St. Paul Travelers to Cut 3,000 Jobs

July 26, 2004

St. Paul Travelers Cos. plans to cut 3,000 jobs so it can deliver the savings that executives promised to investors when The St. Paul Cos. merged with the Travelers Property Casualty Corp.

Extensive layoffs have been expected since The St. Paul and Hartford, Conn.-based Travelers agreed to the $17.9 billion merger, which closed in April. But the company did not put a figure on how many employees would lose their jobs before last Friday.

Chief executive Jay Fishman told securities analysts the company expects to reduce its 30,200-member work force by 10 percent — and save more than $350 million.

“We certainly feel very good about that,” Fishman said.

About 2,700 people work at the headquarters complex in downtown St. Paul and more than 5,500 in Connecticut. The combined company’s largest business — commercial and property insurance — is being run in Connecticut.

Fishman offered no specifics about layoffs, and spokeswoman Joan Palm could not provide any, either.

“I can’t tell you anything more specific by geography, by business,” she said. “It’s not a surprising number in a merger of this size.”

St. Paul Travelers has not informed the Minnesota Department of Employment and Economic Development of any layoffs, said Fil Chairez, of the state’s dislocated worker program. As long as fewer than 500 people are cut in a 30-day period, the company is not required to.

“We really are pretty much locked out of any news as far as layoffs are concerned,” Chairez said. “We’re still waiting.”

The main thrust of Fishman’s discussion with analysts Friday was news that St. Paul Travelers plans to take a charge of $1.63 billion to increase its reserves for future claims. That’s much more than many Wall Street analysts had expected. The insurer said it increased the money it sets aside to cover claims after adopting Travelers’ more conservative approach to calculating reserves.

The company said the charge could result in a second-quarter loss of up to $300 million. It had been scheduled to release its second-quarter results in the coming week, the first quarterly figures since completion of the merger. But the company has now delayed the release to ask the U.S. Securities and Exchange Commission how it should account for the cash infusion for its increased reserves.

Several analysts said they were surprised the charge was so large and questioned why the company did not disclose it earlier.

“The magnitude of this charge is shocking, and it’s hard to imagine them missing (the charge) when they were doing their due diligence,” said Michael Paisan, an insurance analyst with Legg Mason Wood Walker of Baltimore.

Palm said the two companies faced restrictions on the amount of information they could share before the merger. They could not complete a thorough analysis of their differing methodologies for assessing risk until after the merger closed April 1, executives said.

“It simply makes sense that a reserve charge related to conforming one company’s actuarial and accounting approach with another’s would come in the first quarter they report together,” Palm said.

Paisan said Travelers shareholders might have turned down the deal had they known that a charge of this magnitude was around the corner.

“If I’m a Travelers’ shareholder, I’m extremely upset,” he said.

St. Paul Travelers’ shares have lost nearly 13 percent of their value since the merger was completed. Its stock fell as much as 6.5 percent Friday before bouncing back later in the day. The stock closed at $35.66, down 2.4 percent from $36.55.

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