The new ULLICO Inc. board of directors has more challenges ahead than simply the yeoman's task of renewing investor confidence in the aftermath of controversial insider stock transactions. It must staunch a flow of red ink that will ooze through 2003 and unravel complicated compensation deals that were made with former CEO Robert A. Georgine.

For 2002, the union-owned insurance and investment company posted an $88-million after-tax loss, says Terence M. O'Sullivan, ULLICO's new chairman and CEO. There will be an operating loss in 2003, he says.

But the new chief is optimistic that "a very aggressive" business plan now being crafted with input from the Maryland Insurance Commission and A.M. Best Co., the Oldwick, N.J.-based insurance rating agency, will help ULLICO turn the corner by the first quarter of 2004. Best downgraded ULLICO twice in March, citing eroding assets and losses in core business units (ENR 3/24 p. 15). The Maryland commission and the U.S. Justice Dept. and the Securities and Exchange Commission are investigating the stock repurchase program, which involves Georgine and some present and former heads of construction unions.

To get its financial house in order, the board was expected to consider at a June 25 meeting a recommendation to sell ULLICO's new 383,000-sq-ft headquarters building still under construction in downtown Washington, D.C. ULLICO has "well over $100 million" invested in the property, says O'Sullivan.

The board also will consider ending the lease for the insurers' corporate airplane. The plane, which sources say cost $3.7 million to operate in 2002, has been grounded. ULLICO officials will evaluate all operating units. "The aim is to restore profitability," says O'Sullivan, who also is head of the laborers' union.

The board has demanded the return of $5.6 million in profits reaped by ULLICO senior officers and certain board members from the 1998-99 stock offer and 2000 repurchase program. Approximately $700,000 has been returned so far. Participants who still sit on the ULLICO board have been given until July 16 to return their profits or the board will "take whatever steps are necessary to effect their removal from any position within ULLICO," O'Sullivan told the Senate Governmental Affairs Committee on June 19 at a hearing examining ULLICO.

An internal ULLICO investigation by former Illinois Gov. James R. Thompson (R) also has raised issues about compensation for Georgine, who was the president of the AFL-CIO's Building and Construction Trades Dept.

ULLICO management is investigating or has asked Georgine to return $14.9 million in severance, deferred compensation and profits from stock transactions. Georgine declined to appear at the Senate hearing after invoking his Fifth Amendment rights at a House hearing two days earlier.

Several of Georgine's financial deals were approved by a ULLICO committee that did not have authority to approve them, claims Thompson. ULLICO disputes Georgine's claim that he is due $2 million in severance.

In July 1998, Georgine was allowed to defer up to 25% of his base salary and 100% of bonuses. Substantial sums were allocated to ULLICO stock, earning Georgine approximately $4 million between 1999 and 2001. Georgine's salary, deferred compensation and bonuses totaled $1.6 million in 1998, $1.9 million in 1999, $5.4 million in 2000 and $3.4 million in 2001. In 1999, ULLICO loaned Georgine $2.2 million to purchase 40,000 shares of stock at $53.94 per share. When the price of ULLICO shares was revalued in 2000 at $146.04 per share, those holdings were worth $5.8 million. ULLICO's board did not approve the loan or stock deal.

Although corporations often reward senior officers for performance, this was "extraordinary," says Thompson. Changes to federal securities laws that govern private companies should be considered, Thompson told the legislators.