USF&G; Corp. yesterday turned in another quarter of improved earnings, topping off its best year this decade by far, as a three-year restructuring effort has left the insurer with lower costs and more profitable products.
The Baltimore-based insurer said net income rose 5 percent in the quarter, to $62 million, or 57 cents a share, after paying preferred stock dividends. A year ago net income was $59 million, or 55 cents a share.
Both periods included several large one-time items, including a $183 million charge in the latest period related to the anticipated costs of moving USF&G;'s headquarters out of its downtown Baltimore office tower. The company also recorded an income tax benefit of $210 million in the quarter.
Setting aside all the one-time items, the company's profit from operations increased 27.6 percent, to $37 million, or 30 cents a share, from $29 million, or 20 cents a share, in the fourth quarter of 1993.
For the full year, net income of $232 million was more than 40 percent higher than the $165 million earned in 1993. Operating profits were up 35 percent, to $130 million, or 97 cents a share, from $96 million, or 56 cents a share a year ago.
"This was another year of significant progress from both a financial and strategic perspective," said Norman P. Blake Jr., the company's chairman and chief executive officer.
"We began leveraging our expertise in related areas of the insurance arena that are growing faster than the traditional market and have higher returns," Mr. Blake said.
Two of those areas targeted for growth are the specialty reinsurance products sold by Discover Re Managers Inc., a Connecticut company USF&G; agreed to buy last month; and auto insurance for high-risk drivers, the domain of Cleveland-based Victoria Financial Corp., another announced acquisition.
The improved profits came with slightly higher revenues in the quarter -- $853 million, compared with $799 million a year ago. Full-year revenues were down a bit, to $3.22 billion from $3.25 billion in 1993.
"I think the company's earnings are progressing nicely," said Prudential Securities analyst G. Alan Zimmerman.
Since Mr. Blake arrived in 1990, the company has cut its work force by about half, improved its insurance underwriting standards, retreated from costly states and severed ties with hundreds of unprofitable independent agents.
This year USF&G; embarked on a four-year, $50 million revamping of its computer systems with the goal of improving efficiency further.
Results were better in the life insurance company, which turned a $3 million profit in the fourth quarter after a break-even quarter a year earlier, as well as in the properly/casualty division, USF&G;'s largest. The property/casualty loss ratio, or percentage premium dollars spent on claims, fell to 73.1 for the full year, from 75.4 in 1993. It was the lowest ratio since 1988.
Still, the earnings came in just below analysts' estimates. Yesterday USF&G;'s stock fell 37.5 cents, to close at $14.625 a share.
Part of the problem, according to Mr. Zimmerman, is that no matter how good a job the management is doing in restructuring the business, earnings won't accelerate by much until the industry becomes less competitive and prices begin to rise.
"The challenge will be that growth will chiefly come from an improved insurance industry environment, which is not visible yet," Mr. Zimmerman said.
USF&G; employs about 6,500 people, with almost 2,300 in the Baltimore area.