FORM 10-KUNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
(FEE REQUIRED)
For the fiscal year ended DecemberFOR THE FISCAL YEAR ENDED DECEMBER 31, 19931998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
(NO FEE REQUIRED)
For the transition period from to
--------- -----------from____________to___________
Commission file number 0-3021
THE ST. PAUL COMPANIES, INC.
(Exact name of Registrant as specified in its charter)
Minnesota 41-0518860
------------ ------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
385 Washington Street, Saint Paul, MN 55102
-------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code 612-221-7911651-310-7911
------------
Securities registered pursuant to Section 12(b) of the Act:
Common Stock (without par value) New York Stock Exchange
London Stock Exchange
Stock Purchase Rights New York Stock Exchange
--------------------- -----------------------
(Title of class) (Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act:
None.
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---No____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. (X)( )
The aggregate market value of the outstanding Common Stock held by non-affiliatesnonaffiliates
of the Registrant on March 16, 199411, 1999, was $3,413,523,325.$7,435,808,686. The number of shares of
the Registrant's Common Stock, without par value, outstanding at March 16, 1994,11, 1999,
was 42,032,939.228,924,899.
An Exhibit Index is set forth at page 38 of this report.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Portions of the Registrant's 19931998 Annual Report to Shareholders are incorporated
by reference into Parts I, II and IV of this report. Portions of the
Registrant's Proxy Statement relating to the annual
meetingAnnual Meeting of shareholdersShareholders to
be held May 3, 1994,4, 1999 are incorporated by reference into Parts III and IV of this
report.
PART I
------
ItemITEM 1. Business.
- ------ --------
General DescriptionBUSINESS.
GENERAL DESCRIPTION
The RegistrantSt. Paul Companies, Inc. (The St. Paul) is incorporated as a general
business corporation under the laws of the State of Minnesota. The RegistrantSt. Paul and
its subsidiaries compriseconstitute one of the oldest insurance organizations in the
United States, dating back to 1853. The RegistrantSt. Paul is a management company
principally engaged, through its subsidiaries, in threeproviding property-liability
and life insurance, and reinsurance products and services worldwide. The St.
Paul also has a presence in the asset management industry segments: property-liability insurance
underwriting, insurance brokerage and investment banking-asset
management.through its majority
ownership of The John Nuveen Company (Nuveen). As a management company, the RegistrantThe St.
Paul oversees the operations of its subsidiaries and provides them with capital,
management and administrative services. According to "Fortune"
magazine's most recent rankings, in terms of total assets, the
Registrant is the 25th largest diversified financial company in the
United States. At March 16, 1994, the Registrant1, 1999, The St. Paul and its
subsidiaries employed approximately 12,90014,000 persons.
USF&G MERGER
On April 24, 1998, The Registrant's primarySt. Paul completed its merger with USF&G Corporation
(USF&G), a Baltimore, Maryland-based holding company for property-liability and
life insurance and reinsurance operations. The St. Paul issued 66.5 million of
its common shares in exchange for all of the outstanding common stock of USF&G
in a business is insurance underwriting, whichcombination accounted for 88%as a pooling of interests. Accordingly,
the consolidated revenuesfinancial statements for all periods prior to the combination
were restated to include the accounts and results of operations of USF&G. The
merged organization operates under The St. Paul name with headquarters in 1993.St.
Paul, Minnesota. The Registrant's insurance brokeragemerger was valued at approximately $3.7 billion, which
included the assumption of USF&G's debt and investment banking-asset
management operations accountedcapital security obligations.
The St. Paul recorded a pretax merger-related charge to earnings of $292 million
in 1998, primarily for 7%severance and 5% of consolidated
revenues, respectively, in 1993. Note 15 on pages 61 and 62facilities exit costs. The integration of
the Registrant's 1993two companies is expected to result in annualized pretax expense savings of
approximately $200 million, as measured against the combined 1997 pre-merger
expenses of The St. Paul and USF&G. The expense savings are expected to result
primarily from the reduction in employee salaries and benefits after the
elimination of redundant employee positions from the merged organization. Note 2
to the consolidated financial statements included in The St. Paul's 1998 Annual
Report to Shareholders, which discloses
revenues, income (loss) before income taxesincludes additional information regarding the
merger, including the components of and identifiable assets
forcash payments relating to the
Registrant's industry segments and by geographic areas for
the last three years,merger-related charges, is incorporated herein by reference.
The St. Paul also recorded a $250 million pretax provision to increase USF&G's
loss and loss adjustment expense reserves subsequent to the merger. Note 7 to
the consolidated financial statements included in The St. Paul's 1998 Annual
Report to Shareholders, which includes additional information about the $250
million provision, is incorporated herein by reference.
Before the merger, The St. Paul was ranked as the 263rd-largest U.S.-based
corporation in "Fortune" magazine's rankings of total 1997 revenues. On a pro
forma revenue basis, the combined operations of The St. Paul and USF&G would
have ranked No. 160 on the 1997 Fortune list.
BUSINESS SEGMENTS
The St. Paul's property-liability insurance operations, composed of five
distinct underwriting business segments and an investment operations segment,
accounted for at least 92% of consolidated revenues from continuing
operations in each of the years 1998, 1997 and 1996. The St. Paul's life
insurance segment, Fidelity and Guaranty Life Insurance Company and
subsidiaries (F&G Life), accounted for 4% of revenues in each of those years,
and Nuveen accounted for virtually all of the remaining revenues in each
year. Financial information about The St. Paul's business segments is set
forth in Note 17 to the consolidated financial statements included in The St.
Paul's 1998 Annual Report to Shareholders, and is incorporated herein by
reference.
2
The following table lists,summarizes the sources of The St. Paul's consolidated
revenues from continuing operations for each of the last three years,years. Following
the percentagetable is a narrative description of consolidated revenues contributed by each of the
operations or departments that accounted for 10% or more of
consolidated revenues during any of those years:
- --------------------------------------------------------------------------
Operation or Department Percentage of Consolidated Revenues
with Similar Products or Services 1993 1992 1991
- --------------------------------- ---- ---- ----
Insurance Underwriting:
Specialized Commercial 22.7% 23.4% 25.8%
Medical Services 15.4 16.1 15.8
Net Investment Income 14.5 14.3 14.7
Business Insurance 11.9 15.0 16.1
- --------------------------------------------------------------------------
Underwriting Operations
Overview. The Registrant's principal operating subsidiary is St. Paul Fire and Marine Insurance Company ("Fire and Marine"), which
is aPaul's business
segments.
Percentage of Consolidated Revenues
1998 1997 1996
---- ---- ----
PROPERTY-LIABILITY INSURANCE:
PRIMARY INSURANCE OPERATIONS
U.S. UNDERWRITING:
Commercial lines 28.7% 30.3% 30.2%
Specialty commercial 15.9 15.0 15.3
Personal insurance 15.3 13.5 14.4
---- ---- ------
TOTAL U.S. UNDERWRITING 59.9 58.8 59.9
International 3.6 2.9 2.9
----- ----- -----
TOTAL PRIMARY INSURANCE OPERATIONS 63.5 61.7 62.8
Reinsurance 11.4 12.7 13.4
---- ---- ----
TOTAL UNDERWRITING 74.9 74.4 76.2
INVESTMENT OPERATIONS
Net investment income 14.3 13.8 13.4
Realized investment gains 2.1 4.2 2.9
----- ----- -----
Total investment operations 16.4 18.0 16.3
Other 0.7 0.6 0.6
----- ----- -----
TOTAL PROPERTY-LIABILITY INSURANCE 92.0 93.0 93.1
LIFE INSURANCE 4.3 4.2 3.9
ASSET MANAGEMENT 3.4 2.7 2.5
PARENT COMPANY, OTHER OPERATIONS AND
ELIMINATIONS 0.3 0.1 0.5
----- ------ -----
TOTAL 100.0% 100.0% 100.0%
----- ------ -----
----- ------ -----
NARRATIVE DESCRIPTION OF BUSINESS
PROPERTY-LIABILITY INSURANCE
The St. Paul's property-liability insurance company doing business throughout
the United Statesunderwriting operations consist of
three U.S.-based primary underwriting segments collectively referred to as U.S.
UNDERWRITING, an international underwriting segment (INTERNATIONAL) and in selected international markets. Fire and
Marine and its subsidiariesa
reinsurance segment (ST. PAUL RE). The St. Paul's U.S. Underwriting operations
underwrite property and liability insurance and provide insurance-related
products and services to commercial, professional and individual customers. Theycustomers
throughout the United States. International underwrites primary property and
liability insurance coverages outside the United States. International also
reinsure other insurersincludes insurance written for foreign exposures of U.S.-based corporations and
provide risk management services.U.S. exposures of foreign-based companies and The St. Paul's operations at
Lloyd's of London. St. Paul Re underwrites reinsurance for leading property-
liability insurance companies worldwide. The St. Paul's property-liability
operations also include an investment segment responsible for overseeing the
property-liability investment portfolio.
The primary sources of Fire and Marine'sproperty-liability revenues are premiums earned onfrom
insurance policies sold and reinsurance contracts, income earned from the investment
portfolio and gains from sales of those premiums.investments. According to the most recent
industry statistics published in "Best's Review" with respect to
property-liability insurers doing business in the United States, Fire and Marine ranked 15thas a result
from the merger, The St. Paul's underwriting operations would rank 8th on the
basis of 19921997 written premiums.
Principal DepartmentsPRINCIPAL DEPARTMENTS AND PRODUCTS. The "Property-Liability Underwriting Results
by Segment" table included in "Management's Discussion and ProductsAnalysis" in The "Underwriting Results" table on page 25 of the Registrant's
1993St.
Paul's 1998 Annual Report to Shareholders, which summarizes written premiums,
underwriting results and statutory combined ratios for each of Fire
and Marine'sits underwriting
operationssegments for the last three years, is incorporated herein by reference. The
information in that table,
as well asfollowing discussion summarizes the business structure of The St. Paul's
property-liability insurance underwriting operations.
3
U.S. UNDERWRITING
U.S. Underwriting operates through the following descriptionbusiness segments:
COMMERCIAL LINES. The Commercial Lines segment includes the SMALL COMMERCIAL and
MIDDLE MARKET COMMERCIAL business centers, which offer general liability,
umbrella and excess liability, commercial auto and fire, inland marine, workers'
compensation and package coverages to a broad range of underwriting operations,
reflects Firesmall to midsized
commercial enterprises. Tailored coverages and Marine's reporting structure as it existed in
1993. See "1994 Restructured Underwriting Operations" on page 5
herein for a discussion of Fire and Marine's organizational
restructuring effective Jan. 1, 1994.
Specialized Commercial. This operation is composed of Industry
Underwriting, Specialty Underwriting, St. Paul Surety, Financial
Services and Pools.
Industry Underwriting underwrites insurance for selected industryproducts are marketed to specific
customer groups such as golf courses, museums, colleges and schools,
multipurpose recreational facilities, manufacturers, wholesalers and processors.
Coverages marketed specifically to small commercial customers include the
Package Accounts for Commercial Enterprises (PACE) policy and the Business
Insurance Policy (BIP) for individuals, groups or franchise operations,
including retailers, offices and family restaurants.
The Commercial Lines segment includes the SURETY business center, which
underwrites surety bonds, primarily for construction companies, technologycontractors, which
guarantee that third parties will be indemnified against the nonperformance of
contractual obligations. Based on 1997 written premiums of $319 million, the
Surety underwriting operations of The St. Paul ranked as the largest underwriter
of surety bonds in the United States.
The Commercial Lines segment also includes several business centers that provide
specialized products and services for targeted industry groups. CONSTRUCTION
provides insurance to a broad range of general contractors, highway contractors
and specialty contractors. MANUFACTURING provides liability insurance and risk
management products and services for large manufacturing operations. SERVICE
INDUSTRIES provides large service-related businesses with insurance and risk
management programs. Businesses served include retailers, wholesalers, insurance
companies, and public sector entities.hospitality and entertainment firms. SPECIAL PROPERTY underwrites
large property accounts, layered and excess property programs, large deductible
accounts, stop-loss and loss limit programs and other customized property
business. NATIONAL PROGRAMS underwrites coverages for nationwide,
multiple-policyholder programs through a single agency source. TRANSPORTATION
provides large motor carriers with customized insurance programs. The
CATASTROPHE RISK business center provides personal property coverages, such as
monoline earthquake coverage in California, through GeoVera Insurance Company,
and homeowners coverage in selected coastal states through USF&G Specialty
Insurance Company.
The St. Paul's participation in insurance pools and associations, which provide
specialized underwriting skills and risk management services for the classes of
business that they write, is also included in Commercial Lines results. These
pools and associations serve to increase the underwriting capacity of
participating companies for insurance policies where the concentration of risk
is so high or the amount so large that a single company could not prudently
accept the entire risk. The St. Paul's participation in these pools and
associations is limited.
SPECIALTY COMMERCIAL. The Specialty Commercial segment includes the MEDICAL
SERVICES, CUSTOM MARKETS and PROFESSIONAL MARKETS business centers. This
operationsegment, in general, provides coverage for damage to the customer's property
(fire, inland marine and auto), liability for bodily injury or damage to the
property of others (general liability, auto liability and excess), and workers'
compensation insurance. In addition, specialty errorsinsurance, and omissionsvarious professional liability coverages.
Medical Services underwrites professional liability, property and general
liability insurance may be provided. Businesses insuredfor the health care delivery system. Products include
coverages for health care professionals (physicians and surgeons, dental
professionals and nurses); individual health care facilities (including
hospitals, long-term care facilities and other facilities such as laboratories);
and entire systems, such as hospital networks and managed care systems.
Specialized claim and loss control services are vital components of Medical
Services' insurance products and services. The Medical Services business center
is the second-largest medical liability insurer in the construction line include general building contractors, highway
contractors and specialty contractors. Large construction projects
are insured during the lifeUnited States, with
premium volume accounting for approximately 7% of the project. TheU.S. market based on 1997
premium data published in "Best's Review."
4
Custom Markets includes the following businesses are insured in the technology line: electronics
manufacturers, software and telecommunications companies, medical
equipment manufacturers and manufacturers of synthetic products and
electronic equipment for industrial use. The public sector line
provides coverages for cities and counties as well as other
publicly created authorities.
Specialty Underwriting includes National Accounts, Professional
Liability, Surplus Lines and Ocean Marine. National Accounts
underwrites largebusiness units serving specific commercial
risks for a broad spectrum of large
businesses. Professional Liability provides errors and omissions
coverage for certain professionals such as lawyers and real estate
agents, and also underwrites directors and officers liability
insurance. Surplus Lines underwrites products liability insurance,
umbrella and excess liability coverages, property insurance for
high risk classes of business, and coverages for unique, sometimes
one-of-a-kind risks. Ocean Marinecustomer groups. OCEAN MARINE provides a variety of property
and liabilityproperty-liability insurance
related to ocean and inland waterways traffic, including cargo and hull property
protection. Effective Jan. 1, 1999, the Ocean Marine business center was
transferred to The St. Paul SuretyPaul's International segment to form a new Global Marine
underwriting unit. SURPLUS LINES underwrites surety bonds, primarilyproducts liability insurance,
umbrella and excess liability coverages, property insurance for construction contractors,high-risk
classes of business, and coverages for unique, sometimes one-of-a-kind risks.
TECHNOLOGY underwrites a range of specialized coverages for information
technology firms, including manufacturers of electronics, industrial machinery
and medical equipment. OIL AND GAS provides standard and specialty insurance
coverages for customers involved in the exploration and production of oil and
gas, including operators, drillers and oil servicing contractors. SPECIALTY
LINES provides unsupported umbrellas, policies and SIR products in the specialty
admitted market. ST. PAUL ATHENA is a specialty underwriting facility dedicated
to business generated through Swett & Crawford, a wholesale insurance brokerage
subsidiary of Aon Corporation (Aon).
Professional Markets is composed of FINANCIAL AND PROFESSIONAL SERVICES, which
guarantee that third parties will
be indemnified against nonperformance of contractual obligations.
This operation also underwrites specialty casualtyprovides fidelity and property-liability coverages for depository institutions,
and markets errors and omissions coverages for lawyers, insurance agents and
other nonmedical professionals, including railroad protective liability, directors and officersofficers; and PUBLIC
SECTOR SERVICES, which markets insurance products and services, including
professional liability insurance, to all levels of government entities.
PERSONAL INSURANCE. This segment provides a broad portfolio of
property-liability insurance products and services for nonprofit organizationsindividuals. Through a
variety of single-line policies and advertisers liabilitymulti-line package policies, individuals can
acquire coverages to protect personal property such as homes, automobiles and
boats, as well as to provide coverage for advertising agencies and broadcasting stations. Based on 1992
premium data published in "Best's Review," Fire and Marinepersonal liability. The Personal
Insurance segment also provides nonstandard auto coverages, which are marketed
to individuals who are unable to obtain standard coverage due to their inability
to meet certain underwriting criteria.
INTERNATIONAL
The St. Paul's International business segment is the
leading underwriterresponsible for most of surety bonds inThe St.
Paul's primary insurance written outside the United States.
Financial Services provides coverages for depository institutions.
These coverages include fidelity, which covers employers against
dishonest actsInternational has a
presence through insurance companies licensed in Canada and 11 countries in
Europe, Africa and Latin America. It also includes business generated from The
St. Paul's participation in Lloyd's of employees; directorsLondon as a provider of capital to
selected underwriting syndicates and officers liability; and
all property and liability coverages for this industry.
Pools. Fire and Marine is a memberas the owner of and participates in business
produced by a number of pools and associations which provide
specialized engineering and underwriting skills for the classes of
business which they supervise. These pools and associationsthree managing agencies.
International also serve to increase the underwriting capacity of the member companies
for insurance policies where the concentration of risk is so high
or the amount so large that a single company could not prudently
accept the entire risk.
Medical Services. Medical Services underwrites professional
liability insurance and various other types of property and
liability insurance for physicians and surgeons, hospitals, nurses,
dentists, nursing homes and other health care providers.
Professional liabilityincludes insurance written for physicians and
surgeons accounted for approximately 37%foreign operations of
Medical Services'
business in 1993. Professional liability insurance written for
hospitals, nurses, dentists, nursing homes and other health care
providers produced approximately 40% of Medical Services' premium
volume in 1993. The Registrant is the largest medical liability
insurermultinational corporations based in the United States with premium volume representing
approximately 12% ofand insurance written to
cover exposures in the United States marketfor foreign-based companies. This segment
predominantly markets specialty commercial insurance in 1992 based on data
published in "Best's Review."
Business Insurance. Business Insurance underwrites general
commercial property and liability coverages, commercial package
insurance and various coverages designed specifically for small- to
medium-sized commercial businesses, including manufacturers,
wholesalers and retailers. Customers served by this operation
includethe international arena,
offering a broad classrange of middle market businesses,products and services tailored to meet the unique
needs of both its multinational customers as well as specific customer groups such as museums and country clubs.
Reinsurance. Fire and Marine's Reinsurance operation functions
underits customers in each of
the namedomestic markets which it serves. The St. Paul Re, which is basedsold its personal insurance
business in New York with an
officethe United Kingdom in London, England.early 1998 to Norwich Union Insurance Ltd.
ST. PAUL RE
St. Paul Re underwrites reinsurance worldwide, with clients in both domesticNorth America,
Latin America, the Caribbean, Europe, Australia and international insurance markets (referred to as
"assumed reinsurance").the Asia-Pacific region.
Reinsurance is an agreement betweenby which an insurance companiescompany will transfer, or
"cede," a portion of the risk it has underwritten to transfer risks.a reinsurer, paying a
premium to do so. A large portion of reinsurance is effected automatically under
general reinsurance contracts known as treaties. In some instances, reinsurance
is effected by negotiation on individual risks, which is referred to as
facultative reinsurance. Personal Insurance. Personal InsuranceSt. Paul Re underwrites all personalboth treaty and facultative
reinsurance for property, liability, ocean marine, surety and liabilityseveral specialty
coverages.
The merger added USF&G's reinsurance operation, F&G Re, to The St. Paul's
reinsurance segment. F&G Re brought a diverse mix of reinsurance products and
enhanced St. Paul Re's capabilities in several areas, including
"non-traditional" reinsurance, an area of increasing demand that combines
elements of traditional underwriting risk with financial risk protections.
5
The merger also added Discover Re Managers, Inc. (Discover Re) to The St. Paul's
reinsurance segment. Discover Re provides primary insurance, coveragesreinsurance and
related services to the alternative risk transfer market, primarily in the
municipalities, transportation, education and retail markets. Through
alternative risk transfer, a company self-insures, or insures through a captive
insurer, the portion of its own losses which are predictable and purchases
insurance for homes, automobiles,
boats and other personal property. Fire & Marine's primary product
has beenthe less predictable, high-severity losses that could have a personal package policy, which combines auto and
homeowners insurance along with other personal coverages into one
policy. Package policies accounted for approximately 83%major
financial impact on the company.
According to data published by the Reinsurance Association of Fire &
Marine's Personal InsuranceAmerica, St. Paul
Re's written premium volume in 1993. In August 1993,of $833 million through the Registrant acquired Economy Fire & Casualty Company ("Economy"), a
personal insurance underwriter basedfirst nine months of
1998 ranked it as the sixth-largest reinsurer in Illinois, for a total
investment of $395 million. Economy primarily markets monoline
policies, which provides coverage for specific personal insurance
needs, such as home or auto.
International. The International category is composed of direct
insurance written in foreign countries, primarily the United Kingdom and Canada, and multinational accounts.
1994 Restructured Underwriting Operations. Effective Jan. 1, 1994,States. According to
data published in "Best's Review," The St. Paul would rank as the Registrant restructured its14th- largest
property-liability reinsurer in the world, based on 1997 written premiums.
PRINCIPAL MARKETS AND METHODS OF DISTRIBUTION
The St. Paul's U.S. Insurance Underwriting operations into three separate organizations, each having a
distinct identity and each focused on particular insurance market
sectors. St. Paul Specialty is composed of Medical Services,
National Accounts, Surety, Construction, Custom Markets (which
includes Technology, Financial Services, Professional Liability,
Surplus Lines, Ocean Marine and Public Sector) and Pools. St. Paul
Personal & Business Insurance is composed of the Registrant's
personal insurance operations (including Economy) and also serves
small commercial accounts. St. Paul Commercial primarily consists
of the Registrant's former Business Insurance operation and serves
midsize commercial customers. The Registrant's Reinsurance and
International underwriting operations were unaffected by this
restructuring.
Principal Markets and Methods of Distribution
Fire and Marine and its subsidiaries are licensed andto transact business in
all 50 states, of the United States, the District of Columbia, Puerto Rico, Guam and the Virgin
Islands, all provincesIslands. At least five percent of Canada,
the United Kingdom, the Republic of Ireland and Spain. Fire and
Marine's business is broadly distributed throughout the United
States, with a particularly strong market presence in the
Midwestern region. Five percent or more of Fire and Marine's 1993U.S. Underwriting's 1998 property-liability
written premiums were produced in each of Illinois, Minnesota,California, Florida and Texas. Approximately 88% of Fire and
Marine's 1993 property-liability insurance business was written on
U.S.-based insurance risks.
Fire and Marine'sNew
York.
U.S. insuranceUnderwriting's business is produced primarily through approximately 8,9008,400
independent insurance agencies and national insurance brokers. FireThe needs of agents,
brokers and Marine maintains 29policyholders are addressed through 40 service centersoffices in major
cities throughout the United States (and oneand 85 additional offices in Canada) to respond to the needs of agents,United
States.
St. Paul Re produces reinsurance business from its New York headquarters, as
well as from offices in London, Miami, Chicago, Atlanta, Philadelphia, Brussels,
Morristown NJ, Munich, Singapore, Hong Kong, Tokyo, Sydney and San Francisco. It
underwrites business through brokers and, policyholders. Over 70%for certain types of Firereinsurance and
Marine's total premium volume
in 1993 originatedcertain markets, on a direct basis. Discover Re underwrites alternative risk
transfer business from its Farmington, CT headquarters, from regional U.S.
offices in the service centers, with the balance of
business produced by other FireAtlanta, Pittsburgh, Dallas, Minneapolis and Marine subsidiaries, by variousSan Francisco, and from
a correspondent office in London.
Our International operations are headquartered in London and underwrite
insurance pools and by the home office. The reorganization of Fire
and Marine's U.S. Insurance Underwritingthrough domestic operations in 1994 will
not materially alter11 markets outside the methods by which FireUnited States
(Argentina, Botswana, Canada, France, Germany, Ireland, Mexico, South Africa,
Spain, The Netherlands and Marine'sthe United Kingdom). These operations distribute
their products principally through independent brokers. Through its presence at
Lloyd's of London, International has access to business is generated. Independent insurance agentsmarkets in virtually
every country of the world for its specialty products including aviation, kidnap
and national
insurance brokers will continue to produce the majorityransom, malicious product tampering, creditor/payment protection and
personal accident. International's group of Fire and
Marine's business.
Reservesthree Lloyd's of London managing
agencies underwrites business for Losses and Loss Adjustment Expenses (LAE)
General Information.eight syndicates, collectively representing
approximately 4% of Lloyd's total capacity.
RESERVES FOR LOSSES AND LOSS ADJUSTMENT EXPENSES
GENERAL INFORMATION. When claims are made by or against policyholders, any
amounts Fire and Marine paysthat The St. Paul's underwriting operations pay or expectsexpect to pay to the
claimant are referred to as losses. The costs of investigating, resolving and
processing these claims are referred to as loss adjustment expenses (LAE). Fire and MarineThe
St. Paul establishes reserves whichthat reflect the estimated unpaid total cost of
these two items. The reserves for unpaid losses and LAE at Dec. 31, 1998
cover claims whichthat were incurred not only in 19931998 but also in prior years. These
reservesThey
include estimates of the total cost of claims that have already been reported
but not yet settled ("case" reserves), and of the cost of claimsthose that have been incurred but not
yet reported.reported ("IBNR" reserves). Loss reserves are established on an undiscounted basis,
and are reduced for deductibles recoverable from customers and estimates of
salvage and subrogation.
Loss reserves for certain workers' compensation business and certain assumed
reinsurance contracts are discounted to present value. Additional information
about these discounted liabilities is set forth in Note 1 to the consolidated
financial statements included in The St. Paul's 1998 Annual Report to
Shareholders, and is incorporated herein by reference. During 1998, $3.8 million
of discount was amortized and $5.0 million of discount was accrued.
6
Management continually reviews loss reserves, using a variety of statistical and
actuarial techniques to analyze current claim costs, frequency and severity
data, and prevailing economic, social and economiclegal factors. Management believes
that the reserves currently established for losses and LAE are adequate to cover
their eventual costs. However, final claim payments may differ from these
reserves, particularly when these payments may not take place for several years.
Reserves established in prior years are adjusted as loss experience develops and
new information becomes available. Adjustments to previously estimated reserves
are reflected in results in the year in which they are made.
Ten-year Development.For certain reinsurance contracts entered into prior to the issuance of
Statement of Financial Accounting Standards (SFAS) No. 113, "Accounting and
Reporting for Reinsurance of Short-Duration and Long-Duration Contracts," (for
GAAP accounting purposes) and Chapter 22 - Reinsurance (for statutory accounting
purposes), The St. Paul follows deposit accounting for GAAP purposes and
reinsurance accounting for statutory purposes. Since the statutory accounting
was implemented on a prospective basis, however, a difference between GAAP and
statutory reserves exists for contracts entered into prior to Chapter 22
implementation. Such difference amounted to $124 million at Dec. 31, 1998.
TEN-YEAR DEVELOPMENT. The table on page 89 presents a development of net loss and
LAE reserve liabilities and payments for the years 19831988 through 1993.1998. The top
line on the table shows the estimated liability for unpaid losses and LAE, net
of reinsurance recoverable,recoverables, recorded at the balance sheet date for each of the
years indicated.
LossIn 1997, The St. Paul changed the method by which it assigns loss activity to a
particular year for assumed reinsurance written by its U.K.-based reinsurance
operation. Prior to 1997, that loss activity was assigned to the year in which
the underlying reinsurance contract was written. In 1997, The St. Paul's
analysis indicated that an excess amount of loss activity was being assigned to
prior years because of this practice. As a result, The St. Paul implemented an
improved procedure in 1997 that more accurately assigns loss activity for this
business to the year in which it occurred. This change had the impact of
increasing favorable development on previously established reserves by
approximately $110 million in 1997. There was no net impact on total incurred
losses, however, because there was a corresponding increase in the provision for
current year loss activity in 1997. Development data for Fire and Marine's
foreign underwriting subsidiary, St. Paul UK, is included for allindividual years prior
to 1997 in thethis table since 1988.were not restated to reflect this new procedure because
reliable data to do so was not available.
The upper portion of the table, which shows the re-estimated amountamounts relating to
the previously recorded liability,liabilities, is based upon experience as of the end of
each succeeding year. This estimate isThese estimates are either increased or decreased as
further information becomes known about individual claims and as changes in the
trend of claim frequency and severity become apparent.
The "Cumulative Redundancy (Deficiency)redundancy (deficiency)" line on the table for any given year
represents the aggregate change in the estimates for all years subsequent to the
year the reserves were initially established. For example, the 19831991 reserve of
$2,413$12,848 million developed up to $2,539$12,479 million, or a $126$369 million deficiency,redundancy, by
the end of 1984.1993. By the end of 1993,1998, the 19831991 reserve had developed a deficiencyredundancy
of $408$949 million. The changes in the estimate of 19831991 loss reserves were
reflected in operations during the past tenseven years.
In 1993, the RegistrantThe St. Paul adopted the provisions of Statement of
Financial Accounting Standards (SFAS)SFAS No. 113, "Accounting and
Reporting for Reinsurance of Short-Duration and Long-Duration Contracts." This
statement required, among other things, that reinsurance recoverables on unpaid
losses and LAE be shown as an asset, instead of the prior practice of netting
this amount against insurance reserves for balance sheet reporting purposes.
The middle portion of the table, which includes data for only those periods
impacted bysince the adoption of SFAS No. 113 (the years 1992 and 1993)through 1998),
represents a reconciliation between the net reserve liability as shown on the
top line of the table and the gross reserve liability as shown on the Registrant'sThe St. Paul's
balance sheet. This portion of the table also presents the gross re-estimated
reserve liability as of the end of the latest re-estimation period (Dec. 31,
1993)1998) and the related re-estimated reinsurance recoverable. The St. Paul did not
restate data for years prior to 1992 in this table for presentation on a gross
basis due to the impracticality of determining such gross data on a reliable
basis for its foreign underwriting operations.
7
The lower portion of the table presents the cumulative amounts paid with respect
to the previously recorded liability as of the end of each succeeding year. For
example, as of Dec. 31, 1993, Fire and
Marine has paid $2,5551998, $8,812 million of the currently estimated $2,821$11,899
million of losses and LAE that have been incurred for the years up to and
including 1983.1991 have been paid. Thus, as of Dec. 31, 1993, Fire and Marine
estimates1998, it is estimated that
$266$3,087 million of incurred losses and LAE are unpaidhave yet to be paid for the years up
to and including 1983.
1991.
Caution should be exercised in evaluating the information shown on this table.
It should be noted that each amount includes the effects of all changes in
amounts for prior periods. For example, the portion of the development shown for
year-end 19921995 reserves that relates to 19831988 losses is included in the cumulative
redundancy or deficiency amount(deficiency) for the years 19831988 through 1992.
This1995.
In addition, the table presents calendar year data. It does not present accident
or policy year development data, which some readers may be more accustomed to
analyzing. The social, economic and economiclegal conditions and other trends which have
had an impact on the changes in the estimated liability in the past are not
necessarily indicative of the future. Accordingly, readers are cautioned against
extrapolating any conclusions about future results from the information
presented in this table.
AnalysisNote 7 to the consolidated financial statements, which is included in The St.
Paul's 1998 Annual Report to Shareholders, includes a reconciliation of
Lossbeginning and ending loss reserve liabilities for each of the last three years
and is incorporated herein by reference. Additional information about The St.
Paul's reserves is contained in the "Loss and Loss Adjustment Expense Reserves"
and "Environmental and Asbestos Claims" sections of "Management's Discussion and
Analysis" of The St. Paul's 1998 Annual Report to Shareholders, which are
incorporated herein by reference.
8
ANALYSIS OF LOSS AND LOSS ADJUSTMENT EXPENSE (LAE) DevelopmentDEVELOPMENT
(in millions)
Year Endedended December 31 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- - ---------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Net Liability for
Unpaid LossesNet liability for
unpaid losses and LAE $2,413 2,917 3,364 4,043 4,745 5,502 5,907 6,279 6,688 7,207 7,640
===== ===== ===== ===== ===== ===== ===== ===== ===== ===== =====$10,679 11,343 11,881 12,848 13,211 13,258 13,290 13,732 15,021 15,100 15,194
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Liability Re-estimatedre-estimated
as of:
One Year Later 2,539 2,993 3,477 4,087 4,727 5,313 5,656 6,037 6,436 6,984year later 10,519 11,305 12,228 12,684 12,911 12,874 12,954 13,286 14,350 14,822
Two Years Later 2,523 3,104 3,625 4,078 4,489 4,914 5,338 5,787 6,260years later 10,370 11,517 12,130 12,479 12,589 12,501 12,518 12,690 13,953
Three Years Later 2,601 3,203 3,652 3,955 4,268 4,789 5,135 5,628years later 10,670 11,480 12,058 12,280 12,384 12,200 12,035 12,371
Four Years Later 2,664 3,222 3,597 3,874 4,226 4,731 5,027years later 10,822 11,518 11,930 12,222 12,144 11,815 11,861
Five Years Later 2,679 3,202 3,572 3,874 4,178 4,707years later 10,943 11,503 11,918 12,065 11,915 11,677
Six Years Later 2,670 3,227 3,624 3,885 4,180years later 10,970 11,544 11,850 11,944 11,818
Seven Years Later 2,714 3,280 3,652 3,914years later 11,060 11,538 11,869 11,899
Eight Years Later 2,756 3,308 3,688years later 11,098 11,646 11,844
Nine Years Later 2,780 3,361years later 11,306 11,642
Ten Years Later 2,821years later 11,325
Cumulative Redundancy
(Deficiency) $ (408) (444) (324) 129 565 795 880 651 428 223
===== ===== ===== ===== ===== ===== ===== ===== ===== =====redundancy
(deficiency) $(646) (299) 37 949 1,393 1,581 1,429 1,361 1,068 278
------ ------ ----- ----- ----- ----- ----- ----- ----- -----
------ ------ ----- ----- ----- ----- ----- ----- ----- -----
Cumulative Redundancy
(Deficiency) Excluding
Foreign Exchange(1) $ (408) (444) (324) 129 565 803 859 647 428 206
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Gross Liability for
Unpaid Losses and LAE 8,813 9,185
Reinsurance Recoverable on
Unpaid Losses 1,606 1,545redundancy
(deficiency) excluding
foreign exchange (1) $(644) (326) 28 949 1,382 1,571 1,425 1,355 1,077 324
------ ------ ----- ----- ----- ----- ----- ----- ----- -----
------ ------ ----- ----- ----- ----- ----- ----- ----- -----
Net Liability 7,207 7,640
===== =====liability for
unpaid losses and LAE 13,211 13,258 13,290 13,732 15,021 15,100 15,194
Reinsurance recoverable on
unpaid losses 3,903 2,585 2,537 2,827 2,868 3,053 3,264
------ ------ ------ ------ ------ ------ -------
Gross Re-estimated Liability 8,692
Re-estimated Recoverable 1,708liability 17,114 15,843 15,827 16,559 17,889 18,153 18,458
------ Net Re-estimated Liability 6,984
======------ ------ ------ ------ ------ -------
------ ------ ------ ------ ------ ------ -------
Gross re-estimated liability:
One year later 16,467 15,435 15,912 16,140 17,325 18,022
Two years later 16,143 15,459 15,554 15,387 17,077
Three years later 15,998 15,245 14,954 15,260
Four years later 15,825 14,771 14,959
Five years later 15,536 14,798
Six years later 15,565
Gross cumulative
redundancy 1,549 1,045 868 1,299 812 131
------ ------ ----- ----- ----- -----
------ ------ ----- ----- ----- -----
Gross cumulative
redundancy excluding
foreign exchange (1) 1,519 1,030 843 1,301 838 191
------ ------ ----- ----- ----- -----
------ ------ ----- ----- ----- -----
Cumulative Redundancy 121
Grossamount of net
liability paid through:
One year later $2,735 3,041 3,105 3,027 3,017 2,850 2,787 3,029 3,453 3,632
Two years later 4,658 5,004 5,107 5,027 4,970 4,699 4,698 5,003 5,816
Three years later 5,996 6,390 6,433 6,380 6,263 6,003 6,037 6,493
Four years later 6,982 7,271 7,371 7,276 7,173 6,915 7,065
Five years later 7,613 7,931 8,006 7,917 7,838 7,632
Six years later 8,096 8,388 8,470 8,424 8,329
Seven years later 8,464 8,745 8,875 8,812
Eight years later 8,743 9,077 9,196
Nine years later 9,052 9,337
Ten years later 9,276
Cumulative Redundancy Excluding
Foreign Exchange(1) 88
Cumulative Amountamount of
Liability Paid Through:gross liability paid
through:
One Year Later $ 811 941 976 1,008 1,101 1,196 1,318 1,450 1,452 1,547year later 4,072 3,443 3,389 3,547 3,837 4,079
Two Years Later 1,320 1,539 1,666 1,787 1,884 2,044 2,209 2,361 2,493years later 6,585 5,683 5,700 5,582 6,508
Three Years Later 1,675 1,983 2,185 2,332 2,466 2,646 2,797 3,015years later 8,178 7,282 7,082 7,301
Four Years Later 1,928 2,304 2,548 2,732 2,869 3,043 3,216years later 9,304 8,233 8,291
Five Years Later 2,107 2,533 2,812 3,012 3,132 3,348years later 10,009 9,083
Six Years Later 2,240 2,703 3,008 3,205 3,322
Seven Years Later 2,347 2,833 3,157 3,343
Eight Years Later 2,429 2,935 3,258
Nine Years Later 2,500 3,010
Ten Years Later 2,555
(1) The results of St. Paul UK translated from original
currencies into U.S. dollars are included with Fire
and Marine's U.S. Insurance Underwriting operations
in this table since 1988.years later 10,597
(1) The results of The St. Paul's U.K.-based operations translated from
original currencies into U.S. dollars are included with The St. Paul's U.S.
underwriting operations in this table for all years presented. The foreign
currency translation impact on the cumulative redundancy
(deficiency) arises from the
difference between reserve developments translated at the exchange rates at
the end of the year in which the liabilities were originally estimated, and
the exchange rates at the end of the year in which the liabilities were re-
estimated.
9
For further information on Fire and Marine's loss reserves,
including an analysis of loss reserve liabilities for each of the
latest three years, refer to the "Reserves for Losses and Loss
Adjustment Expenses" section on pages 31 through 33 of the
Registrant's 1993 Annual Report to Shareholders, which is
incorporated herein by reference.
Ceded ReinsuranceCEDED REINSURANCE. Through ceded reinsurance, other insurers and reinsurers
agree to share certain risks that Fire and Marine and itsThe St. Paul's subsidiaries have underwritten.
The purpose of reinsurance is to limit a ceding insurer's maximum net loss
arising from large risks or catastrophes. Reinsurance also serves to increase
the direct writing capacity of the ceding insurer. In accordance with the
provisions of SFAS No. 113, Fire and Marine records the amountsAmounts recoverable on ceded
losses are recorded as an asset.
The Registrant strives to achieve the following objectives withWith respect to ceded reinsurance:
1) Protectreinsurance, The St. Paul strives to protect its assets
from large individual risk and occurrence losses, by purchasing reinsurance from financially
secure reinsurance companies at a reasonable cost.
2) Provideand provide its respective
underwriting operations with the capacity necessary to write large limits on
accounts by
purchasing reinsurance from financially secure reinsurance
companies at a reasonable cost.accounts.
The collectibility of reinsurance is subject to the solvency of reinsurers. The
placement of ceded reinsurance is guided by Fire
and Marine'sSt. Paul's Reinsurance Security Committee, which has established financial
standards to determine qualified, reinsurers.financially secure reinsurers, guides the
placement of ceded reinsurance. Uncollectible reinsurance recoverables have not
had a material adverse impact on the Registrant's consolidatedThe St. Paul's results of operations, liquidity
or financial position. Note 13 on pages 60 and 61 of15 to the Registrant's 1993consolidated financial statements, which
is included in The St. Paul's 1998 Annual Report to Shareholders, which provides a
schedule of ceded reinsurance information and is incorporated herein by
reference.
INSURANCE BROKERAGEPROPERTY - LIABILITY INVESTMENT OPERATIONS
AllOBJECTIVES. The St. Paul's board of directors approves the Registrant's insurance brokerage operations are managed
by the Minet Group (Minet) based in London, England. Based on the
most recent ranking in terms of total 1992 revenues by "Business
Insurance," Minet is the eighth largest international insurance
broking organization in the world. Minet has 125 offices
throughout North America, Europe, Africa, Asia and Australia.
Minet operates through six business units, each focusing on
distinct client groups. Global Professional Services provides
insurance brokerage services to the world's largest accounting
firms and other professionals. International Retail serves clients
in Asia, Africa, Australia and Europe. Retail brokers act on
behalf of organizations such as corporations and partnerships by
procuring insurance coverages. International Broking assembles
underwriting capacity to provide specialized insurance programs for
clients throughout the world.
North America serves professional clients and major industrial and
service corporations. This business unit includes Minet's U.S.
wholesale brokerage network, Swett & Crawford, which, according to
the most recent rankings in terms of total revenues by "Business
Insurance," is the largest wholesale insurance broker in the United
States. Wholesale brokers act on behalf of retail brokers by
procuring specialty insurance coverages. Reinsurance provides
treaty and facultative reinsurance brokerage services worldwide.
Reinsurance brokers act as intermediaries for obtaining reinsurance
for insurance companies. Minet Risk Services provides consulting
and actuarial to clients worldwide, and also provides management
services to captive insurance companies.
Minet has sought to expand the scope of its specialty brokerage
operations by acquiring several small, specialized brokers
throughout the world to complement its existing worldwide client
base and market network.
In 1992, the Registrant significantly reduced the carrying value of
itsoverall aggregate
investment in Minet through a $365 million write-down of
goodwill. The "Insurance Brokerage" section of "Management's
Discussion and Analysis" on pages 35 and 36 of the Registrant's
1993 Annual Report to Shareholders, which discusses the goodwill
write-down and other matters, is incorporated herein by reference.
INVESTMENT BANKING-ASSET MANAGEMENT OPERATIONS
The John Nuveen Company ("Nuveen") is the Registrant's investment
banking-asset management subsidiary. The Registrant and Fire and
Marine currently hold a combined 74% interest in Nuveen after
selling a minority interest by means of an initial public offering
in 1992. Note 12 on page 60 of the Registrant's 1993 Annual Report
to Shareholders, which provides further information on the sale of
a minority interest in Nuveen, is incorporated herein by reference.
Through John Nuveen & Co. Incorporated, a wholly-owned subsidiary,
Nuveen markets tax-exempt open-end and closed-end (exchange-traded)
managed fund shares. Nuveen also underwrites and trades municipal
bonds and tax-exempt unit investment trusts (UIT). Nuveen markets
its fund shares and UITs to individuals through registered
representatives associated with unaffiliated national and regional
broker-dealers and other financial organizations. Through its
Municipal Finance Department, the firm also serves state and local
governments and their authorities by financing community projects
through both negotiated and competitive financings.
Nuveen Advisory Corp., a wholly-owned subsidiary of John Nuveen &
Co. Incorporated, is investment adviser to the Nuveen-sponsored
open-end mutual funds and exchange-traded funds. Nuveen
Institutional Advisory Corp., also a wholly-owned subsidiary, is
investment adviser to the Nuveen-sponsored exchange-traded funds
and provides investment management services for trust funds
established by public utilitiesplan for the decommissioning of nuclear
power plants.
Ascompanies within The St. Paul group. Each subsidiary
adopts its own specific investment policy tailored to comply with domestic laws
and regulations and the leading sponsor of tax-free unitoverall corporate investment trusts, Nuveen
currently sponsors trusts with assets of more than $20 billion in
50 different national, state and insured portfolios. Nuveen also
sponsors 21 tax-free, open-end mutual funds and money market funds
with assets of approximately $7 billion in national, state, insured
and money market portfolios. In addition, Nuveen sponsors 82
closed-end tax-free managed funds with approximately $26 billion in
total assets. These funds are traded on national stock exchanges
and provide individual investors with additional opportunities to
invest in tax-free securities.
Nuveen has its principal office in Chicago and maintains regional
sales offices in other cities across the United States.
INVESTMENTS
Objectives.plan. The Registrant's Board of Directors approves the
annual investment plans of the underwriting subsidiaries. The
primariyprimary
objectives of those plans are as follows:
1) to maintain a widely diversified fixed maturities portfolio structured
to maximize investment income while minimizing credit risk through
investments in high-quality instruments;
2) to provide for long-term growth in the market value of the investment
portfolio and enhance shareholder value through investments in certain
other investment classes, such as equity securities, venture capital
and real estateestate.
The St. Paul has had limited involvement with derivative financial instruments
for purposes of hedging against fluctuations in foreign currency and venture capital;
3) to manageinterest
rates. The St. Paul has not participated in the mix of portfolio maturities to correspond to
anticipated insurance loss pay-out patterns.
Fixed Maturities.derivatives market for trading
or speculative purposes.
FIXED MATURITIES. Fixed maturities constituted 81%77% of the
Registrant'sThe St. Paul's property-
liability insurance operations' investment portfolio at Dec. 31, 1993.1998. The
portfolio is primarily composed of high-quality, intermediate-term taxable U.S.
government agency and corporate bonds and tax-exempt U.S. municipal bonds. The
following table presents information about the fixed maturities portfolio for
the last fivethree years (dollars in millions).
Amortized Pretax Net Weighted Weighted
Cost at Investment Average Pretax Average After-tax
Year Year-End Income Yield Yield
- ---- --------- ----------- ----------------- ----------------
1993 $8,385.1 $607.1 7.4% 5.9%
1992 7,731.2 605.2 8.0% 6.5%
1991 7,230.3 589.0 8.4% 6.8%
1990 6,538.1 561.4 9.0% 6.9%
1989 6,284.3 561.8 9.3% 7.0%
Based
Pretax Net
Amortized Cost at Estimated Fair Investment Weighted Average Weighted Average
Year Year-end Value at Year-end Income Pre-tax Yield After-tax Yield
----- ----------------- ----------------- ----------- ---------------- -----------------
1998 $16,761.6 $17,777.7 $1,217.6 6.8% 5.1%
1997 17,215.1 18,067.9 1,241.3 7.1% 5.2%
1996 16,927.3 17,455.5 1,160.1 7.0% 5.1%
The St. Paul determines the mix of its investments in taxable and tax-exempt
securities based on its current and projected tax position and the relationship
between taxable and tax-exempt investment yields, the
Registrant determines the mix of its investment in taxable and tax-
exempt securities. The Registrant's fixed-maturityyields. Fixed maturity purchases in
1993 were predominantly1998 consisted of intermediate-term, investment-grade taxable and tax-exempt
securities. At Dec. 31, 1993, theThe fixed maturities portfolio is carried on The St. Paul's balance
sheet at estimated fair value, with unrealized appreciation on
the fixed-maturities portfolio totaled $763 million. The
Registrant implemented SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" as of Dec. 31, 1993.
The fixed-maturity portfolio is reported at estimated market value
at Dec. 31, 1993, with unrealized gains and lossesdepreciation
(net of deferred taxes) recorded in common shareholders' equity. At December 31, 1998,
pretax unrealized appreciation totaled $1.02 billion.
10
The fixed maturities portfolio is managed conservatively to provide reasonable
returnreturns while limiting exposure to risks. Approximately 95% of the fixed
maturities portfolio is rated at investment grade levels (BBB or better).
Nonrated and non-investment grade (high-yield) securities comprise the remainder
of the portfolio. Most of these are nonrated municipal bonds
which,The high-yield investments, acquired in the Registrant's view, would be consideredmerger with USF&G,
represent a minimal percentage of investment
grade quality if rated.
Equities.the portfolio.
EQUITIES. Equity securities comprised 5%4% of the property-liability operations'
investments as(at cost) at December 31, 1998, and consist of Dec.
31, 1993. Commona diversified
portfolio of common stocks, which are held with the primary objective of
achieving capital appreciation. This portfolio provided $44Sales of equities generated $158 million of
pretax realized investment gains in 1998, and $12dividend income totaled $15
million. The portfolio's carrying value at year-end included $300 million of
dividend
income in 1993.
Real Estate.pretax unrealized appreciation.
REAL ESTATE AND MORTGAGE LOANS. The Registrant'sSt. Paul's property-liability operations'
real estate holdings which
comprised 4% of total investments, consist primarily of a diversified portfolio of commercial buildings.office and
warehouse properties that The Registrant does
not investSt. Paul owns directly or has partial interest in
through joint ventures. The properties are geographically distributed throughout
the United States. The St. Paul also has a portfolio of real estate mortgages.
Venture Capital.mortgage
investments acquired in the merger with USF&G. The real estate and mortgage loan
portfolio produced $82 million of pretax investment income in 1998, and sales of
these investments in 1998 generated $8 million of pretax realized gains.
VENTURE CAPITAL. Securities of small-tosmall- to medium-sized companies comprised the Registrant's investments inspanning a
variety of industries comprise The St. Paul's venture capital holdings, which
accounted for 3%2% of totalproperty-liability investments (at cost) at Dec.December 31,
1993.1998. These investments are in the form of limited partnershipspartnership interests or
direct ownership.
Other Investments.equity investments. Venture capital investments generated pretax realized
investment gains of $25 million in 1998. The Registrant'scarrying value of venture capital
investments at December 31, 1998 included $182 million of pretax unrealized
appreciation.
SECURITIES LENDING COLLATERAL. This investment class consists of collateral held
on certain fixed-maturity securities loaned to other institutions through a
lending agent for short periods of time. The collateral is maintained at 102%,
marked to market daily, of the fair value of the loaned securities. The St. Paul
retains full ownership of the loaned securities and is indemnified by the
lending agent in the event a borrower becomes insolvent or fails to return the
securities.
OTHER INVESTMENTS. The St. Paul's portfolio also includes short-
termshort-term securities
and other miscellaneous investments, which in the aggregate comprised 7%5% of
total investments.property-liability investments at December 31, 1998.
Notes 31, 4, 5 and 4 on pages 52 and 53 of6 to the Registrant's 1993consolidated financial statements, which are
included in The St. Paul's 1998 Annual Report to Shareholders, which provide
additional information about the Registrant's totalThe St. Paul's investment portfolio and are
incorporated herein by reference. The "Investment Operations" and "Exposures
to Market Risk" sections of "Management's Discussion and Analysis" in said
Annual Report are also incorporated herein by reference.
LIFE INSURANCE
Fidelity and Guaranty Life Insurance Company (F&G Life) and its subsidiaries
market many forms of annuity and life insurance products, including
equity-indexed annuities, single premium deferred annuities, tax sheltered
annuities, single premium immediate annuities and universal life and term life
insurance.
Single premium deferred annuities and equity indexed annuities are sold
primarily through independent agents and insurance brokers. Tax sheltered
annuities are sold through a national wholesaler. Structured settlements are
annuities sold predominantly to property-liability companies (including The
St. Paul's U.S. Underwriting operations) in settlement of certain of their
insurance claims.
Note 7 to the consolidated financial statements, which is included in The St.
Paul's 1998 Annual Report to Shareholders, provides a table of F&G Life's future
policy benefit reserves by type of product and is incorporated herein by
reference.
11
LIFE INSURANCE INVESTMENT OPERATIONS. F&G Life's investment portfolio totaled
$3.8 billion at December 31, 1998, consisting of investment grade government
and corporate securities (59% of the total); asset-backed and mortgage-backed
securities (19%); high-yield investments (9%); real estate mortgage loans and
other investments (13%). F&G Life uses derivative instruments in the form of
over-the-counter indexed call options for the purpose of hedging interest
credited on its equity-indexed annuity products. The cost of derivatives
amounts to less than 1% of invested assets.
ASSET MANAGEMENT
The John Nuveen Company (Nuveen) is The St. Paul's asset management subsidiary.
The St. Paul and its largest property-liability insurance subsidiary, St. Paul
Fire and Marine Insurance Company (Fire and Marine) hold a combined 78% interest
in Nuveen.
Nuveen's principal businesses are asset management and related research; the
development, marketing and distribution of investment products and services; and
municipal and corporate investment banking services. Nuveen distributes its
investment products, including mutual funds, exchange-traded funds (closed-end
funds), defined portfolio products (formerly referred to as unit trusts), and
individually managed accounts through registered representatives associated with
unaffiliated firms including broker/dealers, commercial banks, affiliates of
insurance providers, financial planners, accountants, consultants, and
investment advisers.
Nuveen's primary business activities generate three principal sources of
revenue: (1) ongoing advisory fees earned on assets under management, including
mutual funds, exchange-traded funds, and individually managed accounts; (2)
transaction-based revenue earned upon the distribution of mutual fund and
defined portfolio products; and (3) investment banking revenues, consisting of
underwriting and advisory fees.
Nuveen's operations are organized around five subsidiaries: John Nuveen & Co.
Incorporated (Nuveen & Co.), a registered broker and dealer in securities under
the Securities Exchange Act of 1934 and four investment advisory subsidiaries
registered under the Investment Advisers Act of 1940. The four investment
advisory subsidiaries are Nuveen Advisory Corp. (NAC), Nuveen Institutional
Advisory Corp. (NIAC), Nuveen Asset Management Inc. (NAM) and Rittenhouse
Financial Services, Inc. (Rittenhouse). Nuveen & Co. provides investment product
distribution and related services for Nuveen's managed funds and defined
portfolios, and houses Nuveen's investment banking activities. NAC and NIAC
provide investment management services for and administer the business affairs
of the Nuveen managed funds. Rittenhouse and NAM provide investment management
services to individually managed accounts and Rittenhouse also acts as
sub-adviser and portfolio manager to a mutual fund managed by NIAC.
At December 31, 1998, Nuveen's assets under management totaled $55.3 billion,
consisting of $26.2 billion of exchange-traded funds, $16.4 billion of managed
accounts, and $12.7 billion of mutual funds. Municipal securities accounted for
71% of the underlying managed assets.
In 1998, Nuveen repurchased 732,700 of its outstanding common shares (solely
from minority shareholders) for a total cost of $27 million. In 1997, Nuveen
repurchased 1.8 million of its outstanding common shares for a total cost of $55
million. The repurchases in 1997 were proportioned between The St. Paul and
minority shareholders to maintain the combined 77% ownership interest in Nuveen
then held by The St. Paul and Fire and Marine. The St. Paul received proceeds of
$41 million from Nuveen's share repurchases in 1997.
12
COMPETITION AND REGULATION
PROPERTY-LIABILITY INSURANCE. The businesses in which the subsidiaries of the Registrant are
engaged are all highly competitive.
Underwriting. The Registrant'sSt. Paul's domestic and international
underwriting subsidiaries compete with a large number of other insurers. Theseinsurers and
reinsurers. In addition, many large commercial customers self-insure their risks
or utilize large deductibles on purchased insurance. The St. Paul's subsidiaries
compete principally by attempting to offer a combination of superior products,
underwriting expertise and services at a competitive price. The combination of
products, services, pricing and other methods of competition varies by line of
insurance and by coverage within each line of insurance.
The RegistrantSt. Paul and its underwriting subsidiaries are subject to regulation by
certain states as an insurance holding company system. Such regulation generally
provides that transactions between companies within the holding company system
must be fair and equitable. In addition, transfersTransfers of assets among such affiliated companies,
certain dividend payments from underwriting subsidiaries and certain material
transactions between companies within the system may be subject to prior notice
to, or prior approval ofby state regulatory authorities. During 1993, the Registrant1998, The St. Paul
received $200.0from its U.S. Underwriting operations $200 million of cash dividends.
In 1999, up to $295 million in cash dividends from Fire and Marine; in 1994,
Fire and Marine hascan be paid by the U.S.
Underwriting operations to The St. Paul without regulatory approval to pay up to $300.0 million
in cash dividends to the Registrant, inapproval. In
addition, to a dividend of
the capital stock of its U.K.-based underwriting operation. Anyany change of control (generally presumed by the holding company laws
to occur with the acquisition of 10% or more of an insurance holding company's
voting securities) of the RegistrantThe St. Paul and its underwriting subsidiaries is also subject
to such prior approval.
The underwriting subsidiaries are subject to licensing and supervision by
government regulatory agencies in the jurisdictions in which they do business.
The nature and extent of such regulation variesvary but generally have their source in
statutes which delegate regulatory, supervisory and administrative powers to
insurance regulators, which in the U.S. are state insurance commissioners.authorities. Such regulation,
supervision and administration of the underwriting subsidiaries may relate,
among other things, to the standards of solvency which must be met and
maintained; the licensing of insurers and their agents; the nature of and
limitations on investments; restrictions on the size of risk which may be
insured under a single policy; deposits of securities for the benefit of
policyholders; regulation of policy forms and premium rates; periodic
examination of the affairs of insurance companies; annual and other reports
required to be filed on the financial condition of insurers or for other
purposes; requirements regarding reserves for unearned premiums, losses and
other matters; the nature of and limitations on dividends to policyholders and
shareholders; the nature and extent of required participation in insurance
guaranty funds; and the involuntary assumption of hard-to-
placehard-to-place or high-risk
insurance business, primarily in the personal auto and workers' compensation
insurance lines.
Loss ratio trends in property-liability insurance underwriting experience may be
improved by, among other things, changing the kinds of coverages provided by
policies, providing loss prevention and risk management services, increasing
premium rates or by a combination of these. The freedom of theThe St. Paul's
insurance underwriting subsidiaries of the
Registrant to meet emerging adverse underwriting trends
may be slowed, from time to time, by the effects of those state laws which require prior
approval by insurance regulatory authorities of changes in policy forms and
premium rates. Fire and Marine doesThe St. Paul's U.S. Underwriting operations do business in all 50
states and the District of Columbia.Columbia, Puerto Rico, Guam and the U.S. Virgin
Islands. Many of these jurisdictions require prior approval of most or all
premium rates.
The St. Paul's insurance underwriting business in the United Kingdom is
regulated by the Financial Services Authority (FSA). The FSA's principal
objectives are to ensure that insurance companies are responsibly managed, that
they have adequate funds to meet liabilities to policyholders and that they
maintain required levels of solvency. In 1988, California voters passed Proposition 103Canada, the conduct of insurance
business is regulated under provisions of the Insurance Companies Act of 1992,
which provided
that rates for most property liabilityrequires insurance companies to maintain certain levels of capital
depending on the type and amount of insurance policies be rolled
back for one year by up to 20% from November 1987 levels. It also
required pre-approvalin force. The Lloyd's of
London operation is currently regulated by the CaliforniaCouncil of Lloyd's, a
self-regulatory organization, but will in due course be regulated by the FSA.
The St. Paul is also subject to regulations in the other countries and
jurisdictions in which it writes insurance commissionerbusiness.
LIFE INSURANCE. The St. Paul's life insurance subsidiaries operate in a
competitive environment, with approximately 1,200 companies nationwide in the
industry including stock and mutual companies. F&G Life ranked 173rd based on
1997 statutory net premiums written, 144th based on 1997 statutory assets, and
173rd based on 1997 statutory capital and surplus. In the life insurance
industry, interest crediting rates, underwriting philosophy, policy features,
13
financial stability and service quality are important competitive factors.
F&G Life's products compete not only with those offered by other life
insurance companies, but also with other income accumulation-oriented
products offered by other financial services companies. The life insurance
industry has experienced considerable competitive pressure in recent periods
as a result of rates charged subsequent to November 1989. The commissioner can
grant relief from the rollback if the rollback does not allow a
fair and reasonable return.
The Registrant filed timely requests for a rollback exemption and
approval for subsequentfluctuating interest rates.
The Registrant believes these
filings demonstrate that its rates are fair and reasonable. In
February 1993, a California trial judge invalidated key sections of
the current insurance commissioner's rollback standards. The
California Supreme CourtF&G Life is reviewing and will provide guidance on
Proposition 103's standards for all insurers. The Registrant
believes that even if its requests are denied, any premium refunds
it will be required to make will not materially impact its overall
financial position.
Insurance Brokerage. The Registrant's brokerage operations are subject to licensing requirementsand supervision by government regulatory
agencies in the jurisdictions in which it does business. The nature and
extent of regulation vary but generally have their source in statutes which
delegate regulatory, supervisory and administrative powers to state insurance
commissioners. Such regulation and supervision of F&G Life may relate, among
other things, to the standards of solvency which must be met and maintained;
the licensing of insurers and agents, the nature of and limitations on
investments, deposits of securities for the benefit of policyholders;
regulation of policy forms; periodic examination of the affairs of the
company; annual and other regulations underreports required to be filed; requirements
regarding reserves for policyholder benefits; fixing maximum interest rates
on life insurance policy loans and minimum rates for accumulation of
surrender values; the lawsnature of and limitations on dividends to policyholders
and shareholder; and the nature and extent of required participation in
insurance guaranty funds.
ASSET MANAGEMENT. Nuveen is subject to substantial competition in all aspects of
its business. Investment products are sold to the public by broker-dealers,
banks, insurance companies and others. Nuveen competes with these other
providers of products primarily on the basis of the countriesrange of products offered,
the investment performance of such products, quality of service, fees charged,
the level and type of broker compensation, the manner in which they operate. In addition, rules ofsuch products are
marketed and distributed, and the Lloyd's insurance market in London and other regulatory
organizations govern certain business activities of the brokerage
operations. The regulation, supervision and administration of the
brokerage operations is extensive, but in general relateservices provided to licensing standards and procedures applicable to brokers;
limitations on the handling and investment of premium trust funds;
business reporting and premium tax collection requirements;
procedures for issuing policies; and restrictions on the
eligibility of insurers with whom insurance coverage may be placed.
Investment Banking-Asset Management.investors.
Nuveen is a publicly-traded company registered under the Securities Exchange Act
of 1934 and listed on the New York Stock Exchange. One of its subsidiaries,
Nuveen & Co., is a registered broker and dealer registered under the Securities Exchange
Act of 1934, and is subject to regulation by Thethe Securities and Exchange
Commission, the National Association of Securities Dealers, Inc. and other
federal and state agencies.agencies and self-regulatory organizations. It is also subject
to net capital requirements that restrict its ability to pay dividends. Nuveen's
other twofour subsidiaries are registered investment advisers registered under the Investment
Advisers Act of 1940. As such, they are subject to regulation by the Securities
and Exchange Commission.
ItemYEAR 2000 READINESS DISCLOSURE
The "Year 2000 Readiness Disclosure" section of "Management's Discussion and
Analysis" included in The St. Paul's 1998 Annual Report to Shareholders is
incorporated herein by reference.
FORWARD-LOOKING STATEMENT DISCLOSURE
This report contains certain forward-looking statements within the meaning of
the Private Litigation Reform Act of 1995. Forward-looking statements are
statements other than historical information or statements of current condition.
Words such as expects, anticipates, intends, plans, believes, seeks or
estimates, or variations of such words, and similar expressions are also
intended to identify forward-looking statements. Examples of these
forward-looking statements include statements concerning the effects of
competition and other factors on premiums and revenues, costs and income,
anticipated cost savings as a result of the USF&G merger, and expectations
regarding Year 2000 issues and The St. Paul's efforts to address them.
In light of the risks and uncertainties inherent in future projections, many of
which are beyond The St. Paul's control, actual results could differ materially
from those in the forward-looking statements. These statements should not be
regarded as a representation that anticipated events will occur or that expected
objectives will be achieved. Risks and uncertainties include, but are not
limited to, the following: general economic conditions including changes in
interest rates and the performance of financial markets; changes in domestic and
foreign laws, regulations and taxes; changes in the demand for, pricing of, or
supply of reinsurance or insurance; catastrophic events of unanticipated
frequency or severity; loss of significant customers; judicial decisions and
rulings; and various other matters, including the effects of the merger with
USF&G. Actual results and experience relating to Year 2000 issues could differ
materially from anticipated results or other expectations as a result of a
variety of risks and uncertainties, including the impact of systems faults, the
failure to successfully remediate material systems of The St. Paul, the time to
remediate system
14
failures once they occur, the failure of third parties (including public
utilities, agents and brokers) to properly remediate material Year 2000
problems, and unanticipated judicial interpretations of the scope of its
reinsurance or the insurance coverage provided by The St. Paul's policies. The
St. Paul undertakes no obligation to release publicly the results of any future
revisions it may make to forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
ITEM 2. Properties.
- ------ ----------PROPERTIES.
Fire and Marine owns its home officeThe St. Paul's corporate headquarters buildings, located at
385 Washington Street and 130 West Sixth Street, SaintSt. Paul, Minn.MN. These buildings which
are adjacent to one another and connected by skyway, are also occupied by the Registrant and a number of its
other insurance subsidiaries located in Saint Paul. These
buildings consist of
approximately 1.1 million square feet of gross floor space. Several subsidariesFire and Marine also
owns a building in Freeport, Illinois that houses a portion of its personal
insurance operations, and property in Woodbury, MN where its Administrative
Services Building and off-site computer processing operations are located. The
St. Paul also owns the former USF&G headquarters campus known as Mount
Washington Center, located in Baltimore, MD. The campus currently houses offices
for certain executives of The St. Paul, as well as offices for certain
underwriting, legal and claim personnel. A training and development center also
resides on the Mount Washington campus. The St. Paul has entered into an
agreement to lease a substantial portion of one of the Registrant, includingbuildings on the Minet Group,campus
to an outside party.
St. Paul UK and Economy, ownInternational Insurance Company Ltd. owns a building in London,
England, which houses a portion of its operations. One of the two Minet
buildings which house their respective
operations.in London that The St. Paul retained ownership of after the sale of
Minet to Aon in 1997 was sold at the end of 1998. In March 1999, The St. Paul
reached an agreement to lease the other Minet building to an outside party.
Fire and Marine and its subsidiary, St. Paul Properties, Inc., own a portfolio
of income-producing properties in various locations across the United States
that they have purchased for investment. A portion of the real estate investment
portfolio of the former USF&G is being integrated into The Registrant'sSt. Paul's portfolio,
with the remainder being held for sale to third parties.
The St. Paul's operating subsidiaries rent or lease office space in manymost cities
in which they operate.
Management considers the currently owned and leased office facilities of the RegistrantThe St.
Paul and its subsidiaries adequate for the current and anticipated future level
of operations.
ItemITEM 3. Legal Proceedings.
- ------ -----------------LEGAL PROCEEDINGS.
The information set forth in the "Legal Matters" section of Note 10
on page 60 of12 to the
Registrant's 1993 Annual Report to Shareholders,consolidated financial statements, and the "Environmental and Asbestos Claims"
section of "Management's Discussion and Analysis" on pages 38 and 39 of saidAnalysis," which are included in The St.
Paul's 1998 Annual Report to Shareholders, are incorporated herein by reference.
In 1989, Economy commenced a declaratory judgment action in1990, at the Circuit Court of Missouri asking that court to declare that Economy
is not liable under a homeowner's policy for a wrongful death that
occurred in the home of its insured, Robert A. Berdella, Jr.
(Berdella). In a separate lawsuit (to which Economy was not a
party) concerning that wrongful death, judgment was entered against
Berdella and in favordirection of the claimant (Haste)UK Department of Trade and Industry (DTI), five
insurance underwriting subsidiaries of London United Investments PLC (LUI)
suspended underwriting new insurance business. At the same time, four of those
subsidiaries, being insolvent, suspended payment of claims and have since been
placed in provisional liquidation. The fifth subsidiary, Walbrook Insurance
Company, continued paying claims until May of 1992 but has now also been placed
in provisional insolvent liquidation. Weavers Underwriting Agency (Weavers), an
LUI subsidiary, managed these insurers. Minet, a former insurance brokerage
subsidiary of The St. Paul, had brokered business to and from Weavers for many
years. From 1973 through 1980, The St. Paul's UK-based underwriting operations,
now called St. Paul International Insurance Company Ltd. (SPI), had accepted
business from Weavers. A portion of that business was ceded by SPI to
reinsurers. Certain of those reinsurers have challenged the amountvalidity of $2.5
billioncertain
reinsurance contracts relating to the Weavers pool, of which SPI was a member,
in compensatory damagesan attempt to avoid liability under those contracts. SPI and $2.5 billion in punitive
damages. Berdella subsequently agreed to pay Haste $17 million, in
settlementother members of
the $2.5 billion punitive damages award, and interest
(currently totaling approximately $250 million) on $2.5 billion, in
settlementWeavers pool are seeking enforcement of the $2.5 billion compensatory damages award. Inreinsurance contracts. Minet may
also become the subject of legal proceedings arising from its declaratory judgment action, Economy has moved for summary
judgment which, if granted, would mean that Economy is not liable
to pay any portionrole as one of the
amount that Berdella has agreed to pay
Haste.major brokers for Weavers. When The Registrant expects the court to rule on Economy's
motion for summary judgmentSt. Paul sold Minet in the near future. Kemper Corporation
hasMay 1997, it agreed
to indemnify the Registrantpurchaser for most of Minet's preclosing liabilities, including
liabilities relating to the Weavers matter. Any proceedings relating to the
Weavers matter will be vigorously contested by The St. Paul and its subsidiaries
(including Economy) against all losses and expenses incurred in
connection with this lawsuit.
The Registrant previously reportedit recognizes
that the Superior Courtfinal outcome of California had entered judgment againstthese proceedings, if adverse to The St. Paul, Fire and Marine
Insurance Company and in favormay
materially impact the results of Arntz Contracting Company and
certain of its affiliatesoperations in the amount of $16.5 millionperiod in compensatory damages and $100 million in punitive damages. In
January 1994, the portion of the judgment granting punitive damages
was vacated. Both partieswhich that outcome
occurs, but believes it will not have appealed the court's rulings.
Itema materially adverse effect on its
liquidity or overall financial position.
15
ITEM 4. Submission of Matters to a Vote of Security Holders.
- ------ ---------------------------------------------------SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders during the quarter ended
Dec.December 31, 1993.
Executive Officers of the Registrant.
- ------------------------------------1998.
EXECUTIVE OFFICERS OF THE REGISTRANT
All of the following persons listed below are regarded as executive officers of The St. Paul
Companies, Inc. because of thetheir responsibilities they have and duties they perform as elected officers
of the
Registrant,The St. Paul, Fire and Marine, St. Paul International Underwriting or St.
Paul Re. There are no family relationships between any of the Registrant'sThe St. Paul's
executive officers and directors, and there are no arrangements or
understandings between any of these officers and any other person pursuant to
which the officer was selected as an officer. All ofThe officers listed in the following
officerschart
below, except Nicholas M. Brown Jr., Andrew I. DouglassThomas A. Bradley, Michael J. Conroy, James E. Gustafson, James
Hom, Stephen W. Lilienthal, Paul J. Liska, John A. MacColl and Greg A. LeeDavid R. Nachbar,
have held executive positions with the RegistrantThe St. Paul or one or more of its subsidiaries for
more than five years, and have been employees of the RegistrantThe St. Paul or a subsidiary
for more than five years.
Nicholas M. Brown Jr. joined the Registrant in September
1993. ForMessrs. Thomas A. Bradley, Stephen W. Lilienthal and John A. MacColl held
positions and were employees of USF&G Corporation or one of its subsidiaries for
five or more than five years prior to joiningits merger with The St. Paul. in April of 1998.
James E. Gustafson joined the Registrant,company on Jan. 30, 1999. He had been an employee
of General Re Corporation since 1969 where he held various executive positions
until being named President and Chief Operating Officer of General Re
Corporation in 1995. Paul J. Liska joined The St. Paul in January of 1997. For
three years prior to that date, Mr. BrownLiska held various management positions with
Aetna LifeSpecialty Foods Corporation, including the position of president and Casualty. Mr. Douglasschief
executive officer from January 1996 to January 1997.
Michael J. Conroy joined the RegistrantThe St. Paul in August 1993.of 1994. For
more than five years prior to
joining the Registrant,that date, Mr. DouglassConroy held various legal managementmanager positions with Heller International
Corporation. Greg A. LeeThe Home Insurance
Company, including executive vice president and chief administrative officer.
James Hom joined the RegistrantThe St. Paul in January 1993.October of 1994. Prior to that, Mr. Hom served
as vice president-corporate claims and project management for The Home Insurance
Company. David R. Nachbar joined The St. Paul in August 1998. For more than fivetwo years
prior to joining the Registrant,that date, Mr. Lee
held variousNachbar was employed as vice president, human resources
management positions withand chief of staff-Asia for Citibank. From 1995 - 1996 he was the area human
resources director for Frito-Lay, a PepsiCo Inc. and its subsidiaries.
Positions Termunit. From 1989 through 1995, Mr.
Nachbar was employed in various capacities in the human resources area by the
Pizza Hut division of Office
Presently and Period of
Name Age Held Service
- ---- --- --------- --------------
Douglas W. 57 Chairman, President Serving at the
Leatherdale and Chief Executive pleasure of the
Officer Board from 5-90
Thomas W. McKeown 64 Executive Vice Serving at the
President and Chief pleasure of the
Administrative Board from 5-85
Officer
Patrick A. Thiele 43 Executive Vice Serving at the
President and pleasure of the
Chief Financial Board from 12-91
Officer
Nicholas M. 39 President- Serving at the
Brown Jr. St. Paul pleasure of the
Specialty-PepsiCo.
TERM OF OFFICE AND PERIOD OF
NAME AGE POSITIONS PRESENTLY HELD SERVICE
---- --- ------------------------ ----------------------------
Douglas W. Leatherdale 62 Chairman and Chief Executive Serving at the pleasure of the
Officer Board from 5-90
(The St. Paul Companies, Inc.)
James E. Gustafson 52 President and Chief Operating Serving at the pleasure of the
Officer Board from 1-99
(The St. Paul Companies, Inc.)
Paul J. Liska 43 Executive Vice President and Serving at the pleasure of the
Chief Financial Officer Board from 1-97
(The St. Paul Companies, Inc.)
James F. Duffy 55 Chairman, President and Chief Serving at the pleasure of the
Executive Officer (St. Paul Re) Board from 9-93
Fire and Marine
Gary P. Hanson 50 President-
16
TERM OF OFFICE AND PERIOD OF
NAME AGE POSITIONS PRESENTLY HELD SERVICE
---- --- ------------------------ ----------------------------
John A. MacColl 50 Executive Vice President - Serving at the pleasure of the
Baltimore Operations Board from 5-98
(The St. Paul Companies, Inc.)
Mark L. Pabst 52 President and Chief Operating Serving at the pleasure of the
Officer (St. Paul International) Board from 2-95
Michael J. Conroy 57 Executive Vice President and Serving at the pleasure of the
Chief Administrative Officer Board from 8-95
(Fire and Marine )
Stephen W. Lilienthal 49 Executive Vice President (Fire Serving at the pleasure of the
and Marine) Board from 4-98
Joseph B. Nardi 54 Executive Vice President & Serving at the pleasure of the
President - Specialty Commercial Board from 2-98
(Fire and Marine)
Bruce A. Backberg 50 Senior Vice President and Chief Serving at the pleasure of the
Legal Counsel Board from 11-97
(The St. Paul Companies, Inc.)
James L. Boudreau 63 Senior Vice President - Corporate Serving at the pleasure of the
Finance Board from 3-98
(The St. Paul Companies, Inc.)
Thomas A. Bradley 41 Senior Vice President and Serving at the pleasure of the
Corporate Controller Board from 5-98
(The St. Paul Companies, Inc.)
Karen L. Himle 43 Senior Vice President - Corporate Serving at the pleasure of the
Affairs Board from 11-97
(The St. Paul Companies, Inc.)
James Hom 43 Senior Vice President - Strategic Serving at the pleasure of the
Planning and Development Board from 10-94
(The St. Paul Companies, Inc.)
David R. Nachbar 36 Senior Vice President - Human Serving at the pleasure of the
Resources Board from 8-98
(The St. Paul Companies, Inc.)
Sandra Ulsaker Wiese 39 Senior Corporate Counsel and Serving at the pleasure of the
Corporate Secretary Board from 2-98
(The St. Paul Companies, Inc.)
17
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
The St. Paul's common stock is traded on the New York Stock Exchange, where it
is assigned the symbol SPC. The stock is also listed on the London Stock
Exchange under the symbol SPA. The number of holders of record, including
individual owners, of The St. Paul pleasurePaul's common stock was 24,179 as of the
Personal & Board from 9-93
Business
Insurance-
Fire and Marine
James A. Schulte 44 President- Serving at the
St. Paul pleasure of the
Commercial- Board from 10-93
Fire and Marine
James F. Duffy 50 President and Serving at the
Chief Executive pleasure of the
Officer- Board from 9-93
St. Paul Re
Howard E. Dalton 56 Senior Vice Serving at the
President and pleasure of the
Chief Accounting Board from 9-87
Officer
Andrew I. Douglass 50 Senior Vice Serving at the
President and pleasure of the
General Counsel Board from 8-93
Greg A. Lee 44 Senior Vice Serving at the
President- pleasure of the
Human Resources Board from 1-93
Bruce A. Backberg 45 Vice President Serving at the
and Corporate pleasure of the
Secretary Board from 5-92
James L. Boudreau 58 Vice President Serving at the
and Treasurer pleasure of the
Board from 11-90
Part II
Item 5. Market for the Registrant's Common Equity and Related
- ------ Stockholder Matters.
-----------------------------------------------------March 1,
1999.
The "Stock Trading" and "Stock Price and Dividend Rate" portions of the
"Shareholder Information" section on the inside back cover of the Registrant's 1993The St. Paul's 1998 Annual Report to
Shareholders are incorporated herein by reference.
ItemITEM 6. Selected Financial Data.
- ------ -----------------------SELECTED FINANCIAL DATA.
The "Eleven-year"Six-Year Summary of Selected Financial Data" section on
pages 42 and 43 of the Registrant's 1993included in The St. Paul's
1998 Annual Report to Shareholders is incorporated herein by reference.
ItemITEM 7. Management's Discussion and Analysis of Financial Condition and
- ------ Results of Operations.
---------------------------------------------------------------MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The "Management's Discussion and Analysis" section on pages 22 to
41 of the Registrant's 1993included in The St. Paul's 1998
Annual Report to Shareholders is incorporated herein by reference.
ItemITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The "Exposures to Market Risk" section in The St. Paul's 1998 Annual Report to
Shareholders is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The "Management's Responsibility for Financial Statements," "Independent
Auditors' Report," Consolidated Balance Sheets, Consolidated Statements of
Income, Comprehensive Income, Shareholders' Equity and Cash Flows, and Notes to
Consolidated Financial Statements and Supplementary Data.
- ------ -------------------------------------------included in The financial statements and supplementary data on pages 42 to 63
of the Registrant's 1993St. Paul's 1998 Annual Report
to Shareholders are incorporated herein by reference.
ItemITEM 9. Changes in and Disagreements With Accountants onCHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
18
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The "Election of Directors - ------ Accounting and Financial Disclosure.
---------------------------------------------------------------
None.
Part III
--------
Item 10. Directors and Executive Officers of the Registrant.
- ------- --------------------------------------------------
The "NomineesNominees for Directors" section, which provides
information regarding the Registrant'sThe St. Paul's directors, on pages 4 to 6 of the
Registrant'sThe St.
Paul's Proxy Statement relating to the annual meetingAnnual Meeting of shareholdersShareholders to be held
May 3, 1994,4, 1999, is incorporated herein by reference. Roger L. Hale, who has servedJames E. Gustafson, 52,
elected President and Chief Operating Officer of The St. Paul Companies, Inc. by
the Registrant asboard of directors in January of 1999, is standing for election by
shareholders for the first time at the 1999 Annual Meeting of Shareholders.
Norman P. Blake, Jr., 57, is currently a director since January 1, 1980,of The St. Paul, but is not
standing for re-election as
a director at the May 3, 1994 annual meeting. Mr. Hale, who is 59
years old, has held the positions1999 Annual Meeting of President and Chief Executive
Officer of TENNANT, which manufactures industrial floor maintenance
equipment, for more than the past five years. He also serves as a
director of TENNANT, First Bank System, Inc. and Dayton-Hudson
Corporation.Shareholders. Information
regarding the Registrant'sThe St. Paul's executive officers is included in Part I of this
report.
ItemThe "Section 16(a) Beneficial Ownership Reporting Compliance" section on page 40
of The St. Paul's Proxy Statement relating to the Annual Meeting of Shareholders
to be held May 4, 1999, is incorporated herein by reference.
ITEM 11. Executive Compensation.
- ------- ----------------------EXECUTIVE COMPENSATION.
The "Executive Compensation" section on pages 1922 to 2635 and the "Board"Election of
Directors - Board of Directors Compensation" section on pages 67 to 810 of the
Registrant's
Proxy Statement relating to the annual meetingAnnual Meeting of shareholdersShareholders to be held May 3, 1994,4,
1999, are incorporated herein by reference.
ItemITEM 12. Security Ownership of Certain Beneficial Owners and
- ------- Management.
---------------------------------------------------SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT.
The "Security Ownership of Certain Beneficial Owners and Management" section on
pages 2737 to 3039 of the Registrant's Proxy Statement relating to the annual meetingAnnual Meeting of
shareholdersShareholders to be held May 3, 1994, are4, 1999, is incorporated herein by reference.
ItemITEM 13. Certain Relationships and Related Transactions.
- ------- ----------------------------------------------
None.
PartCERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The "Indebtedness of Management" section on page 36 of the Proxy Statement
relating to the Annual Meeting of Shareholders to be held May 4, 1999, is
incorporated herein by reference.
19
PART IV
-------
ItemITEM 14. Exhibits, Financial Statements, Financial Statement
- ------- Schedules and Reports on FormEXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT
SCHEDULES AND REPORTS ON FORM 8-K.
---------------------------------------------------
(a) Filed documents. The following documents are filed as part of this report:
1. Financial Statements.
Incorporated by reference into Part II of this report:
The St. Paul Companies, Inc. and Subsidiaries:
Consolidated Statements of OperationsIncome - YearYears Ended
December 31, 1993, 19921998, 1997 and 19911996
Consolidated Statements of Comprehensive Income -
Years Ended December 31, 1998, 1997 and 1996
Consolidated Balance Sheets - December 31, 19931998
and 19921997
Consolidated Statements of Common Shareholders'
Equity - YearYears Ended December 31, 1993, 19921998, 1997 and 19911996
Consolidated Statements of Cash Flows - YearYears Ended
December 31, 1993, 19921998, 1997 and 19911996
Notes to Consolidated Financial Statements
Independent Auditors' Report
The foregoing documents are incorporated by reference to The
St. Paul's 1998 Annual Report to Shareholders.
2. Financial Statement Schedules.
The St. Paul Companies, Inc. and Subsidiaries:
Independent Auditor'sAuditors' Report on Financial Statement Schedules
I. Summary of Investments - Other than Investments in Related
Parties
II. Amounts Receivable from Related Parties, and
Underwriters, Promoters, and Employees Other
Than Related Parties
III. Condensed Financial Information of Registrant
V.III. Supplementary Insurance Information
VI.IV. Reinsurance
VIII.V. Valuation and Qualifying Accounts
IX. Short-term Borrowings
X. Supplemental Information -
Property-Liability InsuranceVII. Predecessor Auditors' Reports on Consolidated Financial
Statements and Financial Statement Schedules
All other schedules are omitted because they are not applicable,
not required, or the information is included elsewhere in the
Consolidated Financial Statements or Notes thereto.
3. Exhibits. An Exhibit Index is set forth at page 38 of this report.
(3)(2) The current articlesdefinitive Agreement and Plan of incorporationMerger
among The St. Paul, USF&G Corporation and the
current bylaws of the Registrant are incorporated
herein by reference to the Registrant's Form 10-K
for the year ended December 31, 1990.
(4) A specimen certificate of the Registrant's common
stockSP
Merger Corporation is incorporated herein by
reference to the Registrant's Form 10-K for the year ended December
31, 1992.8-K Current Report
dated January 19, 1998.
(3) (a) The Registrant's Shareholder Protection Rights
Agreement and the amendment thereofcurrent articles of incorporation of The St. Paul are
filed herewith.
(b) The current bylaws of The St. Paul are incorporated herein
by reference to Form 10-Q for the Registrant'squarter ended March 31,
1994.
20
(4) (a) A specimen certificate of The St. Paul's common stock is
filed herewith.
(b) The Amended and Restated Shareholder Protection Rights
Agreement is incorporated herein by reference to Form 8-K
Current Reports dated December 4, 1989 and March 9,
1990.10-Q
for the quarter ended June 30, 1995.
There are no long-term debt instruments in which the total
amount of securities authorized exceeds 10% of the total
assets of the RegistrantThe St. Paul and its subsidiaries on a
consolidated basis. The RegistrantSt. Paul agrees to furnish a copy
of any of its long-term debt instruments to the Securities
and Exchange Commission upon request.
(10)(a) The Registrant's Non-Employee Director Stock
Retainer PlanEmployment Agreement between The St. Paul and Mr.
James E. Gustafson dated as of January 6, 1999 is incorporated by reference to the
Registrant's Form 10-K for the year ended December
31, 1991.filed
herewith.
(b) The summary description of the Registrant's Outside
Directors' Retirement Plan is incorporated by
reference to the Registrant's proxy statement
relating to the annual meeting of shareholders
to be held May 3, 1994.
The Registrant's 1988 Stock Option Plan, as amended,
is incorporated by reference to the Registrant's
Form 10-K for the year ended December 31, 1990.
The Registrant's Restricted Stock Award Plan, as amended, is incorporated herein by reference to the
Registrant's Form 10-K for the year ended December
31, 1989.filed
herewith.
(c) The Registrant's Benefit Equalization Plan and
Special Severance Policy are incorporated by
reference to the Registrant's Form 10-K for the year
ended December 31, 1987.
The Registrant's amended 19801988 Stock Option Plan as in effect for options
granted prior to February
1988,June 1994, as amended, is filed herewith.
(d) The Non-Employee Director Stock Retainer Plan is filed
herewith.
(e) The Amended and Restated Special Severance Policy is
filed herewith.
(f) The Confidential Separation Agreement between The St. Paul
and Mr. Patrick A. Thiele dated as of September 1, 1998
is filed herewith.
(g) The Annual Incentive Plan is incorporated by reference
to the Registrant's RegistrationProxy Statement on Form S-8 (SEC
File No. 33-26923) filed February 8, 1989.relating to the Annual Meeting
of Shareholders to be held May 4, 1999.
(h) The Amended and Restated 1994 Stock Incentive Plan is
incorporated by reference to the Proxy Statement relating
to the Annual Meeting of Shareholders to be held May 4,
1999.
(i) The Deferred Management Incentive Awards Agreement -
Prime Rate, the Deferred Management Incentive Awards
Agreement - Phantom Stock, the Directors' Deferred
Compensation Agreement - Prime Rate and the
Directors' Deferred Compensation Agreement - Phantom
Stock arePlan is
incorporated by reference to the
Registrant's Form 10-K for the year ended
December 31, 1982.1997.
(j) The Registrant's AlternateDirectors' Deferred Compensation Plan is incorporated
by reference to Form 10-K for the year ended December 31,
1997.
(k) The Relocation Loan Payback Agreement with Mr. James F.
Duffy is incorporated by reference to Form 10-K for the
year ended December 31, 1997.
(l) The Benefit Equalization Plan - 1995 Revision is
incorporated by reference to Form 10-K for the year ended
December 31, 1997.
(m) First Amendment to Benefit Equalization Plan - 1995
Revision is incorporated by reference to Form 10-K for the
year ended December 31, 1997.
(n) Executive Post-Retirement Life Insurance Plan - Summary
Plan Description is incorporated by reference to Form 10-K
for the year ended December 31, 1997.
(o) Executive Long-Term Disability Plan - Summary Plan
Description is incorporated by reference to Form 10-K for
the year ended December 31, 1997.
21
(p) Letter Agreement dated Jan. 18, 1998 among The St. Paul,
USF&G Corporation, SP Merger Corporation and Mr. Norman P.
Blake, Jr. pertaining to Mr. Blake's duties with The St.
Paul subsequent to the consummation of the proposed merger
of The St. Paul and USF&G Corporation is incorporated by
reference to Form 10-K for the year ended December 31,
1997.
(q) The St. Paul Re Long-Term Incentive Plan is incorporated
by reference to the Registrant'sForm S-8 Registration Statement filed
March 17, 1998 (Commission File No. 333-48121).
(r) Letter Agreement between The St. Paul and Mr. Paul J.
Liska relating to the terms of his employment is
incorporated by reference to Form 10-Q for the quarter
ended March 31, 1983.1997.
(s) Letter Agreement between The summary descriptions ofSt. Paul and Mr. Paul J.
Liska relating to severance benefits is incorporated by
reference to Form 10-Q for the Registrant's Annual
Incentivequarter ended March 31,
1997.
(t) The Special Leveraged Stock Purchase Plan Executive Post-Retirement Life
Insurance Plan and Executive Excess Long-Term
Disability Plan areis incorporated
by reference to Form 10-Q for the quarter ended March 31,
1997.
(u) Amendment to Deferred Stock Agreement with Mr. Mark L.
Pabst is incorporated by reference to Form 10-Q for the
quarter ended March 31, 1997.
(v) The Deferred Stock Grant Agreement with Mr. Mark L. Pabst
is incorporated by reference to the Registrant's proxy statementForm 10-K for the year
ended December 31, 1995.
(w) The Directors' Charitable Award Program is incorporated by
reference to the Form 10-K for the year ended December 31,
1994.
(x) The Long-Term Incentive Plan is incorporated by reference
to Form 10-Q for the quarter ended March 31, 1994.
(y) The summary description of the Outside Directors'
Retirement Plan is incorporated by reference to the Proxy
Statement relating to the annual
meetingAnnual Meeting of shareholders which wasShareholders
to be held on May 5,
1992.4, 1999.
(11) A statement regarding the computation of per share earnings.earnings
is filed herewith.
(12) A statement regarding the computation of the ratio of
earnings to fixed charges and the ratio of earnings to
combined fixed charges and preferred stock dividends.dividends is filed
herewith.
(13) The Registrant's 1993St. Paul's 1998 Annual Report to Shareholders.Shareholders is
furnished to the Commission in paper format pursuant to Rule
14a-3(c). The following portions of such annual report,
representing those portions expressly incorporated by
reference in this report on Form 10-K, are filed as an exhibit
to this report:
Portions of Annual Report for the Items in
this year ended December 31, 1993 report
----------------------------------- -------------
Consolidated Financial Statements Item 8
Notes to Consolidated Financial Statements Item 1,8
Independent Auditors' Report Item 8
Management's Discussion and Analysis Item 7
"Stock Trading" and "Stock Price and Dividend
Rate" portions of "Shareholder Information"22
Location of
Information
Portions of Annual Report for the Year Ended Incorporated by
December 31, 1998 Reference
---------------------------------------------------- ------------------
Consolidated Financial Statements Item 8
Notes to Consolidated Financial Statements Item 1, 8
Independent Auditors' Report Item 8
Management's Discussion and Analysis Item 1, 3, 7
Six-Year Summary of Selected Financial Data Item 6
Shareholder Information Item 5
Eleven-year Summary of Selected
Financial Data Item 6
The Registrant's complete 1993 Annual Report to
Shareholders is furnished to the Commission in a
paper format pursuant to Rule 14a-3(c).
(21) List of subsidiaries of the Registrant.The St. Paul Companies, Inc. is filed
herewith.
(23) ConsentConsents of independent auditors to incorporation by
reference of certain reports into the Registrant's
Registration Statements on
Form S-8 (SEC File No. 2-
69894, No. 33-15392, No. 33-20516, No. 33-23446, No. 33-23948,
No. 33-24220, No. 33-24575, No. 33-26923, No. 33-49273, No.
33-56987, No. 333-01065, No. 333-22329, No. 333-25203, No.
333-28915, No. 333-48121, No. 333-50935, No. 333-50937, No.
333-50941, No. 333-50943 and No. 33-49273)333-67983) and Form S-3 (SEC
File No. 33-
3393133-33931, No. 33-50115, No. 33-58491, No. 333- 06465
and No. 33-50115).333-67139) are filed herewith.
(24) Power of attorney.
(28) Information from reports furnished to state
insurance regulatory authorities.attorney is filed herewith.
(27) Financial data schedule is filed herewith.
(b) Reports on Form 8-K.
The Registrant filed aA Form 8-K Current Report dated October 12, 1993, pertaining1998 was filed
relating to exhibits filedthe announcement of the anticipated impact of
catastrophe losses on The St. Paul's third quarter 1998 financial
results, and the anticipated impact of adverse market conditions
in connection with the Registrant's Registration Statementgeneral commercial property/casualty marketplace on Form S-3.
The Registrant filed aSt.
Paul's third and fourth quarter 1998 financial results.
A Form 8-K Current Report dated October 21, 1993, pertaining to the Registrant's press
releaseNovember 3, 1998 was filed
relating to the announcement of thirdThe St. Paul's financial results
for the quarter 1993 financial results.
The Registrant filed aended Sept. 30, 1998.
A Form 8-K Current Report dated January 24, 1994, pertaining6, 1999 was filed
relating to the Registrant's press
releaseelection of James E. Gustafson as president and
chief operating officer of The St. Paul.
A Form 8-K Current Report dated January 29, 1999 was filed
relating to the announcement of The St. Paul's financial results
for the year ended DecemberDec. 31, 1993.
The Registrant filed a1998.
A Form 8-K Current Report dated February 10, 1994, pertaining to the Registrant's press
releaseMarch 4, 1999 was filed relating
to the announcement of estimated losses
from catastrophes in January 1994 and toThe St. Paul's revised financial results
for the possibility
of the Registrant repurchasing up to one million of its
common shares.year ended Dec. 31, 1998.
23
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the RegistrantThe St. Paul Companies, Inc. has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
THE ST. PAUL COMPANIES, INC.
----------------------------
(Registrant)
DateDate: March 18, 199431, 1999 By /s/ Bruce A. BackbergSandra Ulsaker Wiese
-------------- ---------------------
Bruce A. Backberg
Vice President------------------------
Sandra Ulsaker Wiese
Senior Corporate Counsel and
Corporate Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the RegistrantThe St.
Paul Companies, Inc. and in the capacities and on the dates indicated.
DateDate: March 18, 199431, 1999 By /s/ Douglas W. Leatherdale
-------------- --------------------------
Douglas W. Leatherdale,
Director, Chairman of the
Board President
and Chief Executive Officer
DateDate: March 18, 199431, 1999 By /s/ Patrick A. ThieleJames E. Gustafson
-------------- ---------------------
Patrick A. Thiele,----------------------
James E. Gustafson,
Director, President and Chief
Operating Officer
Date: March 31, 1999 By /s/ Paul J. Liska
-------------- -----------------
Paul J. Liska,
Executive Vice President and Chief
Financial Officer
DateDate: March 18, 199431, 1999 By /s/ Howard E. DaltonThomas A. Bradley
-------------- --------------------
Howard E. Dalton,---------------------
Thomas A. Bradley,
Senior Vice President and Chief
Accounting Officer
DateDate: March 18, 199431, 1999 By /s/ H. Furlong Baldwin
-------------- ----------------------
H. Furlong Baldwin*, Director
Date: March 31, 1999 By /s/ Norman P. Blake, Jr.
-------------- ------------------------
Norman P. Blake, Jr.*, Director
Date: March 31, 1999 By /s/ Michael R. Bonsignore
-------------- -------------------------
Michael R. Bonsignore*, Director
DateDate: March 18, 199431, 1999 By /s/ John H. Dasburg
-------------- -------------------
John H. Dasburg*, Director
DateDate: March 18, 199431, 1999 By /s/ W. John Driscoll
-------------- --------------------
W. John Driscoll*, Director
DateDate: March 18, 199431, 1999 By /s/ Mark S. FowlerKenneth M. Duberstein
-------------- ------------------
Mark S. Fowler*-------------------------
Kenneth M. Duberstein*, Director
DateDate: March 18, 199431, 1999 By /s/ Pierson M. Grieve
-------------- ---------------------
Pierson M. Grieve*, Director
DateDate: March 18, 199431, 1999 By /s/ Roger L. HaleThomas R. Hodgson
-------------- ---------------------
Thomas R. Hodgson*, Director
24
Date: March 31, 1999 By /s/ David G. John
-------------- -----------------
Roger L. Hale*David G. John*, Director
DateDate: March 18, 1994 By /s/ Ronald James
-------------- ----------------
Ronald James*, Director
Date March 18, 199431, 1999 By /s/ William H. Kling
-------------- --------------------
William H. Kling*, Director
DateDate: March 18, 199431, 1999 By /s/ Bruce K. MacLaury
-------------- ---------------------
Bruce K. MacLaury*, Director
DateDate: March 18, 1994 By /s/ Ian A. Martin
-------------- -----------------
Ian A. Martin*, Director
Date March 18, 199431, 1999 By /s/ Glen D. Nelson, M.D.
-------------- ------------------------------------------
Glen D. Nelson*Nelson, M.D.*, Director
DateDate: March 18, 199431, 1999 By /s/ Anita M. Pampusch
-------------- ---------------------
Anita M. Pampusch*, Director
DateDate: March 18, 199431, 1999 By /s/ Gordon M. Sprenger
-------------- ----------------------
Gordon M. Sprenger*, Director
Date: March 31, 1999 *By /s/ Bruce A. BackbergSandra Ulsaker Wiese
-------------- ----------------------
Bruce A. Backberg,------------------------
Sandra Ulsaker Wiese,
Attorney-in-fact
25
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULES
The Board of Directors and Shareholders
The St. Paul Companies, Inc.:
Under date of January 24, 1994,March 2, 1999, we reported on the consolidated balance sheets of
The St. Paul Companies, Inc. and subsidiaries as of December 31, 19931998 and 1992,1997,
and the related consolidated statements of operations, commonincome, shareholders' equity,
comprehensive income and cash flows for each of the years in the three-year
period ended December 31, 1993,1998, as contained in the 19931998 annual report to
shareholders. These consolidated financial statements and our report thereon are
incorporated by reference in the annual report on Form 10-K for the year 1993.1998.
In connection with our audits of the aforementioned consolidated financial
statements we also have audited the related financial statement schedules I
through V, as listed in the index in Item 14(a)2. of said Form 10-K. These
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statement schedules based on our audits.
The consolidated financial statements and financial statement schedules as of
December 31, 1997 and for each of the years in the two-year period then ended
have been restated to reflect the pooling of interests with USF&G Corporation.
We did not audit the consolidated financial statements or financial statement
schedules of USF&G Corporation as of December 31, 1997 or for either of the
years in the two-year period ended December 31, 1997, which statements reflect
total assets constituting 43 percent as of December 31, 1997 and total revenues
constituting 35 percent and 38 percent for the years ended December 31, 1997 and
1996, respectively, of the related consolidated totals. Those statements and
financial statement schedules were audited by other auditors whose reports have
been furnished to us, and our opinion, insofar as it relates to the amounts
included for USF&G Corporation, as of December 31, 1997 and for each of the
years in the two-year period then ended, is based solely on the reports of the
other auditors.
In our opinion, based on our audits and the reports of the other auditors, such
financial statement schedules I through V, when considered in relation to the
basic consolidated financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
St. Paul,Minneapolis, Minnesota
January 24, 1994 /s/ KPMG Peat Marwick ---------------------LLP
March 2, 1999 -------------------------
KPMG Peat Marwick LLP
26
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
SCHEDULE I - SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN RELATED PARTIES
December 31, 19931998
(In thousands of dollars)thousands)
1993
--------------------------------------------1998
---------------------------------------------------------
Amount at
which shown
in the
Cost(1) Value(1)Cost* Value* balance sheet
-------- -------------------- ---------- -------------
Type of investment:
Fixed maturities:
FIXED MATURITIES:
United States Government and
government agencies and
authorities $ 1,854,287 1,938,992 1,938,9922,672,630 $2,881,094 $ 2,881,094
States, municipalities and
political subdivisions 4,108,680 4,610,918 4,610,9186,113,669 6,558,821 6,558,821
Foreign governments 520,254 564,699 564,699909,353 978,216 978,216
Corporate securities 957,526 1,016,074 1,016,0746,747,847 7,096,370 7,096,370
Asset-backed securities 661,259 684,440 684,440
Mortgage-backed securities 944,352 1,017,281 1,017,2812,791,677 2,857,318 2,857,318
---------- ------------------- ----------
Total fixed maturities 8,385,099 9,147,964 9,147,96419,896,435 21,056,259 21,056,259
---------- ========= ---------- Equity securities:----------
EQUITY SECURITIES:
Common stocks:
Public utilities 40,389 44,025 44,02557,341 86,100 86,100
Banks, trusts and insurance
companies 23,871 25,030 25,030104,951 122,705 122,705
Industrial, miscellaneous and
all other 424,123 479,627 479,627779,431 1,049,704 1,049,704
---------- ------------------- ----------
Total equity securities 488,383 548,682 548,682941,723 1,258,509 1,258,509
---------- =========---------- ----------
Venture capital 224,523 297,982 297,982
---------- ========= ----------389,225 571,340 571,340
------- ----------- -------
Real estate 498,691(2) 488,691and mortgage loans 1,519,227** 1,507,448
Securities lending collateral 1,368,322 1,368,322
Other investments 47,834 47,834371,526 371,526
Short-term investments 725,261 725,261982,488 982,488
---------- ----------
Total investments $10,369,791 11,256,414
========== ==========$25,468,946 $27,115,892
----------- -----------
----------- -----------
(1)* See Notes 1, 34, 5 and 46 to the consolidated financial statements included in
the Registrant's 1993The St. Paul's 1998 Annual Report to Shareholders.
(2)** The cost of real estate represents the cost of the properties before the valuation
provision.provisions. (See Schedule VIIIV on page 34)35).
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
SCHEDULE II - AMOUNTS RECEIVABLE FROM
RELATED PARTIES, AND UNDERWRITERS, PROMOTERS AND
EMPLOYEES OTHER THAN RELATED PARTIES
Years Ended December 31, 1993, 1992 and 1991
(In thousands of dollars)
Balance at
Deductions End of Year
---------------------- -----------------
Balance at Foreign
Beginning of Amounts Currency Non-
Name of Employee Year Additions Collected Translation Current current
- ---------------- ---------- --------- --------- ----------- ------- ---------
1993
- ----
Murray, R.H. (1) $ 432 27 (71) - 388 -
Quick, S.J. (2) 36 - - (6) 30 -
Bedford, A.D. (3) 107 - (45) (17) 45 -
Burne, R.E. (4) 416 - (416) - - -
Roche, B.J. (4) 416 - (416) - - -
----- --- ---- --- ----- ---
$1,407 27 (948) (23) 463 -
===== === ==== === ===== ===
1992
- ----
Murray, R.H. $ 402 30 - - 432 -
Quick, S.J. 166 - (133) 3 36 -
Bedford, A.D. 105 - - 2 107 -
Burne, R.E. 409 - - 7 416 -
Roche, B.J. 409 - - 7 416 -
----- --- ---- --- ----- ---
$1,491 30 (133) 19 1,407 -
===== === ==== === ===== ===
1991
- ----
Murray, R.H. $ 375 27 - - 402 -
Quick, S.J. 178 - - (12) 166 -
Bedford, A.D. 112 - - (7) 105 -
Burne, R.E. - 409 - - - 409
Roche, B.J. - 409 - - - 409
----- --- ---- --- ----- ---
$ 665 845 - (19) 673 818
===== === ==== === ===== ===
(1) Represents demand note, interest rate at market.
(2) Represents interest free, unsecured loan.
(3) Represents housing loan at 2.5%.
(4) Represents interest free, secured loan.
THE ST. PAUL COMPANIES, INC. (Parent Only)
SCHEDULE IIIII - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEET INFORMATION
December 31, 19931998 and 19921997
(In thousands of dollars)thousands)
Assets: 1998 1997
---------- ----------
Assets
- ------ 1993 1992
----- -----
Investment in subsidiaries $3,555,191 2,752,740$7,207,450 $7,078,111
Investments:
Fixed maturities (at estimated market value
in 1993; amortized cost in 1992) 49,134 49,237124,640 159,957
Equity securities at market 32,959 23,13470,332 52,834
Short-term investments 2,478 7,38711,832 11,472
Cash 8,796 -
Deferred income taxes 113,765 100,147
Notes and other receivables from subsidiaries 1,205 1,315359,463 455,445
Other assets 31,920 37,107599,445 257,925
---------- --------- ----------
Total assets $3,786,652 2,971,067
========= ==========
Liabilities
- -----------$8,381,958 $8,015,744
---------- ----------
---------- ----------
Liabilities:
Debt $ 717,056 705,570$1,406,339 $1,091,995
Dividends payable to shareholders 29,634 28,59058,320 39,305
Other liabilities 36,155 34,981
--------- ---------280,912 276,276
---------- ----------
Total liabilities 782,845 769,141
--------- ---------1,745,571 1,407,576
---------- ----------
Shareholders' Equity:
Preferred:
Convertible preferred stock 147,608 149,161134,181 137,892
Guaranteed obligation - PSOP (148,929) (149,734)
--------- ---------
Net convertible(118,605) (121,167)
---------- ----------
Total preferred stock (1,321) (573)
--------- ---------
Common Shareholders' Equity
- ---------------------------shareholders' equity 15,576 16,725
---------- ----------
Common:
Common stock, authorized 120,000,000480,000 shares;
issued 42,357,338233,750 shares (42,059,277(233,130 in 1992) 438,559 422,2491997) 2,127,671 2,057,108
Retained earnings 2,082,832 1,781,1133,480,057 3,720,140
Guaranteed obligation - ESOP (56,005) (67,452)- (8,453)
Accumulated other comprehensive income:
Unrealized appreciation of investments 588,844 63,6691,027,390 845,811
Unrealized gain (loss)loss on foreign currency translation (49,102) 2,920
--------- ---------(14,307) (23,163)
---------- ----------
Total accumulated other comprehensive income 1,013,083 822,648
---------- ----------
Total common shareholders' equity 3,005,128 2,202,499
--------- ---------6,620,811 6,591,443
---------- ----------
Total shareholders' equity 6,636,387 6,608,168
---------- ----------
Total liabilities preferred stock and
common shareholders' equity $3,786,652 2,971,067
========= =========$8,381,958 $8,015,744
---------- ----------
---------- ----------
See accompanying notes to condensed financial information.
28
THE ST. PAUL COMPANIES, INC. (Parent Only)
SCHEDULE IIIII - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENT OF INCOME INFORMATION
Years Ended December 31, 1993, 19921998, 1997 and 19911996
(In thousands of dollars)thousands)
1993 1992 19911998 1997 1996
-------- -------- --------
------- ------- -------
Revenues:
Revenues:
Net investment income $ 17,693 $ 17,472 $ 12,695
Realized investment gains (losses) $ 5,551 (7,022) 3,128
Net investment income 4,647 7,174 4,270
Realized gain on sale of minority
interest in Nuveen - 98,284 -
Other - - 43
------- ------- -------6,478 7,211 8,810
-------- -------- --------
Total revenues 10,198 98,436 7,441
------- ------- -------24,171 24,683 21,505
-------- -------- --------
Expenses:
Interest expense 43,349 36,933 39,15766,784 66,726 64,731
Administrative and other 25,403 22,575 14,005
------- ------- -------66,479 52,160 39,906
-------- -------- --------
Total expenses 68,752 59,508 53,162
------- ------- -------
Income (loss)133,263 118,886 104,637
-------- -------- --------
Loss before
income taxes (58,554) 38,928 (45,721)tax benefit (109,092) (94,203) (83,132)
Income tax benefit (24,977) (119,574) (14,017)
------- ------- -------
Income (loss) before cumulative
effects of accounting changes (33,577) 158,502 (31,704)
Cumulative effects of accounting
changes:
Income taxes - (23,264) -
Postretirement benefits - (2,934) -
------- ------- -------(79,799) (113,366) (46,462)
-------- -------- --------
Net income (loss) from continuing
operations- parent only (29,293) 19,163 (36,670)
Provision for loss on disposal of
discontinued operations - Parent(67,750) (88,543)
-------- -------- --------
Net loss - parent only (33,577) 132,304 (31,704)(29,293) (48,587) (125,213)
Equity in net income
(loss)
of subsidiaries 461,186 (288,342) 436,766
------- ------- -------118,641 977,879 857,915
-------- -------- --------
Consolidated net income (loss) $427,609 (156,038) 405,062
======= ======= =======$ 89,348 $929,292 $732,702
--------- -------- --------
--------- -------- --------
See accompanying notes to condensed financial information.
29
THE ST. PAUL COMPANIES, INC. (Parent Only)
SCHEDULE IIIII - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENT OF CASH FLOWS INFORMATION
Years Ended December 31, 1993, 19921998, 1997 and 19911996
(In thousands of dollars)thousands)
1993 1992 19911998 1997 1996
--------- --------- ---------
-------- -------- --------
Operating Activities:
Operating Activities:
Net income (loss)loss $ (33,577) 132,304 (31,704)(29,293) $ (48,587) $(125,213)
Cash dividends from subsidiaries 208,333 109,788 200,676223,228 216,301 200,648
Tax payments from subsidiaries 99,751 106,078 188,796
State and federal71,445 166,423 93,928
Federal tax refund from carryback claim 81,403 - -
Federal income tax payments (83,200) (107,100) (160,200)(27,437) (61,000) (70,000)
Adjustments to reconcile net income (loss)
to net cash provided by
operating activities:
Deferred tax provision (benefit) (7,609) (109,994) 1,865benefit -operations (78,062) (59,779) (21,891)
Realized investment gains (5,551) (91,262) (3,128)(6,478) (7,211) (8,810)
Provision for loss on discontinued operations - 67,750 88,543
Other (14,205) 2,951 (24,761)
-------- -------- --------(3,901) (19,458) (3,951)
--------- --------- ---------
Cash provided by operating activities 163,942 42,765 171,544
-------- -------- --------230,905 254,439 153,254
--------- --------- ---------
Investing Activities:
Purchases of investments (46,617) (55,756) (104,322)
Proceeds from sales and maturities
of investments 62,656 145,083 58,651
Purchases of investments (61,614) (193,626) (68,106)80,714 75,674 109,958
Capital contributions and loans
to subsidiaries (75,136) (50,311) (44,080)
Proceeds from sale of Nuveen shares - 137,052(178,112) (107,120) (55,922)
Discontinued operations (20,218) (54,018) -
Other 1,356 (5,734) 788
-------- -------- --------10,417 (3,221) (268)
--------- --------- ---------
Cash provided by (used in)used in
investing activities (72,738) 32,464 (52,747)
-------- -------- --------(153,816) (144,441) (50,554)
--------- --------- ---------
Financing Activities:
Dividends paid to shareholders (129,218) (126,067) (120,154)
Issuance(210,318) (165,809) (155,268)
Proceeds from issuance of debt 77,243 102,646 64,831239,041 117,572 53,000
Repayment of debt (51,735) (8,504) (45,011)
Repayment(25,000) (100,000) (17,711)
Repurchase of intercompany debt - - (30,387)
Reacquired common shares (207) (57,722) (193)(135,088) (26,503) (74,217)
Proceeds from Nuveen stock repurchase - 41,069 73,966
Stock options exercised and other 12,713 14,418 12,117
-------- -------- --------63,072 23,673 17,530
--------- --------- ---------
Cash used in financing activities (91,204) (75,229) (118,797)
-------- -------- --------
Effect of exchange rate changes
on cash - - -
-------- -------- --------(68,293) (109,998) (102,700)
--------- --------- ---------
Change in cash -8,796 - -
Cash at beginning of year - - -
-------- -------- ----------------- --------- ---------
Cash at end of year $ 8,796 $ - $ -
-
======== ======== ========--------- --------- ---------
--------- --------- ---------
See accompanying notes to condensed financial information.
30
THE ST. PAUL COMPANIES, INC. (Parent Only)
SCHEDULE IIIII - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL INFORMATION
1. The accompanying condensed financial information should be read in
conjunction with the consolidated financial statements and notes included
in the Registrant's 1993The St. Paul's 1998 Annual Report to Shareholders. 2. Carrying ValueThe Annual Report
includes The St. Paul's Consolidated Statements of Fixed Maturities: The Registrant adopted
Statement of Financial Accounting Standards No. 115,
"AccountingShareholders' Equity and
Comprehensive Income.
Some data in the accompanying condensed financial information for Certain Investments in Debtthe years
1997 and Equity
Securities," as of Dec. 31, 1993. The fixed-maturity
portfolio is now recorded at estimated market value,1996 were reclassified to conform with the corresponding unrealized appreciation recorded, net of taxes,
in common shareholders' equity. The Registrant did not
restate its 1992 balance sheet to reflect this change. The
estimated market value of the Registrant's fixed-maturity
portfolio at Dec. 31, 1992 was $51.9 million.
3. Cash Flow Reclassification: In 1993, the Registrant changed
its classification of realized gains from an operating cash
flow to an investing cash flow. The Registrant's statements
of cash flows for 1992 and 1991 were restated to reflect this
change.
4.1998 presentation.
2. Debt consists of the following:
December 31,
---------------------
1993 1992
------- --------
Medium-term notes $210,780 133,534
Commercial paper 201,384 229,889
Guaranteed PSOP debt (1) 148,929 149,734
9-3/8% notes 99,959 99,947
Guaranteed ESOP debt 47,223 58,333
Guaranteed ESOP debt (1) 8,781 9,119
Pound sterling loan notes - 25,014
------- -------
Total debt $717,056 705,570
======= =======following (in thousands):
December 31,
-------------------------------
1998 1997
--------- ---------
Medium-term notes $ 636,913 $ 511,920
Convertible subordinated debentures (1) 262,026 262,026
Commercial paper 257,461 168,429
Guaranteed PSOP debt (1) 118,606 121,167
Zero coupon convertible notes 111,333 -
Intercompany loan (1) 20,000 20,000
Guaranteed ESOP debt (1) - 5,673
Guaranteed ESOP debt - 2,780
---------- ------------
Total debt $1,406,339 $1,091,995
---------- ----------
---------- ----------
(1) Eliminated in consolidation.
See Note 69 to the consolidated financial statements included in the Registrant's 19931998
Annual Report to Shareholders for further information on the debt outstanding
at Dec. 31, 1993.1998.
The amount of debt, other than debt eliminated in consolidation, that
becomes due during each of the next five years (including the debt
discussed in Note 3 below) is as follows: 1994, $31.51999, $277.5 million; 1995, $11.12000, none;
2001, $195.2; 2002, $48.7 million; 1996, $212.5 million; 1997, $111.1 million;and 2003, $67.3 million.
3. Subsequent Event: The St. Paul Companies, Inc. merged with USF&G
Corporation on April 24, 1998 $27.8 million.
5. Common Shareholders' Equity: Seein a business combination accounted for as a
pooling of interests. (See Note 92, "Merger with USF&G Corporation," to the
consolidated financial statements included in the Registrant's 1993The St. Paul's 1998 Annual
Report to Shareholders.Shareholders). Effective Jan. 1, 1999, the former holding company
for USF&G Corporation was merged into St. Paul Fire and Marine Insurance
Company, and the holding company was dissolved. Prior to that merger, the
debt obligations of USF&G's holding company were assumed by The St. Paul
Companies, Inc. As a result, The St. Paul Companies, Inc. parent-only
financial statements in 1999 will include $150 million of 8-3/8% Senior
Notes and $80 million of 7-1/8% Senior Notes assumed from the former USF&G
holding company.
31
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
SCHEDULE V-SUPPLEMENTARYIII - SUPPLEMENTARY INSURANCE INFORMATION
(In thousands of dollars)thousands)
At December 31,
-----------------------------------------------------------------------------------------------------------------------------------
Gross loss,
Deferred Grossloss Other policy
policy loss andadjustment Gross claims and
acquisition loss adjustmentexpense reserves and unearned benefits
expenses expense reserves premiumspolicy benefits* premiums* payable
---------- -------------------- -------- ------------
----------- ---------------- -------- -----------
1993
1998
- - ----
Property-Liability Insurance
Underwriting:
SpecializedInsurance:
Commercial $106,584 3,014,729 595,960Lines $338,644 $ 8,964,612 $ 1,169,361 -
Medical Services 44,951 2,229,728 552,165 -
Business Insurance 46,328 1,471,664 215,125 -
Reinsurance 29,177 1,812,517 161,178Specialty Commercial 122,802 3,659,826 886,353 -
Personal Insurance 58,458 472,655 268,902111,553 1,077,105 596,699 -
---------- ----------- ----------- ---------
Total U. S. Underwriting 572,999 13,701,543 2,652,413 -
International 9,362 183,898 82,30519,630 1,280,316 162,850 -
----------------- ----------- ----------- ---------
Total Primary Underwriting 592,629 14,981,859 2,815,263 -
Reinsurance 84,436 3,476,062 450,499 -
---------- ----------- ----------- ---------
-----Property-Liability 677,065 18,457,921 3,265,762 -
Life Insurance 201,107 4,142,277 - $76,242
---------- ----------- ----------- ---------
Total $294,860 9,185,191 1,875,635$878,172 $22,600,198 $3,265,762 $76,242
---------- ----------- ----------- ---------
---------- ----------- ----------- ---------
1997
-
======= ========= ========= =====
1992 - ----
Property-Liability Insurance
Underwriting:
SpecializedInsurance:
Commercial $107,443 2,921,368 595,691Lines $343,862 $ 8,040,145 $ 1,377,740 -
Medical Services 45,551 2,309,568 493,399 -
Business Insurance 59,539 1,533,655 272,363 -
Reinsurance 25,536 1,758,949 134,949Specialty Commercial 119,714 3,537,850 910,383 -
Personal Insurance 28,019 200,760 116,806117,643 944,176 550,166 -
---------- ----------- ----------- ---------
Total U. S. Underwriting 581,219 12,522,171 2,838,289 -
International 14,042 88,259 95,80320,715 1,227,370 154,181 -
----------------- ----------- ----------- ---------
Total Primary Underwriting 601,934 13,749,541 2,992,470 -
Reinsurance 83,123 3,231,588 418,673 -
Reinsurance Recoverables - 1,171,951 117,091 -
---------- ----------- ----------- ---------
-----Property-Liability 685,057 18,153,080 3,528,234 -
Life Insurance 187,403 3,816,050 - $61,370
---------- ----------- ----------- ---------
Total $280,130 8,812,559 1,709,011 -
======= ========= ========= =====$872,460 $21,969,130 $3,528,234 $61,370
---------- ----------- ----------- ---------
---------- ----------- ----------- ---------
* 1997 segment data included for the former USF&G Corporation in these
columns is presented net of reinsurance, because such data on a gross basis
by segment is unavailable. As a result, reinsurance recoverables relating to
the former USF&G Corporation are included, separately, to present The St.
Paul's consolidated loss and loss adjustment reserves and unearned premium
reserve in total on a gross basis.
32
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
SCHEDULE V-SUPPLEMENTARYIII - SUPPLEMENTARY INSURANCE INFORMATION
(In thousands of dollars)thousands)
Insurance
losses, Amortization
Net and loss of policy Other
Premiums investment adjustment expenses acquisition operating Premiums
1998 earned income expensesand policy benefits expenses expenses written
--------- - ------- ------------ --------- ------------------- ------------- --------- ----------
---------- ----------- --------- ---------
1993
- ----
Property-Liability
Insurance Underwriting:
SpecializedProperty-Liability
Insurance:
Commercial $1,011,439Lines $2,614,645 - 751,406 263,138 91,570 1,000,255
Medical Services 688,980$ 2,312,273 $755,194 $ 249,262 2,492,483
Specialty Commercial 1,446,937 - 389,483 122,323 48,777 710,281
Business Insurance 531,465 - 397,786 170,155 34,673 477,515
Reinsurance 395,008 - 327,696 74,026 38,152 431,2421,176,182 288,983 104,158 1,348,278
Personal Insurance 372,7341,392,325 - 258,300 70,221 66,405 387,8641,153,352 299,641 123,023 1,418,230
---------- ---------- ----------- -------- --------- ----------
Total U. S.
Underwriting 5,453,907 - 4,641,807 1,343,818 476,443 5,258,991
International 178,712333,186 - 179,067 32,274 30,042 171,388277,304 68,627 56,698 377,948
---------- ---------- ----------- -------- --------- ----------
Total Primary
Underwriting 5,787,093 - 4,919,111 1,412,445 533,141 5,636,939
Reinsurance 1,038,687 - 684,450 225,692 121,809 1,056,229
Net investment income - 646,396$1,306,828 - - - -
Other - - - - 53,211352,035 -
---------- ---------- ----------- -------- --------- ----------
Property-Liability 6,825,780 1,306,828 5,603,561 1,638,137 1,006,985 6,693,168
Life Insurance 118,795 275,741 272,756 15,476 84,105 -
---------- ---------- ----------- -------- --------- ----------
Total $6,944,575 $1,582,569 $5,876,317 $1,653,613 $1,091,090 $6,693,168
---------- ---------- ----------- -------- --------- ----------
---------- ---------- ----------- -------- --------- ----------
1997
- - -------
---------- ------- ------- ---------
Total $3,178,338 646,396 2,303,738 732,137 362,830 3,178,545
========= ======= ========= ======= ======= =========
1992Property-Liability
Insurance:
Commercial Lines $2,912,393 - ----
Property-Liability
Insurance Underwriting:
Specialized$ 1,987,597 $798,116 $ 304,182 $2,788,018
Specialty Commercial $1,050,9361,441,835 - 868,570 282,938 77,583 1,058,127
Medical Services 722,172 - 403,990 134,442 40,471 712,021
Business Insurance 676,265 - 567,768 203,045 49,515 623,434
Reinsurance 361,093 - 558,305 79,950 37,194 343,0451,012,387 256,402 103,791 1,400,565
Personal Insurance 206,7461,302,110 - 161,038 66,593 22,953 225,9741,022,212 273,355 117,136 1,250,068
---------- ---------- ----------- -------- --------- ----------
Total U. S.
Underwriting 5,656,338 - 4,022,196 1,327,873 525,109 5,438,651
International 126,034277,778 - 130,375 22,337 21,159 179,818231,912 49,989 46,357 293,641
---------- ---------- ----------- -------- --------- ----------
Total Primary
Underwriting 5,934,116 - 4,254,108 1,377,862 571,466 5,732,292
Reinsurance 1,226,913 - 839,413 318,715 76,742 1,200,245
Net investment income - 642,301$1,323,967 - - - -
Other - - - - 61,525116,170 -
---------- ---------- ----------- -------- --------- -----------------
Property-Liability 7,161,029 1,323,967 5,093,521 1,696,577 764,378 6,932,537
Life Insurance 137,071 252,572 276,848 12,462 36,515 -
---------- ---------- ----------- -------- --------- ------- -----------------
Total $7,298,100 $1,576,539 $5,370,369 $1,709,039 $800,893 $6,932,537
---------- ---------- ----------- -------- --------- Total $3,143,246 642,301 2,690,046 789,305 310,400 3,142,419
========= ======= ========= ======= ======= =========
1991----------
---------- ---------- ----------- -------- --------- ----------
1996
- - ----
Property-Liability
Insurance Underwriting:
SpecializedInsurance:
Commercial $1,122,561Lines $2,775,349 - 854,842 260,721 56,099 1,137,504
Medical Services 685,402$ 1,910,057 $730,695 $ 342,239 $2,709,758
Specialty Commercial 1,416,577 - 370,232 134,141 39,357 716,768
Business Insurance 699,225 - 568,544 209,228 43,119 730,425
Reinsurance 375,427 - 386,358 80,238 34,939 363,997944,705 296,857 43,507 1,418,350
Personal Insurance 198,2121,335,451 - 129,498 62,907 18,837 203,5271,225,196 313,435 132,324 1,351,289
---------- ---------- ----------- -------- --------- ----------
Total U. S.
Underwriting 5,527,377 - 4,079,958 1,340,987 518,070 5,479,397
International 65,411269,266 - 56,095 9,863 13,223 81,508197,249 47,308 46,360 268,762
---------- ---------- ----------- -------- --------- ----------
Total Primary
Underwriting 5,796,643 - 4,277,207 1,388,295 564,430 5,748,159
Reinsurance 1,237,467 - 876,358 286,023 59,398 1,286,324
Net investment income - 640,856$1,236,013 - - - -
Other - - - - 31,747131,761 -
---------- ---------- ----------- -------- --------- -----------------
Property-Liability 7,034,110 1,236,013 5,153,565 1,674,318 755,589 7,034,483
Life Insurance 144,572 269,243 312,737 8,470 43,257 -
---------- ---------- ----------- -------- --------- ------- -----------------
Total $7,178,682 $1,505,256 $5,466,302 $1,682,788 $798,846 $7,034,483
---------- ---------- ----------- -------- --------- Total $3,146,238 640,856 2,365,569 757,098 237,321 3,233,729
========= ======= ========= ======= ======= =========----------
---------- ---------- ----------- -------- --------- ----------
33
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
SCHEDULE VIIV - REINSURANCE
Years Ended December 31, 1993, 19921998, 1997 and 19911996
(In thousands of dollars)thousands)
Percentage
Property-liability
Ceded to Assumed of amount
insurance
Gross other from other Net assumed to
premiums earned: amount companies companies amount net
- ------------------ ------ --------- --------- ------ ----------
1998
- - ----
1993 $3,021,203 523,491 680,626 3,178,338Life insurance in force $ 10,637,329 $2,304,635 $ 136,426 $8,469,120 1.6%
------------ ---------- --------- ---------- ------
------------ ---------- --------- ---------- ------
Premiums earned:
Life insurance 130,869 13,492 1,418 118,795 1.2%
Property-liability 6,311,124 874,610 1,389,266 6,825,780 20.4%
------------ ---------- --------- ----------
Total premiums $6,441,993 $888,102 $1,390,684 $6,944,575 20.0%
------------ ---------- --------- ---------- ------
------------ ---------- --------- ---------- ------
1997
- - ----
Life insurance in force $10,613,288 $1,784,965 $134,410 $8,962,733 1.5%
------------ ---------- --------- ---------- ------
------------ ---------- --------- ---------- ------
Premiums earned:
Life insurance 143,153 7,607 1,525 137,071 1.1%
Property-liability 6,528,712 898,652 1,530,969 7,161,029 21.4%
========= ======= ======= =========
1992 $3,027,243 545,502 661,505 3,143,246------------ ---------- --------- ----------
Total premiums $6,671,865 $906,259 $1,532,494 $7,298,100 21.0%
========= ======= ======= =========
1991 $2,985,674 547,293 707,857 3,146,238------------ ---------- --------- ---------- ------
------------ ---------- --------- ---------- ------
1996
- - ----
Life insurance in force $10,579,505 $1,219,897 $149,339 $9,508,947 1.6%
------------ ---------- --------- ---------- ------
------------ ---------- --------- ---------- ------
Premiums earned:
Life insurance 152,042 9,329 1,859 144,572 1.3%
Property-liability 6,347,572 897,737 1,584,275 7,034,110 22.5%
========= ======= ======= =========------------ ---------- --------- ----------
Total premiums $6,499,614 $907,066 $1,586,134 $7,178,682 22.1%
------------ ---------- --------- ---------- ------
------------ ---------- --------- ---------- ------
34
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
SCHEDULE VIIIV - VALUATION AND QUALIFYING ACCOUNTS Years Ended
December 31, 1993, 19921998,
1997 and 19911996
(In thousands of dollars)thousands)
Additions
----------------------------------------------------
Balance at Charged to Charged to Balance
beginning costs and other at end
Description of year expenses accounts Deductions(1) of year
- - ----------------- ----------- ---------- ----------- ---------------------- ------------ ------------- -------
1993---------
1998
- - ----
Real estate valuation
Real estate valuation
adjustment $ - 10,000$11,779 - - 10,000
======= ====== ===== ====== ======- 11,779
------- ----- ----- ----- ------
Allowance for uncollectible:
Agency loans $ 5,000 3,0002,321 859 - 3,250 4,750
======= ====== ===== ====== ======- 3,180
------- ----- ----- ----- ------
Premiums receivable from:
Underwritingfrom
underwriting activities $ 7,314 8,756$28,593 5,241 - 1,068 15,002
======= ====== ===== ====== ======
Brokerage activities $ 18,771 1,6377,180 26,654
------- ----- ----- ----- ------
Reinsurance $29,753 - 1,339 19,069
======= ====== ===== ====== ======
Reinsurance $ 32,768 2,947 - 9,513 26,202
======= ====== ===== ====== ======
19922,043 27,710
------- ----- ----- ----- ------
Uncollectible deductibles $18,951 7,557 - 3,571 22,937
------- ----- ----- ----- ------
1997
- - ----
Oil and gasReal estate valuation
adjustment for ceiling
test write-down $ 65,636$19,000 1,779 - - 65,636 -
======= ====== ===== ====== ======9,000 11,779
------- ----- ----- ----- ------
Allowance for uncollectible:
Agency loans $ 5,0002,153 168 - - - 5,000
======= ====== ===== ====== =====2,321
------- ----- ----- ----- ------
Premiums receivable from:
Underwritingfrom
underwriting activities $ 12,344 2,496$25,579 10,227 - 7,526 7,314
======= ====== ===== ====== ======
Brokerage activities $ 20,843 1,9927,213 28,593
------- ----- ----- ----- ------
Reinsurance $25,681 5,784 - 4,064 18,771
======= ====== ===== ====== ======
Reinsurance $ 13,708 21,5081,712 29,753
------- ----- ----- ----- ------
Uncollectible deductibles $15,694 3,257 - 2,448 32,768
======= ====== ===== ====== ======
1991- 18,951
------- ----- ----- ----- ------
1996
- - ----
Oil and gasReal estate valuation
adjustment for ceiling
test write-down $126,838 17,000$39,000 - 78,202 65,636
======= ====== ===== ====== ======- 20,000 19,000
------- ----- ----- ----- ------
Allowance for uncollectible:
Agency loans $ 5,0002,173 - - - 5,000
======= ====== ===== ====== ======20 2,153
------- ----- ----- ----- ------
Premiums receivable from:
Underwritingfrom
underwriting activities $ 10,578 3,842$22,680 5,731 - 2,076 12,344
======= ====== ===== ====== =======
Brokerage activities $ 21,235 3,2162,832 25,579
------- ----- ----- ----- ------
Reinsurance $25,081 1,150 - 3,608 20,843
======= ====== ===== ====== =======
Reinsurance $ 15,869 283550 25,681
------- ----- ----- ----- ------
Uncollectible deductibles $16,000 - 2,444 13,708
======= ====== ===== ====== =======- 306 15,694
------- ----- ----- ----- ------
(1) Deductions include write-offs of amounts determined to be uncollectible,
and unrealized foreign exchange gains and losses. Forlosses and, for real estate, a
reduction in the oil
and gas valuation adjustment, the deduction in 1992 and 1991
represents that portion of the accumulated ceiling test write-down
allocated toallowance for properties sold in those years.during the year.
35
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
SCHEDULE IXVII - SHORT-TERM BORROWINGS
Years EndedPREDECESSOR AUDITORS' REPORT ON
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Auditors
Board of Directors
USF&G Corporation
We have audited the consolidated statement of financial position of USF&G
Corporation as of December 31, 1993, 19921997, and 1991
(In thousandsthe related consolidated statements of
dollars)
Maximum Average Weighted
Weighted amount amount average
Balance average outstanding outstanding interest rate
at end of interest rate during the during the during the
year at end of year year year(3) year
-------- -------------- ---------- ---------- ------------
1993
- ----
Short-term
borrowings:
Securities sold
under agreement
to repurchase(1) $80,383 3.6% $ 80,383 $ 661 3.6%
Bank borrowings(2) $ - - $124,000 $ 3,057 4.8%
1992
- ----
Short-term bank
borrowings(2) $20,000 5.8% $139,000 $12,498 4.1%
1991
- ----
Short-term bank
borrowings(2) $22,000 5.4% $ 54,000 $ 1,567 6.1%
(1) Represents short-term borrowingsoperations, cash flows and shareholders' equity for each of Nuveen.
(2) Represents the collateralized bank borrowingsyears in the
two-year period then ended (not presented separately herein). These financial
statements are the responsibility of Nuveen.
(3) Basedthe Corporation's management. Our
responsibility is to express an opinion on weighted average dailythese financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts outstanding.and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of USF&G Corporation
at December 31, 1997, and the consolidated results of its operations and its
cash flows for each of the years in the two-year period then ended, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
---------------------
Ernst & Young LLP
Baltimore, Maryland
February 20, 1998
36
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
SCHEDULE X-SUPPLEMENTAL INFORMATIONVII - PROPERTY-LIABILITY INSURANCE
(In thousands of dollars)
Gross
Deferred Reserves for
Policy Losses Discount Gross
Acquisition and Loss on Loss Unearned
At December 31 Expenses Adjustment Expenses Reserves Premiums
- -------------- ----------- ------------------- -------- --------
1993 $294,860 9,185,191 - 1,875,635
1992 $280,130 8,812,559 - 1,709,011
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
SCHEDULE X-SUPPLEMENTAL INFORMATION - PROPERTY-LIABILITY INSURANCE
(In thousands of dollars)
Losses and Loss
Adjustment
Expenses Incurred Amortization
Related to of Deferred Paid Losses
Net ----------------- Policy and Loss
Year Ended Earned Investment Current Prior Acquisition Adjustment Premiums
December 31, Premiums Income Year(1) Years(1) Expenses Expenses Written
- ------------ -------- -------- -------- -------- ------------ ------------- ----------
1993 $3,178,338 646,396 2,526,675 (222,937) 732,137 2,126,515 3,178,545
1992 $3,143,246 642,301 2,941,214 (251,168) 789,305 2,160,091 3,142,419
1991 $3,146,238 640,856 2,607,896 (242,327) 757,098 1,953,750 3,233,729
(1) Current year and prior year losses and loss adjustment
expenses incurred for 1992 and 1991 were reclassified to
conformPREDECESSOR AUDITORS' REPORT ON
FINANCIAL STATEMENT SCHEDULES
CONSENT OF INDEPENDENT AUDITORS
We consent to the 1993 presentation, which includesuse of our report dated February 20, 1998, with respect to the
resultsconsolidated financial statements of USF&G Corporation for the Registrant's U.K.-based underwriting
operation,year ended
December 31, 1997 (not included separately herein) included as Schedule VII in
The St. Paul UK,Companies, Inc.'s Annual Report (Form 10-K) for the year ended
December 31, 1998, filed with the Securities and Exchange Commission.
Our audits also included the financial statement schedules of USF&G Corporation
listed in Item 14(a) of USF&G Corporation's Annual Report (Form 10-K) for the
year ended December 31, 1997 (not included separately herein). These schedules
are the responsibility of management. Our responsibility is to express an
opinion based on our audits. In our opinion, the financial statement schedules
referred to above, when considered in relation to the basic financial statements
taken as a whole, present fairly in all material respects the information set
forth therein.
We also consent to the incorporation by reference in the currentRegistration
Statements on Form S-8 (SEC File No. 33-15392, No. 33-23446, No. 33-23948,
No. 33-24220, No. 33-24575, No. 33-26923, No. 33-49273, No. 33-56987, No.
333-01065, No. 333-22329, No. 333-25203, No. 333-28915, No. 333-48121, No.
333-50935, No. 333-50937, No. 333-50941, No. 333-50943 and prior year
information.No. 333-67983),
and Form S-3 (SEC File No. 33-33931, No. 33-50115, No. 33-58491, No.
333-06465 and No. 333-67139), of The St. Paul Companies, Inc., of our report
dated February 20, 1998, with respect to the consolidated financial
statements and schedules of USF&G Corporation (these financial statements and
schedules are not presented herein) included as Schedule VII in The St. Paul
Companies, Inc. Annual Report on Form 10-K filed with the Securities and
Exchange Commission.
/s/ Ernst & Young LLP
---------------------
Ernst & Young LLP
Baltimore, Maryland
March 31, 1999
37
EXHIBIT INDEX*
-----------------
How
Exhibit Filed
- ------- -----
(2) Plan of acquisition, reorganization, arrangement,
liquidation, or succession**. . . . . . . . . . . . . . . . .
(3) Articles of incorporation and by-laws*
Exhibit
(2) Plan of acquisition, reorganization, arrangement, liquidation, or succession.....
(a) Definitive Agreement and Plan of Merger among The St. Paul,
USF&G Corporation and SP Merger Corporation***..............................
(3) Articles of incorporation and by-laws
(a) Articles of Incorporation................................................... (1)
(b) By-laws***..................................................................
(4) Instruments defining the rights of security holders, including indentures
(a) Specimen Common Stock Certificate............................................ (1)
(b) Amended and Restated Shareholder Protection Rights Agreement***..............
(9) Voting trust agreements**........................................................
(10) Material contracts
(a) Employment Agreement between The St. Paul and Mr. James E.
Gustafson dated as of Jan. 6, 1999........................................... (1)
(b) Restricted Stock Award Plan, as amended...................................... (1)
(c) The 1988 Stock Option Plan................................................... (1)
(d) Non-Employee Director Stock Retainer Plan.................................... (1)
(e) The Amended and Restated Special Severance Policy............................ (1)
(f) The Confidential Separation Agreement between The St. Paul and Mr. Patrick
A. Thiele dated as of Sept. 1, 1998.......................................... (1)
(g) The Annual Incentive Plan....................................................
(h) The Amended and Restated 1994 Stock Incentive Plan...........................
(i) The Deferred Management Incentive Awards Plan***.............................
(j) The Directors' Deferred Compensation Plan***.................................
(k) Relocation Loan Payback Agreement with Mr. James F. Duffy***.................
(l) Benefit Equalization Plan - 1995 Revision***.................................
(m) First Amendment to Benefit Equalization Plan - 1995 Revision***..............
(n) Executive Post-Retirement Life Insurance Plan - Summary Plan Description***..
(o) Executive Long-Term Disability Plan - Summary Plan Description***............
(p) Letter Agreement dated Jan. 18, 1998 among The St. Paul,
USF&G Corporation, SP Merger Corporation and Mr.
Norman P. Blake, Jr. pertaining to Mr. Blake's duties with
The St. Paul subsequent to the consummation of the proposed
merger of The St. Paul and USF&G Corporation***..............................
(q) The St. Paul Re Long-Term Incentive Plan***..................................
(r) Letter Agreement dated May 8, 1997 between The St. Paul
and Mr. Paul J. Liska related to the terms of his employment***..............
(s) Letter Agreement, agreed to January 20, 1997 between The
St. Paul and Mr. Paul J. Liska related to severance benefits***..............
(t) The Special Leveraged Stock Purchase Plan***.................................
(u) Amendment to Deferred Stock Agreement with Mr. Mark L. Pabst***..............
(v) The Deferred Stock Grant Agreement with Mr. Mark L. Pabst***.................
(w) The Directors' Charitable Award Program***...................................
(x) Long-Term Incentive Plan***..................................................
(y) Outside Directors' Retirement Plan -Summary Description***...................
(11) Statements re computation of per share earnings................................. (1)
(12) Statements re computation of ratios............................................. (1)
(13) Annual report to security holders............................................... (1)
(16) Letter re change in certifying accountant**.....................................
(18) Letter re change in accounting principles**.....................................
(21) Subsidiaries of The St. Paul.................................................... (1)
(22) Published report regarding matters submitted to vote
of security holders**...........................................................
(23) Consents of experts and counsel.................................................
(a) Consent of KPMG Peat Marwick LLP............................................ (1)
(b) Consent of Ernst & Young LLP................................................ (1)
(24) Power of attorney............................................................... (1)
(27) Financial data schedule......................................................... (1)
(99) Additional exhibits**...........................................................
* . . . . . . . .. . . .
(4) Instruments defining the rights of security holders,
including indentures. . . . . . . . . . . . . . . . . . . . .
(a) Specimen Common Stock Certificate***. . . . . . . . . . .
(b) Shareholder Protection Rights Agreement***. . . . . . . .
(9) Voting trust agreements** . . . . . . . . . . . . . . . .. . . .
(10) Material contracts
(a) Non-Employee Director Stock Retainer Plan***. . . . . . ..
(b) Outside Directors' Retirement Plan*** . . . . . . . . . ..
(c) Amended 1988 Stock Option Plan*** . . . . . . . . . . . ..
(d) Restricted Stock Award Plan***. . . . . . . . . . . . . ..
(e) Benefit Equalization Plan***. . . . . . . . . . . . . . ..
(f) Special Severance Policy*** . . . . . . . . . . . . . . ..
(g) Amended 1980 Stock Option Plan*** . . . . . . . . . . . ..
(h) Deferred Management Incentive Awards Agreement
- Prime Rate*** . . . . . . . . . . . . . . . . . . . ..
(i) Deferred Management Incentive Awards Agreement
- Phantom Stock***. . . . . . . . . . . . . . . . . . ..
(j) Directors' Deferred Compensation Agreement
- Prime Rate*** . . . . . . . . . . . . . . . . . . . ..
(k) Directors' Deferred Compensation Agreement
- Phantom Stock***. . . . . . . . . . . . . . . . . . ..
(l) Alternative Long-Term Incentive Plan*** . . . . . . . . ..
(m) Annual Incentive Plan***. . . . . . . . . . . . . . . . ..
(n) Executive Post-Retirement Life Insurance Plan***. . . . ..
(o) Executive Excess Long-Term Disability Plan*** . . . . . ..
(11) Statement re computation of per share earnings. . . . . .. . . . (1)
(12) Statement re computation of ratios. . . . . . . . . . . .. . . . (1)
(13) Annual report to security holders . . . . . . . . . . . .. . . . (1)
(16) Letter re change in certifying accountant** . . . . . . .. . . .
(18) Letter re change in accounting principles** . . . . . . .. . . .
(21) Subsidiaries of the Registrant. . . . . . . . . . . . . .. . . . (1)
(22) Published report regarding matters submitted to vote
of security holders** . . . . . . . . . . . . . . . . . . .. .
(23) Consents of experts and counsel . . . . . . . . . . . . .. . . . (1)
(24) Power of attorney . . . . . . . . . . . . . . . . . . . .. . . . (1)
(27) Financial data schedule** . . . . . . . . . . . . . . . .. . . .
(28) Information from reports furnished to state insurance
regulatory authorities****. . .. . . . . . . . .. . Paper Page 3
(99) Additional exhibits** . . . . . . . . . . . . . . . . . .. . . .
*TheThe exhibits are included only with the copies of this report that are
filed with the Securities and Exchange Commission. However, copies of the
exhibits may be obtained from the RegistrantThe St. Paul for a reasonable fee by writing
to the Corporate Secretary, The St. Paul Companies, Inc., 385 Washington
Street, St. Paul, Minnesota 55102.
**These items are not applicable.
***These items are incorporated by reference as described in Item 14(a)(3) of
this report.
****Filed on paper under cover of Form SE in accordance with Rule 202 of
Regulation S-T.
(1) Filed electronically.
herewith.
38