Washington Post
Washington
Post Staff Writer
Thursday,
October 2, 2003
Ullico Inc.
said yesterday that its union shareholders invested an additional $50 million
in the company to shore up the finances of the scandal-plagued insurer.
Ullico sells
insurance and asset management services to unions and their members. In May,
its board deposed Chairman Robert A. Georgine and 15 other board members, who
were accused of reaping combined profits of more than $6 million from improper
trading of Ullico stock.
Those
accusations have led to congressional hearings and ample press attention. But
D.C.-based Ullico has also experienced deep financial problems only partly
related to the alleged executive malfeasance.
Ullico's new
management team, led by Chairman Terence M. O'Sullivan, has spent the past four
months trying to develop an accurate accounting of its results from last year.
The bottom line: Ullico lost $74 million after taxes in 2002, compared with an
earlier, unaudited estimate of a $57 million loss.
The company
delayed filing audited financial statements for months because its accountant,
PricewaterhouseCoopers LLP, refused to approve Ullico's financial statements
without expressing doubt about Ullico's ability to remain a "going
concern." Ullico addressed the accountants' worries by lining up the $50
million capital infusion and agreeing to sell a recently completed office
building that was to be Ullico's headquarters, at 1625 I St. NW, for $160
million.
Ullico's
largest regulated subsidiary, Union Labor Life Insurance Co., has had operating
losses for the past two years, according to documents the company filed
recently with the Maryland Insurance Administration. Last year Union Labor Life
had operating losses of $22.2 million. Its capital and surplus -- a key measure
of an insurance company's financial health -- fell from $51.8 million at the
end of 2001 to $17.95 million at the close of 2002.
On Sept. 17,
Ullico submitted a plan to the Maryland Insurance Administration to increase
Union Labor Life's capital and surplus to at least $47.6 million by the end of
this year. The plan included the $50 million stock sale announced yesterday, as
well as rate increases, asset sales and cost reductions to return the company
to profitability and increase its reserves.
"The
capital raising and the pending sale of the office building have gone a long
way to dealing with the capital-adequacy issues," said Lester C. Schott,
associate commissioner for examination and audit at the Maryland Insurance
Administration, the insurance company's primary regulator. But the company
isn't entirely in the clear, he added. It must also cut costs and reevaluate
some of its business.
"Operational
issues will take longer to correct. They have provided us with a corrective
action plan, but you can't flip a switch and see the effects of those changes
immediately."
Regardless of
the steps still to come, the capital infusion appears to be a sign that unions
are confident about the prospects for the company they own.
"It's
certainly an important show of support for Ullico," said AFL-CIO
spokeswoman Lane Windham. The AFL-CIO and 21 of its affiliates bought the newly
issued shares of Ullico on Tuesday.
To some
degree, the company's poor financial situation was a result of the same market
forces that hurt most investors in the past three years. Ullico had showed big
gains when its $7 million investment in telecommunications firm Global Crossing
Ltd. ballooned to $1.5 billion in market value -- and took an equally big hit
when the telecommunications industry collapsed in 2001. Other investments
simultaneously lost value as benefits paid to its insured members outpaced
premiums.
Company
officials said the Ullico's losses in the last two years were partly
attributable to high legal fees from the controversy.
"There
was a period of time prior to May 8 [when the new management team took over]
when there were questions about how much faith the labor movement had in
Ullico," said James Kennedy, a senior vice president at Ullico. "Now
there shouldn't be any question at all."
The firm
expects to report smaller losses this year, said Damon Silvers, counsel to the
chairman, estimating that it will post a loss after taxes of just under $20 million
for 2003. Most of the loss, he said, will come from activities in the first
half of the year.
Ullico
anticipates breaking even in the first quarter of 2004 and posting a small
profit for the full year.