Transamerica Seeks Buyer for Casualty Group

Transamerica Corp., the life insurance and financial services giant, announced plans Monday to sell or spin off its troubled Woodland Hills-based property and casualty insurance unit in order to focus on its finance and life insurance businesses.

The subsidiary, Transamerica Insurance Group, could fetch in excess of $800 million, analysts said. Any buyer is likely to downsize the subsidiary, which has 4,400 workers at 65 offices nationwide, they added. Nearly a quarter of the employees are based in Woodland Hills.

“Certainly nobody would be looking to buy it and keep it as is,” said William Bitterli, an insurance analyst for Northington Partners in Avon, Conn.

The property-casualty unit, which accounted for nearly a third of San Francisco-based Transamerica’s $6.8 billion in revenue in 1991, has been hurt by price cutting and losses in its workers’ compensation and entertainment divisions.

Frank C. Herringer, Transamerica’s president and chief executive, characterized the proposed divestiture of the unit--the nation’s 27th largest property-casualty insurer--as a strategic move, allowing the firm to concentrate on higher-return, less cyclical businesses.

In a statement, Herringer said the company plans to unload Transamerica Insurance as quickly as possible. If a buyer cannot be found, Transamerica said it would consider spinning off the unit to its shareholders or making an initial public stock offering.

The property-casualty subsidiary set aside $68 million in additional loss reserves in the second quarter, mostly because of losses due to fraud in the Southern California workers’ compensation market and cost overruns on motion pictures. As a result, Transamerica Insurance is expected to report a $40-million operating loss for the quarter.

In 1991, the unit had a net profit of $63 million on annual revenue of $2.2 billion. Its assets as of March 31 were $4.6 billion.

Transamerica, which expects its second-quarter earnings to more than double from its $43.6-million profit of a year earlier, said it doesn’t expect to realize a significant gain or loss on the sale.

Analysts interpreted that to mean that the company anticipates a price close to the property-casualty unit’s $1.1-billion book value. But other analysts said Transamerica Insurance could be difficult to sell and would sell for only about $800 million.

Transamerica spokesman Richard J. Olsen said Transamerica’s advisers, Morgan Stanley & Co. and Donaldson, Lufkin & Jenrette, “have had some preliminary contacts with a few companies that they thought would be potential buyers.”

Analyst Michael Morrissey at Firemark Research Inc. in Parsippany, N.J., said Transamerica Insurance is “eminently salable” because it is a sound business structurally. Among interested parties, he said, might be large foreign concerns following the lead of Allianz, a German insurance concern that acquired Fireman’s Fund Insurance Co. for $3.3 billion in 1990.

Some American companies, including large financial concerns and traditional insurers such as Continental Corp. and Hartford Fire Insurance Co., a unit of ITT Corp., are also considered possible bidders.

Wall Street reacted positively to the announcement. Transamerica’s stock rose 87.5 cents Monday to close at $45.38 a share in trading on the New York Stock Exchange.

Analysts generally agreed that a sale of the unit makes sense for Transamerica. “Insurance companies in general are cutting back to core operations. They’re no longer trying to be financial supermarkets,” said Daniel Murray, an analyst at Argus Research Corp. in New York.

They said the cyclical nature of the property-casualty business, which has seen prices for coverage fall about 25% since 1987, might worry potential buyers.

“It’s kind of a lousy business to be in,” said Murray, noting that property-casualty insurers generally have been willing to accept large underwriting losses in hopes of making a profit by investing premium revenues. But with interest rates low, those investments are no longer producing the hoped-for returns.

Analysts also point to recent difficulties in Transamerica Insurance’s workers’ compensation business and in its high-risk entertainment operations. The entertainment unit insures live events, provides cast insurance and guarantees that movies will be completed on time and within budget.