Fireman’s Fund Overhaul Pays Off With Big Profit

“Bill” and “Jack” are the top executives at Fireman’s Fund. At least, that’s how William M. McCormick, chairman of Fireman’s Fund Insurance Co., and John J. Byrne, chairman of Fireman’s Fund Corp., sign their messages to staff and shareholders.

The jaunty informality symbolizes the manner in which the two have sought to dismantle the staid and hierarchical corporate culture created over the 124 years since the company’s birth in San Francisco.

But that has come along with some hard-nosed cost cutting and an overhaul of information systems and claims processing in the four years since American Express was forced to part with $230 million in earnings to keep its ailing insurance subsidiary in business.

The public payoff came Monday, when Fireman’s Fund reported 1986 net consolidated income of $228 million. That contrasted with a $44-million loss registered in 1985.

A more modest 10% increase in revenue, to $3.7 billion, marks the fact that the company has again taken the offensive in an insurance market that has begun to open up once more after nearly seven years of disastrous losses.

For the year’s fourth quarter, net income totaled $80 million, up from $23 million a year earlier, on revenue of $1.02 billion, up 20%. It was the sixth straight profitable quarter.

“There’s still a lot of work left to do,” McCormick, 46, said in an interview last week at corporate headquarters in this Marin County town. “We’ve pretty much completed the defensive phase. We’re just turning to the offensive.”

McCormick, a newcomer to insurance, was dispatched to California in December, 1983, by American Express, where he had headed the successful charge card operation. About 18 months later, having decided to get out of the highly cyclical insurance business, American Express recruited the 54-year-old Byrne from GEICO, a Washington-based insurer that he had turned around.

Three months later, in October, 1985, in what was the nation’s largest initial offering of stock, Fireman’s Fund regained its century-old independence, which had been interrupted in 1968 when it was acquired by American Express.

Byrne and McCormick now operate from opposite ends of the country. Byrne and the holding company are based in Greenwich, Conn., while McCormick runs the insurance business from California.

“We’re doing what we said we’d do,” said McCormick. “We said our goal was not just survival but becoming the best in the business.”

Since the dark days of December, 1983, the company has reduced manpower, slashed production costs, reduced the number of supervisors and cut their perquisites, overhauled a merit-based pay system (that had, McCormick said, rewarded the mediocre as well as the meritorious), redesigned claims handling to reduce errors and speed service, and installed quality control systems to monitor all operations.

More recently, the company’s bafflingly diverse lines of insurance were regrouped in three divisions--personal, commercial and specialty--each headed by a president.

Now, along with letting the business begin to grow again, McCormick is intent on returning underwriting to profitability.

The cost of writing insurance has fallen from more than $120 for every $100 of income to $108.50 in 1986--and $107.80 for the fourth quarter, the lowest since 1982. (Investment income, generated by Byrne’s management of premium funds, covered the shrinking underwriting loss, generating $458 million in net investment income last year.)

McCormick also seeks to avoid a replay of the cyclical price-cutting frenzy that marks the property-casualty insurance business.