How Travelers Got Moving Again

At yearend 1992, Travelers Inc. was in deep trouble. Hurricane Andrew had torn a $400 million hole in the venerable insurer's balance sheet. More than $5 billion in bum real estate sat on its books. It lacked focus and was only a bit player in the emerging managed-health-care business. It was listing under a huge overhead. To the rescue came the acquisitive Sanford I. Weill, a man with a well-deserved reputation for finding hidden value in underperforming companies. He took a 27% stake first, then gobbled up the rest a year later.

Since then, Weill and two lieutenants--insurance group head Robert I. Lipp and Chief Financial Officer Jay S. Fishman--have managed a remarkable turnaround in an industry where the pace of change is often glacial. They have made major progress retooling Travelers' efficiency, strategy, and culture. "You can see it in the results," says Sanford C. Bernstein analyst Guy Moszkowski. "They've really improved the returns."

NECESSARY PAIN. In attacking Travelers' ills, Lipp and Fishman began poring over the books. Steeped in the lean and mean tradition of Weill's Primerica Corp., the two executives were appalled at what they found: scores of vice-presidents who could approve purchases up to $25 million--as much as Weill himself could O.K. without board approval; a woman whose sole job was to exchange niceties with visitors as they entered the rotunda at Travelers' Hartford headquarters; travel and entertainment costs of $69 million; consultants being paid $17 million annually; more than $16 million annually on office supplies.

The two men got out their knives. "We sent out letters to all suppliers the first year," recalls Fishman. "`Dear Supplier, either we rebid your business or you lower your costs 15%."' Within two years, overall nonpersonnel expenses were slashed 49%. Employment was cut in half, to about 15,000. Says Weill unapologetically: "It was all trimmed because it should have been."

Revamping strategy was more complex. Lipp and Fishman went to work on the balance sheet, selling off $3.5 billion in real estate, much of it in underperforming mortgages, for as little as 50 cents on the dollar--a move that freed up Travelers' capital. They struck a deal to merge Travelers' weak managed-health-care business with that of Metropolitan Life Insurance Corp. The new entity was then sold to HMO giant United Healthcare. The twin deals left Travelers with $830 million in cash and 10,000 fewer employees. Ratings upgrades followed the improving financials. Lipp worked to capitalize on synergies between Travelers and Weill's Primerica Financial Services Inc. (PFS) and Smith Barney Inc., using the former Primerica units to sell the insurer's products, such as variable annuities. Lipp began pushing Travelers homeowners' and auto policies through the PFS network of 100,000 hard-sell part-time agents, who work for commissions far below the typical 15% paid the independent agents who were the backbone of the old Travelers. Lipp hopes to have the policies available in 40 states by the end of 1996.

HIDEBOUND CULTURE. In commercial insurance, longtime head Charles J. Clarke sharpened the focus to compete more effectively in workers' compensation and specialty business liability. "Historically, we underwrote the agent," Clarke says. "What we would say is, `Give us everything but....' Now we are saying, `We want to be in these 15 classes of business. Do you have any of this?"'

Lipp also is looking to change the hidebound culture of the old Travelers. Employees are being rewarded with cash bonuses and stock options. Customers have noticed a difference. "They're hungrier now," says Thomas M. Regan, risk management director at drugmaker Becton Dickinson Co. "They want to make deals."

The net result of these initiatives is that Travelers' insurance operations have become a model of profitability and focus. Return on equity, below 7% when Weill took over, is now almost 12%, higher than many competitors'. Earnings, $380 million at yearend 1993, should near $700 million this year.

Travelers is now hunting for more insurance assets and may emerge the winner in a beauty contest for Aetna Life & Casualty's $5 billion property and casualty business. The insurer, though, still faces the difficult task of expanding at a time when the industry is awash in capacity and mired in a decade-long soft pricing cycle. "We have done the easier part," Lipp rightly concedes. "The jury is still out as to whether we can create real exciting, growing businesses."

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