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TIG Plans Public Sale as Part of Shake-Up : Insurance: The Woodland Hills-based unit of Transamerica Corp. is also hiring new senior management.

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TIMES STAFF WRITER

Most investors could not afford to buy part of the Los Angeles Dodgers or any other major league club. But they might be able to buy a piece of the company that insures the Dodgers.

The company is TIG Holdings Inc., a newly created parent for Transamerica Insurance Group, a property-casualty insurer based in Woodland Hills that’s about to go public. Currently owned by Transamerica Corp., the San Francisco-based financial services giant, TIG among other things is the nation’s largest insurer of sports teams and entertainment, and it’s a relatively healthy business.

Trouble is, that division accounts for less than 10% of TIG’s $2 billion in annual revenue, and the company’s more mundane lines--insuring cars, houses, workers’ compensation and the like--are plagued by fierce competition, rampant price-cutting, veering economic cycles and occasional but costly catastrophes.

Those factors hamper many insurers, but they’re extra burdens on TIG because, given its financial results in recent years, the company’s cost of delivering its insurance is apparently too high.

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TIG, with 4,250 employees, only once generated net income of more than 3 cents per dollar of revenue from 1989 through 1991, and the 1991 earnings were only a 5.7% return on stockholders’ equity. By comparison, rivals Chubb Corp. and Safeco Corp. that year returned 15% and 12% on their holders’ investment, respectively.

Then in 1992, TIG’s earnings vanished altogether. The company, stung by the hurricanes Andrew and Iniki (as were many insurers), lost $126 million on revenue of $2.02 billion.

So Transamerica, preferring to channel its resources to its healthier life insurance and financial-services segments such as leasing, decided in November to shed most of TIG.

Under its current plan, TIG will offer 30 million common shares to the public for an expected price of $21 a share. That would place 53% of TIG with the public, with Transamerica retaining the other 47%. Transamerica would reap gross proceeds of $419 million from the sale (before underwriting expenses) and TIG’s gross share would be about $211 million.

What would TIG’s new investors get? It’s not entirely clear from reading the prospectus.

For instance, they would get rights to sit in Chavez Ravine and boast that they help insure the home team, because the Dodgers confirmed they’re still covered by TIG. And as of 21 months ago, TIG publicly said that it also insured a dozen other baseball teams, all 27 of the National Basketball Assn. teams, 20 of the 28 National Football League teams (including the Rams) and the Tournament of Roses parade, along with auto racing tracks, rock concert venues and fireworks shows.

Now, however, TIG officials claim that roster of clients is privileged information, and the list is not included in the prospectus, either.

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Regardless, the company mainly protects the team owners and venue operators against claims by fans injured at their events. In 1991, for instance, TIG paid about $3 million as part of settlements with victims of a speedboat-racing accident on the Allegheny River near Pittsburgh.

The company also insures movie producers against mishaps on the set and guarantees that films are shot on time and within budget. Case in point: TIG paid millions of dollars in claims because of a 1990 fire on the backlot of Universal Studios.

Overall, the specialty line is relatively healthy, in part because it has fewer competitors than in traditional property-casualty lines. It’s in those traditional lines where TIG needs help, so it’s enlisting new senior management as part of its spinoff.

Jon W. Rotenstreich will become chairman and chief executive, succeeding Gerald A. Isom. (Rotenstreich also has agreed to buy $5 million worth of TIG stock at the offering price.) Don D. Hutson will also come aboard as president and chief operating officer.

Rotenstreich, who lives in New York, was president of Torchmark Corp., a life and health insurer, from 1986 to 1991. Hutson is former chairman of Maryland Casualty Co., a property-casualty underwriter.

Their plans for TIG are vague at the moment. The offering’s prospectus says they are “developing a new business plan” but that nothing has been finalized. Their general goal, not surprisingly, is to streamline TIG to cut costs and eliminate operations that don’t offer “prospects for earning a satisfactory rate of return on invested capital.”

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In an interview, Rotenstreich declined to be more specific, citing the regulatory “quiet period” that bars executives from elaborating in detail beyond the prospectus. But he said, “I am more interested in an increasing return on investment each year,” rather than a specific number.

He also said TIG’s operations are being thoroughly reviewed. “We’re going to make changes, and we’re going to be as forthcoming as we can as soon as we know what they are,” he said.

Rotenstreich (pronounced Rote-en-strike) got high grades for his Torchmark tenure, which ended abruptly when he resigned after not being offered the chairman’s job when Torchmark’s current chairman, Ronald Richey, reached age 65.

While Rotenstreich was president, Torchmark’s stock doubled in price, thanks in part to tight cost controls and a big stock-repurchase program. The company routinely earned 20% on its stockholders’ capital.

Rotenstreich, who’s been described as an iconoclast and financial whiz (he was a partner at Salomon Bros. at age 29) also led Torchmark’s unsuccessful takeover bid for a larger rival, American General Corp., in 1990. It’s no secret in insurance circles that he’s been anxious to run his own shop since leaving Torchmark.

“He’s a pretty accomplished guy,” said Jeffrey Cohen, an analyst at the investment firm S.G. Warburg & Co. “He’s very smart, and I think he’ll be fairly bold” at TIG, Cohen said.

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No matter what his strategy entails, TIG’s new stockholders can expect an immediate hit against 1993 earnings. The company says the restructuring will result in special charge which, while not expected to exceed $75 million, could still wipe out a good chunk of any profit for the year.

The fact is, few property-casualty insurance companies actually turn a profit from insurance alone; they rely on the income earned from investing customers’ premiums to exceed their underwriting losses.

Since 1988, for instance, TIG has typically paid $1.09 to $1.10 in claims and expenses for every $1 in premiums it collected, according to its prospectus. Investment income gave TIG its modest net profit in those years, except in 1992 when even that wasn’t enough to prevent a loss.

While their plans aren’t yet clear, Rotenstreich and Hutson, who will be paid annual salaries of at least $600,000 and $500,000, respectively, clearly have to do something. Besides its evaporating profit, TIG has thrown off increasingly less cash lately to fund its business.

TIG’s continuing operations--the company already has made plans to discontinue some smaller, loss-ridden lines--generated $106 million of net cash during 1992, less than half the $228 million in the prior year. (Part of the drop reflected TIG’s hurricane losses.)

That decline contributed to TIG’s need to sell $2.3 billion of securities from its investment portfolio last year to maintain its regulatory surplus, that is, its cushion against future losses. The previous year, it sold $489 million.

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Rotenstreich and Hutson will find bright spots at TIG. One is Transamerica Re, its reinsurance unit that assumes part of the risks underwritten by “direct” insurance providers in exchange for a chunk of the customer’s premiums. The unit’s operating revenue has climbed an average 10% annually for the past four years and it’s among TIG’s lowest-cost divisions, Rotenstreich said.

TIG’s new investors also can look for the Transamerica name to eventually fade from their company. Part of its separation agreement with Transamerica Corp. calls for the name to disappear from TIG’s operations within a year, but no new name is yet picked.

There’s also speculation over whether TIG might leave its Woodland Hills headquarters, in light of Rotenstreich’s streamlining goals and Transamerica’s recent announcement that it will move 650 of its life-insurance jobs (which are currently in downtown Los Angeles) out of state.

Rotenstreich said no decision has been made about a possible move, although he expects to keep working in the New York area.

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