That's the largest financial institution in Maryland? United States Fidelity & Guaranty (USF&G), an 85-year-old, Baltimore insurance company, which had more than $2 billion in premiums last year, holds that honor. Yet, even though it ranks 11th nationwide in terms of annual premiums written in property and casualty insurance, USF&G is not a household word throughout the state and region.

"We've always geared our advertising and promotional campaign toward the independent agent rather than directly to the prospective customer," points out Senior Executive Vice President Charles H. Foelber, a 31-year veteran with the firm. "Consequently," Foelber says, "most people don't know our name as well as some of the others, but we're starting to advertise directly to the consumer."

Today, USF&G, with nearly 1,800 employes occupying its 38-story headquarters across from Harborplace, has changed its product mix appreciably since John R. Bland founded the company in the summer of 1896. Originally, USF&G concentrated almost entirely on writing surety premiums to offer protection for the Baltimore area's most respected attorneys. (A surety bond protects one against default in the performance or payment required under a specific obligation.) Later, the firm began to emphasize fidelity bonds, covering the risk of loss resulting from embezzlement or dishonesty on the part of an employe.

Currently, the corporation, which is listed on the New York Stock Exchange, is still one of the country's leaders in writing surety and fidelity insurance; nearly 5 percent, or $84 million, of its yearly premiums are of these types of coverage.

According to the most recent industry-wide figures, 2,953 companies wrote $95.6 billion in property and casualty insurance through 1980, with surety bonds accounting for only $1.5 billion. And, although the bulk of total business was written by 900 companies, none enjoyed a market share exceeding 7.5 percent. USF&G, with its $2.1 billion in net premiums written, accounted for slightly more than 2 percent of the total.

"We still pay a lot of attention to surety and fidelity policies," volunteers the firm's expert in the area, Executive Vice President Karl H. Doerre, who has served the company for nearly 35 years. "However," he continues, "in terms of total premiums written, there just isn't that much surety out there."

The U.S. Treasury imposes limits on each company's surety-writing activities. A firm cannot underwrite a policy that exceeds one-tenth of its capital surplus, as recorded each July. USF&G has a limit of $102.8 million.

While many major insurance companies realize two-thirds of their premium dollars from commercial writings, USF&G draws nearly three-quarters, or 73 percent, from this source. "Perhaps that's another reason we're not so well known to the general public," speculates Foelber.

Automobile insurance holds the lion's share of USF&G's business, accounting for 34 percent of the total; here, too, the company has leaned heavily on the commercial side. Property insurance makes up another quarter of its business, followed by workmen's compensation at 23 percent and 12 percent for general liability. The company entered the life insurance field in 1960, and this area still does not make up a major portion of total business. The mix is rounded out by surety's less than 5 percent share.

The insurance industry, and USF&G in particular, has been adversely affected by the declining economic situation. Inflation not only tends to increase the price for writing premiums but also raises the firm's costs in settling claims. In addition to scrutinizing year-end operating results, as measured by net premiums written and premiums earned, USF&G, not unlike its competitors, pays close attention to two key operating ratios: losses and loss expenses, compared with premiums earned; and underwriting expenses in relation to premiums written. For 1981, these combined ratios totaled 104.8 percent, about half a percent below the national average. For USF&G, 1981 meant that it lost nearly a nickel for every premium dollar it took in. For 1980, the same combined ratio was 95.2 percent.

In terms of premiums earned, 1981 saw a decline of only $30,000 from the previous year. During slack periods, many insurance companies utilize price decreases to attract more business. Not USF&G. According to Foelber, "We have always been dedicated to making money through our underwriting, which is our primary business. So, even during soft times like these, we don't change our method of doing business." "Anyway," points out Doerre, "as other firms have discovered, lowering prices now catches up with you in the long run."

The other major revenue source for USF&G is investment income. During lean underwriting times, this income must pick up the slack if total revenues are to remain respectable. For 1981, the company increased income from investments by nearly $50 million. So, with earned premiums dropping only slightly, this investment income helped push overall revenues up a slight $2,000. Dollar-wise, net income from investments totals slightly more than one-tenth of revenues earned from writing premiums.

On the other hand, earnings dropped in 1981, ending the year at $5.99 per share compared with $8.18 the previous year. But Executive Vice President Paul J. Scheel is not pushing any panic button as a result of this earnings loss. Like Chairman of the Board and President Jack Moseley, Scheel rose through the company hierarchy by way of the actuarial route, so he is accustomed to paying close attention to specific details predicting trends in the general economy and the insurance industry.

"It's interesting to note that in 1980," Scheel says, that "when the industry registered its second worst underwriting loss ever, we showed an underwriting profit. We're going to stick to what we've done well for all these years and just hope that the general economy gets better as we think it will."

Foelber, too, resolves that his company will not deviate from its longtime emphasis on making a profit in underwriting without cutting prices. "With inflation going down this year, our position will be enhanced, and there should be a diminution in industry-wide price competition. And when all this falls into place, our earnings will be greatly improved."

Despite a recent change of emphasis toward the customer, USF&G continues to direct most of its promotional efforts toward the independent agent. "USF&G has always been the industry leader in utilizing the independent insurance agent," concludes James B. Stradtner, who follows USF&G as a general partner at Alex, Brown & Sons, "and I'm sure they have no intentions of changing."

Foelber confirms Stradtner's observation. "We've always believed that we and the customer are best served by an independent agent who also sells other companies' insurance. After all, with the many types of insurance needed today, very seldom can one agent, representing a single company, meet all demands. Our method has worked so well for all these years, we have no intention of changing now."

USF&G relies on 61 branch managers who run autonomous "profit centers" across the United States. "These managers are responsible for choosing agents," says Foelber, "so, of course, what they do is crucial. Ultimately, in terms of running profitable operations, they're accountable to us at headquarters. This is strictly a service business, and our people see to it that we provide all the functions that people expect from an insurance company."

Historically, USF&G has concentrated on, and realized the best results in, the South, with the Middle West, East and West ranking in descending order of importance to the firm. According to Alex, Brown & Sons' analyst Stradtner, the South has been most receptive to USF&G. "They've always had a more friendly atmosphere there compared with the other sections of the country. There are fewer accidents and law suits, and more state insurance commissioners tend to be industry-oriented," he said.