Reliance Changing Execs, Selling Surety Business to Travelers
Reliance Group Holdings says it is taking steps to strengthen its capital base, improve its credit ratings and significantly boost shareholder value. These actions, which are the product of a program the Board of Directors and management have been pursuing for the past several months, include:
• Sale of the company's Surety business to Travelers Property Casualty Corp. for $580 million.
• Changes in the senior management team.
• Consolidation of operations expected to result in annual cost savings of approximately $80 million.
• Extension of maturity of bank credit to August 31, 2000.
• Suspension of cash dividends on the company's common stock.
• Maximizing the value to shareholders of the company's Internet operations and its information technology consulting group, RCG IT.
Reliance said it believes that these capital-strengthening actions and other actions it had taken earlier will result in the reaffirmation of its credit ratings.
"After a thorough exploration of a wide range of strategic alternatives, working closely with the Board of Directors and outside financial advisors, we have concluded that this program serves the best interests of Reliance's shareholders, employees and clients," said Saul Steinberg, chairman of the board. "We recognize the dramatic nature of these actions. However, we believe they are appropriate and give the company the best opportunity to build and deliver shareholder value over the long-term."
Specifically, Reliance said it has reached an agreement in principle to sell its Surety business to Travelers Property Casualty Corp. for $580 million in cash. This transaction, which is expected to close in the second quarter, will result in an after-tax GAAP gain of $250 million and an after-tax statutory gain of $300 million.
Consummation of this sale is subject to the negotiation and execution of definitive agreements as well as customary corporate and regulatory approvals. Reliance plans to complete a comprehensive refinancing of its debt prior to that date.
Reliance also expects to achieve approximately $80 million in annualized expense savings by consolidating the operations of its corporate infrastructure and business units. This consolidation will eliminate duplicative and overlapping resources and more closely align the company's resources and capabilities to its customers' needs.
Reliance also announced that Steinberg would be stepping down as chief executive officer after more than 30 years of service. George Baker has been named president and chief executive officer of the company. Baker has been special assistant to the chairman since November 1999. Steinberg will continue as chairman of the board.
In addition, George (Terry) Van Gilder, has been named president and chief executive officer of Reliance Insurance Group, the company's consolidated property and casualty insurance operations. In this position, Van Gilder will lead the transformation and consolidation of Reliance's core property and casualty insurance operations.
Van Gilder, who has been president and chief executive officer of the company's Reliance National Insurance Co. unit since October 1999, had a 24-year career at Chubb Group of Insurance Companies. He served as Chubb's executive vice president and chief underwriting officer. In this position, Van Gilder had management responsibility for Chubb domestic and international operations with a staff of over 2,000 and which generated about $4 billion in premiums annually.
Going forward, Reliance is exploring a full range of strategic options to maximize the value to shareholders of the company's Internet operations and its information technology consulting group, RCG Information Technology. RCG Information Technology is a full-service consulting operation with growing e-solutions capabilities. A spin-off to shareholders and an initial public offering are among the strategic options under consideration for these businesses.
Steinberg said, "I am very pleased that George Baker has agreed to assume the position of chief executive officer at this important time. He has been a member of our Board of Directors for nearly 30 years. His understanding of our company, and his financial and management expertise, will provide Reliance with valuable leadership and continuity going forward, as it carries out these important strategic plans.
"As George carries out his leadership, I will be able to devote more time to the development of our Internet capabilities.," he added. "We are a leading Internet insurer with over $140 million in gross written premiums from our CyberComp operation during 1999. As we add products and capabilities and build our Point, Click & Bind e-commerce platform, we expect to achieve substantial growth and leadership in the business-to-business Internet insurance marketplace.
"I also want to thank Robert (Steve) Miller for the many contributions he has made since joining Reliance as president in November," Steinberg said. "He played an important role in our negotiations and exploration of capital-raising alternatives. Steve is departing now that we have successfully completed this phase of our capital and strategic plan."
As part of Reliance's overall capital-strengthening plan, the Board of Directors has suspended the quarterly dividend payment on the company's common stock. This action is consistent with Reliance's determination to continue to build capital and reduce leverage.
Reliance's goal is to bring the debt-to-capital ratio into the 25 percent-30 percent range. The Board of Directors will review and evaluate the dividend policy after the company completes the refinancing of its debt and as the company achieves its leverage, profit and growth objectives.