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The largest private employers in downtown Minneapolis and St. Paul - American Express and the St. Paul Companies - have announced plans to lay off hundreds of employees. American Express says it needed to cut jobs because of a sharp downturn in the financial services industry since Sept. 11. The cuts at the St. Paul were part of a sweeping new restructuring plan. That plan could end up hurting local insurance customers.

American Express will lay off 400 employees at its financial advisors' division, based in downtown Minneapolis. The cuts are part of at least 5,500 throughout the company.

Spokesman Tom Joyce says the company's business had already been affected by the economic slowdown before the terror attacks.

"Most people know it's been a very very tough year for the financial services industry. The industry was already seeing lower volumes and market declines prior to Sept. 11. The sad events of that day really exacerbated those trends," Joyce said.

The layoffs come on top of 840 the company made at the financial advisors division in July. American Express now employs 8,000 in Minneapolis.

Across town, the St. Paul Companies announced it will lay off 250 people at its downtown headquarters; that's about 8 percent of the company's staff in St. Paul. The company will lay off an additional 500 people throughout the company.

The job cuts come as part of an aggressive new restructuring effort by the St. Paul's new CEO, Jay Fishman. Fishman took over the helm in October with a mandate to transform the company, and cut out unprofitable lines of business.

Spokesman Mark Hamel says Fishman quickly focused on three main problems. "The unprofitability of our health care business, which has been deteriorating steadily over the years. Some volatility in our earnings generated by parts of our reinsurance operations, and the overall profitability of our international operations," he said.

Now, under Fishman's leadership, the company will substantially reduce its reinsurance operations; that's the business of providing insurance to insurance companies.

The St. Paul will also stop providing insurance in countries where the company has little prospect for making a solid profit. And, perhaps most notably, the St. Paul will end its medical malpractice insurance business. Malpractice costs are rising as legal settlements mount in some states.

The company said the company's medical malpractice division will lose close to $1 billion this year.

At a conference in New York for analysts and investors, Fishman said the company had no choice but to end its medical malpractice business. "This is not, we don't believe, just a cycle. There are many reasons to conclude that the basic fundamental dynamics of the business have changed as a commercial insurer, and have changed permanently," Fishman said.

The St. Paul's decision to stop writing medical malpractice insurance will hurt some local health care providers.

Rick Carter, director of Careproviders, a Bloomington-based trade association for long-term care facilities, has seen nine out of the 10 insurance providers get out of the business in the last two years.

Meanwhile, insurance premiums have skyrocketed.

For many local long-term care providers, the St. Paul is the last company willing to provide coverage at a reasonable rate.

Carter warns of trouble ahead if more companies stop issuing medical malpractice policies. "Any additional one - such as St. Paul - or any other insurer pulling out, will put us in a very difficult position. But more than that, these rate increases is putting long-term care in a very difficult position in Minnesota," according to Carter.

St. Paul CEO Fishman said in New York he understands that the St. Paul's decision will cause problems for some, but he said it doesn't make sense to write insurance at a loss just because people need it. He says that may be good for the customer, but not for the company.

Instead, he says, the St. Paul will focus on those areas where it can make money for investors. "It is our first and primary obligation to provide an appropriate return. That's what we're in business for. That's what it's about. And that will become first and foremost priority of the place," Fishman said.

The St. Paul has been bleeding money over the last several months. The company lost more than $840 million because of claims in lower Manhattan following Sept. 11. Tens of millions more are evaporating because of the crash of American Airlines flight 587 in New York, and the collapse of energy trader Enron.

Fishman's plans to focus on profits heartened some investors. Mike Lewis, an analyst at UBS Warburg in New York, likes Fishman's strategy. "The combination of good market environment, solid company and strong leadership, could set this company on a course for superior returns," he said.

The St. Paul will take a $900 million restructuring charge. It expects to save close to $50 million a year through the layoffs and other cost-cutting measures.