SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1993.
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 __________.
Commission file number 1-5686.
THE CONTINENTAL CORPORATION
(Exact name of registrant as specified in its charter)
New York 13-2610607
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
180 Maiden Lane, New York, New York 10038
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: 212-440-3000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, par value $1.00 per share New York, Midwest and Pacific
Stock Exchanges
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 .......
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.
[ ]
The aggregate market value of the voting stock of the registrant
held by non-affiliates of the registrant as of March 8, 1994 was
$1,320,757,812.
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of March 8, 1994.
55,330,630 shares of Common Stock
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's 1993 Annual Report to Shareholders
are incorporated by reference into Parts I and II of this Report.
Portions of the registrant's Proxy Statement in connection with its
1994 Annual Meeting of Shareholders are incorporated by reference into
Part III of this Report.
PART I
Item 1. Business
General Information
The Continental Corporation ("Continental"), a New York
corporation incorporated in 1968, is an insurance holding company.
Its best known subsidiary, The Continental Insurance Company, was
organized in 1853. The principal business of Continental is the
ownership of a group of property and casualty insurance companies.
Continental's other principal subsidiaries and affiliates provide
investment management, claims adjusting and risk management services.
In 1993, Continental sold its premium financing operations; in 1992,
Continental instituted a plan to withdraw from the traditional
assumed reinsurance and marine reinsurance businesses and the
indigenous international and international marine insurance
businesses. The results of these operations are now reported as
discontinued and previously reported information has been restated
accordingly.
Financial Information Relating to Business Segments
Continental's revenues from insurance operations accounted for
approximately 97% of Continental's consolidated revenues for each of
the three years ended December 31, 1993, 1992, and 1991. The
following table sets forth certain information with respect to
Continental's business segments for each of the last three years:
Year Ended December 31 (1) (2)
--------------------------------
1993 1992 1991
--------- --------- ---------
(millions)
Revenues:
Agency & Brokerage Commercial. . . . $ 2,121.3 $ 1,919.5 $ 2,018.1
Agency & Brokerage Personal. . . . . 861.6 777.4 795.3
Specialized Commercial . . . . . . . 1,433.2 1,201.1 1,059.1
--------- --------- ---------
Total Premiums Earned. . . . . . . . 4,416.1 3,898.0 3,872.5
Net Investment Income. . . . . . . . 514.3 559.5 610.6
Realized Capital Gains . . . . . . . 110.3 222.3 115.0
--------- --------- ---------
Insurance Operations . . . . . . . . 5,040.7 4,679.8 4,598.1
Corporate & Other Operations . . . . 133.0 117.2 122.9
--------- --------- ---------
Total. . . . . . . . . . . . . . . $ 5,173.7 $ 4,797.0 $ 4,721.0
========= ========= =========
Income from Continuing Operations
before Income Taxes:
Agency & Brokerage Commercial. . . . $ (234.8) $ (281.0) $ (354.6)
Agency & Brokerage Personal. . . . . (78.1) (127.0) (66.3)
Specialized Commercial . . . . . . . (92.5) (173.6) (146.9)
--------- --------- ---------
GAAP Underwriting Loss . . . . . . . (405.4) (581.6) (567.8)
Net Investment Income. . . . . . . . 514.3 559.5 610.6
Realized Capital Gains . . . . . . . 110.1 222.3 115.0
--------- --------- ---------
Insurance Operations . . . . . . . . 219.0 200.2 157.8
Corporate & Other Operations . . . . (41.1) (69.5) (62.3)
--------- --------- ---------
Total. . . . . . . . . . . . . . . $ 177.9 $ 130.7 $ 95.5
========= ========= =========
Identifiable Assets:
Insurance Operations . . . . . . . . $15,552.1 $15,113.5 $14,031.1
Corporate & Other Operations . . . . 583.9 149.9 283.9
--------- --------- ---------
Total Assets from
Continuing Operations. . . . . . 16,136.0 15,263.4 14,315.0
Net Assets of Discontinued
Operations . . . . . . . . . . . 84.6 310.5 506.9
--------- --------- ---------
Total Assets . . . . . . . . . . . . $16,220.6 $15,573.9 $14,821.9
========= ========= =========
____________________
(1) Distinct investment portfolios are not maintained for each
segment; accordingly, allocation of assets, net investment income and
realized capital gains to each segment is not performed.
(2) Certain reclassifications, primarily for discontinued operations,
have been made to the prior years' financial information to conform
to the 1993 presentation.
The following table sets forth certain information with respect to
Continental's domestic, Canadian, other foreign and consolidated
operations for each of the last three years:
Year Ended December 31 (1)(2)
--------------------------------
1993 1992 1991
--------- ---------- ----------
(millions)
United States:
Revenues............................. $ 4,731.7 $ 4,379.1 $ 4,146.6
Income from Continuing
Operations before Income Taxes..... 165.7 144.3 103.2
Identifiable Assets of
Continuing Operations.............. 15,063.0 13,975.5 13,130.6
Canada:
Revenues............................. $ 324.6 $ 340.2 $ 440.2
Loss from Continuing
Operations before Income Taxes..... (5.4) (7.5) (26.0)
Identifiable Assets of
Continuing Operations.............. 1,024.1 926.8 801.5
Other Foreign:
Revenues............................. $ 117.4 $ 77.7 $ 134.2
Income (Loss) from Continuing
Operations before Income Taxes..... 17.6 (6.1) 18.3
Identifiable Assets of
Continuing Operations.............. 48.9 361.1 382.9
Consolidated:
Revenues............................. $ 5,173.7 $ 4,797.0 $ 4,721.0
Income from Continuing
Operations before Income Taxes..... 177.9 130.7 95.5
Identifiable Assets of
Continuing Operations.............. 16,136.0 15,263.4 14,315.0
________________
(1) and (2) - See Footnotes (1) and (2), respectively, on
page 1 herein.
General Information Relating to Business Segments
Continental's insurance operations (the "Insurance Operations") are
comprised of three segments: Agency & Brokerage Commercial, Agency &
Brokerage Personal and Specialized Commercial. These operations are
conducted by Continental's property and casualty insurance
subsidiaries. One or more of these companies is licensed or admitted
to conduct business in each state or territory of the United States
and in each province or territory of Canada. Continental's other
segment is Corporate & Other Operations, which principally includes
investment management, claims adjusting and risk management services.
Agency & Brokerage Commercial
Continental's Agency & Brokerage Commercial segment focuses on the
production of property and casualty insurance coverage in the United
States and Canada through independent insurance agents and brokers,
almost all of whom also represent other companies. The Agency &
Brokerage Commercial segment includes: (1) Agency and Brokerage
operations; (2) Continental Risk Management Services operations
(formerly Special Risk operations); (3) Continental Canada's
operations; and (4) First Insurance Company of Hawaii, Ltd., a
60%-owned Continental subsidiary ("First of Hawaii"). For the fiscal
year ended December 31, 1993, the Agency & Brokerage Commercial
segment produced 47.7% of Continental's consolidated written
premiums. Premiums on its commercial multi-peril policies
represented 59.2% of the segment's written premiums. Other principal
lines written by the Agency & Brokerage Commercial segment include
workers' compensation, commercial automobile, general liability,
boiler and machinery, and fire & allied lines.
Continental's Agency and Brokerage operations concentrate their
marketing efforts on selected markets through specially designed
programs and products and selected local and national producers.
Agency and Brokerage operations consist of 10 regional offices
containing underwriters and support personnel and a network of
approximately 90 territorial offices responsible for sales and
underwriting. Agency and Brokerage operations also have two
automated business centers which handle underwriting and processing
of personal and small commercial lines. In addition, such operations
have a custom markets unit devoted specifically to developing small
to mid-sized commercial business from national brokers, special
programs for specific business segments, and employee accounts.
Continental Risk Management Services operations market
custom-tailored casualty coverages to Continental's large commercial
accounts, including primary and excess coverage for workers'
compensation, general liability and commercial automobile risks. Such
operations also provide claims management, loss control and actuarial
services for its clients.
Continental Canada's operations, which are considered part of North
American operations and which write commercial and personal property
and casualty coverages in Canada, include: (1) The Dominion Insurance
Corporation, a Continental subsidiary; (2) The Continental Insurance
Company of Canada, a Continental subsidiary; and (3) branch offices
of two of Continental's U.S. property and casualty companies.
Together, they are one of the leading underwriters of commercial
property and casualty coverages in Canada. These operations are
managed by Continental Insurance Management Ltd., a Continental
subsidiary.
First of Hawaii is the largest property and casualty insurer in the
Hawaiian Islands. The Tokio Marine and Fire Insurance Company, Ltd.,
a Japanese insurance company, owns the remaining 40% of the
outstanding shares of First of Hawaii.
The Agency & Brokerage Commercial segment's premiums earned
increased $201 million from 1992. Commercial package premiums earned
increased $132 million due to both price increases and acceptance of
new risks. Workers' compensation premiums earned increased $20
million due to price increases substantially offset by deliberate
reductions in the amount of risk accepted. In addition, the
segment's 1992 premiums earned were reduced by a $39 million charge,
which did not recur in 1993, to reinstate catastrophe reinsurance
coverage. The segment's underwriting results improved $46 million
from 1992, primarily due to a $20 million decrease in net
catastrophe-related charges and growth in business written without a
proportionate increase in operating expenses. Losses and loss
expenses increased $102 million, primarily due to inflation in loss
costs, the increase in the amount of risk accepted and a $19 million
increase in net catastrophe losses. Insurance operating expenses
increased $53 million, primarily due to growth in business written
and a $32 million decrease in servicing carrier income, which is
recorded as a reduction in commission expenses.
Agency & Brokerage Personal
Continental's Agency & Brokerage Personal segment also focuses on
the production of property and casualty insurance coverage in the
United States and Canada through independent insurance agents and
brokers, almost all of whom also represent other companies. The
Agency & Brokerage Personal segment includes: (1) Agency and
Brokerage operations; (2) Continental Canada's operations; and (3)
First of Hawaii, each of which is discussed above. For the fiscal
year ended December 31, 1993, the Agency & Brokerage Personal segment
produced 19.6% of Continental's consolidated written premiums.
Premiums on its personal package policies represented 58.2% of the
segment's written premiums. Other principal lines written by the
Agency & Brokerage Personal segment include automobile, homeowners,
and fire & allied lines.
The Agency & Brokerage Personal segment's premiums earned increased
$85 million from 1992. Personal package premiums earned increased $30
million due to price increases, despite a small reduction in the
amount of risk accepted. Monoline automobile premiums earned
increased $39 million due to an increase in assignments from
involuntary risk pools, primarily from New Jersey. In addition, the
segment's 1992 premiums earned were reduced by a $25 million charge,
which did not recur in 1993, to reinstate catastrophe reinsurance
coverage. The segment's underwriting results improved $49 million
from 1992, primarily due to a $50 million decrease in net
catastrophe-related charges. Losses and loss expenses increased $44
million, despite a $25 million decrease in net catastrophe losses,
primarily due to inflation in loss costs and an increase in losses
from involuntary risk pools resulting from the increase in
assignments. Insurance operating expenses improved $8 million
primarily resulting from cost reductions implemented in 1991.
Specialized Commercial
Continental's Specialized Commercial segment provides specialized
commercial coverages, principally in marine and aviation, workers'
compensation, fidelity & surety, excess and specialty, accident and
health, medical malpractice, customized financial coverage and
multinational lines. This segment accounted for 32.7% of
Continental's consolidated written premiums for the 1993 fiscal
year. The Specialized Commercial segment includes: (1) Marine Office
of America Corporation, a Continental subsidiary ("MOAC"); (2)
Associated Aviation Underwriters, a 50%-owned Continental affiliate
("AAU"); (3) Continental Excess & Select operations; (4) Casualty
Insurance Company, a Continental subsidiary ("Casualty"); (5)
Continental Financial Institutions operations; (6) Continental
Guaranty operations; (7) Continental Credit operations; (8)
Continental Insurance HealthCare operations; (9) The Continental
Insurance Company of Puerto Rico ("Continental Puerto Rico"); and
(10) The Continental Insurance Company (Europe) Limited, a
Continental subsidiary ("Continental Insurance (Europe)").
MOAC underwrites and manages ocean and inland marine insurance
coverages, automobile warranty coverages and service repair warranty
coverages for technical equipment through branch offices located
throughout the United States. It also concentrates on developing
package policies for the transportation, distribution and
manufacturing industries. MOAC supports all of these coverages with
specialized claims handling, surveying, loss control and recovery
services.
AAU writes insurance for many segments of the aviation industry
through branch offices located throughout the United States.
Continental Excess & Select operations are active in the excess and
specialty lines markets. Their principal types of coverage are
stop-loss protection on group health insurance programs, professional
liability insurance for lawyers, accountants and other classes of
professionals, excess liability insurance, directors' and officers'
liability insurance and industry targeted programs of liability
insurance for the railroad, mining, skiing, biotechnology and
pharmaceutical industries. Continental Excess & Select operations
also provide support services to Continental's other excess liability
and specialty lines operations.
Casualty and its subsidiary, Workers' Compensation and Indemnity
Company of California, write certain preselected classes of workers'
compensation exposures in Illinois, Wisconsin, Indiana, Michigan and
southern California.
Continental Financial Institutions operations provide highly
specialized coverages for financial institutions, from fidelity bonds
to directors' and officers' liability and professional liability
insurance, as well as a range of fidelity products for commercial
businesses. Continental Guaranty operations are a major provider of
surety coverages. Continental Credit operations provide credit
insurance. The financial institutions, guaranty and credit
operations were previously divisions of a Continental subsidiary,
Continental Guaranty & Credit Corporation, which is no longer doing
business as a separate corporate entity.
Continental Insurance HealthCare operations primarily provide
medical malpractice insurance. Such operations also provide claims
and risk management services to insureds and other clients.
Continental Puerto Rico writes business in Puerto Rico, primarily
by way of a quota- share reinsurance agreement with an unaffiliated
entity, Puerto-Rican American Insurance Company ("PRAICO"). In 1993,
the quota-share participation of Continental Puerto Rico was 12.1% of
the net premiums written by PRAICO.
Continental Insurance (Europe) writes multinational programs in
Europe.
The Specialized Commercial segment's premiums earned increased $232
million from 1992 due to both price increases and acceptance of new
risks. Premiums earned increased $51 million in domestic marine, $49
million in workers' compensation in selected markets, $49 million in
customized financial coverages, $41 million in specialty casualty and
$25 million in fidelity & surety insurance. In addition, the
segment's 1992 premiums earned were reduced by an $11 million charge,
which did not recur in 1993, to reinstate catastrophe reinsurance
coverage. The segment's underwriting results improved $82 million
from 1992, primarily due to better experience in domestic marine and
specialty casualty insurance, an $18 million decrease in net
catastrophe-related charges and growth in business written without a
proportionate increase in operating expenses. Losses and loss
expenses increased $106 million, despite better experience in certain
lines and a $7 million decrease in net catastrophe losses, primarily
due to inflation in loss costs and the increase in the amount of risk
accepted. Insurance operating expenses increased $44 million,
primarily due to growth in business written.
Corporate & Other Operations
The Corporate & Other Operations segment includes Continental's
corporate operating expenses and the operations of Continental's
non-insurance subsidiaries. Continental's non-insurance subsidiaries
primarily include: (1) Continental Asset Management Corp. ("CAM");
(2) Continental Loss Adjusting Services, Inc. ("CLAS"); (3)
Continental Rehabilitation Resources, Inc. ("CRR"); (4) Ctek, Inc.
("Ctek"); (5) California Central Trust Bank Corporation "CalTrust");
and (6) Settlement Options, Inc. ("Settlement Options").
CAM, a Continental subsidiary registered under the Investment
Advisers Act of 1940, as amended, provides investment advisory
services to Continental, its subsidiaries, its employee benefit
plans, certain affiliates and unrelated parties under investment
advisory agreements.
CLAS provides claims services for Continental's subsidiaries and
other customers. Its wholly-owned subsidiary, CRR, provides medical
and vocational rehabilitation for injured employees of insureds and
other clients.
Ctek engages in risk evaluation and improvement activities designed
to help insureds and other clients reduce or control losses to
property, equipment, materials and human resources.
CalTrust is a limited service bank whose activities are restricted
to the acceptance of deposits, investment of depository funds and
acting as trustee and/or third party administrator for employee
benefit plans. The following table sets forth certain information
with respect to CalTrust's deposit liabilities for each of the last
three years:
1993 1992 1991
_________________ _________________ _________________
% % %
Average Average Average
Average Interest Average Interest Average Interest
Balance Rate Balance Rate Balance Rate
------- -------- ------- -------- ------- -------
(millions, except percentages)
Savings Deposits
(representing Total
Interest-Bearing
Time and Savings
Deposits)........... $ 123.1 2.8% $ 121.9 3.4% $ 117.2 5.0%
======= ==== ======= ==== ======= ====
Settlement Options is a general insurance agency which consults
with property and casualty claim organizations on personal injury
losses to reduce settlement costs by arranging structured claim
settlements, and purchases annuities to fund these future periodic
payment obligations.
In 1993, Continental sold its premium financing operations as
well as its computer systems subsidiary, Insurnet, Incorporated, both
of which were previously included in the Corporate & Other Operations
segment. The results of the premium financing operations are now
reported as discontinued. (For information concerning the sale of
the premium financing operations, see "Discontinued Operations"
below.)
Discontinued Operations
In 1993, Continental completed the sale of its premium
financing subsidiaries, AFCO Credit Corporation, AFCO Acceptance
Corporation and CAFO Inc. (collectively, "AFCO"), to Mellon Bank
Corporation ("Mellon"). Continental realized a $36 million gain from
this sale, net of income taxes. In addition, the sale agreement
provides for a contingent payment to Continental based on growth in
AFCO's premiums financed over the next five years, for a potential
maximum payment of up to $78 million. No provision has been made in
Continental's Consolidated Financial Statements for any potential
gain from this contingent payment from Mellon. The 1993 results and
net assets of the premium financing operations, which were previously
reported in the Corporate & Other Operations segment, have been
classified in Continental's Consolidated Financial Statements as
discontinued. Previously reported information has been restated
accordingly.
The following table sets forth certain information with respect
to operating results of the discontinued premium financing operations
for each of the last three years:
Year Ended December 31
------------------------
1993 1992 1991
---- ---- ----
(millions)
Total Revenues............................ $92.4 $103.0 $119.3
Total Expenses............................ 75.4 79.5 92.2
----- ------ ------
Income before Income Taxes................ 17.0 23.5 27.1
Income Taxes ............................ 1.7 4.7 5.4
Gain on Disposal of Discontinued
Premium Financing Operations,
Net of Income Taxes..................... 36.0 -- --
----- ------ ------
Net Income from Discontinued Premium
Financing Operations.................... $51.3 $ 18.8 $ 21.7
===== ====== ======
The following table sets forth certain information with respect to
net assets of the discontinued premium financing operations for each
of the last two years:
December 31
----------------------
1993 1992
---- ----
(millions)
Assets:
Premium Financing Loans Receivable...... $-- $1,083.3
Other Assets............................ -- 32.9
---- --------
-- 1,116.2
---- --------
Liabilities:
Short-Term Debt......................... -- 873.5
Long-Term Debt.......................... -- 26.5
Other Liabilities....................... -- 48.9
---- --------
-- 948.9
---- --------
Net Assets:............................... $-- $ 167.3
==== ========
During 1992, Continental instituted a program to withdraw from the
traditional assumed reinsurance and marine reinsurance businesses as
well as the indigenous international and international marine
insurance businesses. These businesses had premiums earned of $339
million and $458 million and underwriting losses of $304 million and
$196 million in 1992 and 1991, respectively. Continental failed to
develop a sustainable competitive advantage in these businesses as
evidenced by their poor operating performances. In addition, these
businesses had subjected Continental to unmanageable concentrations
of exposures to catastrophes. For example, $28 million of
Continental's $70 million total net loss from hurricane Andrew arose
from reinsurance operations. As a result, Continental withdrew from
these businesses to further concentrate Insurance Operations in their
areas of competitive strength. Continental has been accomplishing
this withdrawal by running off the insurance reserves of certain of
these operations and selling the remaining operations. The results
and net assets of the aforementioned operations have been classified
in Continental's Consolidated Financial Statements as discontinued.
Previously reported information has been restated accordingly.
Discontinued Insurance Operations include Continental's
subsidiaries: Continental Reinsurance Corporation (U.K.) Limited,
Lombard General Insurance Limited and Lombard Insurance Company
Limited, which are either expected to be sold or dissolved.
Continental's subsidiaries, Continental Reinsurance Corporation
International Limited ("CRC-I") and East River Insurance Company
(Bermuda) Ltd. ("ERIC"), both of which are continuing entities, are
managing the assets and reserves of the discontinued operations. In
1992, substantially all of the business of Continental's reinsurance
subsidiary, Continental Reinsurance Corporation, was discontinued, and
substantially all of its insurance reserves, along with an equivalent
amount of assets, were transferred to CRC-I and ERIC. In 1993,
Continental sold Unionamerica Insurance Company, Limited for $95
million in cash and $15 million face value of redeemable preferred
stock.
The traditional assumed reinsurance and marine reinsurance
businesses were autonomous from Continental's primary Insurance
Operations. The product, customer base and distribution system also
varied significantly from Continental's primary Insurance
Operations. Before discontinuance, these businesses generally
included proportional and non-proportional, facultative and treaty,
and property and casualty insurance and reinsurance. The primary
method of reinsurance distribution was through the broker market and
the customer base consisted of other insurance and reinsurance
companies.
Indigenous international insurance was comprised of risks that are
located in countries outside the United States and Canada,
underwritten by companies domiciled or branches licensed outside the
United States or Canada, where the insured is a person or company
located outside the United States or Canada. This business was
generally written and reported on a monoline basis. In contrast,
Continental's United States and Canadian operations focus generally
on package business, and Continental's multinational operations (now
included in the Specialized Commercial segment) write monoline
coverage. Continental's United States and Canadian operations and
multinational operations (other than Casualty) write monoline
coverages, such as workers' compensation insurance, generally as an
accommodation to obtain package business or as specialized coverages
like railroad and surety.
Monoline personal lines coverages, such as secure home policies,
were usually distributed and marketed by savings institutions as part
of a mortgage package. Thus, it was only through prearranged
participation, or brokered after mortgage sales that such a product
was sold.
For commercial risks, the distribution and marketing of indigenous
international insurance was primarily on a co-insurance basis taking
a participation percentage from a lead underwriter. Due to this
standard overseas distribution system, the nature of selling this
product was vastly different from the domestic practice of more
direct links to insureds. Therefore, Continental's focus was on
developing relationships with the various underwriters and brokers,
rather than directly marketing to the insureds' agents. The
servicing of the business was also substantially different, as the
claims adjusting services were not administered directly by
Continental.
The international marine business was underwritten by companies
domiciled or branches licensed outside the United States and Canada.
The international marine business had a different class of customer
and marketing structure, which relied upon the syndication procedures
used by the Institute for London Underwriting ("ILU"). The
distribution and servicing of such business was also unique. The
international marine operations consisted of a small group of
underwriters and a collection group using third-party claims
services. The ILU is an underwriting center as well as a funds
clearing house for claims processing and settlement. Continental
acted as a participant in part of a layer of each policy, rather than
as a direct underwriter and claims servicer. Thus, systems needs and
direct expenses associated with the production of business are
different from Continental's domestic marine business. This
difference in the method of marketing and distribution for
international marine insurance substantially reduces Continental's
records keeping requirements. In contrast, domestic marine insurance
is underwritten in a similar manner to other domestic lines of
business and has similar reporting requirements.
The following table sets forth certain information with respect to
operating results of the discontinued insurance operations for each
of the last three years:
Year Ended December 31
--------------------------
1993 1992 1991
------ ------ ------
(millions)
Total Revenues........................... $282.2 $ 549.8 $585.1
Total Expenses........................... 285.5 740.0 654.5
------ ------- ------
Loss before Income Taxes................. (3.3) (190.2) (69.4)
Income Taxes (Benefits).................. (0.7) (9.7) 7.2
Loss on Disposal of Discontinued
Insurance Operations,
Net of Income Taxes.................... -- (13.0) --
------ ------- ------
Net Loss from Discontinued Insurance
Operations............................. $ (2.6) $(193.5) $(76.6)
====== ======= ======
The following table sets forth certain information with respect to
net assets of the discontinued insurance operations for each of the
last two years:
December 31
----------------------
1993 1992
---- ----
(millions)
Assets:
Cash and Investments........... $1,166.5 $1,461.0
Other Assets................... 528.4 924.3
-------- --------
1,694.9 2,385.3
-------- --------
Liabilities:
Outstanding Losses and
Loss Expenses................ 1,346.0 2,022.2
Unearned Premiums.............. 3.0 91.1
Other Liabilities.............. 261.3 128.8
-------- --------
1,610.3 2,242.1
-------- --------
Net Assets:...................... $ 84.6 $ 143.2
======== ========
Of the $1,346 million in Outstanding Losses and Loss Expenses at
December 31, 1993, Continental currently plans the following: (1)
$36 million of Outstanding Losses and Loss Expenses are recorded by
operations that Continental intends to sell (these reserves are
carried at their nominal amounts, in accordance with the regulations
of the country where such reserves are recorded); (2) $968 million of
Outstanding Losses and Loss Expenses are recorded by ERIC and CRC-I
(Continental intends to run off these insurance reserves, and to
support the reserves, which are carried at economic value in
accordance with Bermuda law (the jurisdiction in which such reserves
are reinsured), with an equal amount of earning assets held in trust
by ERIC and CRC-I); and (3) $342 million of Outstanding Losses and
Loss Expenses are recorded by other operations that Continental
intends to run off (these reserves are carried at their nominal
amounts, in accordance with the regulations of the countries where
such reserves are recorded).
Additional Business Information
Each of Continental's insurance segments principally provides its
own claims service through internal loss-adjusting operations.
Designated employees of these operations have authority to settle
claims, subject to limits on authority and, in large cases, to review
by senior officers.
Continental's Insurance Operations purchase reinsurance on certain
risks which they insure, principally to (1) reduce liability on
individual risks; (2) protect against catastrophe losses; (3) enable
them to write additional insurance in order to diversify risks; and
(4) reduce their total liability in relation to statutory surplus.
The costs of reinsurance, including catastrophe coverages, are
generally increased by adverse loss experience in prior periods. (For
additional information concerning Continental's reinsurance
arrangements, see "Reinsurance" commencing on page 21 herein.)
The industry as a whole has experienced underwriting losses for the
past several years. These losses are generally attributable to price
competition, which has prevented premium rate increases from keeping
pace with losses and loss expenses, and to an unusually high level of
catastrophe losses. According to A.M. Best Company's Review and
Preview, which follows and reports on the industry's financial
results, the industry's aggregate underwriting loss for 1993 was $23
billion.
The underwriting profitability of property and casualty insurers is
affected by many factors, including price competition; the cost and
availability of reinsurance; administrative and other expenses; the
incidence of natural disasters; and insurance regulators' willingness
to grant increases in those rates which they control. Loss frequency
and severity trends are influenced by economic factors, such as a
company's business mix; inflation rates; medical cost inflation;
employment levels; crime rates; general business conditions;
regulatory measures; and court decisions that define and expand the
risks and damages covered by insurance. The incidence of natural
disasters has adversely affected the underwriting profitability
primarily of multi-peril, homeowners, and fire & allied lines of
business. The underwriting profitability of workers' compensation
and commercial and personal automobile business is adversely affected
by (1) lower price levels and higher assumed risks due to mandated
participation in state involuntary programs by companies writing such
business; and (2) rapidly rising medical care costs.
Generally, Continental prices insurance coverages at levels
management considers adequate in relation to costs, including
anticipated claims liability. The Insurance Operations have attempted
to control their costs by (1) implementing technological advances;
(2) changing their distribution systems and marketing methods; (3)
instituting policies designed to increase employees' productivity; (4)
changing the mix of agency and brokerage relationships; (5) reducing
writings of certain less profitable classes of risks; and (6)
becoming more selective in the acceptance of risks.
An indicator of underwriting profitability of property and casualty
insurers is a company's "combined ratio". The combined ratio is the
sum, expressed as a percentage, of (i) the ratio of incurred losses
and loss expenses to premiums earned (the "loss ratio"); and (ii) the
ratio of sales commissions, premium taxes, and administrative and
other underwriting expenses to premiums written (the "expense
ratio"). When the combined ratio is below 100%, underwriting results
are generally considered profitable; when the ratio is over 100%,
underwriting results are generally considered unprofitable. Because
the combined ratio does not reflect net investment income, which is a
significant component of an insurance company's operating results, an
insurance company's operating results for a line of business may be
profitable even though the combined ratio for that line of business
exceeds 100%. (For information concerning net investment income, see
"Investment and Finance" commencing on page 22 herein.)
The following table sets forth certain information (presented in
accordance with statutory accounting practices) with respect to the
underwriting results of the Insurance Operations for the commercial
and personal lines of insurance written by them for each of the last
three years. Information as to premiums written includes premiums on
insurance policies directly written and on policies assumed from
other insurers, pools and associations, in each case net of premiums
ceded to others in connection with reinsurance purchased.
Year Ended December 31
----------------------------------------------------------
Line of Business 1993 1992 1991
---------------- ----------------- ------------------ -------------------
COMMERCIAL (millions, except percentages)
Multi-Peril
Premiums Written (% of total) $1,277.5 (28.3%) $1,042.5 (25.8%) $1,097.4 (28.1%)
Premiums Earned.............. $1,232.5 $1,023.6 $1,087.3
Loss Ratio................... 74.3% 72.3% 65.9%
Expense Ratio................ 35.3% 37.4% 39.6%
Combined Ratio............... 109.6% 109.7% 105.5%
Workers' Compensation
Premiums Written (% of total) $ 915.1 (20.2%) $ 879.0 (21.7%) $ 863.3 (22.1%)
Premiums Earned.............. $ 941.1 $ 847.9 $ 848.2
Loss Ratio................... 94.7% 103.5% 107.6%
Expense Ratio................ 19.2% 14.7% 14.5%
Combined Ratio............... 113.9% 118.2% 122.1%
General Liability
Premiums Written (% of total) $ 496.1 (11.0%) $ 361.6 (8.9%) $ 259.3 (6.6%)
Premiums Earned.............. $ 459.0 $ 331.3 $ 274.1
Loss Ratio................... 66.3% 69.6% 83.9%
Expense Ratio................ 27.0% 29.5% 36.1%
Combined Ratio............... 93.3% 99.1% 120.0%
Inland/Ocean Marine
Premiums Written (% of total) $ 323.1 (7.1%) $ 262.5 (6.5%) $ 239.0 (6.1%)
Premiums Earned.............. $ 298.3 $ 263.3 $ 233.6
Loss Ratio................... 75.2% 68.3% 67.5%
Expense Ratio................ 35.6% 46.4% 34.3%
Combined Ratio............... 110.8% 114.7% 101.8%
Automobile
Premiums Written (% of total) $ 273.7 (6.1%) $ 297.1 (7.4%) $ 288.5 (7.4%)
Premiums Earned.............. $ 270.0 $ 299.9 $ 292.8
Loss Ratio................... 71.1% 75.9% 73.3%
Expense Ratio................ 32.4% 36.9% 37.3%
Combined Ratio............... 103.5% 112.8% 110.6%
Fidelity/Surety
Premiums Written (% of total) $ 140.9 (3.1%) $ 120.3 (3.0%) $ 107.2 (2.7%)
Premiums Earned.............. $ 138.7 $ 112.1 $ 108.8
Loss Ratio................... 42.8% 44.9% 27.7%
Expense Ratio................ 49.9% 58.2% 64.4%
Combined Ratio............... 92.7% 103.1% 92.1%
Fire & Allied Lines
Premiums Written (% of total) $ 77.0 (1.7%) $ 99.3 (2.5%) $ 93.8 (2.4%)
Premiums Earned.............. $ 75.9 $ 101.8 $ 95.0
Loss Ratio................... 90.0% 100.0% 70.8%
Expense Ratio................ 33.4% 32.6% 43.9%
Combined Ratio............... 123.4% 132.6% 114.7%
Other
Premiums Written (% of total) $ 132.2 (2.9%) $ 165.8 (4.1%) $ 157.4 (4.0%)
Premiums Earned.............. $ 124.6 $ 153.7 $ 155.6
Loss Ratio................... 73.0% 71.6% 86.1%
Expense Ratio................ 46.3% 48.6% 50.0%
Combined Ratio............... 119.3% 120.2% 136.1%
Total Commercial
Premiums Written (% of total) $3,635.6 (80.4%) $3,228.1 (79.9%) $3,105.9 (79.4%)
Premiums Earned.............. $3,540.1 $3,133.6 $3,095.4
Loss Ratio................... 77.6% 80.4% 79.6%
Expense Ratio................ 30.8% 32.2% 33.2%
Combined Ratio............... 108.4% 112.6% 112.8%
Year Ended December 31
----------------------------------------------------------
Line of Business 1993 1992 1991
---------------- ----------------- ------------------ -------------------
PERSONAL (millions, except percentages)
Automobile
Premiums Written (% of total) $ 605.8 (13.4%) $ 556.3 (13.8%) $ 516.5 (13.2%)
Premiums Earned.............. $ 586.2 $ 535.3 $ 503.6
Loss Ratio................... 75.3% 75.2% 78.5%
Expense Ratio................ 33.5% 36.6% 32.9%
Combined Ratio............... 108.8% 111.8% 111.4%
Homeowners
Premiums Written (% of total) $ 246.1 (5.5%) $ 226.6 (5.6%) $ 256.3 (6.6%)
Premiums Earned.............. $ 239.9 $ 217.7 $ 247.4
Loss Ratio................... 87.9% 89.6% 71.9%
Expense Ratio................ 25.8% 29.6% 33.7%
Combined Ratio............... 113.7% 119.2% 105.6%
Other
Premiums Written (% of total) $ 32.9 (0.7%) $ 30.4 (0.7%) $ 32.2 (0.8%)
Premiums Earned.............. $ 32.8 $ 29.4 $ 31.1
Loss Ratio................... 45.7% 89.5% 47.7%
Expense Ratio................ 26.4% 32.2% 36.3%
Combined Ratio............... 72.1% 121.7% 84.0%
Total Personal
Premiums Written (% of total) $ 884.8 (19.6%) $ 813.3 (20.1%) $ 805.0 (20.6%)
Premiums Earned.............. $ 858.9 $ 782.4 $ 782.1
Loss Ratio................... 77.7% 79.7% 75.1%
Expense Ratio................ 31.1% 34.5% 33.2%
Combined Ratio............... 108.8% 114.2% 108.3%
TOTAL INSURANCE OPERATIONS
Premiums Written (% of total) $4,520.4 (100.0%) $4,041.4 (100.0%) $3,910.9 (100.0%)
Premiums Earned.............. $4,399.0 $3,916.0 $3,877.5
Loss Ratio (1)............... 77.6% 80.2% 78.7%
Expense Ratio (1)............ 30.9% 32.7% 33.2%
Combined Ratio (1)........... 108.5% 112.9% 111.9%
________________
(1) The comparable GAAP loss, expense and combined ratios for the years
ended December 31, 1993, 1992 and 1991 were 77.3%, 31.9% and 109.2%;
81.1%, 33.8% and 114.9%; and 79.6%, 35.0% and 114.6%, respectively.
Approximately 61.4% of direct premiums written by the Insurance
Operations during 1993 were written in nine states and Canada. Canada
accounted for 9.9% of those premiums; New York, 9.8%; California,
8.8%; Illinois, 8.7%; New Jersey, 5.2%; Texas, 4.7%; Pennsylvania,
4.2%; Ohio, 4.2%; Florida, 3.1%; and Hawaii, 2.8%. No other state,
country or political subdivision accounted for more than 2.8% of such
premiums. The percentages do not reflect premiums received or paid in
connection with reinsurance transactions.
During the past several years, Continental has shifted its
business mix to emphasize commercial and personal package policies
and speciality commercial lines, while decreasing the amount of
business generated from monoline coverages, such as monoline personal
automobile insurance, that have historically proven to be
unprofitable to Continental. In 1993, the loss and expense ratios
for the Insurance Operations decreased 2.6 percentage points from the
prior year, primarily as a result of lower net catastrophe-related
charges. Underwriting results for the Insurance Operations produced
statutory combined ratios for their personal and commercial lines of
108.8% and 108.4%, respectively, in 1993. These percentages
reflected an improvement in personal and commercial lines from the
prior year of 5.4% and 4.2%, respectively.
Many states require property and casualty insurers to participate
in "plans", "pools" or "facilities" which provide coverages for
defined risks at rates required by regulators which insurers
otherwise would be unwilling to underwrite in view of the nature of
the risks and the claims experience of the insureds or the insurance
classes of which they are members. Continental provides for its share
from its participation in these pools and associations, as well as
its participation in voluntary pools and associations, based upon
results reported to it by these organizations. In 1993, these
involuntary writings totaled approximately $228.4 million, or more
than 5.1% of Insurance Operations' total premiums written. The
statutory underwriting loss on this business was $67 million during
1993, accounting for approximately 16.3% of Insurance Operations'
statutory underwriting loss. In 1993, 52.3%, and 47.7% of these
writings were attributable to automobile and workers' compensation
businesses, respectively. (For additional information concerning
such pools and associations, see "Regulation" commencing on page 13
herein.)
Competition
The property and casualty insurance industry is highly competitive.
Continental's Insurance Operations compete with other stock
companies, specialty insurance organizations, mutual insurance
companies, and other underwriting organizations. As reported by the
Insurance Information Institute, an educational, fact-finding and
communications organization, the property and casualty industry in the
United States is comprised of approximately 900 leading insurance
organizations, none of which has a market share larger than 15% and
the top ten of which account in the aggregate for less than 45% of
the market. Companies in the United States also face competition
from foreign insurance companies and from "captive" insurance
companies and "risk retention" groups (i.e., entities established by
insureds to provide insurance for themselves). In the future, the
industry, including Continental's Insurance Operations, may face
increasing insurance underwriting competition from banks and other
financial institutions.
Based upon the 1993 edition of Best's Aggregates and Averages for
the calendar year 1992, Continental's domestic property and casualty
companies collectively ranked twelfth in overall premium volume among
United States property and casualty insurers. In addition, such
companies are among the leading twenty in such categories as
commercial multi-peril, aircraft, fidelity & surety, farmowners,
homeowners, fire & allied lines, workers' compensation, ocean marine
and inland marine lines, and among the leading twenty-five in
commercial automobile lines. Because of the relatively large size
and underwriting capacity of Continental's property and casualty
companies, many opportunities are available to them that are not
available to smaller companies.
The competitive focus of Continental's Insurance Operations is to
(1) offer combinations of superior products, services and premium
rates; (2) distribute their products efficiently; and (3) market them
effectively. Reliance upon these factors varies from line to line of
insurance and from product to product within lines of insurance.
Rates are not uniform for all insurers and vary according to the
respective types of insurers and methods of operation. Continental's
Insurance Operations have traditionally marketed their products
principally through independent agents and brokers. This system of
marketing is facing increased competition from financial institutions
and other companies that market their insurance products directly to
the consumer. In response to this competition, Continental has
implemented several programs designed to develop a more concentrated
and productive agency and brokerage force by eliminating duplication
of functions, terminating producers of unprofitable business and
providing added incentives and improved support to its more
productive producers. Such incentives include assurances of
continuing representation; expanded promotional and marketing
assistance; specialized account handling; training; and, in certain
cases, financial assistance in connection with agency and brokerage
expansion. Consequently, Continental's Insurance Operations have,
over the past several years, placed computer terminals with many of
their most productive producers, which permit producers to transmit
information directly to Continental's computer centers and to receive
policies, endorsements and other personal lines services overnight.
In response to market conditions, Continental has also developed
package personal and commercial policies for customers having
standard risk exposures, customized products for certain classes of
business and industries, and a strong distribution network comprised
largely of selected producers with professional sales skills and
product knowledge in Continental's targeted markets.
Regulation
Continental's property and casualty companies are subject to
regulation by government agencies in the states and foreign
jurisdictions in which they do business. The nature and extent of
such regulation vary from jurisdiction to jurisdiction, but typically
involve the establishment of premium rates for many lines of
insurance; standards of solvency and minimum amounts of capital and
surplus which must be maintained; limitations on types of
investments; restrictions on the size of risks which may be insured
by a single company; licensing of insurers and their agents; deposits
of securities for the benefit of policyholders; approval of policy
forms; methods of accounting; mandating reserves for losses and loss
expenses; and filing of annual and other reports with respect to
financial condition and other matters. In addition, state regulatory
examiners perform periodic examinations of insurance companies. Such
regulation is generally intended for the protection of policyholders
rather than security holders.
Most states also require property and casualty insurers to become
members of insolvency associations or guaranty funds, which generally
protect policyholders against the insolvency of an insurer writing
insurance in the state. Members of the associations must contribute
to the payment of certain claims made against insolvent insurers.
Maximum contributions required by law in any one year vary generally
between 1% and 2% of annual premiums written by a member in that
state.
Continental's insurance subsidiaries are subject to various state
statutory and regulatory restrictions, applicable generally to each
insurance company in its state of incorporation, which limit the
amount of dividends and other distributions that those subsidiaries
may pay to Continental. The restrictions are generally based on
certain levels of surplus, investment income and operating income, as
determined under statutory insurance accounting practices. Some
restrictions require that dividends, loans, and advances in excess of
stated levels be approved by state regulatory authorities. During
1993, Continental's insurance subsidiaries paid it $120 million in
dividends. Recently, several states in which these insurance
subsidiaries are domiciled enacted more stringent dividend
restrictions based on percentages of surplus and net income from
operations. These restrictions will, under certain circumstances,
significantly reduce the maximum amount of dividends and other
distributions payable to Continental by its insurance subsidiaries
without approval by state regulatory authorities. To the extent that
its insurance subsidiaries do not generate amounts available for
distribution sufficient to meet Continental's cash requirements
without regulatory approval, Continental would seek approval for
additional distributions. Under the restrictions currently in effect,
the maximum amount available for payment of dividends to Continental
by its insurance subsidiaries during the year ending December 31,
1994 without regulatory approval is estimated to be $304 million.
(See Note 10 to Consolidated Financial Statements included in
Continental's 1993 Annual Report to Shareholders.) Continental
anticipates that dividends from its insurance subsidiaries, together
with cash from other sources, will enable it to meet its obligations
for interest and principal payments on debt, corporate expenses,
declared shareholder dividends and taxes in 1994.
Although the federal government does not directly regulate the
business of insurance, federal initiatives often affect the insurance
business in a variety of ways. Some form of universal health care
may be enacted in the near future. The effect of such a system on
certain of Continental's lines of business, including workers'
compensation and automobile insurance, could be significant, although
any such potential effect cannot presently be evaluated. Other
current and proposed federal measures which may significantly affect
the insurance business include federal government participation in
asbestos and other product liability claims, the extension or
modification of the Comprehensive Environmental Response, Compensation
and Liability Act ("CERCLA") in 1994, pension regulation (ERISA),
examination of the taxation of insurers and reinsurers, minimum
levels of liability insurance for air carriers, and air carrier and
automobile safety regulations. (For information concerning matters
relating to environmental claims, see "Reserves for Unpaid Losses and
Loss Expenses" commencing on page 15 herein.) In view of financial
difficulties in the savings and loan and banking industries and
recent insurance insolvencies, several congressional inquiries are
considering the adequacy of existing state regulations related to the
financial health of insurance companies. In addition, congressional
committees are currently reviewing the McCarran-Ferguson Act of 1945,
which presently provides a limited exemption from federal antitrust
laws for the "business of insurance". A number of states have
repealed or are reviewing their statutory exemptions for the
"business of insurance" from their antitrust laws. Continental
believes that some cooperative activity among insurers is essential
for a sound industry and is in the public interest, but that
limitation or elimination of the McCarran-Ferguson or state statutory
antitrust exemptions would not have a significant effect upon
Continental's financial results.
The National Association of Insurance Commissioners ("NAIC") has
developed several proposals to strengthen the existing state
regulatory system, including uniform accreditation of state insurance
regulatory systems; limitations on the payment of dividends by
property and casualty insurance companies; adoption of risk-based
capital standards; actuarial certification of reserves; and
independent audits of insurer financial statements. Adoption of
these proposals will be on a state-by-state basis. Continental favors
stronger solvency standards, but recognizes that more regulation, at
either the state or federal level, will increase the cost of providing
insurance coverage. In the fourth quarter of 1993, the NAIC adopted
a risk based capital ("RBC") standard for use by state insurance
regulators. RBC is intended to be a "tool" for regulators to assess
the capital adequacy of property and casualty insurers and to take
action when capital under the standard is judged to be inadequate.
The NAIC developed a model law which can be adopted on a
state-by-state basis and may be applied, if adopted by the relevant
state regulatory authorities, to Continental's 1994 statutory
financial statements. Based upon the RBC standards developed by the
NAIC as applied to Continental's 1993 statutory financial statements,
Continental believes that its insurance subsidiaries have sufficient
levels of capital for their respective operations.
Insurance companies, including Continental's property and casualty
companies, are also affected by a variety of state and federal
legislative and regulatory measures and judicial decisions that
define and extend the risks and benefits for which insurance is
sought and provided. These include redefinitions of risk exposure in
areas such as product liability; environmental damage; and employee
benefits, including pensions, workers' compensation and disability
benefits. In addition, individual state insurance departments may
prevent premium rates for some classes of insureds from reflecting
the level of risk assumed by the insurer for those classes. Such
developments may result in short-term adverse effects on the
profitability of various lines of insurance. Longer-term adverse
effects on profitability can be minimized, when possible, only
through repricing of coverages or limitation or cessation of the
affected business.
A Continental subsidiary has been involved in continuing disputes
with the State of New Jersey concerning such subsidiary's ultimate
share of the residual private passenger automobile insurance market
during 1984-1993. The lawsuit filed by the New Jersey State Attorney
General's office in 1990 against this subsidiary and thirteen other
servicing carriers of the now-defunct New Jersey Joint Underwriting
Association ("JUA") for recovery of alleged residual market deficits
from 1984 to 1988 was settled in 1992. Also in 1992, the State
commenced proceedings to recover penalties it assessed against
certain carriers participating in the JUA's residual automobile
market successor, the Market Transition Facility ("MTF"). Those
proceedings and all of the penalty assessments were dismissed by the
New Jersey Supreme Court in 1993. Also in 1993, the State announced
the first statutory assessment for the deficit of the
now-discontinued MTF; Continental's subsidiary's market share was
approximately 2%, or approximately $10 million, of such first year
deficit. As part of the 1992 JUA settlement, Continental's
subsidiary paid $3.5 million; and an additional $6 million to the
State with respect to such subsidiary's ultimate MTF deficit
assessment. As a result, Continental's subsidiary's first year MTF
deficit was reduced to approximately $4 million. That amount has
been paid into court pending the resolution of an American Insurance
Association legal challenge to the assessments filed on behalf of all
affected New Jersey insurers.
Reinsurers and international insurance companies are subject to
licensing requirements and other regulation in the jurisdictions in
which they do business. United States regulation of licensed
reinsurers is similar to the regulation of domestic property and
casualty insurers, except that regulation of reinsurers does not
extend to rates, policy forms, or, generally, participation in
insolvency funds. Countries outside of the United States have varying
levels of regulation of insurance and reinsurance companies.
Reserves for Unpaid Losses and Loss Expenses
Continental's insurance subsidiaries establish reserves to cover
their ultimate liability for losses and loss expenses with respect to
reported and unreported claims incurred (except as noted below with
respect to "environmental claims") as of the end of each accounting
period, after taking into effect salvage and subrogation claims. In
establishing such reserves with respect to the period then ended, loss
reserves recorded in prior periods are updated to reflect improved
estimates of ultimate losses and loss expenses as actual experience
develops and payments are made.
The losses and loss expense reserves of Continental's insurance
subsidiaries are estimates of the ultimate liability determined by
using both individual case-basis estimates on reported claims and
statistical projections. The statistical projection models reflect
changes in the volume of business written, as well as claim frequency
and severity. Adjustments to these models are also made for changes
in the mix of business, claims processing and other items which
affect the development patterns over time. Such statistical
projections of ultimate net costs are used to adjust the amount
estimated for individually established case reserves, as well as to
establish estimates for the amount needed for unreported claims.
For more mature accident years, inflation is implicitly considered
in such projections based on actual patterns of reported claims, loss
payments and case-basis reserves. For relatively immature accident
years, in addition to actual loss patterns, explicit assumptions are
made for changes in claim severity and frequency based on the type of
claims, nature of the related risks, industry trends and related cost
indices.
Continental's reserves for losses and loss adjustment expenses
include reserves for reported "environmental claims" (as such term is
described in the next succeeding paragraph). The table on page 17
sets forth information regarding the amounts of these reserves at
December 31, 1993, 1992 and 1991 and payments of losses and loss
expenses on such claims in each of those years. These reserves
represent Continental's estimates of the probable ultimate cost to
resolve such reported claims, either through settlement, litigation
or alternative dispute resolution. The amounts in the table reflect
gross and net undiscounted estimated liability, and do not include
any reserves for unreported claims. (For information concerning
reinsurance relating to environmental claims, see "Reinsurance"
commencing on page 21 herein.) Such reserves incorporate factors
specifically relevant to environmental claims, including the nature
and scope of policy coverage; the number of claimants, defendants and
co-insurers; the timing and severity of injuries or damage; and the
relevant jurisdiction and case law. Continental has managed its
environmental claims from its centralized Environmental Claims
Department since 1981. Continental believes that its centralized
approach to handling environmental claims gives Continental the best
practicable ability to determine its liability.
Continental employs what it believes to be a broad definition of
"environmental claims" to classify those types of claims which are
handled out of its centralized Environmental Claims Department.
"Environmental claims" include claims or lawsuits, for which coverage
is alleged, arising from exposure to hazardous substances or
materials originating from a site, which is the subject of an
investigation or cleanup pursuant to state or federal environmental
legislation; claims or lawsuits involving allegations of bodily
injury or property damage arising out of the discharge or escape of a
pollutant or contaminant; and claims or lawsuits alleging bodily
injury or property damage as a result of exposure over a period of
time to products or substances alleged to be harmful or toxic. Claims
falling under the above categories are classified into two general
claim types: (1) asbestos-related and other toxic torts; and (2)
environmental pollution. The nature of Continental's business that
has resulted in these claim-types is addressed below.
Continental has not marketed nor been in the business of providing
environmental pollution coverages, with the exception of a program
which was in effect from 1981 to 1985, which provided such coverage
on a claims-made basis. There are currently three claims pending
under policies written under this program, for which Continental has
established case reserves which reflect Continental's estimate of the
probable ultimate cost of these claims. The allowable reporting
period under all policies written under this program has expired.
The 1980 enactment of CERCLA, as well as similar state statutes,
resulted in environmental pollution claims brought thereafter under
standard form general liability policies. While most environmental
pollution claims have arisen out of policyholders' obligations under
federal and state regulatory statutes, claims have also been brought
against policyholders by private third-parties, alleging pollution-
related property damage and/or bodily injury. Consistent with the
broad range of entities which may become subject to designation as
"Potentially Responsible Parties" under state and federal
environmental statutes, insureds presenting such claims for coverage
under general liability policies span a broad spectrum of commercial
policyholders. Most of Continental's environmental pollution claims
result from general liability policies written prior to 1986. Certain
provisions of Continental's, and the industry's, standard form
general liability policies written prior to 1986 have been subject to
wide-ranging challenges by policyholders and/or differing
interpretations by courts in various jurisdictions, with inconsistent
conclusions as to the applicability of coverage for environmental
pollution claims. Policies written after 1986 have not been subject
to such wide-ranging challenges by policyholders and/or differing
interpretations by the courts. Continental has consistently
maintained in coverage litigation that its general liability policies
did not provide coverage for environmental pollution liability.
Asbestos-related claims have generally arisen out of product
liability coverage provided by Continental under general liability
policies written prior to 1983. Thereafter, asbestos-product
exclusions were included in general liability policies.
Asbestos-related bodily injury litigation developed during the late
1970's. Initially, the majority of defendant-insureds making claims
under general liability policies were involved in the mining,
processing, distribution and sale of raw asbestos. By 1985, the
category of defendants grew to include companies which produced a
variety of products containing asbestos, including roofing materials,
tile, refractory products, asbestos-containing clothing, and brake
and clutch friction products. Continental had written primary
general liability coverage for only two major asbestos manufacturers,
and had settled all liabilities under those policies by 1989.
Continental had written excess insurance coverage for several other
asbestos manufacturers. In addition, Continental had written primary
general liability coverage for companies which produce products
containing asbestos.
Claims which fall in the other toxic tort category have generally
arisen out of product liability coverage under general liability
policies. These claims involve a variety of allegations of bodily
injury as a result of exposure over a period of time to products
alleged to be harmful or toxic, such as silica, lead-based paint,
pesticides, dust, acids, gases, chemicals, silicone breast implants
and pharmaceutical products.
Typically, the time period of coverage provided by Continental for
all of the above claim-types represents a portion of the overall
coverage available to a policyholder to pay these claims. Whenever
appropriate, Continental actively seeks out opportunities to
participate in cost-sharing agreements with other insurance carriers,
stipulating to an equitable allocation of expenses and indemnity
payments. Cost-sharing agreements are presently in effect with
respect to a large majority of Continental's policyholders involved
in asbestos and other toxic tort litigation.
As of December 31, 1993, there were approximately 3,600 pending
environmental pollution claims involving approximately 800
policyholders, and environmental pollution-related coverage disputes
involving approximately 290 policyholders in 340 actions.
Approximately 1,550 environmental pollution claims closed or settled
during 1993. Continental defines a "claim" as a reserved file which
represents the potential financial exposure to a policy year based on
an analysis of relevant factors, and which arises out of a
policyholder's potential liability at a single site or multiple
sites.
A three-year asbestos-related, other toxic tort and environmental
pollution loss reserve activity analysis is set forth below:
Asbestos-Related, Other Toxic Tort
and Environmental Pollution Claims
Year Ended December 31 (1)
---------------------------------
1993 1992 1991
---- ---- ----
(millions)
Asbestos-related and
Other Toxic Tort Claims:
Gross Reserves as of January 1 . . . . $ 85.6 $ 76.8 $ 49.7
Gross Incurred Losses and
Loss Adjustment Expenses . . . . . . 46.0 45.0 66.1
Gross Payments for Losses and Loss
Adjustment Expenses. . . . . . . . . (40.3) (36.2) (39.0)
------ ------ ------
Gross Reserves as of December 31 . . . $ 91.3 $ 85.6 $ 76.8
====== ====== ======
Environmental Pollution Claims:
Gross Reserves as of January 1 . . . . $161.5 $144.9 $ 93.7
Gross Incurred Losses and Loss
Adjustment Expenses. . . . . . . . . 68.7 64.2 103.2
Gross Payments for Losses and
Loss Adjustment Expenses . . . . . . (58.0) (47.6) (52.0)
------ ------ ------
Gross Reserves as of December 31 . . . $172.2 $161.5 $144.9
====== ====== ======
Gross Claims Reserves as
of December 31:
Asbestos-related and Other
Toxic Tort . . . . . . . . . . . . . $ 91.3 $ 85.6 $ 76.8
Environmental Pollution. . . . . . . . 172.2 161.5 144.9
Less Reinsurance . . . . . . . . . . . (105.3) ( 79.5) ( 58.2)
------ ------ ------
Net Claims Reserves
as of December 31. . . . . . . . . . . $158.2 $167.6 $163.5
====== ====== ======
___________________________
(1) Prior years' information has been restated to reflect accounting for
Continental's traditional assumed reinsurance and marine reinsurance
businesses and indigenous international and international marine
insurance businesses as discontinued operations. See "Discontinued
Operations" commencing on page 6 herein.
As of December 31, 1993, Continental's gross loss and loss
adjustment expense reserves for reported asbestos-related, other
toxic tort and environmental pollution claims included gross loss
adjustment expense reserves of $54.4 million, or 21% of such total
reserves (as of December 31, 1992, $55.0 million, or 22% of such
total reserves). The amount of Continental's gross loss adjustment
expense reserves for reported asbestos-related, other toxic tort and
environmental pollution claims, as of December 31, 1993, constituted
less than 5% of Continental's total gross loss adjustment expense
reserves.
Continental does not establish reserves for unreported
asbestos-related, other toxic tort and environmental pollution claims
because of significant uncertainties, which do not allow liabilities
to be reasonably estimated. Such uncertainties include difficulties
in determining the frequency and severity of such potential claims
and in predicting the outcome of judicial decisions, as case law
evolves regarding liability exposure, insurance coverage and
interpretation of policy language. The changes in the last three
years in Continental's estimates of its liability for insured events
of prior years are set forth in the Components of Reserve Development
table on page 21 herein. At this time, the future financial impact of
unreported asbestos-related, other toxic tort and environmental
pollution claims can not be reasonably estimated, and no assessment
can be made with respect to the ultimate impact thereof on
Continental's results of operations or financial condition in the
future.
The actuarial profession is addressing unquantifiable liabilities
(e.g., unreported asbestos-related, other toxic tort and
environmental pollution claims) and is in the initial stage of
developing standards, but has not yet scheduled publication of a
discussion draft. Other uncertainties may be clarified through the
debate, extension or modification of CERCLA in 1994. These
developments will continue to be monitored and assessed by
Continental.
In accordance with individual state insurance laws, certain of the
property and casualty subsidiaries discount certain workers'
compensation pension reserves. The rate of discount varies by
jurisdiction and ranges from 3.0% to 5.0%. The statutory discount on
workers' compensation reserves at December 31, 1993, 1992 and 1991 is
$525 million, or 7.9% of statutory reserves; $522 million, or 8.0% of
statutory reserves; and $505 million, or 7.7% of statutory reserves,
respectively. The discount includes an additional discount on the
reserves at December 31, 1993, 1992 and 1991 for incurred but not
reported claims of $127 million, $187 million and $185 million,
respectively, for losses reported to Continental through its
participation in joint reinsurance pools. In addition, for the
purpose of reporting on a generally accepted accounting principles
basis, these subsidiaries have discounted workers' compensation
pension reserves since 1984 at a rate of 7% to reflect assumed market
yields. Discounting at a rate of 7% in 1993, 1992 and 1991 reduced
total reserves for losses at the end of such years by $696 million,
or 10.5%; $693 million, or 10.6%; and $676 million, or 10.3%,
respectively. As a result of the discounting of such reserves, the
ultimate net cost of the losses would, without taking other factors
into account, be projected to exceed the amount of the carried
reserves by the amount of the discount. The total amount of this
excess will emerge as current year incurred losses develop over many
years. If such excess had been reflected in the table on page 19 as
development of prior year reserves, it would have added $20 million,
or 0.4%; $35 million, or 0.6%; and $44 million, or 0.7%,
respectively, to the 1992, 1991 and 1990 cumulative deficiencies as
of December 31, 1993. However, the yields on these subsidiaries'
investment portfolios have historically been greater than the
discount rate, and any deficiency due to the discounting of such
reserves should be more than offset by investment income.
The table on page 19 shows the annual adjustment to historical
reserves for each year since 1983. The reserves for unpaid losses
and loss expenses are set forth on a cumulative basis for the year
specified and all prior years. Although amounts paid for any year
are reflected in the re-estimated ultimate net loss at the end of
such year, there is no direct correlation in the development patterns
between the two portions of the table because the re-estimated
ultimate net loss includes adjustments for unpaid losses and loss
expenses as well. Finally, an adjustment to an unpaid claim for a
prior year will also be reflected in the adjustments for all
subsequent years. For example, an adjustment made in 1989 for 1983
loss reserves will be reflected in the re-estimated ultimate net loss
for each of the years 1984 through 1988.
Ten-Year Loss Development Presented Net of Reinsurance
With Supplemental Gross Data (1)(2)(3)
1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
(millions)
NET LIABILITY AS OF
END OF YEAR..........$2,861.7 $2,946.6 $3,464.4 $4,038.9 $4,686.3 $5,339.5 $6,045.0 $5,963.1 $5,901.9 $5,806.5 $5,915.8
PAID AS OF:
One Year Later..... 1,040.1 1,114.9 1,386.6 1,407.5 1,558.0 1,754.0 2,030.1 2,073.1 2,225.1 2,013.7
Two Years Later.... 1,582.3 1,813.8 2,152.1 2,295.6 2,591.6 2,876.0 3,388.2 3,381.7 3,411.3
Three Years Later.. 2,011.2 2,284.5 2,727.4 2,940.3 3,292.2 3,688.5 4,331.9 4,240.8
Four Years Later... 2,295.5 2,648.9 3,157.6 3,399.2 3,810.8 4,270.7 4,942.3
Five Years Later... 2,536.7 2,929.6 3,461.1 3,756.0 4,191.0 4,659.6
Six Years Later.... 2,734.0 3,117.9 3,709.0 4,022.3 4,429.9
Seven Years Later.. 2,876.7 3,299.6 3,907.8 4,185.4
Eight Years Later.. 3,013.2 3,449.8 4,031.4
Nine Years Later... 3,144.6 3,552.7
Ten Years Later.... 3,240.9
NET LIABILITY RE-ESTIMATED
AS OF:
End of Year........ 2,861.7 2,946.6 3,464.4 4,038.9 4,686.3 5,339.5 6,045.0 5,963.1 5,901.9 5,806.5 $5,915.8
One Year Later..... 2,879.9 3,149.9 3,512.2 4,080.8 4,810.5 5,444.7 6,066.6 6,059.6 6,027.2 5,807.6
Two Years Later.... 3,005.8 3,229.7 3,704.0 4,293.8 4,972.3 5,466.4 6,167.3 6,111.2 6,073.1
Three Years Later.. 3,063.4 3,395.3 3,958.1 4,499.1 5,021.4 5,584.3 6,284.8 6,171.5
Four Years Later... 3,204.5 3,551.4 4,170.9 4,558.7 5,145.4 5,649.4 6,404.6
Five Years Later... 3,289.3 3,687.4 4,263.6 4,688.2 5,182.1 5,720.2
Six Years Later.... 3,385.1 3,760.3 4,392.0 4,772.8 5,220.4
Seven Years Later.. 3,434.8 3,861.5 4,510.3 4,814.9
Eight Years Later.. 3,536.3 3,948.5 4,550.9
Nine Years Later... 3,635.4 3,975.2
Ten Years Later.... 3,685.2
NET CUMULATIVE
DEFICIENCY............ 823.5 1,028.6 1,086.5 776.0 534.1 380.7 359.6 208.4 171.2 1.1 --
GROSS LIABILITY AS OF
END OF YEAR........ 9,066.2 9,068.7
REINSURANCE
RECEIVABLES.......... 3,259.7 3,152.9
NET LIABILITY AS
OF END OF YEAR....... 5,806.5 5,915.8
GROSS RE-ESTIMATED
LIABILITY -
LATEST............... 8,809.6
RE-ESTIMATED
RECOVERABLE -
LATEST............... 3,002.0
NET RE-ESTIMATED
LIABILITY -
LATEST............... 5,807.6
GROSS CUMULATIVE
DEFICIENCY
(REDUNDANCY)
(4).................. (256.6)
(1) Information for each year from 1983 - 1991 has been restated to
reflect accounting for Continental's traditional assumed reinsurance
and marine reinsurance businesses and indigenous international
marine insurance businesses as discontinued operations. See
"Discontinued Operations" commencing on page 6 herein.
(2) The reserves of foreign subsidiaries are translated into United States
dollars at the exchange rates as of each year-end. Foreign exchange
factors tend to improve or adversely affect the reserve
development (ultimate loss as compared to initial estimated liability)
of foreign subsidiaries depending upon the relative movement of the
exchange rates.
(3) Excluding title companies' reserves.
(4) The gross reserves include direct written business and assumed
business. In 1993, Continental commuted a reinsurance agreement,
which had the effect of decreasing assumed business and reinsurance
receivables by $208 million, but did not affect net reserves.
This commutation pertains to certain business arising in 1992 and
prior years.
Reconciliation of Net Reserves for Losses and Loss Expenses
from a Statutory Accounting Principles Basis to a Generally Accepted
Accounting Principles Basis for the Last Two Years
With Supplemental Gross Data
1993 1992
---- ----
(millions)
Total Net Statutory Reserves.......................... $7,029.0 $7,339.0
Less: Net Reserves of Discontinued Operations......... 936.6 1,355.2
-------- --------
Net Statutory Reserves of Continuing Operations....... 6,092.4 5,983.8
Adjustments to a Generally Accepted Accounting
Principles Basis, Principally Discounting of
Workers' Compensation Pension Reserves.............. (176.6) (177.3)
-------- --------
Net Reserves on a Generally Accepted
Accounting Principles Basis......................... 5,915.8 5,806.5
Reinsurance Receivables............................... 3,152.9 3,259.7
-------- --------
Gross Reserves on a Generally Accepted
Accounting Principles Basis......................... $9,068.7 $9,066.2
======== ========
Reconciliation of Net Reserves for Losses and Loss
Expenses for the Last Three Years
With Supplemental Gross Data (1)
1993 1992 1991
-------- --------- --------
(millions)
Net Reserves as of January 1............... $5,806.5 $5,901.9 $5,963.1
Incurred Related to:
Current Year............................ 3,413.0 3,036.3 2,986.5
Prior Years............................. 1.1 125.3 96.5
-------- -------- --------
Total Incurred............................. 3,414.1 3,161.6 3,083.0
--------- -------- --------
Paid Related to:
Current Year............................ 1,291.1 1,031.9 1,071.1
Prior Years............................. 2,013.7 2,225.1 2,073.1
-------- -------- --------
Total Paid................................. 3,304.8 3,257.0 3,144.2
-------- -------- --------
Net Reserves as of December 31............. 5,915.8 5,806.5 $5,901.9
======== ======== ========
Reinsurance Receivables.................... 3,152.9 3,259.7
-------- --------
Gross Reserves............................. $9,068.7 $9,066.2
======== ========
__________________________
(1) 1991 information has been restated to reflect accounting for Continen-
tal's traditional assumed reinsurance and marine reinsurance businesses
and indigenous international and international marine insurance
businesses as discontinued operations. See "Discontinued Operations"
commencing on page 6 herein.
The following table shows the changes in the last three years in
Continental's estimates of its liability for insured events of prior
years, including the extent to which such changes relate to
asbestos-related, other toxic tort and environmental pollution
claims:
Components of Reserve Development
For the Last Three Years (1)
Reserve Increase (Decrease)
at December 31
------------------------------
1993 1992 1991
------- ------ --------
(net basis, millions)
Asbestos-related and Other
Toxic Tort........................ $22.4 $ 33.3 $ 42.6
Environmental Pollution............. 33.5 47.6 66.4
----- ------ ------
Subtotal............................ 55.9 80.9 109.0
All Other........................... (54.8) 44.4 (12.5)
----- ------ ------
Total............................... $ 1.1 $125.3 $ 96.5
===== ====== ======
__________________________
(1) Prior years' information has been restated to reflect accounting for
Continental's traditional assumed reinsurance and marine reinsurance
businesses and indigenous international and international marine
insurance businesses as discontinued operations. See "Discontinued
Operations" commencing on page 6 herein.
The increases in Continental's estimate of its liabilities for
insured events of prior years for total asbestos-related, other toxic
tort and environmental pollution claims during each of the years
1993, 1992 and 1991 was 1.6%, 2.6% and 3.5%, respectively, of
Continental's net reported incurred losses and loss expenses for such
years.
Reinsurance
In the ordinary course of business, Continental cedes business to
other insurers and reinsurers. Purchasing reinsurance enables
Continental to limit its exposure to catastrophic events and other
concentrations of risk. However, purchasing reinsurance does not
relieve Continental of its obligations to its insureds. Continental
reviews the creditworthiness of its reinsurers on an ongoing basis.
To minimize potential problems, Continental's policy is to purchase
reinsurance only from carriers who meet its credit quality
standards. It has also taken and is continuing to take steps to
settle existing reinsurance arrangements with reinsurers which do not
meet its credit quality standards. Continental does not believe that
there is a significant solvency risk concerning these reinsurance
claims. In addition, Continental regularly evaluates the adequacy of
its reserves for uncollectible reinsurance. Continental believes that
it makes adequate provisions for the ultimate collectibility of its
reinsurance claims and therefore believes these net recoveries to be
probable. (See Note 6 to Consolidated Financial Statements included
in Continental's 1993 Annual Report to Shareholders for additional
information regarding reinsurance.)
Continental has in place various reinsurance arrangements with
respect to its current operations. These arrangements are subject to
retentions, coverage limits and other policy terms. Some of the
principal treaty arrangements which are presently in effect are: (1)
an excess-of-loss treaty reducing Continental's liability on
individual property losses; (2) a blanket casualty program reducing
Continental's liability on third party liability losses; (3) a clash
casualty program reducing Continental's liability on multiple
insured/single event losses; and (4) a property catastrophe program,
with a net retention of $50 million in 1993, increased from $20
million in 1992, reducing its liability from catastrophic events.
Continental also uses individual risk facultative and other
facultative agreements to further reduce its liabilities. In 1993,
Continental's gross incurred losses from catastrophic events were
$166 million, and its net incurred losses from catastrophic events
were $153 million. Included in both gross and net incurred
catastrophe losses in 1993 is a $44 million loss from the March east
coast blizzard.
Continental also has in place, for future potential adverse reserve
development, an aggregate excess-of-loss reinsurance contract with a
full limit of $400 million. This agreement was purchased from
National Indemnity Company. It covers losses and allocated loss
expenses for 1991 and prior policy years. The business covered
includes all lines of business written by Continental's domestic
property and casualty insurance subsidiaries, with specific
exclusions for nuclear exposure, war risks, business written through
the Workers' Compensation Reinsurance Bureau and involuntary market
pools, insolvency and guarantee fund assessments, taxes, unallocated
loss adjustment expenses, and extra-contractual obligations.
Continental does not maintain any reinsurance arrangements whose
coverage is limited solely to asbestos-related, other toxic tort and
environmental pollution claims. The amounts of reinsurance
receivables and recoverables that are reflected in Continental's
Consolidated Financial Statements arose under a variety of
reinsurance arrangements put in place generally from 1963 through
1986, which generally are the years in which Continental's general
liability policies were alleged to provide coverage for those types
of claims. As most of Continental's reserves for asbestos-related,
other toxic tort and environmental pollution claims have arisen out
of general liability policies written prior to 1986 (after which such
policies have not generally been subject to wide-ranging challenges
by policyholders and/or differing interpretations by courts in
various jurisdictions), a majority of reinsurance receivables and
recoverables arising out of such claims in 1991, 1992 and 1993
related to reinsurance arrangements put into place prior to 1986.
These reinsurance arrangements include primary casualty treaty
arrangements, excess of loss and umbrella casualty treaty
arrangements, property treaty arrangements and various facultative
agreements.
Investment and Finance
Reserves and surplus balances constitute a pool of funds which are
invested by insurance companies. Investment results combined with
underwriting results produce operating income or losses.
Continental's overall operating results in the insurance business are
significantly affected by the performance of its investment
portfolio.
The following table sets forth the investment results of Continental
and its subsidiaries for each of the past three years:
Average Net Investment Current Realized
Year Investments(1)(3) Income (2) (3) Yield(3) Capital Gains(3)
- ---- ----------------- -------------- -------- ----------------
(millions, except percentages)
1993........ $8,817.0 $542.3 6.2% $124.5
1992........ $8,314.4 $589.9 7.1% $215.6
1991........ $8,009.7 $637.2 8.0% $111.2
____________
(1) Average of investments at beginning and end of calendar year, excluding
operating cash, but including cash equivalents. Bonds and redeemable
preferred stocks are reported at market, except for those investments
intended to be held to maturity, which are reported at cost.
(2) Net investment income after deduction of investment expenses, but
before realized capital gains and applicable income taxes.
(3) Certain reclassifications, primarily for discontinued operations,
have been made to the prior years' financial information to conform
to the 1993 presentation.
Investment strategies are developed based on a variety of factors
including business needs, regulatory requirements and tax
considerations. It is Continental's objective to maximize real
economic surplus by actively managing all investable assets to ensure
a maximum after-tax "total return". The total return concept employs
an integrated approach of tailoring investment strategies to ensure
proper asset/liability management. An asset/liability study is
performed by management to determine the ideal duration of the
investment portfolio, taking into consideration the optimal risk and
return preferences of management.
Continental continually monitors the mix between its fixed
maturities and equity securities portfolios. It is management's
preference to limit equity investments to a percentage of economic
surplus. This equity limit is further reduced by any current
commitments to "high yield" bonds and non-dollar bonds supporting
dollar-based activities. Considering risk and return parameters,
common stock commitments have been limited to no more than 100% of
Continental's property and casualty statutory surplus. The
percentage of Continental's consolidated property and casualty
statutory surplus invested in common stocks at the end of each of the
past three years has ranged between 33% and 39%, and at the end of
1993, was approximately 33%.
Fixed maturities are further managed to ensure maximum profitability
by balancing the portfolio between taxable and tax-exempt
securities. Continental also uses international investment programs
to match its non-dollar business exposures and to enhance the risk
and return parameters of the portfolio backing its U.S.-based
business.
All investments are made in accordance with applicable state
investment laws; further, Continental employs strict internal
guidelines limiting its investments in any particular issue and in
any particular industry. Continental also maintains short-term
investments and cash equivalents for the current and anticipated
near-term liquidity needs of its operations. When maximizing total
return, management recognizes that some capital losses are
inevitable.
Fixed maturities available-for-sale consist of certain bonds and
redeemable preferred stocks that management may not hold until
maturity and which have an average Standard & Poor's rating of AA+
(or its Moody's equivalent). Continental's fixed maturities
available-for-sale had a balance sheet fair value of $6,916 million
at December 31, 1993 (compared with a fair value of $6,240 million at
December 31, 1992) and included mortgage-backed securities with a
fair value of $1,270 million and an amortized cost of $1,255 million
at December 31, 1993 (compared with a fair value of $1,338 million
and an amortized cost of $1,300 million at December 31, 1992).
Continental's mortgage-backed securities have an average Standard &
Poor's rating of AAA (or its Moody's equivalent) and an average of
life of 6.0 years. Continental has an insignificant investment in
collateralized mortgage obligations which put the return of principal
at risk if interest rates or prepayment patterns fluctuate.
At December 31, 1993, Continental's bond portfolio classified by
Moody's rating was as follows:
Percentage of
Bond
Moody's Rating Portfolio
------------------ -------------
Aaa........................ 62.0%
Aa......................... 15.7
A.......................... 11.2
Baa........................ 9.6
Below Baa.................. 1.5
-----
100.0%
At December 31, 1993, the fixed maturities portfolio included an
insignificant amount of securities, the fair value of which is
expected to be lower than its carrying value for more than a
temporary period; such investments have been recorded in
Continental's Consolidated Balance Sheets at their net realizable
value.
Continental also maintains an equity securities portfolio, the fair
value of which was $759 million at December 31, 1993. At December
31, 1993, Continental also had a $112 million investment in
privately-placed direct mortgages, which are included in "Other
Long-Term Investments" in Continental's Consolidated Balance Sheets.
The NAIC is currently developing an Investments of Insurers Model
Act, which, if adopted by state regulatory authorities, would
establish uniform limitations upon the type and amounts of
investments insurers may hold. Based upon the current proposals of
this Model Act, which are subject to review and change, Continental
does not believe a uniform standard would significantly affect the
current investment mix or operations of its insurance subsidiaries.
Unrealized appreciation on investments available-for-sale increased
$170 million, before income taxes, from December 31, 1992. Unrealized
appreciation on fixed maturities increased $152 million. Unrealized
appreciation on common stocks decreased $1 million, while unrealized
appreciation on nonredeemable preferred stocks increased $11
million. Unrealized appreciation on other long-term assets increased
$8 million. In addition, unrealized appreciation on investments held
by discontinued operations increased $15 million, before income
taxes, from December 31, 1992.
In recent years, a small portion of Continental's investment funds
has been committed to alternative areas of investment (i.e., other
than Continental's traditional areas). Continental currently invests
in alternative areas including venture capital partnerships,
high-yield bonds, international diversification investments and
emerging markets. As of December 31, 1993, the total investment in
these areas represented less than 5% of Continental's investment
portfolio.
Continental, through its former participation in the Municipal Bond
Insurance Association, issued guarantees of financial obligations.
During 1986, this association was reorganized as a corporation named
MBIA, Inc. Continental's net par value exposure at December 31,
1993 on guarantees issued before the reorganization is $1.4 billion
(1992 - $1.7 billion), all of which has been reinsured by MBIA, Inc.
In addition, Continental has issued financial guarantees of limited
partners' obligations, municipal lease obligations, industrial
development bonds and other obligations. Continental's net par value
exposure on these guarantees at December 31, 1993 was $151.0 million
(1992 - $173.0 million). The maturity dates of these obligations
range between one and twelve years. Continental continually monitors
its exposure relating to financial guarantees. Continental does not
believe that its exposures relating to financial guarantees are
material.
Miscellaneous
In 1992 and 1993, Continental sold a total of $350 million in Notes
(which provided $346 million to Continental, net of offering and
underwriting costs) under its shelf registration of up to $400
million of debt securities with the Securities and Exchange
Commission. During 1993, Continental used $282 million of net
proceeds from these sales to retire its outstanding 9 3/8% Notes due
July 1, 1993 and $50 million of net proceeds from these sales to
reduce corporate short-term borrowings. Continental intends to sell
an additional $50 million of debt securities under its existing shelf
registration and to register for the sale of up to an additional $100
million of debt securities. Continental plans to use the net proceeds
from these sales to further reduce its short-term borrowings.
As of December 31, 1993, Continental and its subsidiaries had
approximately 12,255 employees, compared with 13,100 at December 31,
1992. Continental and its subsidiaries consider their employee
relations to be satisfactory.
Item 2. Properties
Continental's subsidiaries lease office space in various cities
throughout the United States and in other countries. The following
table sets forth certain information with respect to the principal
office buildings owned or leased by Continental's subsidiaries:
Amount of Building
Owned and Occupied
or Leased by
Continental's
Size Subsidiaries
(in square (in square
Location feet) (1) feet) Principal Usage Operations
- --------------------- ---------- --------- ------------------- ----------
180 Maiden Lane, 1,091,570 572,514 Principal Executive Corporate/
New York, New York(2) Offices of Insurance
Continental Operations/
Asset
Management
1 Continental Drive, 490,993 490,993 Property, Casualty Insurance
Cranbury, New Jersey Insurance Offices Operations
200 S. Wacker Drive, 336,390 245,466 Property, Casualty Insurance
Chicago, Illinois Insurance Offices Operations
1111 E. Broad St., 197,537 197,537 Property, Casualty Insurance
Columbus, Ohio Insurance Offices Operations
1100 Ward Avenue, 186,492 97,831 First Insurance Insurance
Honolulu, Hawaii(2) Company of Hawaii, Operations
Ltd. Headquarters
333 Glen Street, 158,700 158,700 Property, Casualty Insurance
Glens Falls, New York Insurance Offices; Operations
Residual Market
Center
3501 State Highway 129,965 129,965 Data Processing Systems
No. 66, Neptune, Facilities
New Jersey
- -----------------------
(1) Represents the amount of space owned and occupied by or leased to
Continental's subsidiaries. To the extent not occupied
by Continental's subsidiaries, such space is or is intended to
be subleased to third parties.
(2) Represents property owned in fee by Continental's subsidiaries
and held subject to mortgages. (See Note 7 to Consolidated
Financial Statements included in Continental's 1993 Annual Report
to Shareholders.)
Item 3. Legal Proceedings
Continental's subsidiaries are routinely party to litigation
incidental to their business, as well as other litigation of a
nonmaterial nature. Management regularly evaluates the liability of
Continental and its subsidiaries associated with such litigation. The
status of such litigation is reviewed in consultation with
Continental's in-house legal staff, Corporate Claims Department and
Environmental Claims Department, and their respective outside
counsel, all of whom have extensive experience in handling such
matters. Based upon the foregoing evaluative process, Continental
makes a determination as to the effect that such litigation may have
upon its financial condition on a consolidated basis. In the opinion
of Continental, no individual item of litigation, or group of related
items of litigation (including asbestos-related, other toxic tort and
environmental pollution matters), taken net of claims reserves
established therefore and giving effect to reinsurance, is likely to
result in judgments for amounts material to the financial condition of
Continental and its subsidiaries on a consolidated basis.
Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of 1993, no matter was submitted to a vote
of Continental's shareholders.
Item 4(A). Executive Officers of the Registrant
Name Title Age
John P. Mascotte Director, Chairman of the Board,
Chief Executive 54
Officer and President
Charles A. Parker Director and Executive Vice President, 59
Investments
Wayne H. Fisher Executive Vice President and President, 49
Special Operations Group
Fredric G. Marziano Executive Vice President and President, 51
The Continental Insurance Companies and
Agency and Brokerage Group
Steven J. Smith Executive Vice President, Office of the 49
Chairman
Adrian M. Tocklin Executive Vice President and President, 42
Continental Risk Management Services
Bruce B. Brodie Senior Vice President and Chief 39
Information Officer
J. Heath Fitzsimmons Senior Vice President and Chief 51
Financial Officer
James P. Flood Senior Vice President, Corporate Claims 43
William F. Gleason,
Jr. Senior Vice President, General
Counsel and Secretary 57
John F. Kirby Senior Vice President 47
Arthur J. O'Connor Senior Vice President, Corporate 41
Communications and Investor Relations
Sheldon Rosenberg Senior Vice President and Chief Actuary 44
Kenneth B. Zeigler Senior Vice President, Human Resources 45
Francis M. Colalucci Vice President and Treasurer 49
William A. Robbie Vice President and Chief
Accounting Officer 42
All Executive Officers of Continental are elected to serve for terms
to expire at the meeting of the Board of Directors following the next
Annual Meeting of Shareholders and until their successors shall have
been elected.
John P. Mascotte has been a Director since February 1981, Chairman of
the Board and Chief Executive Officer of Continental since December
1982 and President since December 1992.
Charles A. Parker has been a Director since May 1989 and Executive
Vice President, Investments, of Continental since May 1983.
Wayne H. Fisher has been an Executive Vice President of Continental
since December 1990 and has been President, Special Operations Group,
since January 1988. Before that time, he was a Senior Vice President
of Continental (December 1988-December 1990).
Fredric G. Marziano has been an Executive Vice President and
President, Agency and Brokerage Group, since January 1987 and
President of The Continental Insurance Companies since November 1992.
Steven J. Smith has been an Executive Vice President, Office of the
Chairman, of Continental since February 1983.
Adrian M. Tocklin has been Executive Vice President of Continental
and President, Continental Risk Management Services, since November
1992. Before that time, she served as Senior Vice President,
Corporate Claims, of Continental (July 1988 - November 1992).
Bruce B. Brodie has been Senior Vice President and Chief Information
Officer of Continental since October 1993. Before that time, he
served as Chief Financial Officer for the Special Operations Group
(April 1990 - October 1993) and Vice President, Office of the
Chairman, of Continental (January 1989 - April 1990).
J. Heath Fitzsimmons has been Senior Vice President and Chief
Financial Officer of Continental since January 1990. Before that
time, he was Vice President, Finance, of Continental (February
1989-December 1989).
James P. Flood has been Senior Vice President, Corporate Claims, of
Continental since November 1992. Before that time, he served as Vice
President, Environmental Claims, of Continental (March 1988 - October
1992).
William F. Gleason, Jr. has been Senior Vice President, General
Counsel and Secretary of Continental since January 1983.
John F. Kirby has been a Senior Vice President of Continental since
January 1990 and a Senior Vice President of The Continental Insurance
Company since March 1987.
Arthur J. O'Connor has been Senior Vice President, Corporate
Communications and Investor Relations, of Continental since November
1992 and served as Vice President, Corporate Communications and
Investors Relations, of Continental (January 1988 - November 1992).
Sheldon Rosenberg has been Senior Vice President and Chief Actuary of
Continental since February 1994. Before that time, he served as Vice
President and Chief Actuary of The Continental Insurance Company
(April 1992 - February 1994), Vice President and Actuary of The
Continental Insurance Company (April 1990-March 1992) and Vice
President and Chief Financial Officer of the Special Operations Group
(April 1988 - March 1990).
Kenneth B. Zeigler has been Senior Vice President, Human Resources,
of Continental since December 1991. Before that time, he served as
Senior Vice President and President of the Marine and International
Group (January 1990-November 1991). Previously, he had been President
of Continental International (July 1988-December 1990).
Francis M. Colalucci has been Vice President and Treasurer of
Continental since May 1991. Before that time, he was Vice President
and Controller of The Continental Insurance Company (November
1980-May 1991).
William A. Robbie has been Vice President and Chief Accounting
Officer since June 1992 and served as Vice President, Financial
Reporting (June 1990 - June 1992). Before that time, he served as
Vice President and Treasurer of Monarch Life Insurance Co. and Vice
President and Corporate Controller of Monarch Capital Corp. (August
1988 - June 1990).
PART II
Item 5. Market for the Registrant's Common Stock and Related Security
Holder Matters
Material appearing under the captions "Shareholder Information",
"Summarized Consolidated Quarterly Financial Data (Unaudited),
"Selected Consolidated Financial Data" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations -
Financial Resources and Liquidity", and Notes 9 and 10 to
Consolidated Financial Statements included in Continental's 1993
Annual Report to Shareholders (the "Annual Report") is incorporated
herein by reference.
Item 6. Selected Financial Data
Material appearing under the caption "Selected Consolidated Financial
Data" included in the Annual Report is incorporated herein by
reference.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Material appearing under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included
in the Annual Report is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
Consolidated Financial Statements and related Notes, and material
appearing under the captions "Independent Auditors' Report", "Report
on Financial Statements" and "Summarized Consolidated Quarterly
Financial Data (Unaudited)" included in the Annual Report are
incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
Within the 24 months prior to the date of its most recent financial
statements, Continental did not file a report on Form 8-K reporting a
change of accountants.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information concerning Executive Officers of Continental appears
under Item 4(A) of this Report. Information as to Directors of
Continental appearing under the caption "Election of Directors"
included in Continental's Proxy Statement in connection with its 1994
Annual Meeting of Shareholders (the "Proxy Statement") is
incorporated herein by reference.
Item 11. Executive Compensation
Material appearing under the captions "Directors' Compensation" and
"Executive Compensation" included in the Proxy Statement is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Material appearing under the captions "Election of Directors",
"Security Ownership of Directors and Executive Officers" and "Other
Ownership of Continental Stock" included in the Proxy Statement is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
Material appearing under the caption "Election of Directors" included
in the Proxy Statement is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K
(a) The following documents are filed as part of this Report.
(1) The following is a list of financial statements, together
with schedules thereto, filed as part of this Report, all of which
have been incorporated herein by reference to the material in the
Annual Report as described under Item 8 of this Report.
Report on Financial Statements
Consolidated Statements of Income for the years ended December 31,
1993, 1992 and 1991
Consolidated Balance Sheets at December 31, 1993 and 1992
Consolidated Statements of Cash Flows for the years ended December
31, 1993, 1992 and 1991
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1993, 1992 and 1991
Notes to Consolidated Financial Statements
Independent Auditors' Report
Selected Consolidated Financial Data
Summarized Consolidated Quarterly Financial Data (Unaudited)
(2) The following is a list of financial statement schedules
filed with this Report.
Independent Auditors' Report
Consolidated:
Page No.
Schedule I -- Summary of Investments Other Than
Investments in Related Parties at
December 31, 1993..................... 34
II -- Amounts Receivable from Related
Parties and Underwriters, Promoters,
and Employees Other Than Related
Parties for the years ended
December 31, 1993, 1992 and 1991...... 35
III -- Condensed Parent Financial Statements:
-- Statements of Income for the
years ended December 31, 1993,
1992 and 1991..................... 36
-- Balance Sheets at December
31, 1993 and
1992.............................. 37
-- Statements of Cash Flows for the
years ended December 31, 1993,
1992 and 1991..................... 38
IV -- Not Applicable........................ --
V -- Supplementary Insurance Information for
the years ended December 31, 1993, 1992
and 1991............................... 39
VI -- Reinsurance Information for the years
ended December 31, 1993, 1992 and
1991................................... 40
VII -- Not Applicable......................... --
VIII -- Valuation and Qualifying Accounts for
the years ended December 31, 1993, 1992
and 1991............................... 41
IX -- Short-Term Borrowings for the years
ended December 31, 1993, 1992 and
1991................................... 42
X -- Supplemental Information for Property-
Casualty Insurance Underwriters for the
years ended December 31, 1993, 1992 and
1991................................... 43
(3) The following is a list of exhibits hereto required to be
filed by Item 601 of Regulation S-K of the Securities and Exchange
Commission (the "SEC").
3(a)-- Certificate of Incorporation of Continental, as amended,
as filed with the Secretary of the State of New York on
April 6, 1989.
(b)-- By-Laws of Continental, as amended through December 17,
1992.
4(a)-- The following document filed with the SEC on March 3, 1993
as Exhibit 1 to Report on Form 8-K is incorporated herein
by reference:
Supplemental Indenture No. 3 dated as of March 1, 1993
from Continental to The Bank of New York, as Trustee, with
respect to the issuance of $150 million of 7.25% Notes due
March 1, 2003.
(10)(a)-- The Long Term Incentive Plan of Continental (amended and
restated as of December 1, 1993).
(b)-- The Annual Management Incentive Plan of Continental
(amended and restated as of January 1, 1993).
(c)-- The Incentive Savings Plan of Continental (amended and
restated as of January 1, 1994).
(d)-- The Retirement Plan of Continental (amended and restated
as of January 1, 1994).
(e)-- Receivables Purchase and Sale Agreement dated as of
December 14, 1993, among The Continental Insurance Company
("Continental Insurance"), Boston Old Colony Insurance
Company ("Boston"), The Buckeye Union Insurance Company
("Buckeye"), Casualty Insurance Company ("Casualty"),
Commercial Insurance Company of Newark, N.J.
("Commercial"), The Continental Insurance Company of New
Jersey ("Continental - NJ"), Continental Lloyd's Insurance
Company ("Lloyd's"), The Fidelity and Casualty Company of
New York ("Fidelity"), Continental Reinsurance Corporation
("Continental Re"), Firemen's Insurance Company of Newark,
New Jersey ("Firemen's"), The Glens Falls Insurance
Company ("Glens Falls"), Kansas City Fire and Marine
Insurance Company ("Kansas City"), The Mayflower Insurance
Company, Ltd. ("Mayflower"), National-Ben Franklin
Insurance Company of Illinois ("N-BF"), Niagara Fire
Insurance Company ("Niagara"), Pacific Insurance Company
("Pacific") and Workers' Compensation and Indemnity
Company of California ("Workers'"), collectively as
Sellers, and Corporate Asset Funding Company, Inc. ("Asset
Funding"), CIESCO, L.P., Falcon Asset Securitization
Corporation ("Falcon"), Sheffield Receivables Corporation
("Sheffield"), Atlantic Asset Securitization Corp. and
Credit Lyonnais, collectively as Purchasers, and Citicorp
North America, Inc. ("Citicorp"), as Agent.
(f)-- Stock Purchase Agreement dated as of June 30, 1993, among
Continental, Continental Insurance, Continental Re and
Mellon.
(g)-- Share Purchase Agreement dated as of June 30, 1993 (the
"Unionamerica Stock Purchase Agreement"), among
Unionamerica Acquisition Company Ltd. ("Unionamerica"),
Unionamerica Holdings Ltd. ("Unionamerica Holdings") and
Continental.
(h)-- Amendment dated September 1, 1993 to the Unionamerica
Share Purchase Agreement, among Unionamerica, Unionamerica
Holdings and Continental.
(i)-- Stock Purchase Agreement dated as of July 28, 1993 (the
"Alleghany Stock Purchase Agreement"), among Alleghany
Corporation ("Alleghany"), Continental, Goldman, Sachs &
Co. ("Goldman") and certain funds which Goldman either
controls or of which it is a general partner (together,
the "GS Investors"; Continental and the GS Investors
together referred to as the "URHC Stockholders"),
Underwriters Re Holdings Corp. ("Underwriters Holdings")
and Underwriters Re Corporation ("Underwriters").
(j)-- Amendment dated October 7, 1993, to the Alleghany Stock
Purchase Agreement, among Alleghany, Continental, the GS
Investors, Underwriters Holdings and Underwriters.
(k)-- Stock Purchase Agreement dated as of July 28, 1993 (the
"GS Investors Stock Purchase Agreement"), among
Continental and the GS Investors.
(l)-- Letter Agreement dated October 6, 1993, among Continental
and the GS Investors, relating to the GS Investors Stock
Purchase Agreement.
(m)-- Management Stock Purchase Agreement dated as of July 28,
1993 (the "Management Agreement"), among Continental,
Underwriters Holdings, Underwriters and certain Management
Stockholders, as supplemented.
(n)-- Amendment dated as of October 7, 1993, to the Management
Agreement, among Continental, Underwriters Holdings,
Underwriters and certain Management Stockholders.
The following document filed under Exhibit 10 to
Continental's Annual Report on Form 10-K for the fiscal
year ended December 31, 1992 is incorporated herein by
reference:
Receivables Purchase and Sale Agreement dated as of
December 14, 1992, among Continental Insurance, Boston,
Buckeye, Casualty, Commercial, Continental-NJ, Lloyd's,
Fidelity, Firemen's, Glens Falls, Kansas City, Mayflower,
N-BF, Niagara, Pacific and Workers', collectively as
Sellers, and Asset Funding, Falcon, Receivables Capital
Corporation, Sheffield and Credit Lyonais, collectively,
as Purchasers, and Citicorp, as Agent.
(11) -- Continental's Statement re Computation of Per Share
Earnings.
(13) -- Continental's 1993 Annual Report to Shareholders (filed
with the SEC only to the extent incorporated herein by
reference).
(21) -- Subsidiaries of Continental.
(23) -- Consent of KPMG Peat Marwick.
(28) -- Statutory Loss Development of Property and Casualty
Insurance and Reinsurance Subsidiaries.
(b) No Report on Form 8-K was filed by Continental during the last
quarter of the period covered by this Report.
SIGNATURES
Pursuant to the Requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: March 17, 1994
THE CONTINENTAL CORPORATION
By /s/ JOHN P. MASCOTTE
(John P. Mascotte)
Chairman of the Board,
Chief Executive Officer
and President
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 Registrant and in the capacities and on the dates
indicated.
Signature Title Date
Senior Vice President
/s/ J. HEATH FITZSIMMONS and Chief Financial Officer March 17, 1994
(J. Heath Fitzsimmons)
Vice President
/s/ WILLIAM A. ROBBIE and Chief Accounting Officer March 17, 1994
(William A. Robbie)
/s/ IVAN A. BURNS Director March 17, 1994
(Ivan A. Burns)
/s/ ALEC FLAMM Director March 17, 1994
(Alec Flamm)
/s/ IRVINE O. HOCKADAY, JR. Director March 17, 1994
(Irvine O. Hockaday, Jr.)
/s/ JOHN E. JACOB Director March 17, 1994
(John E. Jacob)
/s/ JOHN P. MASCOTTE Director March 17, 1994
(John P. Mascotte)
/s/ JOHN F. McGILLICUDDY Director March 17, 1994
(John F. McGillicuddy)
/s/ RICHARD de J. OSBORNE Director March 17, 1994
(Richard de J. Osborne)
/s/ CHARLES A. PARKER Director March 17, 1994
(Charles A. Parker)
________________________________ Director
(L. Edwin Smart)
/s/ JOHN W. ROWE, M.D. Director March 17, 1994
(John W. Rowe, M.D.)
/s/ PATRICIA CARRY STEWART Director March 17, 1994
(Patricia Carry Stewart)
________________________________ Director
(Francis T. Vincent, Jr.)
________________________________ Director
(Michael Weintraub)
/s/ ANNE WEXLER Director March 17, 1994
(Anne Wexler)
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
THE CONTINENTAL CORPORATION:
Under date of February 10, 1994, we reported on the consolidated
balance sheets of The Continental Corporation and subsidiaries as of
December 31, 1993 and 1992, and the related consolidated statements
of income, shareholders' equity and cash flows for each of the years
in the three-year period ended December 31, 1993, as contained in the
1993 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. In connection with
our audits of the aforementioned consolidated financial statements,
we also have audited the related financial statement schedules as
listed in Item 14(a)(2). 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.
In our opinion, such financial statement schedules, 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.
As discussed in Note 2 to the consolidated financial statements,
The Continental Corporation and subsidiaries changed their methods of
accounting for multiple-year retrospectively rated reinsurance
contracts and for the adoption of the provisions of the Financial
Accounting Standards Board's Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployment
Benefits," No. 113, "Accounting and Reporting for Reinsurance of
Short-Duration and Long-Duration Contracts," and No. 115, "Accounting
for Certain Investments in Debt and Equity Securities," in 1993. The
Continental Corporation and subsidiaries adopted the provisions of
the Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," and No. 109,
"Accounting for Income Taxes," in 1992.
/s/ KPMG PEAT MARWICK
KPMG Peat Marwick
New York, New York
February 10, 1994
SCHEDULE I
THE CONTINENTAL CORPORATION
SUMMARY OF INVESTMENTS OTHER THAN INVESTMENTS IN RELATED PARTIES (1)
December 31, 1993
(millions)
- --------------------------------------------------------------------------
Column A Column B Column C Column D
- --------------------------------------------------------------------------
Type of Investment Cost Value Balance
Sheet
- --------------------------------------------------------------------------
FIXED MATURITIES:
BONDS:
United States Government and
Government Agencies . . . . . . . . . $2,832.8 $2,908.6 $2,908.6
States, Municipalities and
Political Subdivisions. . . . . . . . 1,325.2 1,418.6 1,418.6
Foreign Governments . . . . . . . . . . 879.2 943.2 943.2
Public Utilities. . . . . . . . . . . . 132.0 137.8 137.8
All Other Corporate . . . . . . . . . . 1,397.8 1,456.3 1,456.3
-------- -------- --------
Total Bonds . . . . . . . . . . . . . 6,567.0 6,864.5 6,864.5
-------- -------- --------
REDEEMABLE PREFERRED STOCKS. . . . . . . . 48.9 51.9 51.9
-------- -------- --------
Total Fixed Maturities. . . . . . . . . 6,615.9 6,916.4 6,916.4
-------- -------- --------
EQUITY SECURITIES:
COMMON STOCKS:
Public Utilities. . . . . . . . . . . . 72.8 85.1 85.1
Banks, Trusts and Insurance Companies . 77.5 131.4 131.4
All Other Corporate . . . . . . . . . . 350.5 437.2 437.2
-------- -------- --------
Total Common Stocks . . . . . . . . . 500.8 653.7 653.7
-------- -------- --------
OTHER PREFERRED STOCKS . . . . . . . . . . 99.2 105.4 105.4
-------- -------- --------
Total Equity Securities . . . . . . . . 600.0 759.1 759.1
-------- -------- --------
OTHER LONG-TERM INVESTMENTS:
Mortgages Receivable . . . . . . . . . . . 112.2 112.2
Certificates of Deposit. . . . . . . . . . 35.5 35.5
Venture Capital Investments. . . . . . . . 42.7 42.7
Investment in Minority Affiliates. . . . . 1.1 1.1
Other Notes and Participations . . . . . . 10.9 10.9
Investments in Limited Partnerships. . . . 185.5 193.5
-------- --------
Total Other Long-Term
Investments. . . . . . . . . . . . . . . . 387.9 395.9
-------- --------
OTHER SHORT-TERM INVESTMENTS:
Money Market Instruments . . . . . . . . . 1,071.0 1,071.0
-------- --------
Total:. . . . . . . . . . . . . . . . . $8,674.8 $9,142.4
======== ========
_____________________
(1) All fixed maturities are carried at market.
SCHEDULE II
THE CONTINENTAL CORPORATION
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES
- ---------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- ---------------------------------------------------------------------------------------------
Balance at
Deductions End of Period
--------------------------------------
(i) (ii)
Balance at Amounts
Beginning Amounts Written (i) (ii)
Name of Debtor of Period Additions Collected Off Current Non-Current
- ---------------------------------------------------------------------------------------------
Year Ended December 31, 1993:.... -- -- -- -- -- --
Year Ended December 31, 1992:
Steven H. Newman (1)........... $305,263 -- $305,263 -- -- --
Year Ended December 31, 1991:
Steven H. Newman (1)........... $407,016 -- $101,753 -- $101,753 $203,510
____________________
(1) Represents a loan at 8.95%
SCHEDULE III
THE CONTINENTAL CORPORATION - PARENT
STATEMENTS OF INCOME (1) (2)
Year Ended December 31
(millions)
1993 1992 1991
------- ------- -------
REVENUES:
Net Investment Income . . . . . . . . . $ 15.2 $ 17.7 $ 14.2
Realized Capital Losses . . . . . . . . (3.0) (6.0) (3.0)
Equity in Earnings of Subsidiaries
Dividends: $120.0;
1992 - $168.0; 1991 - $140.0. . . . 177.8 221.1 124.7
Equity in Earnings (Loss)
of Discontinued Operations,
Net of Income Taxes
(Benefits)......... . . . . . . . . 48.7 (174.7) (54.9)
Other Revenues. . . . . . . . . . . . . 61.4 6.4 8.8
----- ----- -----
Total Revenues. . . . . . . . . . . 300.1 64.5 89.8
----- ----- -----
EXPENSES:
Interest Expense. . . . . . . . . . . . 48.6 49.5 43.8
Other Expenses. . . . . . . . . . . . . 24.9 59.0 4.7
----- ----- -----
Total Expenses. . . . . . . . . . . 73.5 108.5 48.5
----- ----- -----
Income (Loss) before Income Taxes
and Net Cumulative Effect of
Changes in Accounting Principles. . 226.6 (44.0) 41.3
----- ----- -----
Total Income Taxes (Benefits) (3) . . . 18.2 28.7 (15.1)
----- ----- -----
Income (Loss) Before Net Cumulative
Effect of Changes in
Accounting Principles . . . . . . . 208.4 (72.7) 56.4
Net Cumulative Effect of Changes
in Accounting Principles. . . . . . 1.6 (11.0) --
----- ----- -----
Net Income (Loss) . . . . . . . . . . . $210.0 $(83.7) $56.4
====== ====== =====
_______________________
(1) See Notes to Consolidated Financial Statements included in
Continental's 1993 Annual Report to Shareholders.
(2) Certain reclassifications, primarily for discontinued operations,
have been made to the prior years' financial information to
conform to the 1993 presentation.
(3) Represents Income Taxes (Benefits) for continuing operations.
SCHEDULE III
(Continued)
THE CONTINENTAL CORPORATION - PARENT
BALANCE SHEETS (1) (2)
DECEMBER 31
(millions, except par values and share amounts)
1993 1992
---- ----
ASSETS:
Fixed Maturities at Market (Amortized Cost -
$40.2; 1992 - $98.4) . . . . . . . . . . $ 39.8 $ 98.0
Equity Securities at Market (Cost -
$15.2; 1992 - $0.2). . . . . . . . . . . 15.3 0.2
Short-Term Investments . . . . . . . . . . 9.0 107.3
Other Long-Term Investments. . . . . . . . 6.1 58.6
Investment in Stocks of Subsidiaries:
Insurance Subsidiaries - Equity Basis . 2,697.7 2,126.3
Discontinued Operations - Equity Basis . 84.6 310.5
Other Subsidiaries - Equity Basis . . . 146.6 147.4
Cash and Cash Equivalents. . . . . . . . . 0.1 3.1
Other Assets . . . . . . . . . . . . . . . 19.1 6.8
-------- --------
Total Assets. . . . . . . . . . . . . . $3,018.3 $2,858.2
======== ========
LIABILITIES:
Short-Term Debt. . . . . . . . . . . . . . $ 223.5 $ 554.0
Notes Payable. . . . . . . . . . . . . . . 346.8 198.6
Intercompany Balances. . . . . . . . . . . 94.9 96.3
Other Liabilities. . . . . . . . . . . . . 170.0 78.2
----- ----
Total Liabilities . . . . . . . . . . . 835.2 927.1
----- -----
Commitments and Contingencies -- --
----- -----
Series C, Redeemable Preferred Stock . . . . . -- 20.5
----- -----
SHAREHOLDERS' EQUITY:
Preferred Stock, $4 Par Value. . . . . . . 0.3 0.3
Common Stock, $1 Par Value . . . . . . . . 65.7 65.7
Authorized Shares: 100,000,000
Issued Shares: 65,720,419;
1992 - 65,717,409
Outstanding Shares: 55,331,060;
1992 - 54,925,639
Paid-in Capital. . . . . . . . . . . . . . 613.2 616.2
Retained Earnings. . . . . . . . . . . . . 1,612.5 1,461.9
Net Unrealized Appreciation of
Investments. . . . . . . . . . . . . . . 322.1 202.0
Cumulative Foreign Currency Translation
Adjustment . . . . . . . . . . . . . . . (61.1) (52.4)
Common Stock in Treasury, at Cost
(10,389,359 Shares: 1992 -
10,790,770 Shares). . . . . . . . . . . (369.6) (383.1)
-------- --------
Total Shareholders' Equity. . . . . . . 2,183.1 1,910.6
-------- --------
Total Liabilities, Commitments and
Contingencies, Redeemable Preferred
Stocks and Shareholders' Equity. . . $3,018.3 $2,858.2
======== ========
__________________
(1) See Notes to Consolidated Financial Statements included in
Continental's 1993 Annual Report to Shareholders.
(2) Certain reclassifications, primarily for discontinued operations,
have been made to the prior years' financial information to conform
to the 1993 presentation.
SCHEDULE III
(Continued)
THE CONTINENTAL CORPORATION - PARENT
STATEMENTS OF CASH FLOWS (1) (2)
Year Ended December 31
(millions)
1993 1992 1991
------ ------- ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss). . . . . . . . . . . $210.0 $(83.7) $ 56.4
Adjustments to Reconcile Net Income (Loss)
to Net Cash provided from Operating
Activities:
Realized Capital Losses . . . . . . 3.0 6.0 3.0
Equity in Earnings of
Subsidiaries. . . . . . . . . . (177.8) (221.1) (124.7)
Equity in (Earnings) Loss of
Discontinued Operations . . . . (48.7) 174.7 54.9
Other-Net . . . . . . . . . . . . . 74.1 78.8 (7.4)
----- ----- -----
Net Cash Provided
from (Used in) Operating
Activities. . . . . . . . . . . . 60.6 (45.3) (17.8)
----- ----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Cost of Investments Purchased . . . . . (72.0) (197.8) (35.5)
Proceeds from Investments Sold. . . . . 111.9 94.8 37.1
Proceeds from Investments Matured . . . 0.2 3.0 0.1
Proceeds from Sales of Subsidiaries . . 330.0 -- 3.6
Investment in Subsidiaries. . . . . . . (399.3) -- --
Net Decrease (Increase) in Long-Term
Investments . . . . . . . . . . . . . 0.4 2.8 (5.4)
Net Decrease (Increase) in Short-Term
Investments . . . . . . . . . . . . . 98.3 (103.8) 3.5
Dividends Paid by Subsidiaries. . . . . 120.0 168.0 140.0
----- ----- -----
Net Cash Provided from
(Used in) Investing
Activities. . . . . . . . . . . . . 189.5 (33.0) 143.4
----- ----- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash Borrowings from (Repayments to)
Subsidiaries. . . . . . . . . . . . (1.4) 22.3 (38.6)
Decrease in Long-Term Debt. . . . . . . (1.8) (301.4) --
(Decrease) Increase in Short-Term Debt. (48.8) 275.2 51.9
Issuance of Long-Term Debt. . . . . . . 150.0 200.0 --
Retirement of Debt. . . . . . . . . . . (281.7) -- --
Sale of Treasury Shares . . . . . . . . 10.5 8.0 6.2
Dividends to Shareholders . . . . . . . (59.4) (123.1) (145.5)
Redemption of Redeemable Preferred
Stock. . . . . . . . . . . . . . . . (20.5) -- --
----- ------ -----
Net Cash Provided from (Used in)
Financing Activities. . . . . . . (253.1) 81.0 (126.0)
------ ------ -----
Net Increase (Decrease) in Cash and Cash
Equivalents . . . . . . . . . . . . . . (3.0) 2.7 (0.4)
Cash and Cash Equivalents at Beginning
of Year. . . . . . . . . . . . . . . . . 3.1 0.4 0.8
----- ----- -----
Cash and Cash Equivalents at End
of Year . . . . . . . . . . . . . . . $ 0.1 $ 3.1 $ 0.4
===== ===== ======
Supplemental Cash Flow Information:
Federal, Foreign and State Taxes Paid . $ 4.5 $ 11.0 $ 5.6
====== ======= =======
Interest Paid . . . . . . . . . . . . . $ 56.9 $ 45.6 $ 48.2
====== ======= =======
_______________________
(1) See Notes to Consolidated Financial Statements included in
Continental's 1993 Annual Report to Shareholders.
(2) Certain reclassifications, primarily for discontinued operations,
have been made to the prior years' financial information to conform
to the 1993 presentation.
SCHEDULE V
THE CONTINENTAL CORPORATION
SUPPLEMENTARY INSURANCE INFORMATION
(millions)
- ------------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E Column F Column G Column H Column I Column J Column K
- ------------------------------------------------------------------------------------------------------------------------------
<F2>
Outstanding Amortization
Deferred Losses Other Policy Losses of Deferred Other Pre-
Policy and Claims and Net and Policy Insurance miums
Acquisition Loss Unearned Benefits Premiums Investment Loss Acquisition Operating Writ-
Segment Costs Expenses(1) Premiums(1) Payable Earned Income(2) Expenses Costs Expenses ten
- ------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1993:
Agency & Brokerage
Commercial. . . . . . . $237.0 $5,366.7 $1,152.6 -- $2,121.3 -- $1,663.9 $ 669.5 $22.7 $2,168.2
Agency & Brokerage
Personal. . . . . . . . 119.1 837.6 578.3 -- 861.6 -- 667.5 269.1 3.2 887.5
Specialized Commercial . 137.9 2,864.4 678.8 -- 1,433.2 -- 1,082.7 431.9 11.0 1,482.1
------ -------- -------- ----- -------- ------- --------- --------- ------ --------
Insurance Operations . . 494.0 9,068.7 2,409.7 -- 4,416.1 $ 514.3 3,414.1 1,370.5 36.9 4,537.8
Corporate & Other. . . . -- -- -- -- -- 28.0 -- -- -- --
------ -------- -------- ----- -------- ------- -------- -------- ----- --------
Total. . . . . . . . . $494.0 $9,068.7 $2,409.7 -- $4,416.1 $ 542.3 $3,414.1 $1,370.5 $36.9 $4,537.8
====== ======== ======== ===== ======== ======= ======== ======== ===== ========
Year Ended December 31, 1992:
Agency & Brokerage
Commercial . . . . . . $226.9 $5,544.1 $1,120.5 -- $1,919.5 -- $1,562.2 $ 607.9 $30.4 $1,895.5
Agency & Brokerage
Personal . . . . . . . 112.8 982.6 556.7 -- 777.4 -- 623.8 280.7 (0.1) 808.3
Specialized Commercial . 127.8 2,539.5 629.0 -- 1,201.1 -- 975.6 394.1 5.0 1,315.2
------ -------- -------- ------ -------- ------ -------- -------- ------ -------
Insurance Operations . . 467.5 9,066.2 2,306.2 -- 3,898.0 $ 559.5 3,161.6 1,282.7 35.3 4,019.0
Corporate & Other. . . . -- -- -- -- -- 30.4 -- -- -- --
------ -------- -------- ------ -------- ------ ------- -------- ------ -------
Total. . . . . . . . . $467.5 $9,066.2 $2,306.2 -- $3,898.0 $ 589.9 $3,161.6 $1,282.7 $35.3 $4,019.0
====== ======== ======== ======= ======== ======= ======== ======== ====== ========
Year Ended December 31, 1991:
Agency & Brokerage
Commercial . . . . . . $225.4 $3,725.4 $ 952.8 -- $2,018.1 -- $1,689.1 $ 629.0 $54.6 $2,015.7
Agency & Brokerage
Personal . . . . . . . 106.5 674.0 450.8 -- 795.3 -- 594.4 267.2 -- 805.0
Specialized Commercial . 98.6 1,502.5 441.9 -- 1,059.1 -- 799.5 391.9 14.6 1,085.2
------ -------- -------- ------ -------- ------- -------- -------- ----- --------
Insurance Operations . . 430.5 5,901.9 1,845.5 -- 3,872.5 $ 610.6 3,083.0 1,288.1 69.2 3,905.9
Corporate & Other. . . . -- -- -- -- -- 26.6 -- -- -- --
------ -------- -------- ------ -------- ------- ------- -------- ----- --------
Total . . . . . . . $430.5 $5,901.9 $1,845.5 -- $3,872.5 $ 637.2 $3,083.0 $1,288.1 $69.2 $3,905.9
====== ======== ======== ====== ======== ======= ======== ======== ===== ========
______________________
(1) 1991 outstanding losses and loss expenses and unearned premiums are
shown net of reinsurance.
(2) Distinct investment portfolios are not maintained for individual insur-
ance segments; accordingly, insurance segments results are shown in the
aggregate.
SCHEDULE VI
THE CONTINENTAL CORPORATION
REINSURANCE INFORMATION (1)
(millions, except percentages)
- ----------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E Column F
- ----------------------------------------------------------------------------------------------
Earned Premiums
------------------------ Percentage
Ceded to Assumed of Amount
Gross Other From Other Net Assumed
Amount Companies Companies Amount to Net
- ----------------------------------------------------------------------------------------------
Year Ended December 31, 1993:
Premiums:
Property and casualty
insurance. . . . . . . . . $5,125.8 $1,213.9 $504.2 $4,416.1 11.4%
-------- -------- ------ -------- -----
Total premiums . . . $5,125.8 $1,213.9 $504.2 $4,416.1 11.4%
======== ======== ====== ======== =====
Year Ended December 31, 1992:
Premiums:
Property and casualty
insurance. . . . . . . . $4,764.3 $1,334.0 $467.7 $3,898.0 12.0%
-------- -------- ------ -------- -----
Total premiums . . . $4,764.3 $1,334.0 $467.7 $3,898.0 12.0%
======== ======== ====== ======== =====
Year Ended December 31, 1991:
Premiums:
Property and casualty
insurance. . . . . . . . $4,665.3 $1,151.6 $358.8 $3,872.5 9.3%
-------- -------- ------ -------- ----
Total premiums. . . . $4,665.3 $1,151.6 $358.8 $3,872.5 9.3%
======== ======== ====== ======== ====
_____________________
(1) Certain reclassifications, primarily for discontinued operations, have been made to
prior years' financial information to conform to the 1993 presentation.
SCHEDULE VIII
THE CONTINENTAL CORPORATION
VALUATION AND QUALIFYING ACCOUNTS (1)
(millions)
- ---------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
- ---------------------------------------------------------------------------------------------
Additions
--------------------
Balance at Charged to Charged Balance at
Beginning Costs and to Other Deduc- End of
Description of Period Expenses Accounts tions(1) Period
- ---------------------------------------------------------------------------------------------
Year Ended December 31, 1993:
Investment Reserve . . . . . . $35.0 $20.3 -- $28.3 $27.0
Allowance for doubtful
accounts-loans
and accounts receivable. . . $31.3 $30.9 -- $18.9 $43.3
Allowance against reinsurance
recoverable. . . . . . . . . $41.8 $15.0 -- $30.4 $26.4
Year Ended December 31, 1992:
Investment Reserve . . . . $35.0 $10.0 -- $10.0 $35.0
Allowance for doubful
accounts-loans
and accounts receivable. . . $26.8 $22.7 -- $18.2 $31.3
Allowance against reinsurance
recoverable. . . . . . . $27.8 $41.0 -- $27.0 $41.8
Year Ended December 31, 1991:
Investment Reserve . . . . . $23.0 $19.0 -- $ 7.0 $35.0
Allowance for doubtful
accounts-loans
and accounts receivable. . . $11.6 $42.4 -- $27.2 $26.8
Allowance against reinsurance
recoverable. . . . . . . . $ 8.3 $31.4 -- $11.9 $27.8
____________________________
(1) Represents write-offs of amounts determined to be uncollectable,
net of recoveries.
SCHEDULE IX
THE CONTINENTAL CORPORATION
SHORT-TERM BORROWINGS (1)
(millions, except percentages)
- ----------------------------------------------------------------------------------
Column A Column B Column C Column D Column E Column F
- ----------------------------------------------------------------------------------
Maximum Average Weighted
Weighted Amount Amount Average
Balance Average Outstanding Outstanding Interest Rate
Category of Aggregate at End Interest During the During the During the
Short-Term Borrowings of Period Rate (2) Period Period (3) Period (4)
- ----------------------------------------------------------------------------------
Year Ended December 31,
1993:
Bank (5) . . . . . $225.1 3.7% $282.3 $244.8 4.4%
Year Ended December 31,
1992:
Bank . . . . . . . $282.3 4.5% $311.4 $300.5 4.5%
Year Ended December 31,
1991:
Bank . . . . . . . $295.9 6.0% $306.4 $282.3 6.3%
_____________________________
(1) Certain reclassifications, primarily for the sale of premium
financing operations, have been made to prior years' financial
information to conform to the 1993 presentation.
(2) Rates illustrated in Column C are based on balances illustrated
in Column B.
(3) Average determined by dividing the total prior 13 months' aggregate
at the end of each month by 13.
(4) Average determined by dividing interest expense for the year by
the Average Amount Outstanding During the Period (Column E).
(5) Various maturities ranging from 1 to 31 days.
SCHEDULE X
THE CONTINENTAL CORPORATION
SUPPLEMENTAL INFORMATION
(For Property-Casualty Insurance Underwriters) (1)
- --------------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E Column F Column G Column H Column I Column J Column K
- --------------------------------------------------------------------------------------------------------------------------------
Loss
Expenses Amortiza-
Incurred tion
Dis- Related to of
Defer- Out- count ---------------- Deferred
red standing if any, Net (i) (ii) Policy Paid
Affiliation Acqui- Losses Deduc- Pre- Invest- Cur- Acquisi- Loss Pre-
with sition and Loss cted in Unearned miums ment rent Prior tion and Loss miums
Registrant Costs Expenses(2) Column C Premiums(2) Earned Income(3) Year Year Costs Expenses Written
- -------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
1993:
(a) Consolidated
property-casualty
entities . . . . $494.0 $9,068.7 $696.0 $2,409.7 $4,416.1 $514.3 $3,413.0 $ 1.1 $1,370.5 $3,304.8 $4,537.8
Year Ended December 31,
1992:
(a) Consolidated
property-casualty
entities . . . $467.5 $9,066.2 $692.8 $2,306.2 $3,898.0 $559.5 $3,036.3 $125.3 $1,282.7 $3,257.0 $4,019.0
Year Ended December 31,
1991:
(a) Consolidated
property-casualty
entities . . . $430.5 $5,901.9 $675.7 $1,845.5 $3,872.5 $610.6 $2,986.5 $ 96.5 $1,288.1 $3,144.2 $3,905.9
_____________
(1) Excludes Underwriters Re Acquisition Corp., an equity investment as
of 1987, whose reserves are not consolidated and which
files similar information with the Securities and Exchange
Commission.
(2) 1991 outstanding losses and loss expenses and unearned premiums
are shown net of reinsurance.
(3) Distinct investment portfolios are not maintained for individual
segments; accordingly, insurance segments
results are shown in the aggregate.