December.
"I am going as fast as I can. This is urgent. We have to get it
right and get it right by the end of the year," Fishman told
analysts Tuesday after The St. Paul posted a third-quarter
operating loss of $545 million or $2.62 cents a share because of
claims from the Sept. 11 attacks on the World Trade Center.
The results compare with year-ago profits of $157.5 million or
67 cents a share. Analysts had expected third-quarter losses to
fall closer to $1.30 a share.
Including $50.7 million in net realized investment losses and
$63.5 million in losses from discontinued operations, the
third-quarter net loss was $658.7 million, or $3.16 per share,
down from year-ago profits of $231.1 million or 98 cents a
share.
The losses are huge but not unexpected. The St. Paul's stock
closed at $49.72, down 46 cents, less than 1 percent.
"The stock actually began to move up during the second half of
the conference call as analysts began to digest what [Fishman]
was saying," said American Express analyst David Benz.
Fishman announced that The St. Paul would not invoke a "stop
loss" reinsurance tool that could have reduced the impact of
Sept. 11. Invoking that reinsurance would have meant
forfeiting some premiums for years to come.
Instead, the company decided to take a one-time hit, Benz
said, which will raise its estimated terrorism-related claims
from $700 million to $866 million.
"We have known Jay since his days at Travelers and Aetna and
Citigroup and we would not bet against him," Benz said. "As
the call showed, he focuses on profitability. He focuses on
reducing expenses and long-term earnings growth. Those are
his priorities."
Benz calls it the "Fishman Factor."
"If he was walking down the hall and saw a paper clip, the
Fishman rule is you pick it up and recycle it. I can tell you the
[St. Paul's] expense line will become much smaller."
During the analyst call, Fishman emphasized that employees
should treat a company expenditure as if it were their money.
He talked about some "pain" in the company's future but
insisted that the firm will earn shareholders' trust.
While The St. Paul will pay claims related to the Sept. 11
attacks, Fishman said it will not cover losses from future acts of
terrorism. Other insurance and reinsurance firms already are
moving in that direction, said Fishman and Tom Bradley, the
company's chief financial officer.
Analysts noted that such exclusions will pressure Congress to
pass legislation creating a government insurance pool that will
share future terrorism losses with the insurance industry.
Excluding Sept. 11 and $46 million in other catastrophic losses,
the St. Paul's operating earnings were $107 million or 48 cents
a share, down from $168.8 million, or 72 cents a share one year
ago.
"Our third-quarter results continue to reflect unacceptable
performance in previously identified problem segments: health
care and international," Fishman said. The company is
reviewing those businesses and might leave them.
The international unit has had small premiums and spotty
performance for some time. Fishman said the company's small
presence in some countries doesn't help it compete against
established competitors.
The St. Paul's reinsurance also will be re-evaluated with an eye
toward reducing volatility. Fishman noted there are areas of
the company with inconsistent underwriting approaches
toward risk.
Senior Vice President Marita Zuraitis told analysts that
premiums inside the United States currently average 16
percent and are expected to rise.
Bradley said hospital insurance rates alone increased 25 to 60
percent.
Fishman also said the insurer could explore entering the
banking realm for the first time. He said previously that he
favors standard commercial insurance, a line of business The
St. Paul has largely quit. Analysts said a re-entry into that type
of insurance would be smart since premium increases there
could exceed 25 percent.
-- Dee DePass is at ddepass@startribune.com .
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