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October 02, 2003 at 08:00 PM
Safeco And Fortis To Shed Non-Core Businesses
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Recent announcements from Safeco Corp. that it is selling its life and investment business unit and from Fortis, Inc. that it will spin off its non-core U.S. insurance operations suggest that companies are refocusing their energies on core strengths, analysts say.
John Nigh, a principal with Tillinghast-Towers Perrin, New York, speaking on the issue of focusing on core operations, says if a company is not achieving scale or sufficient return, that is a good reason for refocusing.
However, caution is needed because “inherent volatility” may be created since different businesses within a company can immunize other lines of business in a downturn, Nigh continues.
Given the growing need for scale and market presence, companies are saying, “lets pick our spots,” says Bob Donohue, a vice president and senior credit analyst with Moodys Investors Service, New York.
The plans of both companies follow announcements that AXA Group, Paris, intends to purchase MONY Group, New York, (see NU, Sept. 22) and that Manulife Financial Corp., Toronto, will buy John Hancock Financial Services, Boston (see story on page 48).
In the case of Safeco, the Seattle-based company said its plans to sell its life and investments business unit is part of a new corporate structure that will focus on selling property-casualty insurance products through a network of independent distributors supported by a common sales, service and technology platform.
Most of the proceeds of the sale will be returned to shareholders in the form of a special dividend, a stock repurchase plan or a combination of the two, according to the company.
Proceeds will also be used to reduce Safecos debt to a level appropriate for the companys new size, and a small amount will be used to support ongoing business needs, the company added.
The life business generated $237 million in operating earnings on $2 billion in revenue in 2002.
