Union Insurer Takes A Wild Ride With Bankrupt Global Crossing
By Richard Korman
The controversial bankruptcy of Global Crossing has hit many investors hard, including Union Labor Life Insurance Co. and its parent, ULLICO Inc. After realizing big gains on the stock, the recent losses cut ULLICO's capital and surplus base so sharply that insurance analyst A.M. Best lowered its rating.
GEORGINE Private Investment Pays.
(Photo by Sherie Winston for ENR)
ULLICO Inc. and its subsidiaries engage in group life and health insurance, asset management and real estate investment. ULLICO also provides third-party administrative services and, according to its chairman, former building trades chief Robert A. Georgine, soon will provide banking and trust services. The company remains on solid financial ground and no liquidity problems are on the horizon.
But the run-up and decline in Global Crossing show how much one stock can mean to a company that provides a critical financial service to union workers.
ULLICO's capital and surplus base has slipped 40% through the first nine months of 2001, and a big part of the loss was from one stock, says A.M. Best.
The stock very likely was Global Crossing, according to industry sources.
In fact, Global Crossing's initial public offering on Aug. 14, 1998, saw ULLICO's $7.6-million private placement rocket to $320 million. Confidence that the transatlantic fiber optic cable company would provide needed bandwidth ran high. And ULLICO's bonanza confirmed that its private funding of $145 million in 55 "alternative investments" could achieve high returns while helping maintain and create union jobs, the company said in a special report on investments.
On the strength of the Global Crossing and other similar investments, stockholder's equity had surged 86% in 1998. By 1999, the Global Crossing shares accounted for a combined after-tax realized and unrealized gain of more than $1 billion. It helped more than double ULLICO Inc.'s total 1999 stockholder's equity, from $455 million to $1.2 billion. The increase "constitutes a cornerstone of financial stability" that will stand up for years to come. ULLICO, which is owned by labor-affiliated trust funds, seemed to be flourishing.
But by 2000 the boom went bust and ULLICO, along with most investors, had lost its golden touch. Stockholder equity of $1.2 billion tumbled 50%, to $612 million. In his annual message, Georgine focused on another important measure of financial health, net income, which had doubled to $123.7 million over the year prior.
According to Global Crossing's 1999 annual report, ULLICO's investment company had 7.71% of the equity of Global Crossing Ltd., about 33-million shares that traded for about $49. As the cable company headed for bankruptcy and the shares traded for cents in recent weeks, it isn't clear how much ULLICO held. Georgine and other officials could not be reached for comment.
ULLICO failed to unwind its Global Crossing investment soon enough to limit all of the downside. "In recent years, ULLICO Inc. profited from the performance of one particular investment," A.M. Best wrote in a report released Jan. 4, which made no mention of Global Crossing. "The one particular investment...has declined significantly in the last year."