It is called USLICO Corp., and it is not yet a household name. But significant things are happening to this once-obscure life insurance company at 1701 Pennsylvania Ave. NW. Growing by acquisition -- six companies in 11 years -- USLICO recently moved into the magic circle of companies with $1 billion in assets. As a result, USLICO's stock is drawing new attention in the equities market.
The name USLICO was coined only a few months ago to identify the holding company for the United Services Life Cos. and its brokerage operation. United Services Life, now 46 years old, sells life insurance to U.S. military personnel, a business that started in 1939, at a time when insurance policies would not pay off if the insured were killed in a war.
The idea of insuring military men, while not especially popular during wartime, has tended to attract many competitors during peacetime. Today, there are about 375 companies licensed by the Pentagon to sell insurance on military bases. Some 75 of these companies have been licensed in just the last five years.
But even before competition increased in the military market, United Services Life was beginning to think about moving into other areas of insurance.
"Vietnam taught us a very good lesson about the problem of having all your eggs in one basket with respect to the military market," said USLICO President Leslie P. Schultz. During the Vietnam War, he noted, United Services Life paid out $13 million in claims -- a large amount for a small company. So United Services began to diversify. By adding other lines of insurance, the company reduced its policy exposure to combat deaths from 85 percent to 15 percent.
USLICO's current philosophy, said Schultz, calls for half of its growth to be generated within the company, the other half from acquisitions. It is a philosophy that one hears from CEOs frequently these days. Growth in many industries has become synonymous with survival. Apparently it is not any less so in the increasingly competitive, marketing-conscious life insurance business, especially because the new universal and variable life policies demand extremely expensive computer systems.
USLICO's most recent acquisition was United Olympic Life Insurance, costing $32.7 million. It gives USLICO a strong foothold in the West, just as its 1982 acquisition of Provident Life Insurance for $32.1 million gave it a strong presence in the Midwest. One of the major branches of USLICO is Bankers Security Life Insurance Co., located in New York, which was acquired in 1979.
One of the reasons for USLICO's relative obscurity in the investment community is that almost half of its stock is owned by two organizations. International Bank, a Washington investment organization, and its chairman, George Olmsted, own 35.7 percent of USLICO's stock, and J. P. Morgan & Co. Inc. of New York, holding company for Morgan Guaranty Trust Co., owns 9.4 percent.
As Schultz tells it, United Services Life was trying to raise money in 1952 after the Korean war. The company approached Olmsted, who bought 25 percent of United Services shares for $500,000. Today, Schultz said, that investment is worth $90 million. Olmsted never bought another share of stock, Schultz said. However, International Bank's percentage of USLICO went up to 35.7 percent because Olmsted's company had owned 40 percent of Bankers Security Life when USLICO bought it in 1979. United Services paid for the purchase with stock, thereby increasing International Bank's stock in United Services.
With so much USLICO stock in so few hands, and only 6.2 million shares outstanding, USLICO found itself with a relatively small "float" -- the amount of stock available for trading. It meant that institutional investors, who like to buy or sell stocks in large blocks -- 10,000 to 100,000 shares -- would find it difficult to trade USLICO shares without having a major impact on the price of the stock.
As a result, Schultz said, USLICO decided to declare a 3-for-2 stock split on March 15. That increased the outstanding shares to 9.3 million and added about 1.5 million shares to the "float."
Elizabeth C. Malone, a security analyst at Alex. Brown & Sons in Baltimore, says the firm's current rating for USLICO is a "strong hold bordering on a buy" -- meaning that she is optimistic about the future of the company but foresees several challenges, including the job of consolidating USLICO's latest acquisitions; the higher tax rates imposed last year on insurance companies (up from between 24 and 28 percent to about 35 percent), and the threat by the U.S. Treasury to tax the increase in the value of life insurance policies. If adopted, the plan would have a serious impact on the sales of universal and variable life insurance, the policies that are USLICO's biggest sellers. But Malone says she doubts that the tax proposal will be adopted.
Malone is estimating USLICO earnings of $3.80 for 1986 and $3.35 a share for 1985, compared with the $3.10 she is carrying as 1984 earnings, and $3.22 for 1983. Schultz is looking for $3.50 for 1985 compared with the $5.12 a share the company lists for 1984. The discrepancy about 1984 earnings is due to a one-time $12.5 million tax break that accounting rules said should be included with earnings by the company -- but that are usually deducted by analysts.
Schultz suggested that perhaps the best way to judge the company's 1984 performance was to measure the 8 percent gain in its pretax earnings of $27.6 million for 1984 as against the $25.5 million earned in 1983.
USLICO's continued growth into the upper reaches of the life insurance world is reflected in other statistics that rank the company in the galaxy of 2,300 U.S. life insurance firms. With assets of $1.1 billion, Schultz says, USLICO ranks about 115th to 120th. With insurance-in-force of $15.9 billion, the firm ranks about 80th.
Where is USLICO stock headed? The stock hit an all-time high of $23.25, adjusted for the stock split, during the first week of March and closed Friday at $21.25 bid, $21.50 asked. It is now selling at a price-earnings ratio of 9.6, which is about the industry average. Malone feels, however, that USLICO could easily sell at 11 to 12 times her estimated 1985 (post-split) earnings of $2.25 by the end of 1985. This would put the stock in the $24.75 to $27 area. BDM International Inc. President Earle C. Williams told Dow Jones this week that he is comfortable with analysts' predictions that first-quarter earnings will rise 20 to 25 percent over last year. This would give the firm, which is deep into research and development work on the MX missile, first-quarter earnings of between $2.1 million (42 cents a share) and $2.2 million (44 cents) compared with $1.7 million (35 cents) in the first quarter of 1984. During the past decade, BDM revenue has grown at about 30 percent a year, and Williams said he didn't see any reason that growth rate could not continue. Health Technologies Group Inc. of Washington, a subsidiary of National Medical Emergency Card Inc. of Baltimore, has filed a public offering for 2.1 million units at $1 each. A unit consists of one share of common stock and a four-year warrant to purchase an additional share of stock. If the offering is completed, National Medical Emergency Card, which now owns 100 percent of Health Technologies Group, would own 34 percent. The offering will be underwritten by Cambridge Capital Group Inc. of Fort Lauderdale, Fla.