Wesco Forms Unit to Enter Insurance Field : Fireman’s Fund to Pay for Backup of Policies

Wesco Financial, parent of Mutual Savings & Loan in Pasadena, said Wednesday that it has ventured into the property insurance business with formation of a subsidiary that it expects to generate $60 million in first-year revenue.

Wesco said its new company, Wesco-Financial Insurance, began operating Sept. 1, when it agreed to reinsure about 2% of the policies issued by Fireman’s Fund Insurance of Novato, Calif. Fireman’s Fund paid Wesco a premium for the four-year reinsurance coverage.

Fireman’s Fund, a subsidiary of American Express, currently is seeking to raise capital by offering the public up to 49% of its common stock. It also has had massive infusions of capital from American Express since December, 1983, and has been tightening its underwriting standards and raising premiums in an effort to stem the tide of red ink.

Wesco expects to profit from these changes in Fireman’s Fund and from the generally improving profitability of the property-casualty insurance field, which has amassed a string of record losses.

Stock Price Rises

Wesco stock reached a 52-week high of $33.25, up $1.125, in trading Wednesday on the American Stock Exchange. Wesco spokesman Jeffrey L. Jacobson said the company attributes the recent sharp rise in its stock to its ownership of 587,000 shares of General Foods Corp., which it intends to tender to Philip Morris Co. for $120 per share, realizing an after-tax gain of $34 million, or $4.75 a share. Philip Morris and General Foods announced their intended merger last month.

Wesco Financial is owned 80% by Omaha-based Berkshire Hathaway, which, besides its fabrics and apparel businesses, also has insurance operations, Jacobson said. The new unit will have its headquarters in Berkshire’s home state of Nebraska.

Wesco said it reported the venture to the Securities and Exchange Commission on Wednesday.