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On March 3, Best lowered its rating from B+ (Very Good) to B (Fair). Just days later, on March 7, the rating was dropped to B-. Although ULLICO's capital remains adequate, the company has had losses in its core insurance lines and its reserves have been cut by increased claims. Of equal concern are eroding assets that are "getting to the point where we are starting to get uncomfortable," says Carl Austin, Best's managing senior financial analyst.

DISAPPOINTED Carpenters' McCarron resigns seat. (Photo by Katie Murray / United Brotherhood of Carpenter & Jones of America

One investment that needs to be watched is ULLICO's new 383,000-sq-ft headquarters building now under construction in downtown Washington, D.C. There is also "a considerable amount of limited partnerships on their balance sheet," says Austin. If those partnerships continue to perform poorly and additional write-downs are needed, "then [ULLICO] will really be in need of capital," he says. "If there is any future deterioration in their invested capital it will be very concerning."

That is not the only problem ULLICO faces. It is under federal and state investigation over questionable stock transactions that put hefty profits into the pockets of several of its board members, many of whom are current or former building trades union presidents.

Carpenters' union President Douglas J. McCarron resigned from the ULLICO board on March 13, protesting the board's lack of action in carrying out management changes recommended in an independent report. Last year the board hired former Illinois Gov. James Thompson to conduct an independent query. The board, citing attorney-client privilege, has declined to make the report public. According to industry sources, it calls on board members who profited from the stock transaction to return their profits. Sources say it also calls for management changes but not the ouster of ULLICO President and CEO Robert A. Georgine, the former president of the AFL-CIO Building and Construction Trades Dept. Labor sources say that Georgine has been under pressure but board members recently gave him a vote of confidence. A key staff member, John K. Grelle, ULLICO's chief financial officer, resigned recently. The reason was not clear and Grelle could not be reached.

In his resignation letter to Georgine, McCarron says he is "disappointed that by now the recommendations Governor Thompson made in his report have not been implemented. I am disappointed that the other directors have not followed my lead in returning the profits from the stock transactions. I am disappointed that the company has not turned its core business around financially." McCarron returned his profits in November 2002.

Georgine says in response that he is disappointed with McCarron's decision, praising the carpenters' president as "a good friend" whose "counsel was always sensible, always wise." Industry observers note that McCarron has historically been a strong supporter of Georgine and previously described him one of his mentors. They believe McCarron's resignation signifies the depth of ULLICO's troubles. AFL-CIO President John J. Sweeney and operating engineers' union President Frank Hanley resigned from ULLICO's board earlier this year.

Georgine has been mostly silent through the controversy, but he recently told ULLICO employees in a letter the company was taking "decisive steps" to answer criticisms and strengthen itself. He called his staff to cut expenses and conserve cash where possible because "cash is the lifeblood of the company."

In the March 17 letter, Georgine says that company management and the ULLICO board "are working nonstop to complete a business plan within the next 30 days that will start us back on the road to rebuilding." Suggestions to sell the new headquarters building are "premature," says a ULLICO spokesman.

ULLICO Inc. has approximately $290 million in shareholder equity and more than $100 million in statutory surplus in its insurance subsidiaries, according to the company. The group life and health division has more than $16 billion in life insurance in force. And ULLICO's J for Jobs program handles more than $2 billion in assets on behalf of unions and trust funds. Pension assets held in J for Jobs and other separate accounts of Union Labor Life are protected from all liabilities of the company by contract and law, Georgine notes.

Some unions are pulling their investments out. One building trades union reports that its pension fund has withdrawn approximately $100 million from the J for Jobs program.

roubles continue to mount for ULLICO Inc., the labor-owned insurance and investment firm. A.M. Best Co., the Oldwick, N.J.-based insurance rating agency, twice downgraded ULLICO earlier this month.