Still Preaching Faith In Reliance

Saul P. Steinberg is out to convince the world that the turkey he bought is really an eagle. Reliance Group Holdings Inc., his highly leveraged insurance concern, has suffered through a four-year property and casualty price war and two ill-fated acquisitions. Earnings have been erratic for some time. Last year alone, Reliance booked a $118 million loss.

But to hear Steinberg tell it, Manhattan-based Reliance is turning around. For this year's first quarter, Reliance reported a $19 million profit, compared with a $3.6 million loss during the comparable period in 1991. Last year, the company took a $94 million write-off for its money-losing investment in Telemundo Group Inc., a Spanish-language television network. And on July 24, Reliance announced the sale of Frank B. Hall & Co., a red-ink-gushing insurance broker, to Aon Corp. for $475 million. All Reliance has to do now, he says, is wait for the wretched property-casualty market to improve.

Trouble is, Reliance's position remains pretty precarious. Over the coming four years, a massive amount of debt will come due (chart), and many analysts question whether the company can handle it. Plus, even if the property-casualty environment finally improves, Reliance is heavily exposed in some very hairy areas where huge accident claims can squelch profits--like toxic-waste hauling and other environmental coverage. Worse, Reliance will probably only net about $50 million from the Hall sale, since it retains the firm's debts. No wonder Wall Street shrugged at the sale: Reliance's stock barely budged above 5, where it has languished for months.

If Reliance has hurt Steinberg's pride, it has not damaged his wallet. In 1991, he raked in $6 million as chief executive, far more than peers with better track records. At highly profitable American International Group Inc., for instance, Maurice R. Greenberg earned only $1.9 million. Steinberg defends his compensation, which is based on how well Reliance's insurance operations do relative to the industry's dismal average. "That's easy," Steinberg concedes. Of course, Reliance has dealt some paper losses to Steinberg, whose family owns 77% of the company. The stock is at half its 1986 public offering price of 10.

GREENMAIL PAYMENTS. Reliance aside, Steinberg, 52, has scored several successes. A fixture on the social scene with third wife Gayfryd, his personal net worth has been estimated at more than $300 million. A major source of his wealth is greenmail payments from 1980s takeover targets such as Walt Disney, Green Tree Acceptance, and Lomas & Nettleton Financial.

That won't do much to rescue Reliance from the $1 billion debt load that teeters atop just $372 million in equity. Moody's Investors Service Inc. last year bumped Reliance's financial-strength rating down to junk status. The ratings agencies are most upset by Reliance's practice of milking $723 million from insurance operating units since 1987 to pay interest.

Steinberg insists that the debt burden is no real concern: "We can sell more assets and then refinance the debt." And he waxes sanguine that his company's underwriting knowhow will make winners out of risky insurance lines. Given Reliance's wobbly flight thus far, he had better hope so.

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