Audio St. Paul Companies merging with Travelers for $16 billion in stock (story audio) Listen to the news conference announcing the merger Nina Archabal, Minnesota Historical Society, on the St. Paul's importance to charitable groups Dan Harr of the Hartford Courant on the impact of the merger on Hartford, Conn. Photos Headquarters Resources St. Paul Companies Traveler's Insurance Company Your Voice Join the conversation with other MPR listeners in the News Forum.

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St. Paul Companies merging with Travelers for $16 billion in stock
by Jeff Horwich, Minnesota Public Radio
November 17, 2003

The company created by the merger of Travelers and St. Paul will have its headquarters in Minnesota. (File photo)

The St. Paul Companies plans to merge this spring with a rival nearly twice its size. The St. Paul would join with Travelers Property Casualty, a Connecticut-based provider of business and personal insurance. The combined company would be the nation's second-largest commercial insurer. The company will have its headquarters in St. Paul, but the move raises questions about the future in Minnesota of one of the state's oldest companies.

Hartford, Conn. —

Facts about Travelers and The St. Paul TRAVELERS Headquarters: Hartford, Conn. Main businesses: Commercial lines of insurance, personal insurance products 2002 written premiums: $11.94 billion. Employees: 20,000. History: Founded in 1864, becoming first company in United States to insure against accidents. Expanded into commercial insurance in 1902. Developed first automobile simulator for driver education in 1953 and became first insurer to establish its own weather research center in 1956. Acquired Aetna's property-casualty insurance business in 1995 and a year later merged with Aetna Casualty and Surety Co. to form one of the largest U.S. stock property casualty companies. Merged into parent Citigroup in 2000. Spun off in $5 billion initial public offering in 2002 to again become an independent, publicly traded company. THE ST. PAUL Headquarters: St. Paul, Minn. Main businesses: Provides commercial property-liability insurance through its subsidiaries and asset management services through its 79 percent majority ownership of Nuveen Investments. 2002 written premiums: $7.05 billion. Employees: 10,000. History: Founded in 1853 as Saint Paul Fire and Marine Insurance Co., largely to serve locals frustrated with slow service from faraway insurers. Began underwriting insurance in Canada in 1866. Began offering cyclone insurance in 1882, a half century before "The Wizard of Oz." After World War II, expanded into areas such as hospitals, real estate and package policies. In 1998, merged with USF&G Corporation to create the eighth-largest property-liability insurance company in the United States. Exited medical malpractice and reinsurance market in 2002.

In announcing the deal, the CEOs of The St. Paul and Travelers used one phrase more than any other: "A merger of equals." This is despite the notable difference in size. Travelers has 20,000 employees, twice as many as The St. Paul. This year Travelers is expected to underwrite $13 billion of insurance policies; The St. Paul will underwrite $7.5 billion.

But the headquarters of the merged company would stay in St. Paul. Travelers' directors would have a one-vote edge on the corporate board, but The St. Paul CEO Jay Fishman will retain his post at the head of the new company. Fishman says there's no takeover going on. He says the merger is nothing more than two companies realizing they are better off together than they could be alone.

"I can't think of any company that brings the breadth of the product of these two institutions with the market size that's resulted. So it really is a powerhouse," he said.

The most dramatic gains will come in commercial insurance -- general policies taken out by businesses. "By combining in the commercial lines area of the two companies, you get a totally different picture, " according to Robert Lipp, Travelers CEO, who will become executive chairman of the new company. "We will become number one in commercial lines in 22 states -- a truly national company."

Outside The St. Paul Company headquarters in downtown St. Paul, employees like Jerry, who didn't want to give his last name, say a merger is not unexpected. But they have not received any advance notice.

"We were given the same press release as the rest of the world. The intention has been announced and we'll see what develops." he said.

Jerry is an insurance underwriter who has been with the company 10 years. He says other recent corporate actions, like spinning off the volitile reinsurance business last year, were more unsettling than this announcement.

"That was certainly a bigger change, a bigger shock than what this sounds like. This sounds like it makes sense," he said.

Still, there may be some upheaval in store for St. Paul employees. There are no layoffs associated with the merger announcement, but the companies project $225 million in annual savings by 2006 and this will mean a certain number of job cuts at some point. An official with Travelers in Hartford, Conn., was quoted saying they expect their employment base to rise as a result of the deal. That raises the question of whether St. Paul will bear the brunt of the cuts down the road.

"It's simply way too early to tell anything about numbers or locations. We're in the earliest days with respect to that. Obviously there will be consolidation opportunities," said The St. Paul CEO Jay Fishman.

The corporate headquartes for the merged company would stay with Fishman in St. Paul. Minnesota will also be home to the specialty insurance business, which is the largest strength The St. Paul Companies brings to the merger. The St. Paul is one of the nation's leaders in specialty policies for construction, technology, financial services, and oil and gas companies.

But the headquarters for general business insurance policies will go to Hartford. This segment will comprise about half the business of the new company. Management-level jobs in general commercial insurance would seem to be most imperiled by the new arrangement.

St. Paul Companies spokeswoman Joan Palm says the risk of job losses here is smaller than it might seem. The large majority of general commercial employees are not in St. Paul to begin with.

"Insurance is a local business. So we need to have people in field offices where the concentration of business is. So where the headquarters of a particular line of business is, I think it's too soon to say what it will mean for St. Paul employment," according to Palm.

In fact, of the St. Paul Companies' 10,000, only 2,700 actually work in St. Paul. Most are in field offices, where they are likely to remain even though they will report to Hartford instead of St. Paul.

Palm says the company understands employees may feel unsettled by the news. "People are wondering what is happening with jobs, but we need to get the leadership named, they will figure out things going forward. What we know today is that we will have an extemely significant presence in St. Paul."

Analyst Mike Lewis of UBS predicts the merger is likely to be a management shuffle rather than any large-scale elimination or relocation of jobs. Lewis thinks the move will be good for both companies, though he's not sure the arrangement will be quite as even-handed as Jay Fishman and Bob Lipp, the two CEOs, made it out to be.

"Would I call it a merger of equals? I wouldn't be that kind. I think Jay has done a good job of fixing The St. Paul, but I think Travelers is a bigger, more dynamic company. Do I think geographically this helps the overall companies, yes I do," he said.

Lewis believes the merger has a lot to do with St. Paul CEO Jay Fishman himself. Fishman was the CEO of Travelers from 1998 until 2001 when he left to take over at The St. Paul. Fishman joined The St. Paul at the end of a year when it lost nearly $1 billion following 9-11 and a decision to get out of the medical malpractice business.

In the most recent quarter, The St. Paul posted a profit of more than $200 million, beating analyst estimates. Lewis says the company's resurgence is the main reason the merger is happening now. And he says Travelers is a natural fit because of Fishman's experience there.

"I think this puts him on the offensive as opposed to basically dealing in the past with the situation of cleaning up The St. Paul. He's basically accomplished that and now can take advantage of a hot market environment, again taking the powers of both companies, and putting them together," Lewis said.

The stock rating agency A.M. Best placed stocks for both companies "under review." The agency says both companies stand to benefit by expanding their geographic reach and offering both general and specialized commercial insurance. A.M. Best says The St. Paul, as the smaller of the two, could be the bigger beneficiary of the deal.

Some analysts say the move keeps The St. Paul from becoming the target of an acquisition down the road.

Analyst Mike Lewis says the markets appears to agree, and, as he puts it, "one plus one might equal two-and-a-half."

"I guess what the marketplace is saying is that from a St. Paul point of view, this creates a bigger, more important player in the property-casualty arena that's very well capitalized and distinctly more competitive."

If Minnesota officials were nervous about the merger, they weren't saying so. St. Paul Mayor Randy Kelly praised the deal. In a statement, Gov. Tim Pawlenty called it "good news for Minnesota" and the next step in a "bright and prosperous future" for the company in Minnesota.

Non-profit leaders expressed hope the new company would keep up its generous tradition of corporate giving. Last year, employees of the St. Paul Companies alone gave more than $600,000 to the United Way, and the company made numerous corporate donations.

The governor, the mayor, and others expect the continued "significant presence" in Minnesota promised along with the merger announcement. But with few details about the restructuring and the fate of St. Paul jobs, no one yet knows if the so-called "merger of equals" will remain that way for long.

(The St. Paul Companies is an underwriter of programming on Minnesota Public Radio)

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