RELIANCE GROUP HOLDINGS, INC.

1817–1981

Asstes: $10.40 billion

Stock Index: New York

Reliance Group Holdings has grown from a small office data-processing equipment firm in 1961 into a major insurance and financial-services group in one generation under one chief. The holding company is best known for its insurance group, which includes separate subsidiaries for property and casualty insurance, life insurance, and title and mortgage insurance. Reliance's insurance operations constitute the nation's 27th-largest property and casualty operation. The parent company also includes a development subsidiary in commercial real estate. Reliance's international consulting group contains several subsidiaries in energy, environment, and natural resources consulting. A financial arm invests in other businesses, primarily television stations.

By the time he received a bachelor of science degree in economics from the University of Pennsylvania's Wharton School of Finance in 1959, Saul Steinberg was already in the business of leasing computers, then a new concept. In 1961, at age 22, Steinberg founded the Leasco Data Processing Equipment Corporation. The company grew rapidly, expanded its capabilities, and in 1965 went public.

By 1968, Leasco sought to diversify its fields of business. Among its major purchases in the last two years of the 1960s was Reliance Insurance Companies of Philadelphia, which included Reliance Insurance Company and its subsidiaries. Leasco bought 91% of Reliance in September 1968, and the balance in winter 1981. Reliance insurance had been writing insurance since 1817, officially incorporating in 1820, and became the company's largest subsidiary.

Reliance Insurance started as the Fire Association of Philadelphia in 1817, organized by 5 hose and 11 engine fire companies. It became the nation's first association of volunteer fire departments. Its office was the front room of Caleb Carmalt, one of the founders. The association first met in his house on September 17, 1817. Michael Fox, president of Diligent Engine Company, was elected chairman. The new group took the place of several previous associations that had never succeeded because of internal squabbles among members.

The association started with no money, and trustees pledged their property as security. The founders agreed not to pay dividends until the company accumulated $15,000 in capital. The original 13 trustees agreed that dividends should go to the unpaid firemen. As a benefit, members received a 5% discount on their own property fire insurance. In addition to underwriting fire insurance, the association served as mediator between its member engine and hose companies; as rivals to get to a fire first to collect the commission, fire companies often damaged each other's equipment and assaulted each other.

The association adopted a fire mark with a fireplug attached to a hose and the initials F.A. on both sides for homeowners to place on their facades to let firefighters--and potential arsonists--know the houses were insured. Samuel Bleight, a storeowner with a weaving business in his basement, bought the first policy for his three-story building. The company took ten risks its first year.

The first time the association applied to the state legislature for a charter, it failed after the representative from Philadelphia stated that "the petitioners were men unworthy of public confidence and destitute alike of public spirit and mental worth." Association members immediately launched a successful campaign to defeat the representative in his next bid for reelection. Existing insurance companies also fought the charter. They "may have feared the Fire Association's influence on their own business, though they gave as their real cause of opposition . . . the fact that the new organization was without cash capital," according to The Fire Association of Philadelphia, a corporate history published in 1917 to celebrate its first century. On March 27, 1820, the governor of Pennsylvania signed a charter for The Trustees of the Fire Association of Philadelphia.

Its assets at the time totaled $1.71 million.

1829–1990

The company wrote 29 risks the first year of its charter. Business grew steadily, and by 1832, it wrote 583 policies. Although the first companies joined the association without charge, it subsequently imposed an entrance fee. By November 1829, 44 companies were members. By 1850, the association amassed a surplus of $100,000.

That year, the Great Fire of Philadelphia started at a store and spread to a warehouse where it caused an explosion and created panic. The fire spread so fast that it could be seen across the Delaware River in Trenton, New Jersey, and tremors were felt in Wilmington, Delaware. The largest fire in Philadelphia history up to that time, it destroyed 367 buildings, killed between 17 and 33 people, some drowning after jumping into the river. More than 100 people were reported injured, and losses were valued at $1.5 million, of which the association owed about $100,000, enough to wipe out the surplus it had accumulated. The trustees, however, promptly secured a loan based on their own personal liability, and paid all claims. This step created so much goodwill that its business expanded rapidly in the next few years.

During the Civil War, association members operated ambulances to transport the wounded to hospitals when they arrived in Philadelphia. In 1871, the city of Philadelphia organized its own fire department. The trustees voted to continue the association as a stock company under an amended charter. The state legislature approved the new charter on May 5, 1871. Four of the previous trustees and nine other stockholders were elected to the board of directors. At that time, the association became solely an insurance company and started writing policies outside Philadelphia. Its assets at the time totaled $1.71 million.

Business got a boost as a result of the Great Chicago Fire of 1871. The association soon developed a field of agents to write policies across the country. For the first two years, shareholders received dividends twice a year of $5 a share, which increased gradually to $10 in 1876.

As the company history reported, the association was able to pay large claims promptly when they came due. These included $309,000 after the great Baltimore Fire in 1904 and $1.84 million following the 1906 San Francisco Earthquake and Fire. By 1917, the association reported business of $4 million a year. It had expanded its coverage to include marine, tourist baggage, registered mail, explosion, sprinkler leakage, tornado, earthquake, and automobile insurance.

In 1919, the association started a subsidiary, Victory Fire Insurance Company, which had the same officers as the parent company. In the 1920s, it founded another subsidiary, Reliance Insurance Company and added riot and civil commotion insurance to its offerings. The year of the 1929 stock market crash, the association made $93,605 in underwriting profit, but this sum was more than offset by its $410,000 losses in investments.

World War II took its toll on the insurance business, including the association, which lost money between 1942 and 1946. By 1947, it broke even, and 1949 "was by far the banner year in the company's long history," Best's Insurance Reports, 1950-1951 edition, stated. In 1950, the association merged its subsidiaries into the parent company. The Fire Association of Philadelphia changed its name to Reliance Insurance Company in 1958.

From then on, the insurance company grew both through acquisition and establishment of subsidiaries. In the property and casualty field, it bought General Casualty Company of Wisconsin in 1956--sold in 1990 to Winterthur Swiss Insurance Company for $630 million--and United Pacific Insurance Company in 1967.

Reliance also started Eureka Insurance Company in Wisconsin in 1959, which changed its name to Planet Insurance Company in 1963. Since 1973, Planet has written Reliance's commercial mass-marketing business. In 1976, Planet took over Reliance's standard business in Texas. Another subsidiary, Regent Insurance Company, also started in 1963 in Wisconsin, writes auto, fire, inland marine, workers' compensation, and other insurance. Reliance started General Casualty Company of Illinois, sold in 1990, and Reliance Insurance Company of Illinois. The property and casualty operations evolved so that Reliance Insurance Company handled most eastern operations; General Casualty was responsible for most midwestern business until its sale; and United Pacific took care of the West.

1971–1989

The company's strategy was expansion in selected specialty lines. In 1971, the parent company formed Reliance Financial Services Corporation, an intermediate holding company for its insurance branches. The insurance operations are governed by a complicated structure, in which Reliance Group Holdings owns Reliance Group, Inc., which in turn owns Reliance Financial Services Corporation, which in turn owns Reliance Insurance Company and its subsidiaries.

In 1972, the Reliance insurance group divided its pool so that Reliance Insurance Company and its subsidiaries handled most standard lines, while United Pacific Insurance Company handled the nonstandard and other operations. Other property and casualty subsidiaries included Reliance Insurance Company of New York, founded in 1978, and Reliance Lloyds, founded in 1980.

In December 1973 Leasco Corporation changed its name to Reliance Group, Inc. The move represented corporate strategy to move away from computer-related services and into financial ones in the early 1970s, and recognition that insurance constituted the biggest part of the group. Three years later, Reliance Group founded Commonwealth Land Title Insurance Company, which would become the lead company in the group for mortgage and title insurance.

In 1981, Steinberg, still chairman of the board and chief executive officer decided to make the company private. He founded Reliance Group Holdings, Inc., a holding company for his and his family's stock that acquired all outstanding shares of Reliance Group, Inc., through cash purchase, debentures, or preferred shares of Reliance Group Holdings.

In 1982, Reliance insurance group expanded its life insurance business, as United Pacific Life Insurance Company marketed annuities for savings and retirements. The same year, the company incorporated Reliance Life Insurance Company of Rhode Island. The next year, it founded United Pacific Reliance Life Insurance Company of New York.

In 1986 the company went public again. Reliance Group Holdings, Inc. sold slightly more than 20% of its stock with a 15 million-share offering. Steinberg, his family and their trust retained the rest.

To find specialty markets suitable for Reliance's selective growth strategy, the group founded Reliance National Insurance Company late in 1987. It entered insurance markets of professional liability, construction, transit, health, technical property, and risk management. The value of Reliance's investments took a nose dive with the stock market crash of 1987. The company's net income per share decreased from $1.68 in 1987 to 32&cents in 1988 and to 29&cents in 1989. Like the insurance market in general, Reliance's underwriting market worsened in the late 1980s, as a result of disaster payments from hurricanes and the 1989 San Francisco earthquake.

In 1989, the insurance group included these divisions: property and casualty, life, and title and mortgage. Property and casualty wrote $1.79 million in premiums in 1989, using more than 3,000 independent agents. Reliance Insurance Company remained the biggest part of the group, which also included specialized risk and surety companies such as Reliance National Insurance Company, bought by the company in 1988 to write specialty lines. It was originally known as Hanseco Reinsurance Company, then John Hancock Reinsurance Company until Reliance changed the name in 1989 to make it sound like part of the family. Also writing specialty property and casualty coverage were Reliance Reinsurance Corporation and Cananwill, a premium finance company. Reliance aimed to be a sole source for its agents by giving them all of the lines they needed through one subsidiary or another.

Expansion continued in 1989. The life insurance group founded United Pacific Financial Services, which offered securities and insurance to financial institutions through its broker-dealer, Reliance Life Distributors, and its insurance agency, Reliance Marketing Management. That year the life insurance group's assets totaled $5.77 billion.

1977–1990

In 1989 the California Department of Insurance (CDI) accused United Pacific Life Insurance of earning an annual rate of return about $10 million in excess of what it determined to be "fair and reasonable." However, CDI deferred the case while it reexamined its method of determining fair rates of return.

The title and mortgage-insurance branch grew with the purchase of Transamerica Title Insurance Company from Transamerica Corporation in 1990. The move boosted the size of the operation by almost 50%. In previous years the business of this segment had contracted; pretax income fell from $27.5 million in 1987 to $25.3 million in 1988 to $20.5 million in 1989. Reliance's 1989 annual report attributed the decline to "a decrease in commercial and residential real estate activity and increased price competition in commercial title insurance." Additionally in the mid-1980s Commonwealth Mortgage Assurance Company, the mortgage insurance arm, had experienced losses because of declines in the real estate market.

At the same time that the insurance business was growing, Reliance Group Holdings and its predecessors were developing other areas of business. The company bought Container Transport International in the 1960s, and turned it into the world's largest container transport company before selling it in 1979. Leasco purchased several specialized management consulting firms, which became the Reliance Consulting Group. The group provided three types of consulting: energy, environment, and natural resources; professional personnel services; and commercial productivity. The branches included RCG International, Inc., which, like Reliance Insurance, grew through acquisition of select specialized companies. Two more divisions, Herbert W. Davis & Company and Werner International, provided quality and cost-control consulting to manufacturers. The consulting group grew steadily, netting $67 million in revenues and $3 million in pretax profits in 1989.

In 1977, the company moved into real estate, forming Continental Cities Corporation, which became Reliance Development Group, Inc. This division handled all real estate operations of the parent company and other subsidiaries. The subsidiary additionally designed, developed, and managed commercial buildings. Projects the firm was developing in 1989 included office complexes in Tucson, Arizona, and Fort Worth, Texas. The group was working on residential and retail facilities, including ten shopping centers in the United States. Additional projects included the Oriental Warehouse in San Francisco's financial district, involving renovation of a historic brick structure combined with new construction of 420 apartments and commercial space, and mixed-use development for a tract of more than 500 acres in the Dulles International Airport corridor near Washington, D.C.

Reliance Capital Group, L.P. constituted the investment branch of the Reliance conglomerate. Its major holding consisted of Telemundo Group, Inc., a 36-station Spanish television network headquartered in New York, including the largest television station in Puerto Rico. In December 1989, Reliance Capital sold its investment, Days Corporation, parent company of Days Inn of America, the world's third-largest hotel chain; it had been purchased in 1984. The company nearly tripled the value of its investment in the sale, netting a $20 million pretax profit.

The company planned to continue its long-time strategy of growth through selective acquisitions and expansion. Under this strategy, it developed from a young man's computer leasing company into a major conglomerate.