Now, that money has been spent, and ULLICO is facing financial meltdown in its life insurance business, which has been sinking for four years, insiders say. The result: The labor pension funds that own most of ULLICO's privately held stock face the prospect of a further decline in its value.
ULLICO CEO Robert A. Georgine, who gained the most from the stock trades, delivered the bad news in a confidential discussion with directors on Feb. 21 in Hollywood, Fla. ULLICO is on track to lose $20 million to $30 million when its 2002 books are closed -- the first red ink in 11 years, according to directors present. It also needs a $50 million capital infusion, Georgine told them.
On Mar. 3, insurance rating service A.M. Best Co. downgraded ULLICO to "vulnerable." "They ran out of the Global Crossing money, which had allowed the parent to make contributions to the insurance units in the past," says A.M. Best analyst Joseph Zazzera.
To stop the hemorrhaging, Georgine told his board that he will hire a management consulting firm to help straighten out the insurance business. The board also discussed slashing ULLICO staff salaries by 25% and selling the new headquarters the company is building in Washington, D.C. "We'll take the necessary steps to return to profitability," says ULLICO spokesman John Rodgers. "Nothing's off the table."
At the board meeting, insiders say, Georgine blamed much of the operational losses on CFO John K. Grelle, who quit in protest several days later. In a letter to the board, Grelle blasted Georgine for not selling the company jet, which costs $3 million a year. Grelle didn't return phone calls.
Meanwhile, ULLICO has shelled out some $10 million in legal fees to cope with the numerous investigations, Georgine told directors. The day after their meeting, a board committee charged with deciding how to respond to the inquiries met at the same hotel. The committee, headed by two friends of Georgine's, Daniel H. Mintz, a Florida doctor, and former Labor Secretary John T. Dunlop, has agreed to implement governance changes called for in an internal report done for ULLICO by former Illinois Governor James Thompson. But committee members say they're still debating the release of Thompson's highly critical report, which the Labor Dept. and the Maryland Insurance Administration have sued ULLICO to obtain. "We're also still discussing Thompson's remedial recommendations," says a committee member, including the most controversial: whether directors should repay what they made by selling ULLICO stock. By Aaron Bernstein