USF&G Corporation is a large U.S. property and casualty insurer that markets its insurance solely through independent brokers and agents. An early leader in the casualty-surety field, the company’s emphasis in this area has changed little since the early 20th century and still includes automobile, workers’ compensation, other liability, homeowners, and commercial multi-peril insurance lines, as well as surety bonds. USF&G’s operations were expanded in 1959 to include life insurance, and again in 1985 through the formation of a financial-services subsidiary.
While the company has suffered major loses in each of the last three decades, during that same span it has consistently ranked among the top 15 writers of property and casualty policies in the United States. With life insurance business on the rise and a major acquisitions phase for its financial-services segment completed, the company entered the 1990s expecting to offset profit declines associated with the cyclical casualty business.
USF&G Corporation was organized as a holding company in 1981, but its roots lie in the formation of what is now its lead subsidiary, the United States Fidelity and Guaranty Company (USF&G Company). The USF&G Company was founded in 1896 by John Randolph Bland, a former secretary for the Baltimore Merchants and Manufacturer’s Association.
Bland’s duties with the merchant’s association had included handling credit and collection inquiries, and the observations he made inspired him to start USF&G Company. He noticed that attorneys who served as collectors often had difficulty recovering debt payments. In response to this problem, Bland devised a plan for a company that would serve a dual function, as both collection agency and surety company.
The backbone of Bland’s plan was to establish a nationwide listing of attorneys who would serve as collection agents. Attorneys would be sought in each county and major city in the country. They would pay to have their name listed, and also be required to take out a surety bond from the company, guaranteeing prompt remittance of collections.
Bland was able to raise slightly more than $250,000 in subscribed capital, with Baltimore, Maryland, businessmen making up the bulk of contributors. During the early months of 1896 Bland’s plan took shape, and in March the company was incorporated. USF&G’s first board of directors included businessmen as well as politicians, and included former seven-time Baltimore Mayor Ferdinand C. Latrobe, and former Maryland Governor Frank Brown, who became the company’s first president. Less than a year into operations Brown resigned.
Bland, initially first vice president and general manager, was named Brown’s successor. As president for the next 26 years, he guided company expansion under a growth-with-profit philosophy. Bland based his philosophy—which called for widespread operations—on the theory that as risks are spread they grow smaller and more predictable.
USF&G’s original charter was limited to issuing surety bonds and insuring the fidelity of attorneys and other persons of trust. At the outset, Bland expected the bulk of business to come from personal suretyship; but the number of commercial attorneys listed soon came to double the number guaranteed for personal collections, and almost immediately corporate suretyship became the dominant business.
That business, during the waning years of the 19th century, consisted largely of fidelity bonds issued for bank employees, fiduciaries, and public officials, as well as contract performance bonds after 1898. By 1899 the company was operating in every state and territory in the country.
USF&G marked the new decade by amending its charter to include burglary insurance. Business mushroomed, and during the early 1900s USF&G became known as one of Baltimore’s Big Four bonding and insurance companies. Encouraged by success at home, the company established operations in Europe in 1901 and in Canada two years later. While Bland and other surety pioneers had convinced Americans of the need for corporate suretyship, the act of indemnifying employees did not catch on in Europe, and overseas operations were closed in 1903, as Canadian efforts were beginning.
USF&G became embroiled in fierce domestic competition during the early 1900s, characterized by rate wars and agent raiding. Chief among USF&G’s early competitors was the National Surety Company of New York. A 20-year rivalry between the two companies began in 1902, after a National Surety agent named William B. Joyce promised to deliver business to Bland’s company following a sellout of the New York firm. However, at the last minute, National Surety was reorganized and Joyce named a vice president of the company.
In 1904 the Great Baltimore Fire claimed the USF&G headquarters building, but company records were saved. During the next two years USF&G used a church as its headquarters, before moving into a new office on the site of its former headquarters.
Having established itself as a national powerhouse in the surety field, USF&G entered the casualty business in 1910. The growing use of automobiles and the passage of workers’ compensation laws in a number of states made entrance into the field timely and profitable. Aside from automobile and workers’ compensation, the company’s initial casualty lines included coverage of plate-glass windows, steam boilers, and flywheels. Health insurance lines and a forgery bond were also introduced in 1910.
Casualty business, led by automobile and workers’ compensation insurance, grew quickly during the next several years. USF&G’s contract bond business also blossomed as a result of increased road construction.
When the United States entered World War I in 1917, USF&G began writing casualty insurance for army supply bases under construction. Meanwhile, increased premium sales led to the wartime development of a separate automobile department, four subsections in the company’s liability department, and expansion of the company’s branch system. By 1919 casualty insurance premiums more than doubled total proceeds from all bonding lines.
In 1921 USF&G celebrated its 25th anniversary, and Bland announced that the “largest surety-casualty corporation in the world” would add a seven-story annex to its headquarters. Six years later that annex was increased in size to 12 stories. In 1922 USF&G formed the affiliate Fidelity Insurance of Canada.
Bland and Joyce, who had risen to president of National Surety, reconciled their 20-year-old differences in 1922, just a year before the USF&G founder died. Bland’s son, R. Howard Bland, was named president, moving up from the position of vice president and secretary, which he had held for seven years.
During the prosperous mid-1920s USF&G undertook several new ventures, which included the guaranteeing of real estate mortgages. No new mortgages were covered after 1928, but the brief endeavor came back to haunt the company during the Depression. Manufacturers and wholesalers credit insurance was also introduced during the mid-1920s, but the company soon abandoned this field as well, believing it required too many specialists.
Other endeavors had more promising results. In 1927 the company reinsured and then absorbed the Atlantic Surety Company of Raleigh, North Carolina. The following year the affiliate Fidelity and Guaranty Fire Corporation was organized to write fire and allied insurance coverages, that were not written by USF&G Company. Aviation-risk coverage was added to USF&G lines in 1928.
With the decade drawing to a close, USF&G was in its best financial shape ever. The October 1929 stock market crash and ensuing Depression brought significant loses to the company, and severely taxed surplus funds. USF&G took its biggest loses from mortgage guarantees, but no line escaped problems. Premium volume plunged, and the company’s investment portfolio lost much of its value. The company continued to meet its liability obligations, but by 1931, its surplus had dropped to $4.7 million, down from a solid $17 million just three years earlier.
Dividend payments were suspended in 1931, and the following year E. Asbury Davis became president. Davis had been a director since 1923 and chairman of the board since late 1931. Bland traded positions with Davis, and became chairman. Market values continued to depreciate, and in June 1932 the company reduced the par value of its one million shares of common stock from $10 to $2, transferring $8 million from its capital account to its depleted surplus fund.
Shortly after the stock market crash USF&G had established reinsurance operations in Europe, but, prompted by rumors of war, USF&G once again withdrew from Europe in 1934. At the same time, the U.S. economy was improving, and a new advertising campaign was introduced to boost the company’s image. During the next several years USF&G used the slogan “consult your insurance agent or broker as you would your doctor or lawyer.” The company recorded its first postcrash profit in 1935, and revenues continued to increase throughout the remainder of the decade. In 1940 USF&G resumed dividend payments.
After the United States entered World War II in 1941, USF&G once again began covering government projects, and was commissioned by the United States to serve as a fiduciary agent in writing war-damage insurance. This led to USF&G’s involvement in government undertakings which included the construction of the Pentagon Building outside Washington, D.C., and the atomic bomb project at Oak Ridge, Tennessee. Nearly 500 USF&G employees participated in the war effort, and some agencies closed while others were maintained by wives, sisters, and daughters.
USF&G celebrated its 50th anniversary in 1946. Postwar prosperity contributed to a record-high $105 million in assets logged for the year, making USF&G the largest insurance and surety company in Maryland and the fourth largest in the country.
In 1947 USF&G’s charter was amended to include fire and allied lines, which had been written through the company’s affiliate, Fidelity and Guaranty Fire Corporation, since 1928. Anticipating future corporate reorganization, the subsidiary Fidelity and Guaranty Insurance Underwriters was formed in 1951. Established in Ohio, the new wholly owned subsidiary gave the company power to write fire and allied lines in states where multi-line laws had not been approved. In 1952 USF&G and Fidelity and Guaranty Fire Corporation merged, after a majority of states had legalized multiple-line companies.
In 1955 Davis retired as president, leaving the company in its strongest financial position to date. Charles L. Phillips, a 35-year USF&G veteran, succeeded Davis as president and chairman. In 1959 William E. Pullen was named president, and the following year he replaced the 70-year-old Phillips as chairman.
Before the decade drew to a close, USF&G completed its move to becoming a full multiple-line insurer with the December 1959 formation of the wholly owned subsidiary Fidelity and Guaranty Life Insurance Company.
In 1962 USF&G began steps to acquire the New York—based Merchants Fire Assurance Corporation and the Merchants Indemnity Corporation. Later that year, Walter J. Jeffrey, was named president. Jeffrey, a former senior vice president and chief administrative officer, assumed the additional duties of chairman after Pullen’s retirement in 1965.
The company sustained losses in 1964 and 1965 resulting from a high number of severe storms accompanied by heavy losses in its automobile and fire lines. Despite the setbacks, sales were on the rise, and in 1965 the company announced that its five-year-old life insurance subsidiary had passed the $500 million premium mark.
Merchants Fire Assurance and Merchants Indemnity were purchased in 1965 and the following year merged into USF&G, adding both capital and business to USF&G operations. In 1969 a second life insurance subsidiary was added with the acquisition of Thomas Jefferson Life Insurance Company, which carried a license to do business in New York, the only state where Fidelity and Guaranty Life was not operating.
USF&G entered the 1970s with new leadership and plans for a new corporate headquarters. In 1970 Williford Gragg was named president, and also became chairman two years later. In 1971 the company broke ground for a 40-story headquarters in Baltimore.
Just as the company was settling into its new building, the insurance industry began to sag. By the time the relocation was completed in late 1974, several insurance companies were on the verge of bankruptcy. The industry recession hit USF&G hard, and the company posted record loses of $1 million a month between January 1973 and October 1974.
By 1975 the company was back in the black. Two years later the subsidiary Fidelity and Guaranty Insurance Company was incorporated in Iowa. The new company was chartered for all lines of property-casualty insurance except medical malpractice and international, but emphasized homeowners and automobile coverage.
Underwriting profits grew throughout the late 1970s, and in 1978 Gragg reported that USF&G had the highest underwriting profit of any stock insurance company in the country. Later that year, Jack Moseley became president. Moseley also assumed the additional duties of chairman two years later.
In October 1981 the USF&G Corporation was formed as a holding company to organize the group’s 13 subsidiaries. Company officials at the time said the reorganization would “give management greater flexibility in planning and executing business.”
Two months later the company agreed to a $3.5 million settlement with as many as 20,000 employees, former employees, and job applicants accusing USF&G of sex and race discrimination in hiring practices. The company agreed to set goals for the hiring of women and minorities, but did not admit to discriminatory practices.
During the early 1980s premium volume fell, and the company responded by cutting prices to meet competition and increasing reserve funds to accommodate growing claims. Earnings were hurt, but profits were maintained through investment earnings and the use of tax credits.
In 1982 the company established the Light Street Income Fund, which operated during the next four years. The fund’s goal was to generate investment income by purchasing high-yield stocks in time to get dividends and then selling those stocks to investors at a predetermined price. Two years later USF&G became one of the first insurance companies to offer tax-exempt bonds. The $170 million offering included 50 different sets of bonds, mostly with maturities after the year 2000.
In 1984 an industry recession and investment losses caught up with USF&G. The recession, precipitated by low premium prices, rising costs, and a number of expensive natural disasters, resulted in a $64 million net loss for USF&G. In 1985 that deficit grew to $108 million.
Despite the losses, the company continued to expand and diversify. Three wholly owned subsidiaries were formed to operate as offshore reinsurers. F&G International Insurance was formed in 1984, in Bermuda; St. George Reinsurance was formed in 1985, in the British West Indies; and St. Andrews Insurance was formed in 1986 in Barbados.
In 1985 the wholly owned subsidiary USF&G Financial Services Corporation (FSC) was formed. A five-year acquisitions phase for FSC followed, resulting in the acquisition or formation of more than 20 subsidiaries, which now operate as independent companies in more than 40 countries. Today FSC operations include four divisions: investment management offers pension, employee benefit, and financial consulting services; human asset management provides multinational strategic and operational consulting; marketing management provides a range of administrative and development services; and capital asset management offers domestic and overseas computer sales and leasing services.
In 1986 USF&G erased its deficit and began looking for investment opportunities. The company launched a Swiss franc bond in 1987, and the following year the company introduced its Pacholder Fund to sell high-yield low-rated bonds. Both the Pacholder Fund and the eurobond offering met cool receptions, and the company’s investments lost $225 million in 1987 and 1988. In 1988 USF&G purchased Citicorp’s investment-management unit for $102.5 million, as part of a five-year plan to spend $200 million enhancing investment yields.
Some of USF&G’s more novel income-generating strategies drew fire from the Securities and Exchange Commission (SEC). In 1988 the company reached a resolution with the SEC regarding charges that it violated disclosure and accounting rules. The charges stemmed from the company’s handling of Light Street Income dividends between 1984 and 1985. USF&G did not admit to the disclosure violations, but did agreed to follow regulations in the future.
In December 1989 the Fidelity Insurance Company of Canada was sold for $68 million. USF&G closed the decade with a declining profit margin, after posting a record profit of $373 million in 1987. Investment income quadrupled during the 1980s to an unprecedented high of $898 million in 1989, while assets grew to a record-high $13.6 billion.
During the 1980s life insurance sales grew from $9 million to $898 million and came to represent nearly 10% of company revenues and better than 25% of all assets. FSC revenues tripled between 1987 and 1989, rising to $182 million. FSC also closed the decade expecting to reduce its operating costs, having concluded a major acquisition phase which it plans to build on.
USF&G continues to follow John Randolph Bland’s growth with profit philosophy. The company aims to continue increases from life insurance and financial-service subsidiaries, in order to offset large property and casualty losses in the future. With over 5,300 independent agents and brokers marketing property and casualty insurance, the flagship USF&G Company started by Bland nearly a century ago is expected to remain firmly entrenched as the corporation’s dominant business.
United States Fidelity and Guaranty Company; Fidelity and Guaranty Insurance Company; Fidelity and Guaranty Insurance Underwriters, Inc.; Automated Products, Inc.; F&G Re, Inc.; F&G International Insurance, Ltd. (Bermuda); St. George Reinsurance, Ltd. (British West Indies); St. Andrews Insurance, Ltd. (Barbados); Fidelity and Guaranty Life Insurance Company; Thomas Jefferson Life Insurance Company; USF&G Financial Services Corporation.
Fitzpatrick, Clarke J., and Elliott Buse, Fifty Years of Suretyship and Insurance, Baltimore, Maryland, Horn Shafer Company, 1946.
—Roger W. Rouland
"USF&G Corporation." International Directory of Company Histories. . Encyclopedia.com. (September 20, 2018). http://www.encyclopedia.com/books/politics-and-business-magazines/usfg-corporation
"USF&G Corporation." International Directory of Company Histories. . Retrieved September 20, 2018 from Encyclopedia.com: http://www.encyclopedia.com/books/politics-and-business-magazines/usfg-corporation
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