Continental Corp.'s newest investor group agreed to a $200 million cash infusion because the ailing insurance company's next chairman plans to make strong cuts in expenses, the group's managing partner said last week.

Daniel Doctoroff of Insurance Partners Advisors LP said his group hand-picked Continental's next chairman based on a proven ability to cut expenses and increase profitability.

The group, which includes Texas investor Robert Bass, Chase Manhattan Corp.

and Bermuda-based reinsurer Centre Re, said it will buy $200 million in preferred stock convertible into a 19.9 percent stake in the 11th-largest US property and casualty insurer.

In return, the group got to name Richard Haverland, 53, to replace Chief Executive and Chairman John P. Mascotte, 55, when the transaction closes, as is expected by December 21. Mascotte's plans were not announced.

"Although Continental has done good things to turn the company around in the last few months, and John Mascotte deserves a lot of credit, we made it clear the top officer had to change to establish credibility,'' Doctoroff said.

Continental has been selling businesses and laying off employees to stave off debt-rating downgrades and bolster its capital against claims.

The New York-based insurer recently said it would sell its Casualty Insurance Co. unit to Freemont General Corp. for $250 million in cash. It has also eliminated its 25-cent-a-share quarterly dividend and is cutting more than 2,000 jobs, or about 16 percent of its workforce.

In the first six months of the year, Continental spent about $1.14 for every $1 it collected in premiums. Haverland is committed to reducing that spending to less than $1 for every $1 collected, Doctoroff said.

Property and casualty insurers can spend $1 for every $1 they collect because the difference is made up from investment gains. Doctoroff didn't say where in the company the expense reductions would occur.

Doctoroff's concern about Continental needing to boost its credibility with analysts and investors may be justified. In interviews, analysts said they were waiting to see what the company did before they get excited about the changes.

"The whole idea of bringing in a new chairman from outside the company is to get new insight and vision,'' said Mark Newsom, an analyst with Firemark Group in Parsippany, New Jersey. "That's good, but there's also a general sense that this company will need that.'' Haverland comes to Continental from American Premier Underwriters Inc. where he was an executive vice president.

Most of his experience, however, is in selling insurance for high-risk drivers, compared with the commercial property and casualty insurance offered by Continental, analysts said.

"It's a great opportunity for Dick, but he doesn't have much to work with in the company right now,'' said Ira Zuckerman, an analyst with SBS Financial Group Inc. in Westport, Connecticut. "I've known him for years, and he's a bright guy, but his experience is in a different type of insurance.'' Doctoroff countered that concern by saying Haverland oversaw various types of insurance, from worker's compensation to truckers liability. In one example, he said Haverland took over the truckers liability division of Great American Insurance Co. in 1984 when it spent $1.37 for every $1 it collected in premiums.

Within 10 years, Doctoroff said, the company was spending 97 cents for every $1 it collected in premiums. Yet, the company's premiums collected dropped to $62 million from $150 million.

"The company was taking in less money, but it was far more profitable,'' Doctoroff said.

Haverland has been with American Premier Underwriters Inc., which changed its name from Penn Central in March, for three years. He came to American Premier after seven years at Great American Insurance Co. He also served as president and chief operating officer of Progressive Corp. from 1979 to 1983.

Chip Reed, portfolio manager for the $37 billion Florida State Board of Administration in Tallahassee, said he had 325,000 shares of Continental in a passive fund and may buy shares in an active fund if further widespread changes are announced.

"These look like good moves, but you don't know unless the company's going to make moves in its operations,'' Reed said. "I've heard Haverland is a quality guy, but there's nothing saying how much they will do. It's a pretty mature company.'' The moves did prompt some optimism. Standard & Poor's Corp. analyst Cathy Seifert said in a report that although the charges and cost-cutting moves could limit near-term growth, the shares are attractive.