UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
OR
--- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from____________to___________
Commission file number 0-3021
THE ST. PAUL COMPANIES, INC.
(Exact name of Registrant as specified in its charter)
Minnesota 41-0518860
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
385 Washington Street, Saint Paul, MN 55102
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
Including area code 651-310-7911
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Securities registered pursuant to Section 12(b) of the Act:
New York Stock Exchange
Common Stock (without par value) London Stock Exchange
- ------------------------------- --------------------------
(Title of class) (Name of each exchange on which
registered)
Securities registered pursuant to Section 12(g) of the Act:
None.
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
----- -----
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 outstanding Common Stock held by
nonaffiliates of the Registrant on March 15, 2001, was
$9,390,235,520. The number of shares of the Registrant's Common
Stock, without par value, outstanding at March 15, 2001, was
216,847,384.
An Exhibit Index is set forth at page 35 of this report.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Portions of the Registrant's 2000 Annual Report to Shareholders are
incorporated by reference into Parts I, II and IV of this report.
Portions of the Registrant's Proxy Statement relating to the Annual
Meeting of Shareholders to be held May 1, 2001 are incorporated by
reference into Parts III and IV of this report.
PART I
Item 1. Business.
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General Description
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The St. Paul Companies, Inc. ("The St. Paul") is incorporated as a
general business corporation under the laws of the State of
Minnesota. The St. Paul and its subsidiaries constitute one of the
oldest insurance organizations in the United States, dating back to
1853. We are a management company principally engaged, through our
subsidiaries, in providing commercial property-liability insurance
and reinsurance products and services worldwide. We also own F&G
Life Insurance Company ("F&G Life"), and we have a presence in the
asset management industry through our 78% majority ownership of The
John Nuveen Company ("Nuveen"). As a management company, we
oversee the operations of our subsidiaries and provide them with
capital, management and administrative services. At March 1, 2001,
we and our subsidiaries employed approximately 10,500 persons.
Based on total revenues, we ranked No. 204 on the 1999 Fortune 500
list of the largest companies in the United States.
SUMMARY OF RESULTS
The following table summarizes The St. Paul's consolidated results
for the last three years:
Year ended December 31 2000 1999 1998
---------------------- ----- ----- -----
(In millions, except
per share data)
Pretax income (loss):
Property-liability insurance $1,467 $ 971 $ 298
Life insurance 53 66 21
Asset management 135 123 104
Parent company and
other operations (202) (143) (303)
----- ----- -----
Pretax income from
continuing operations 1,453 1,017 120
Income tax expense (benefit) 440 238 (79)
----- ----- -----
Income from continuing
operations before cumulative
effect of accounting change 1,013 779 199
Cumulative effect of
accounting change, net of taxes - (30) -
----- ----- -----
Income from continuing
operations 1,013 749 199
Discontinued operations,
net of taxes (20) 85 (110)
----- ----- -----
Net income $ 993 $ 834 $ 89
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Per common share (diluted) $ 4.24 $ 3.41 $ 0.32
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The growth in pretax income from continuing operations in 2000 was
centered in our property-liability insurance operations and was
primarily due to a $330 million increase in realized investment
gains and improved underwriting results in several business
segments. Property-liability underwriting results in both 2000 and
1999 benefited from the aggregate excess-of-loss reinsurance
treaties described in more detail on page 10 of this report. In
addition, after several years of intense competitive pressures,
during which pricing levels throughout the property-liability
industry failed to keep pace with rising loss costs, the pricing
environment improved in nearly all market sectors in 2000,
contributing to our improvement over 1999. Excluding the impact of
the reinsurance treaties in both years referred to above, our
property-liability written premium volume in 2000 totaled $6.36
billion, nearly $1 billion higher than comparable 1999 volume of
$5.38 billion.
Major 2000 Transactions. In April 2000, we completed our
acquisition of MMI Companies, Inc. ("MMI"), an international health
care risk services company, for a total cost of approximately $206
million in cash and the assumption of $165 million of MMI debt and
capital securities. In February 2000, we completed our acquisition
of Pacific Select Insurance Holdings, Inc. ("Pacific Select"), a
California company that provides earthquake insurance coverages to
homeowners in that state, for a total cost of approximately $37
million. Note 2 to the consolidated financial statements on pages
54 and 55 of our 2000 Annual Report to Shareholders, which includes
additional information regarding these acquisitions, is
incorporated herein by reference.
In May 2000, we completed the sale of our nonstandard auto
insurance operations to Prudential Insurance Company of America
("Prudential") for $175 million in cash (net of a $25 million
dividend paid by these operations to our property-liability
insurance operations prior to closing). Note 14 to the
consolidated financial statements on pages 68 and 69 of our 2000
Annual Report to shareholders includes additional information about
this sale and is incorporated herein by reference.
In 2000, we repurchased and retired approximately 18 million of our
common shares for a total cost of $536 million. The shares
repurchased represented 8% of our total shares outstanding at the
beginning of the year. The repurchases were financed through a
combination of internally generated funds and the issuance of new
debt.
Also in 2000, our subsidiary, St. Paul Capital LLC, exercised its
right to cause the conversion rights of the owners of its $207
million, 6% Convertible Monthly Income Preferred Securities (MIPS)
to expire. Prior to the expiration date, almost all of the MIPS
holders exercised their conversion rights, resulting in the
issuance of seven million of our common shares.
BUSINESS SEGMENTS
The following table summarizes the sources of our consolidated
revenues from continuing operations for each of the years 1998
through 2000. Following the table is a narrative description of
each of our business segments. Additional financial information
about our business segments is set forth in Note 18 to the
consolidated financial statements on pages 73 through 75 of our
2000 Annual Report to Shareholders, which is incorporated herein by
reference. Also included in Note 18 is a discussion of the new
segment reporting structure we implemented in 2000 in our property-
liability insurance operations. All data for 1999 and 1998 in the
following table are presented on a basis consistent with our new
reporting structure.
Percentage of Consolidated
Revenues
--------------------------
2000 1999 1998
Property-liability insurance: ----- ----- -----
Underwriting
Commercial Lines Group 18.4% 20.0% 24.1%
Global Healthcare 7.3 8.5 7.9
Global Surety 4.8 5.1 4.5
Other Global Specialty 15.6 17.9 17.4
International 5.0 3.8 3.1
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Total primary
insurance operations 51.1 55.3 57.0
Reinsurance 13.9 12.1 13.5
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Total underwriting 65.0 67.4 70.5
Investment operations:
Net investment income 14.5 16.6 16.8
Realized investment gains 7.2 3.6 2.4
----- ----- -----
Total investment operations 21.7 20.2 19.2
Other 1.1 1.0 0.8
----- ----- -----
Total property-liability
insurance 87.8 88.6 90.5
Life insurance 7.4 6.3 5.1
Asset management 4.4 4.7 4.0
Parent company, other
operations and eliminations 0.4 0.4 0.4
----- ----- -----
Total 100.0% 100.0% 100.0%
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NARRATIVE DESCRIPTION OF BUSINESS
PROPERTY-LIABILITY INSURANCE
Our property-liability insurance operations consist of five
business segments that underwrite primary insurance ("Primary
Insurance Operations"), a reinsurance segment ("St. Paul Re"), and
an investment segment responsible for administering and overseeing
our property-liability investment portfolio. Our Primary Insurance
Operations underwrite property and liability insurance and provide
insurance-related products and services to commercial and
professional customers throughout the United States and in selected
international markets. In the United States, our largest primary
insurance underwriting subsidiary is St. Paul Fire and Marine
Insurance Company ("Fire and Marine"). Three of the five business
segments in our Primary Insurance Operations comprise our Global
Specialty Practices organization, which underwrites specialty
commercial insurance coverages on a global basis.
The primary sources of property-liability revenues are premiums
earned from insurance policies and reinsurance contracts, income
earned from the investment portfolio and gains from sales of
investments. According to the most recent industry statistics
published in "Best's Review" with respect to property-liability
insurers doing business in the United States, our property-
liability underwriting operations ranked 14th on the basis of 1999
written premiums.
Principal Departments and Products. The "Property-Liability
Underwriting Results by Segment" table included in "Management's
Discussion and Analysis" on page 25 of our 2000 Annual Report to
Shareholders, which summarizes written premiums, underwriting
results and statutory combined ratios for each of our underwriting
segments for the last three years, is incorporated herein by
reference. The following discussion provides more information
about the structure of, and products offered by, our property-
liability insurance underwriting segments.
Primary Insurance Operations
- ----------------------------
Our Primary Insurance Operations consist of the following five
business segments:
Commercial Lines Group. The Commercial Lines Group, in general,
underwrites general liability and casualty, property, workers'
compensation, commercial auto, inland marine, umbrella and excess
liability, and package coverages in the United States. This
segment includes the following business centers: Middle Market
Commercial provides "all lines" property and liability insurance
and risk management services for midsize and large commercial
enterprises that generally have less than $500 million in total
revenues. Tailored coverages and products are marketed to specific
customer groups such as golf facilities, museums, colleges and
schools, multipurpose recreational facilities, manufacturers,
wholesalers, processors and service-related industries (retailers,
insurance companies, and hospitality and entertainment firms).
Small Commercial provides coverages to small businesses, including
retailers, wholesalers, professional offices, manufacturers and
contractors. The Middle Market Commercial and Small Commercial
business centers also both offer unique coverages for group
accounts, such as franchise operations, associations and multi-
location accounts.
Our Transportation business center markets property and liability
coverages and risk control services to the trucking industry. The
Large Accounts business center serves large commercial entities
with revenues in excess of $500 million, offering comprehensive
global programs including large deductibles, self-insured
retentions, and retrospective rating plans. The National Programs
business center underwrites insurance programs that are national in
scope and meet certain criteria, including premium volume and
profitability potential.
The Catastrophe Risk business center underwrites property coverage
for major U.S. corporations, including policyholders with specialty
needs and high property values, with an emphasis on earthquake and
hurricane catastrophe exposures. This business center also
provides personal property coverages for earthquake exposures in
California through GeoVera Insurance Company. The acquisition of
Pacific Select in February 2000 expanded our involvement in
California earthquake coverages.
Our participation in insurance pools and associations, which
provide specialized underwriting skills and risk management
services for the classes of business that they write, is also
included in Commercial Lines Group results. These pools and
associations serve to increase the underwriting capacity of
participating companies for insurance policies where the
concentration of risk is so high or the amount so large that a
single company could not prudently accept the entire risk. We
limit our participation in these pools and associations.
Global Healthcare. Our Global Healthcare segment is one component
of our Global Specialty Practices organization. This segment
underwrites professional liability, property and general liability
insurance throughout the healthcare delivery system in the United
States and in selected international markets. Products include
coverages for healthcare professionals (physicians and surgeons,
dental professionals and nurses); individual healthcare facilities
(including hospitals, long-term care facilities and other
facilities such as laboratories); and entire systems, such as
hospital networks and managed care systems. Specialized claim and
loss control services are vital components of Global Healthcare's
insurance products and services. Our Healthcare segment is one of
the leading medical liability insurers in the United States.
In April 2000, we completed our acquisition of MMI Companies, Inc.
("MMI"), an international healthcare risk services company, for a
total cost of approximately $206 million in cash and the assumption
of $165 million of MMI debt and capital securities. Note 2 to the
consolidated financial statements on pages 54 and 55 of our 2000
Annual Report to Shareholders, which provides additional
information about our acquisition of MMI, is incorporated herein by
reference.
Global Surety. Our Global Surety segment, another component of our
Global Specialty Practices organization, underwrites surety bonds,
which are agreements under which one party, the surety, guarantees
to another party, the owner or obligee, that a third party, the
contractor or principal, will perform in accordance with
contractual obligations. The Contract Surety business center
specializes in providing bid, performance and payment bonds,
domestically and internationally, to a broad spectrum of clients
specializing in general contracting, highway and bridge
construction, asphalt paving, underground and pipeline
construction, manufacturing, civil and heavy engineering, and
mechanical and electrical construction. Bid bonds provide
financial assurance that a bid has been submitted in good faith and
that the contractor intends to enter into the contract at the price
bid and provide the required performance and payment bonds.
Performance bonds protect the obligee from financial loss should
the contractor fail to perform the contract in accordance with the
terms and conditions of the contract documents. Payment bonds
guarantee that the contractor will pay certain subcontractor, labor
and material bills associated with a project. The Commercial
Surety and Fidelity business center offers license and permit
bonds, court bonds, public official bonds and other miscellaneous
bonds.
According to data published by the Surety Association of America,
our domestic Surety operations were the largest in North America
based on 1999 written premiums, accounting for approximately 11% of
the domestic market. Our Surety segment also includes Afianzadora
Insurgentes, the leading surety operation in Mexico. According to
data published by AFIANZA, the Mexican Surety Commission,
Afianzadora Insurgentes accounted for nearly 40% of the Mexican
surety bond market based on annual written premium volume in 2000.
Other Global Specialty. This segment, the final component of our
Global Specialty Practices organization, is composed of the
following business centers that serve specific commercial customer
groups in the United States and in selected international markets:
Construction provides traditional insurance, and financial and risk
management services, to a broad range of contractors and owners of
construction projects. Technology offers a comprehensive portfolio
of specialty products and services to companies involved in
telecommunications, information technology, medical technology and
biotechnology, and industrial electronics manufacturing. Financial
and Professional Services provides all coverages for financial
institutions, including property, liability, professional liability
and management liability coverages. This business center also
provides financial products coverages for corporations and
nonprofit organizations, professional liability coverages for
lawyers, and errors and omissions coverages for other
professionals, including insurance agents, real estate agents and
appraisers. Public Sector Services markets insurance products and
services, including professional liability coverages, to cities,
counties, townships and special governmental districts.
Global Marine provides a variety of property-liability insurance
related to ocean and inland waterways traffic, including cargo and
hull property protection. Excess & Surplus Lines underwrites
umbrella and excess liability coverages, as well as property and
liability insurance for high-risk classes of business and unique,
sometimes one-of-a-kind risks that standard insurance markets
generally avoid. Oil and Gas provides standard and specialty
insurance coverages for customers involved in the exploration and
production of oil and gas, including operators, drillers and oil
servicing contractors. St. Paul Athena is a specialty underwriting
facility primarily dedicated to business generated through Swett &
Crawford, a wholesale insurance brokerage subsidiary of Aon
Corporation.
International. Our International business segment consists of our
operations at Lloyd's, specialty commercial business in selected
international markets that is not managed on a global basis
(primarily standard commercial business), and, beginning in April
2000, MMI's London-based insurance operation, Unionamerica. This
segment also provides coverage for the non-U.S. risks of U.S.
corporate policyholders, and vice versa. We have built a local
market presence in 14 countries that account for nearly 80% of the
world's insurance market. In addition to Canada, we underwrite
insurance in Europe, Africa, Australia and Latin America. At
Lloyd's we provide capital to 11 underwriting syndicates and own a
managing agency. Our International segment offers a broad range of
products and services, with a particular emphasis on liability
coverages, tailored to meet the unique needs of both our
multinational customers as well as our customers in each of the
domestic markets in which we operate.
Reinsurance
Our Reinsurance segment primarily operates under the name "St. Paul
Re," which underwrites traditional treaty and facultative
reinsurance for property, liability, ocean marine, surety, health
and certain specialty classes of coverages. Through its Financial
Solutions business center, St. Paul Re also underwrites
"nontraditional" reinsurance, which combines elements of
traditional underwriting risk with financial risk protection to
meet specific financial objectives of corporate customers. St.
Paul Re underwrites traditional reinsurance for leading property,
liability and other non-life insurance companies worldwide, with
clients in North America, Latin America, the Caribbean, Europe,
Australia and the Asia-Pacific region. Reinsurance is an agreement
by which an insurance company will pay a premium to transfer, or
"cede," a portion of the risk it has underwritten to a reinsurer.
A large portion of reinsurance is effected automatically under
general reinsurance contracts known as treaties. In some
instances, reinsurance is effected by negotiation on individual
risks, which is referred to as facultative reinsurance.
Through Discover Re, our Reinsurance segment underwrites primary
insurance and reinsurance and provides related services to self-
insured companies and insurance pools, in addition to ceding to and
reinsuring captive insurers, all within the alternative risk
transfer market. Through alternative risk transfer, a company self-
insures, or insures through a captive insurer, the portion of its
own losses which are predictable and purchases insurance for the
less predictable, high-severity losses that could have a major
financial impact on the company.
According to the most recent data published by the Reinsurance
Association of America, St. Paul Re's written premium volume
through the first nine months of 2000 ranked it as the sixth-
largest reinsurer in the United States. According to data
published in "Business Insurance," St. Paul Re was ranked as the
17th-largest property-liability reinsurer in the world, based on
1999 written premiums.
PRINCIPAL MARKETS AND METHODS OF DISTRIBUTION
Our Primary Insurance Operations in the United States are licensed
to transact business in all 50 states, the District of Columbia,
Puerto Rico, Guam and the Virgin Islands. At least five percent of
our 2000 U.S. property-liability written premiums were produced in
each of Illinois, California, Florida, Texas and New York.
Our primary insurance business in the United States is produced
primarily through approximately 6,000 independent insurance
agencies and insurance brokers. The needs of agents, brokers and
policyholders are addressed through approximately 130 offices
located throughout the United States.
St. Paul Re produces reinsurance business from its New York
headquarters, as well as from offices in London, Brussels, Chicago,
Hong Kong, Miami, Morristown NJ, Munich, Singapore, Sydney and
Tokyo. It underwrites business through brokers and, for certain
types of reinsurance and in certain markets, on a direct basis.
Discover Re underwrites alternative risk transfer business from its
Farmington, CT headquarters, from regional U.S. offices in Atlanta,
Pittsburgh, Dallas, Minneapolis and San Francisco, and from a
correspondent office in London.
Our International operations are headquartered in London and
underwrite insurance primarily through domestic operations in 14
markets outside the United States (Argentina, Australia, Botswana,
Canada, France, Germany, Ireland, Lesotho, Mexico, New Zealand,
South Africa, Spain, The Netherlands and the United Kingdom).
These operations distribute their products principally through
independent brokers. Through its owned operations and partner
companies, International's global network conducts business in more
than 70 countries worldwide. Through its presence at Lloyd's, our
International segment also has access to business markets in
virtually every country of the world for its specialty products
including aviation, kidnap and ransom, malicious product tampering,
creditor/payment protection and personal accident. The Lloyd's
managing agency, operating under the name St. Paul Syndicate
Management Ltd., underwrites business for 11 syndicates,
collectively representing approximately 4% of Lloyd's total
capacity.
RESERVES FOR LOSSES AND LOSS ADJUSTMENT EXPENSES
General Information. When claims are made by or against
policyholders, any amounts that our underwriting operations pay or
expect to pay to the claimant are referred to as losses. The costs
of investigating, resolving and processing these claims are
referred to as loss adjustment expenses ("LAE"). We establish
reserves that reflect the estimated unpaid total cost of these two
items. The reserves for unpaid losses and LAE at Dec. 31, 2000
cover claims that were incurred not only in 2000 but also in prior
years. They include estimates of the total cost of claims that
have already been reported but not yet settled ("case" reserves),
and those that have been incurred but not yet reported ("IBNR"
reserves). Loss reserves are reduced for estimates of salvage and
subrogation.
Loss reserves for tabular workers' compensation business and
certain assumed reinsurance contracts are discounted to present
value. Additional information about these discounted liabilities
is set forth in Note 1 to the consolidated financial statements on
pages 51 through 54 of our 2000 Annual Report to Shareholders, and
is incorporated herein by reference. During 2000, $7.9 million of
discount was amortized and $2.9 million of additional discount was
accrued.
Management continually reviews loss reserves, using a variety of
statistical and actuarial techniques to analyze current claim
costs, frequency and severity data, and prevailing economic, social
and legal factors. Management believes that the reserves currently
established for losses and LAE are adequate to cover their eventual
costs. However, final claim payments may differ from these
reserves, particularly when these payments may not take place for
several years. Reserves established in prior years are adjusted as
loss experience develops and new information becomes available.
Adjustments to previously estimated reserves are reflected in
results in the year in which they are made.
Ten-year Development. The table on page 9 presents a development
of net loss and LAE reserve liabilities and payments for the years
1990 through 2000. The top line on the table shows the estimated
liability for unpaid losses and LAE, net of reinsurance
recoverables, recorded at the balance sheet date for each of the
years indicated.
The table excludes the reserves and activity of Economy Fire and
Casualty Company and its subsidiaries ("Economy"), which were
included in the sale of our standard personal insurance operations
to Metropolitan Property and Casualty Insurance Company
("Metropolitan") in 1999. The table does, however, include
reserves and activity for the non-Economy standard personal
insurance business that was sold to Metropolitan, since we remain
liable for claims on non-Economy standard personal insurance
policies that result from losses occurring prior to Sept. 30, 1999
(the closing date of the sale). Also excluded from the table are
the reserves and activity for our nonstandard auto business, which
we sold to Prudential in the second quarter of 2000. Notes 8 and
14 to the consolidated financial statements on page 59, and pages
68 and 69, respectively, of our 2000 Annual Report to Shareholders,
which include additional information regarding the sale of these
operations and the related reserves, are incorporated herein by
reference.
In 1997, we changed the method by which we assign loss activity to
a particular year for assumed reinsurance written by our U.K.-based
reinsurance operation. Prior to 1997, that loss activity was
assigned to the year in which the underlying reinsurance contract
was written. In 1997, our analysis indicated that an excess amount
of loss activity was being assigned to prior years because of this
practice. As a result, we implemented an improved procedure in
1997 that more accurately assigns loss activity for this business
to the year in which it occurred. This change had the impact of
increasing favorable development on previously established reserves
by approximately $110 million in 1997. There was no net impact on
total incurred losses, however, because there was a corresponding
increase in the provision for current year loss activity in 1997.
Development data for individual years prior to 1997 in this table
were not restated to reflect this new procedure because reliable
data to do so was not available.
The upper portion of the table, which shows the re-estimated
amounts relating to the previously recorded liabilities, is based
upon experience as of the end of each succeeding year. These
estimates are either increased or decreased as further information
becomes known about individual claims and as changes in the trend
of claim frequency and severity become apparent.
The "Cumulative redundancy" line on the table for any given
year represents the aggregate change in the estimates for all
years subsequent to the year the reserves were initially
established. For example, the 1991 reserve of $12,838 million
developed to $12,470 million, or a $368 million redundancy, by the
end of 1993. By the end of 2000, the 1991 reserve had developed a
redundancy of $1,107 million. The changes in the estimate of 1991
loss reserves were reflected in operations during the past nine
years.
In 1993, we adopted the provisions of SFAS No. 113, "Accounting and
Reporting for Reinsurance of Short-Duration and Long-Duration
Contracts." This statement required, among other things, that
reinsurance recoverables on unpaid losses and LAE be shown as an
asset, instead of the prior practice of netting this amount against
insurance reserves for balance sheet reporting purposes.
The middle portion of the table, which includes data for only those
periods impacted since the adoption of SFAS No. 113 (the years 1992
through 2000), represents a reconciliation between the net reserve
liability as shown on the top line of the table and the gross
reserve liability as shown on our balance sheet. This portion of
the table also presents the gross re-estimated reserve liability as
of the end of the latest re-estimation period (Dec. 31, 2000) and
the related re-estimated reinsurance recoverable. We did not
restate data for years prior to 1992 in this table for presentation
on a gross basis due to the impracticality of determining such
gross data on a reliable basis for our foreign underwriting
operations.
The lower portion of the table presents the cumulative amounts paid
with respect to the previously recorded liability as of the end of
each succeeding year. For example, as of Dec. 31, 2000, $9,343
million of the currently estimated $11,731 million of losses and
LAE that have been incurred for the years up to and including 1991
have been paid. Thus, as of Dec. 31, 2000, it is estimated that
$2,388 million of incurred losses and LAE have yet to be paid for
the years up to and including 1991.
Caution should be exercised in evaluating the information shown on
this table. It should be noted that each amount includes the
effects of all changes in amounts for prior periods. For example,
the portion of the development shown for year-end 1995 reserves
that relates to 1990 losses is included in the cumulative
redundancy (deficiency) for the years 1990 through 1995.
In addition, the table presents calendar year data. It does not
present accident or policy year development data, which some
readers may be more accustomed to analyzing. The social, economic
and legal conditions and other trends which have had an impact on
the changes in the estimated liability in the past are not
necessarily indicative of the future. Accordingly, readers are
cautioned against extrapolating any conclusions about future
results from the information presented in this table.
Note 8 to the consolidated financial statements, on page 59 of our
2000 Annual Report to Shareholders, includes a reconciliation of
beginning and ending loss reserve liabilities for each of the last
three years and is incorporated herein by reference. Additional
information about our reserves is contained in the "Loss and Loss
Adjustment Expense Reserves" and "Environmental and Asbestos
Claims" sections of "Management's Discussion and Analysis" on pages
35 and 36 of our 2000 Annual Report to Shareholders, which are
incorporated herein by reference.
ANALYSIS OF LOSS AND LOSS ADJUSTMENT EXPENSE (LAE) DEVELOPMENT
(In millions)
Year ended December 31 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
- ---------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Net liability for
unpaid losses and LAE $11,875 12,838 13,195 12,970 12,997 13,464 14,689 14,704 14,813 14,042 13,545
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Liability re-estimated
as of:
One year later 12,224 12,676 12,896 12,601 12,665 12,995 13,929 14,534 14,822 13,315
Two years later 12,124 12,470 12,574 12,227 12,227 12,289 13,703 14,534 14,097
Three years later 12,053 12,270 12,369 11,929 11,770 12,141 13,791 13,917
Four years later 11,926 12,213 12,129 11,567 11,621 12,195 13,395
Five years later 11,913 12,056 11,900 11,454 11,580 11,683
Six years later 11,845 11,936 11,802 11,404 11,197
Seven years later 11,863 11,890 11,763 11,112
Eight years later 11,839 11,823 11,640
Nine years later 11,827 11,731
Ten years later 11,678
Cumulative redundancy $197 1,107 1,555 1,858 1,800 1,781 1,294 787 716 727
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Net liability for
unpaid losses and LAE 13,195 12,970 12,997 13,464 14,689 14,704 14,813 14,042 13,545
Reinsurance recoverable on
unpaid losses 3,904 2,581 2,533 2,824 2,864 3,051 3,199 3,678 4,651
------ ------ ------ ------ ------ ------ ------ ------ ------
Gross liability 17,099 15,551 15,530 16,288 17,553 17,755 18,012 17,720 18,196
====== ====== ====== ====== ====== ====== ====== ====== ======
Gross re-estimated liability:
One year later 16,452 15,157 15,620 15,844 17,024 17,725 17,840 17,011
Two years later 16,128 15,181 15,257 15,105 16,787 17,466 16,813
Three years later 15,983 14,968 14,666 14,985 16,669 16,559
Four years later 15,810 14,500 14,675 14,743 15,881
Five years later 15,521 14,530 14,350 13,883
Six years later 15,549 14,234 13,688
Seven years later 15,406 13,813
Eight years later 15,187
Gross cumulative
redundancy 1,912 1,738 1,842 2,405 1,672 1,196 1,199 709
====== ====== ====== ====== ====== ====== ====== ======
Cumulative amount of net
liability paid through:
One year later $3,102 3,021 3,008 2,723 2,641 2,893 3,335 3,518 3,950 3,769
Two years later 5,103 5,018 4,958 4,506 4,491 4,827 5,657 6,144 6,476
Three years later 6,428 6,372 6,249 5,778 5,817 6,309 7,444 7,906
Four years later 7,366 7,268 7,159 6,693 6,851 7,390 8,698
Five years later 8,001 7,908 7,824 7,423 7,648 7,857
Six years later 8,465 8,415 8,314 8,020 7,940
Seven years later 8,870 8,803 8,684 8,247
Eight years later 9,191 9,082 8,988
Nine years later 9,411 9,343
Ten years later 9,602
Cumulative amount of
gross liability paid
through:
One year later 4,064 3,316 3,241 3,408 3,702 3,943 4,392 4,297
Two years later 6,572 5,489 5,491 5,386 6,310 6,796 7,170
Three years later 8,164 7,054 6,842 7,074 8,316 8,657
Four years later 9,290 7,989 8,034 8,289 9,559
Five years later 9,994 8,831 8,942 8,870
Six years later 10,582 9,540 9,311
Seven years later 11,177 9,866
Eight years later 11,511
Ceded Reinsurance. Through ceded reinsurance, other insurers and
reinsurers agree to share certain risks that our subsidiaries have
underwritten. The purpose of reinsurance is to limit a ceding
insurer's maximum net loss arising from large risks or
catastrophes. Reinsurance also serves to increase the direct
writing capacity of the ceding insurer. Amounts recoverable on
ceded losses are recorded as an asset. In addition, through
aggregate excess-of-loss treaties, reinsurance can serve to reduce
the volatility often associated with the results of primary
property-liability insurance underwriting entities.
The collectibility of reinsurance is subject to the solvency of
reinsurers. Our Reinsurance Credit Risk Committee, which has
established financial standards to determine qualified, financially
secure reinsurers, guides the placement of ceded reinsurance.
Uncollectible reinsurance recoverables have not had a material
adverse impact on our results of operations, liquidity or financial
position.
Our reported results in both 2000 and 1999 benefited from the
impact of separate aggregate excess-of-loss reinsurance treaties
that we entered into effective January 1 of each year (the
"corporate program"). In addition, our Reinsurance segment results
in both years benefited from separate aggregate excess-of-loss
reinsurance treaties, unrelated to the corporate program. The
combined impact of all of these treaties on our reported results
was as follows:
(In millions) 2000 1999
----------- ----- -----
Ceded written premiums $ 474 $ 273
Ceded losses and loss
adjustment expenses 831 534
Ceded earned premiums 474 273
----- -----
Net pretax benefit $ 357 $ 261
===== =====
Note 16 to the consolidated financial statements on pages 72 and 73
of our 2000 Annual Report to Shareholders, which provides a
schedule of ceded reinsurance and additional information about the
aggregate excess-of-loss reinsurance treaties, is incorporated
herein by reference.
Property - Liability Investment Operations
Objectives. Our board of directors approves the overall investment
plan for the companies within The St. Paul's property-liability
operations. Each subsidiary develops its own specific investment
policy tailored to comply with domestic laws and regulations and
the overall corporate investment plan. The primary objectives of
those plans are as follows:
1) to maintain a widely diversified fixed maturities portfolio
structured to maximize investment returns while generating
sufficient liquidity to fund operational cash requirements;
2) to minimize credit risk through investments in high-quality
instruments; and
3) to provide for long-term growth in the market value of the
investment portfolio and enhance shareholder value through
investments in certain other investment classes, such as equity
securities, venture capital and real estate.
The following discussion provides more information on each of our
invested asset classes.
Fixed Maturities. Fixed maturities constituted 75% (at cost) of
our property-liability insurance operations' investment portfolio
at Dec. 31, 2000. The portfolio is primarily composed of high-
quality, intermediate-term taxable U.S. government agency and
corporate bonds and tax-exempt U.S. municipal bonds. The table on
the following page presents information about the fixed maturities
portfolio for the years 1998 through 2000 (dollars in millions).
Estimated Weighted Weighted
Amortized Fair Value Pretax Net Average Average
Cost at at Year- Investment Pre-tax After-tax
Year Year-end end Income Yield Yield
- ----- -------- ---------- ---------- --------- ---------
2000 $15,366 $15,791 $1,162 6.8% 5.1%
1999 15,256 15,230 1,171 6.8% 5.1%
1998 15,966 16,942 1,204 6.8% 5.1%
We determine the mix of our investments in taxable and tax-exempt
securities based on our current and projected tax position and the
relationship between taxable and tax-exempt investment yields at
the time of purchase. Taxable, intermediate-term, investment-grade
securities accounted for the majority of new bond purchases in each
of the years 2000, 1999 and 1998. We carry the fixed maturities
portfolio on our balance sheet at estimated fair value, with
unrealized appreciation and depreciation (net of taxes) recorded in
common shareholders' equity.
The fixed maturities portfolio is managed conservatively to provide
reasonable returns while limiting exposure to risks. Approximately
94% of the fixed maturities portfolio is rated at investment grade
levels (BBB- or better). The remaining 6% of the portfolio is
split between nonrated and non-investment grade (high-yield)
securities. We believe the nonrated securities would be considered
investment-grade in quality if rated.
Equities. Equity securities comprised 5% of the property-liability
operations' investments (at cost) at Dec. 31, 2000, and consist of
a diversified portfolio of common stocks, which are held with the
primary objective of achieving capital appreciation. Sales of
equities generated $95 million of pretax realized investment gains
in 2000, and dividend income totaled $15 million. The portfolio's
carrying value at year-end included $326 million of pretax
unrealized appreciation.
Real Estate and Mortgage Loans. Our property-liability operations'
real estate holdings consist of a diversified portfolio of
commercial office and warehouse properties that we own directly or
have partial interest in through joint ventures. The properties
are geographically distributed throughout the United States and had
an occupancy rate of 95% at Dec. 31, 2000. We also have a
portfolio of real estate mortgage investments acquired in the
merger with USF&G. The real estate and mortgage loan portfolio
produced $103 million of pretax investment income in 2000 and
generated $4 million of pretax realized gains.
Venture Capital. Securities of small- to medium-sized companies
spanning a variety of industries comprise our venture capital
holdings, which accounted for 3% of property-liability investments
(at cost) at Dec. 31, 2000. These investments are in the form of
limited partnership interests or direct equity investments.
Venture capital investments generated pretax realized investment
gains of $554 million in 2000. The carrying value of venture
capital investments at Dec. 31, 2000 included $406 million of
pretax unrealized appreciation.
Securities Lending Collateral. This investment class, which
comprised 6% of property-liability investments at Dec. 31, 2000,
consists of collateral held on certain fixed-maturity securities
loaned to other institutions through a lending agent for short
periods of time. The collateral is maintained at 102%, marked to
market daily, of the fair value of the loaned securities. We
retain full ownership of the loaned securities and are indemnified
by the lending agent in the event a borrower becomes insolvent or
fails to return the securities.
Short-Term and Other Investments. Our portfolio also includes
short-term securities and other miscellaneous investments, which in
the aggregate comprised 6% of property-liability investments at
Dec. 31, 2000.
Derivatives. Our property-liability investment operations have had
limited involvement with derivative financial instruments,
primarily for purposes of hedging against fluctuations in foreign
currency exchange rates and interest rates. Our investment
operations have not participated in the derivatives market for
trading or speculative purposes.
Notes 1, 4, 5 and 7 to the consolidated financial statements, which
are included in our 2000 Annual Report to Shareholders, provide
additional information about our investment portfolio and are
incorporated herein by reference. The "Investment Operations" and
"Exposures to Market Risk" sections of "Management's Discussion and
Analysis" in said Annual Report are also incorporated herein by
reference.
LIFE INSURANCE
F&G Life markets many forms of annuity and life insurance products,
including single premium and flexible premium deferred annuities
(such as tax-sheltered annuities and equity-indexed annuities),
structured settlement annuities and immediate annuities. F&G Life
also underwrites traditional and universal life insurance products.
The majority of F&G Life's products are sold throughout the United
States through independent agents, managing general agents,
specialty brokerage firms, and in selected institutional markets.
Structured settlement annuities are sold predominantly to property-
liability companies (primarily our U.S. underwriting operations)
for use in settlement of certain of their insurance claims. Note 8
to the consolidated financial statements, on page 59 of our 2000
Annual Report to Shareholders, provides a table of F&G Life's
future policy benefit reserves by type of product and is
incorporated herein by reference.
Life Insurance Investment Operations. F&G Life's investment
portfolio totaled $5.0 billion at Dec. 31, 2000, consisting of
investment grade government and corporate securities (63% of the
total); asset-backed and mortgage-backed securities (20%); high-
yield investments (7%); and real estate mortgage loans and other
investments (10%). F&G Life uses derivative instruments in the form
of over-the-counter indexed call options for the purpose of hedging
interest credited on its equity-indexed annuity products. The cost
of derivatives amounted to less than 1% of invested assets at Dec.
31, 2000. Note 7 on page 58 of The St. Paul's 2000 Annual Report
to Shareholders, which includes additional information about F&G
Life's involvement with derivative financial instruments, is
incorporated herein by reference.
ASSET MANAGEMENT
The John Nuveen Company ("Nuveen") is our asset management
subsidiary. The St. Paul and its largest property-liability
insurance subsidiary, St. Paul Fire and Marine Insurance Company
("Fire and Marine") hold a combined 78% interest in Nuveen.
Nuveen's principal businesses are asset management and the
development, marketing and distribution of investment products and
services for advisors to the affluent and high-net-worth market
segments. Nuveen provides investment products, including
individually managed accounts, mutual funds, exchange-traded funds
(closed-end funds) and defined portfolios through registered
representatives associated with unaffiliated firms, including
broker-dealers, commercial banks, affiliates of insurance
providers, financial planners, accountants, consultants, and
investment advisers.
Nuveen's primary business activities generate two principal sources
of revenue: (1) ongoing advisory fees earned on assets under
management, including individually managed accounts, mutual funds
and exchange-traded funds; and (2) transaction-based revenue earned
upon the sale of defined portfolio and mutual fund products.
Nuveen's business is conducted through six subsidiaries: Nuveen
Investments, a registered broker and dealer in securities under the
Securities Exchange Act of 1934 and five investment advisory
subsidiaries registered under the Investment Advisers Act of 1940.
The five investment advisory subsidiaries are Nuveen Advisory Corp.
(NAC), Nuveen Institutional Advisory Corp. (NIAC), Nuveen Asset
Management Inc. (NAM), Rittenhouse Financial Services, Inc.
(Rittenhouse) and Nuveen Senior Loan Asset Management, Inc.
(NSLAM). Nuveen Investments provides investment product
distribution and related services for Nuveen's managed funds and
defined portfolios. NAC, NIAC and NSLAM provide investment
management services for and administer the business affairs of the
Nuveen managed funds. Rittenhouse and NAM provide investment
management services for individually managed accounts, and
Rittenhouse also acts as sub-adviser and portfolio manager for a
mutual fund managed by NIAC.
At Dec. 31, 2000, Nuveen's assets under management totaled $62.0
billion, consisting of $28.4 billion of exchange-traded funds,
$21.7 billion of managed accounts, and $11.9 billion of mutual
funds. Municipal securities accounted for 66% of the underlying
managed assets.
In 2000, Nuveen repurchased 1,175,916 of its outstanding common
shares for a total cost of $51 million. In 1999, Nuveen repurchased
914,100 of its outstanding common shares for a total cost of $36
million. The repurchases in both years were solely from minority
shareholders. Our ownership share in Nuveen did not materially
change in either year as a result of these share repurchases, due
to Nuveen's issuance of common shares related to stock option and
other incentive plans.
COMPETITION AND REGULATION
The financial services industry in general continues to be affected
by an intensifying competitive environment, as demonstrated by
consolidation through mergers and acquisitions and competition from
new entrants, as well as established competitors using new
technologies, including the Internet, to establish or expand their
business. The Gramm-Leach-Bliley Act, passed in 1999, which
repealed U.S. laws that separated commercial banking, investment
banking and insurance activities, together with changes to the
industry resulting from previous reforms, has increased the number
of companies competing for a similar customer base.
Property-Liability Insurance. Our domestic and international
underwriting subsidiaries compete with a large number of other
insurers and reinsurers. In addition, many large commercial
customers self-insure their risks or utilize large deductibles on
purchased insurance. Our subsidiaries compete principally by
attempting to offer a combination of superior products,
underwriting expertise and services at a competitive, yet
profitable, price. The combination of products, services, pricing
and other methods of competition varies by line of insurance and by
coverage within each line of insurance.
We and our underwriting subsidiaries, are subject to regulation by
certain states as an insurance holding company system. Such
regulation generally provides that transactions between companies
within the holding company system must be fair and equitable.
Transfers of assets among such affiliated companies, certain
dividend payments from underwriting subsidiaries and certain
material transactions between companies within the system may be
subject to prior notice to, or prior approval by, state regulatory
authorities. During 2000, we received $483 million of cash
dividends from our U.S. underwriting operations. Although $1.6
billion will be available for dividends in 2000, business and
regulatory considerations may impact the amount of dividends
actually paid. In addition, any change of control (generally
presumed by the holding company laws to occur with the acquisition
of 10% or more of an insurance holding company's voting securities)
of The St. Paul and its underwriting subsidiaries is subject to
prior approval by regulators.
The underwriting subsidiaries are subject to licensing and
supervision by government regulatory agencies in the jurisdictions
in which they do business. The nature and extent of such
regulation vary but generally have their source in statutes which
delegate regulatory, supervisory and administrative powers to
insurance regulators, which in the U.S. are state authorities.
Such regulation, supervision and administration of the underwriting
subsidiaries may relate, among other things, to the standards of
solvency which must be met and maintained; the licensing of
insurers and their agents; the nature of and limitations on
investments; restrictions on the size of risk which may be insured
under a single policy; deposits of securities for the benefit of
policyholders; regulation of policy forms and premium rates;
periodic examination of the affairs of insurance companies; annual
and other reports required to be filed on the financial condition
of insurers or for other purposes; requirements regarding reserves
for unearned premiums, losses and other matters; the nature of and
limitations on dividends to policyholders and shareholders; the
nature and extent of required participation in insurance guaranty
funds; and the involuntary assumption of hard-to-place or high-risk
insurance business, primarily in workers' compensation insurance
lines.
Loss ratio trends in property-liability insurance underwriting
experience may be improved by, among other things, changing the
kinds of coverages provided by policies, providing loss prevention
and risk management services, increasing premium rates, purchasing
reinsurance or by a combination of these. The ability of our
insurance underwriting subsidiaries to meet emerging adverse
underwriting trends may be delayed, from time to time, by the
effects of laws which require prior approval by insurance
regulatory authorities of changes in policy forms and premium
rates. Our U.S. underwriting operations do business in all 50
states and the District of Columbia, Puerto Rico, Guam and the U.S.
Virgin Islands. Many of these jurisdictions require prior approval
of most or all premium rates.
Our insurance underwriting business in the United Kingdom is
regulated by the Financial Services Authority (FSA). The FSA's
principal objectives are to ensure that insurance companies are
responsibly managed, that they have adequate funds to meet
liabilities to policyholders and that they maintain required levels
of solvency. In Canada, the conduct of insurance business is
regulated under provisions of the Insurance Companies Act of 1992,
which requires insurance companies to maintain certain levels of
capital depending on the type and amount of insurance policies in
force. The Lloyd's operation is currently regulated by the Council
of Lloyd's, a self-regulatory organization, which will in due
course be regulated by the FSA. We are also subject to regulations
in the other countries and jurisdictions in which we underwrite
insurance business.
Life Insurance. Our life insurance subsidiaries operate in a
competitive environment, with approximately 1,400 companies
nationwide in the industry including stock and mutual companies.
F&G Life ranked 117th based on 1999 statutory net premiums written,
120th based on 1999 statutory assets, and 174th based on 1999
statutory capital and surplus. In the life insurance industry,
interest crediting rates, underwriting philosophy, policy features,
financial stability, credit standing and service quality are
important competitive factors. F&G Life's products compete not
only with those offered by other life insurance companies, but also
with other income accumulation-oriented products offered by other
financial services companies. The life insurance industry has
experienced considerable competitive and economic pressure in
recent periods as a result of fluctuating interest rates and other
factors.
F&G Life is subject to licensing and supervision by government
regulatory agencies in the jurisdictions in which it does business.
The nature and extent of regulation vary but generally have their
source in statutes which delegate regulatory, supervisory and
administrative powers to state insurance commissioners. Such
regulation and supervision of F&G Life may relate, among other
things, to the standards of solvency which must be met and
maintained; the licensing of insurers and agents; the nature of and
limitations on investments; deposits of securities for the benefit
of policyholders; regulation of policy forms; periodic examination
of the affairs of the company; annual and other reports required to
be filed; requirements regarding reserves for policyholder
benefits; fixing maximum interest rates on life insurance policy
loans and minimum rates for accumulation of surrender values; the
nature of and limitations on dividends to policyholders and
shareholders; and the nature and extent of required participation
in insurance guaranty funds.
Asset Management. Nuveen is subject to substantial competition in
all aspects of its business. Investment products are sold to the
public by broker-dealers, banks, insurance companies and others.
Nuveen competes with these other providers of products primarily on
the basis of the range of products offered, the investment
performance of such products, quality of service, fees charged, the
level and type of broker compensation, the manner in which such
products are marketed and distributed, and the services provided to
investors.
Nuveen is a publicly-traded company registered under the Securities
Exchange Act of 1934 and listed on the New York Stock Exchange.
One of its subsidiaries, Nuveen Investments, is a broker-dealer
registered under the Securities Exchange Act of 1934, and is
subject to regulation by the Securities and Exchange Commission,
the National Association of Securities Dealers, Inc. and other
federal and state agencies and self-regulatory organizations. It
is also subject to net capital requirements that restrict its
ability to pay dividends. Nuveen's other five subsidiaries are
investment advisers registered under the Investment Advisers Act of
1940. As such, they are subject to regulation by the Securities
and Exchange Commission.
FORWARD-LOOKING STATEMENT DISCLOSURE
This report contains certain forward-looking statements within the
meaning of the Private Litigation Reform Act of 1995. Forward-
looking statements are statements other than historical information
or statements of current condition. Words such as "expects,"
"anticipates," "intends," "plans," "believes," "seeks" or
"estimates," or variations of such words, and similar expressions
are also intended to identify forward-looking statements. Examples
of these forward-looking statements include statements concerning:
market and other conditions and their effect on future premiums,
revenues, earnings, cash flow and investment income; price
increases, improved loss experience, and expense savings resulting
from the restructuring actions announced in recent years.
In light of the risks and uncertainties inherent in future
projections, many of which are beyond our control, actual results
could differ materially from those in forward-looking statements.
These statements should not be regarded as a representation that
anticipated events will occur or that expected objectives will be
achieved. Risks and uncertainties
include, but are not limited to, the following: competitive
considerations, including the ability to implement price increases
and possible actions by competitors; general economic conditions
including changes in interest rates and the performance of
financial markets; changes in domestic and foreign laws,
regulations and taxes; changes in the demand for, pricing of, or
supply of reinsurance or insurance; catastrophic events of
unanticipated frequency or severity; loss of significant customers;
judicial decisions and rulings; and various other matters. We
undertake no obligation to release publicly the results of any
future revisions we may make to forward-looking statements to
reflect events or circumstances after the date hereof or to reflect
the occurrence of unanticipated events.
Item 2. Properties.
- ------ ----------
Fire and Marine owns our corporate headquarters buildings, located
at 385 Washington Street and 130 West Sixth Street, St. Paul, MN.
These buildings are adjacent to one another and consist of
approximately 1.1 million square feet of gross floor space. Fire
and Marine also owns property in Woodbury, MN where its
Administrative Services Building and off-site computer processing
operations are located. Fire and Marine also owns the former USF&G
headquarters campus known as Mount Washington Center, located in
Baltimore, MD. The campus currently houses offices for certain
executives of The St. Paul, as well as offices for certain
underwriting, legal and claim personnel. A training and
development center also resides on the Mount Washington campus.
Fire and Marine has leased a substantial portion of one of the
buildings on the campus to an outside party.
St. Paul International Insurance Company Ltd. owns a building in
London, England, which houses a portion of its operations. We
retained ownership of another building in London subsequent to the
sale of Minet to Aon in 1997, which we were leasing to an outside
party at Dec. 31, 2000. In a transaction completed in March 2001,
we sold a 50% interest in this building.
Fire and Marine and its subsidiary, St. Paul Properties, Inc., own
a portfolio of income-producing properties in various locations
across the United States that they have purchased for investment.
Our operating subsidiaries rent or lease office space in most
cities in which they operate.
Management considers the currently owned and leased office
facilities of The St. Paul and its subsidiaries adequate for the
current and anticipated future level of operations.
Item 3. Legal Proceedings.
- ------ -----------------
The information set forth in the "Legal Matters" section of Note 13
to the consolidated financial statements, and the "Environmental
and Asbestos Claims" section of "Management's Discussion and
Analysis," which are included in our 2000 Annual Report to
Shareholders on pages 67 and 68, and 36, respectively, are
incorporated herein by reference.
In 1990, at the direction of the UK Department of Trade and
Industry (DTI), five insurance underwriting subsidiaries of London
United Investments PLC (LUI) suspended underwriting new insurance
business. At the same time, four of those subsidiaries, being
insolvent, suspended payment of claims and have since been placed
in provisional liquidation. The fifth subsidiary, Walbrook
Insurance Company, continued paying claims until May of 1992 but
has now also been placed in provisional insolvent liquidation.
Weavers Underwriting Agency (Weavers), an LUI subsidiary, managed
these insurers. Minet, a former insurance brokerage subsidiary of
ours, had brokered business to and from Weavers for many years.
From 1973 through 1980, our UK-based underwriting operations, now
called St. Paul International Insurance Company Ltd. (SPI), had
accepted business from Weavers. A portion of that business was
ceded by SPI to reinsurers. Certain of those reinsurers have
challenged the validity of certain reinsurance contracts relating
to the Weavers pool, of which SPI was a member, in an attempt to
avoid liability under those contracts. SPI and other members of
the Weavers pool are seeking enforcement of the reinsurance
contracts. Minet may also become the subject of legal proceedings
arising from its role as one of the major brokers for Weavers.
When we sold Minet in May 1997, we agreed to indemnify the
purchaser for most of Minet's preclosing liabilities, including
liabilities relating to the Weavers matter. We will vigorously
contest any proceedings relating to the Weavers matter and we
recognize that the final outcome of these proceedings, if adverse
to us, may materially impact the results of operations in the
period in which that outcome occurs, but we believe it will not
have a materially adverse effect on our liquidity or overall
financial position.
Item 4. Submission of Matters to a Vote of Security Holders.
- ------ ---------------------------------------------------
No matter was submitted to a vote of security holders during the
quarter ended Dec. 31, 2000.
EXECUTIVE OFFICERS OF THE REGISTRANT
All of the following persons are regarded as executive officers of
The St. Paul Companies, Inc. because of their responsibilities and
duties as elected officers of The St. Paul, Fire and Marine, St.
Paul International Underwriting or St. Paul Re. There are no
family relationships between any of our executive officers and
directors, and there are no arrangements or understandings between
any of these officers and any other person pursuant to which the
officer was selected as an officer. The officers listed in the
chart below, except Thomas A. Bradley, Robert J. Lamendola, Stephen
W. Lilienthal, Paul J. Liska, John A. MacColl and David R. Nachbar,
have held positions with The St. Paul or one or more of its
subsidiaries for more than five years, and have been employees of
The St. Paul or a subsidiary for more than five years.
Messrs. Thomas A. Bradley, Stephen W. Lilienthal, John A. MacColl
and Robert J. Lamendola held positions and were employees of USF&G
Corporation or one of its subsidiaries for five or more years prior
to its merger with The St. Paul in April of 1998. Paul J. Liska
joined The St. Paul in January of 1997. For three years prior to
that date, Mr. Liska held various management positions with
Specialty Foods Corporation, including the position of president
and chief executive officer from January 1996 to January 1997.
David R. Nachbar joined The St. Paul in August 1998. For two years
prior to that date, Mr. Nachbar was employed as vice president,
human resources and chief of staff-Asia for Citibank. From 1995 to
1996 he was the area human resources director for Frito-Lay, a
PepsiCo unit. From 1989 through 1995, Mr. Nachbar was employed in
various capacities in the human resources area by the Pizza Hut
division of PepsiCo.
Positions Presently Term of Office and
Name Age Held Period of Service
- ------------ --- ------------------- ------------------
Douglas W. Chairman, President Serving at the
Leatherdale 64 and Chief Executive pleasure of the
Officer Board from 5-90
(The St. Paul
Companies, Inc.)
Paul J. Liska 45 Executive Vice Serving at the
President and Chief pleasure of the
Financial Officer Board from 1-97
(The St. Paul
Companies, Inc.)
James F. Duffy 57 Chairman, Serving at the
Reinsurance Group pleasure of the
(St. Paul Re) Board from 7-00
John A. MacColl 52 Executive Vice Serving at the
President and pleasure of the
General Counsel Board from 5-99
(The St. Paul
Companies, Inc.)
Michael J. Conroy 59 Executive Vice Serving at the
President, Chief pleasure of the
Administrative Board from 8-95
Officer and Chief
Privacy Officer
(Fire and Marine)
Positions Presently Term of Office and
Name Age Held Period of Service
- ----------- --- ------------------- ------------------
Stephen W. Executive Vice Serving at the
Lilienthal 51 President (Fire and pleasure of the
Marine) Board from 4-98
Robert J. Lamendola 56 President and Chief Serving at the
Executive Officer - pleasure of the
Surety and Board from 10-99
Construction
(Fire and Marine)
Michael J. Schell 50 President and Chief Serving at the
Operating Officer - pleasure of the
Global Reinsurance Board from 7-00
(St. Paul Re)
T. Michael Miller 42 Senior Vice Serving at the
President - Global pleasure of the
Specialty Practices Board from 10-99
(Fire and Marine)
Kent D. Urness 52 Senior Vice Serving at the
President - Global pleasure of the
Specialty Practices Board from 10-99
(Fire and Marine)
Bruce A. Backberg 52 Senior Vice Serving at the
President and pleasure of the
Corporate Secretary Board from 11-97
(The St. Paul
Companies, Inc.)
Thomas A. Bradley 43 Senior Vice Serving at the
President - Finance pleasure of the
(The St. Paul Board from 5-98
Companies, Inc.)
Karen L. Himle 45 Senior Vice Serving at the
President - pleasure of the
Corporate Affairs Board from 11-97
(The St. Paul
Companies, Inc.)
David R. Nachbar 38 Senior Vice Serving at the
President - Human pleasure of the
Resources Board from 8-98
(The St. Paul
Companies, Inc.)
Laura C. Gagnon 39 Vice President - Serving at the
Finance and pleasure of the
Investor Relations Board from 7-99
(The St. Paul
Companies, Inc.)
Management Changes. On March 9, 2001, the following management
changes were announced by The St. Paul. Effective April 1, 2001,
Paul J. Liska will resign from all positions held at The St. Paul.
On that date, Thomas A. Bradley, currently Senior Vice President -
Finance, will become Chief Financial Officer, with responsibility
for all of The St. Paul's finance and accounting activities.
Michael R. Wright, 44, currently Senior Vice President - Global
Equities, was named Chief Investment Officer, with responsibility
for all of The St. Paul's investment operations. John C. Treacy,
37, currently Vice President and Controller of Fire and Marine, was
named Vice President and Corporate Controller of The St. Paul,
assuming the role of principal accounting officer for The St. Paul.
Part II
-------
Item 5. Market for the Registrant's Common Equity and
- ------ Related Stockholder Matters.
---------------------------
Our common stock is traded on the New York Stock Exchange, where it
is assigned the symbol SPC. The stock is also listed on the London
Stock Exchange under the symbol SPA. The number of holders of
record, including individual owners, of our common stock was 18,409
as of March 1, 2001.
The "Stock Trading" and "Stock Price and Dividend Rate" portions of
the "Shareholder Information" section on page 82 of our 2000 Annual
Report to Shareholders are incorporated herein by reference.
Item 6. Selected Financial Data.
- ------ -----------------------
The "Six-Year Summary of Selected Financial Data" on page 45 of our
2000 Annual Report to Shareholders is incorporated herein by
reference.
Item 7. Management's Discussion and Analysis of Financial
- ------ Condition and Results of Operations.
-----------------------------------
The "Management's Discussion and Analysis" on pages 18 through 44
of our 2000 Annual Report to Shareholders is incorporated herein by
reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
- -------- ----------------------------------------------------------
The "Exposures to Market Risk" section of "Management's Discussion
and Analysis" on pages 43 and 44 of our 2000 Annual Report to
Shareholders is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data.
- ------ -------------------------------------------
The "Independent Auditors' Report," "Management's Responsibility
for Financial Statements," Consolidated Balance Sheets,
Consolidated Statements of Income, Comprehensive Income,
Shareholders' Equity and Cash Flows, and Notes to Consolidated
Financial Statements on pages 46 through 76 of our 2000 Annual
Report to Shareholders are incorporated herein by reference.
Item 9. Changes in and Disagreements With Accountants on
- ------ Accounting and Financial Disclosure.
-----------------------------------
None.
Part III
--------
Item 10. Directors and Executive Officers of the Registrant.
- ------- --------------------------------------------------
The "Election of Directors - Nominees for Directors" section, which
provides information regarding our directors, on pages 4 and 5 of
the Proxy Statement relating to the Annual Meeting of Shareholders
to be held May 1, 2001, is incorporated herein by reference. W.
John Driscoll, 71 and Anita M. Pampusch, 62, are currently
directors of The St. Paul, but are not standing for re-election at
the 2001 Annual Meeting of Shareholders.
The "Section 16(a) Beneficial Ownership Reporting Compliance"
section on page 36 of the Proxy Statement relating to the Annual
Meeting of Shareholders to be held May 1, 2001, is incorporated
herein by reference.
Item 11. Executive Compensation.
- ------- ----------------------
The "Executive Compensation" section on pages 21 to 31 and the
"Election of Directors - Board of Directors Compensation" section
on pages 6 to 8 of the Proxy Statement relating to the Annual
Meeting of Shareholders to be held May 1, 2001, are incorporated
herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
- -------- --------------------------------------------------------------
The "Security Ownership of Certain Beneficial Owners and
Management" section on pages 33 to 35 of the Proxy Statement
relating to the Annual Meeting of Shareholders to be held May 1,
2001, is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
- ------- ----------------------------------------------
The "Indebtedness of Management" section on page 32 of the Proxy
Statement relating to the Annual Meeting of Shareholders to be held
May 1, 2001, is incorporated herein by reference.
Part IV
-------
Item 14. Exhibits, Financial Statements, Financial Statement
- ------- Schedules and Reports on Form 8-K.
---------------------------------
(a) Filed documents. The following documents are filed as part of
this report:
1. Financial Statements.
Incorporated by reference into Part II of this report:
The St. Paul Companies, Inc. and Subsidiaries:
Consolidated Statements of Income - Years Ended
December 31, 2000, 1999 and 1998
Consolidated Statements of Comprehensive Income -
Years Ended December 31, 2000, 1999 and 1998
Consolidated Balance Sheets - December 31, 2000
and 1999
Consolidated Statements of Shareholders'
Equity - Years Ended December 31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows - Years Ended
December 31, 2000, 1999 and 1998
Notes to Consolidated Financial Statements
Independent Auditors' Report
The foregoing documents are incorporated by reference
to The St. Paul's 2000 Annual Report to
Shareholders.
2. Financial Statement Schedules.
The St. Paul Companies, Inc. and Subsidiaries:
Independent Auditors' Report on Financial
Statement Schedules
I. Summary of Investments - Other than Investments
in Related Parties
II. Condensed Financial Information of Registrant
III. Supplementary Insurance Information
IV. Reinsurance
V. Valuation and Qualifying Accounts
All other schedules are omitted because they are not
applicable, not required, or the information is
included elsewhere in the Consolidated Financial
Statements or Notes thereto.
3. Exhibits. An Exhibit Index is set forth at page 35
of this report.
(3) (a) The current articles of incorporation
of The St. Paul are incorporated by
reference to Form 10-K for the year ended
December 31, 1998.
(b) The current bylaws of The St. Paul are filed herewith.
(4) (a) A specimen certificate of The St. Paul's
common stock is incorporated by
reference to Form 10-K for the year ended
December 31, 1998.
There are no long-term debt instruments
in which the total amount of securities authorized
exceeds 10% of the total assets of The St. Paul
and its subsidiaries on a consolidated basis. The
St. Paul agrees to furnish a copy of any of its
long-term debt instruments to the Securities and
Exchange Commission upon request.
(10) (a) The Deferred Stock Plan for
Non-Employee Directors is filed herewith.
(b) The Senior Executive Severance
Policy is filed herewith.
(c) The Amended and Restated 1994 Stock
Incentive Plan is filed herewith.
(d) The Directors' Charitable Award
Program, as Amended, is filed herewith.
(e) The Amendment to the Amended and
Restated Special Severance Policy is filed
herewith.
(f) Amended and Restated Letter Agreement
between The St. Paul and Mr. Stephen W.
Lilienthal dated as of August 5, 1999 related
to terms of his employment is incorporated by
reference to Form 10-K for the year ended
December 31, 1999.
(g) The 1988 Stock Option Plan as in
effect for options granted prior to June 1994, as
amended, is incorporated by reference to Form 10-K
for the year ended December 31, 1998.
(h) The Non-Employee Director Stock
Retainer Plan is incorporated by reference to Form
10-K for the year ended December 31, 1998.
(i) The Amended and Restated Special
Severance Policy is incorporated by reference to
Form 10-K for the year ended December 31, 1998.
(j) The Annual Incentive Plan is
incorporated by reference to the Proxy Statement
relating to the 1999 Annual Meeting of
Shareholders that was held on May 4, 1999.
(k) The Deferred Management Incentive
Awards Plan is incorporated by reference to Form
10-K for the year ended December 31, 1997.
(l) The Directors' Deferred Compensation
Plan is incorporated by reference to
Form 10-K for the year ended December 31, 1997.
(m) The Benefit Equalization Plan -
1995 Revision is incorporated by reference to Form
10-K for the year ended December 31, 1997.
(n) First Amendment to Benefit Equalization
Plan - 1995 Revision is incorporated
by reference to Form 10-K for the year ended
December 31, 1997.
(o) Executive Post-Retirement Life
Insurance Plan - Summary Plan Description is
incorporated by reference to Form 10-K for the
year ended December 31, 1997.
(p) Executive Long-Term Disability Plan
- Summary Plan Description is incorporated by
reference to Form 10-K for the year ended
December 31, 1997.
(q) The St. Paul Re Long-Term Incentive
Plan is incorporated by reference to the Form S-8
Registration Statement filed March 17, 1998
(Commission File No. 333-48121).
(r) Letter Agreement between The St.
Paul and Mr. Paul J. Liska dated May 8, 1997
relating to the terms of his employment is
incorporated by reference to Form 10-Q for the
quarter ended March 31, 1997.
(s) Letter Agreement, agreed to January 20,
1997 between The St. Paul and Mr. Paul J.
Liska relating to severance benefits is
incorporated by reference to Form 10-Q for the
quarter ended March 31, 1997.
(t) The Special Leveraged Stock
Purchase Plan is incorporated by reference to Form
10-Q for the quarter ended March 31, 1997.
(u) The summary description of the
Outside Directors' Retirement Plan is incorporated
by reference to the Proxy Statement relating to
the 2001 Annual Meeting of Shareholders to be held
May 1, 2001.
(v) The summary description of the Key
Executive Special Incentive Arrangement is
incorporated by reference to Form 10-Q for the
quarter ended September 30, 1999.
(11) A statement regarding the computation of
per share earnings is filed herewith.
(12) A statement regarding the computation of
the ratio of earnings to fixed charges and the
ratio of earnings to combined fixed charges and
preferred stock dividends is filed herewith.
(13) The St. Paul's 2000 Annual Report to
Shareholders is furnished to the Commission in
paper format pursuant to Rule 14a-3(c). The
following portions of such annual report,
representing those portions expressly incorporated
by reference in this report on Form 10-K, are
filed as an exhibit to this report:
Location of
Portions of Annual Report Information
for the Year Ended Incorporated
December 31, 2000 by Reference
------------------------- ------------
Consolidated Financial Statements Item 8
Notes to Consolidated
Financial Statements Item 1,8
Independent Auditors' Report Item 8
Management's Discussion and
Analysis Item 1,3,7
Six-Year Summary of Selected
Financial Data Item 6
Shareholder Information Item 5
(21) List of subsidiaries of The St. Paul Companies, Inc.
is filed herewith.
(23) Consent of independent auditors to incorporation
by reference of certain reports into Registration
Statements on Form S-8 (SEC File No. 33-15392, No. 33-23446,
No. 33-23948, No. 33-24220, No. 33-24575, No. 33-26923,
No. 33-49273, No. 33-56987, No. 333-01065, No. 333-22329,
No. 333-25203, No. 333-28915, No. 333-48121, No. 333-50941,
No. 333-50943 and No. 333-67983) and Form S-3 (SEC File
No. 333-44122) is filed herewith.
(24) Power of attorney is filed herewith.
(b) Reports on Form 8-K.
A Form 8-K Current Report dated March 9, 2001 was
filed related to the announcement of the resignation of
Paul J. Liska as Executive Vice President and Chief
Financial Officer of The St. Paul, effective April 1,
2001.
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, The St. Paul Companies, Inc. has
duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE ST. PAUL COMPANIES, INC.
---------------------------
(Registrant)
Date: March 28, 2001 By /s/ Bruce A. Backberg
-------------- ---------------------
Bruce A. Backberg
Senior Vice President and
Corporate Secretary
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of The St. Paul Companies, Inc. and in the capacities and on
the dates indicated.
Date: March 28, 2001 By /s/ Douglas W. Leatherdale
-------------- --------------------------
Douglas W. Leatherdale,
Director, Chairman of the
Board, President and Chief
Executive Officer
Date: March 28, 2001 By /s/ Paul J. Liska
-------------- -----------------
Paul J. Liska, Executive
Vice President and
Chief Financial Officer
Date: March 28, 2001 By /s/ Thomas A. Bradley
-------------- ---------------------
Thomas A. Bradley, Senior
Vice President - Finance
Date: March 28, 2001 By /s/ John C. Treacy
-------------- ------------------
John C. Treacy, Vice
President and Corporate
Controller
Date: March 28, 2001 By /s/ H. Furlong Baldwin
-------------- ----------------------
H. Furlong Baldwin*,
Director
Date: March 28, 2001 By /s/ John H. Dasburg
-------------- -------------------
John H. Dasburg*, Director
Date: March 28, 2001 By /s/ W. John Driscoll
-------------- --------------------
W. John Driscoll*, Director
Date: March 28, 2001 By /s/ Kenneth M. Duberstein
-------------- -------------------------
Kenneth M. Duberstein*,
Director
Date: March 28, 2001 By /s/ Pierson M. Grieve
-------------- ---------------------
Pierson M. Grieve*, Director
Date: March 28, 2001 By /s/ Thomas R. Hodgson
-------------- ---------------------
Thomas R. Hodgson*, Director
Date: March 28, 2001 By /s/ David G. John
-------------- -----------------
David G. John*, Director
Date: March 28, 2001 By /s/ William H. Kling
-------------- --------------------
William H. Kling*, Director
Date: March 28, 2001 By /s/ Bruce K. MacLaury
-------------- ---------------------
Bruce K. MacLaury*, Director
Date: March 28, 2001 By /s/ Glen D. Nelson, M.D.
-------------- -----------------------
Glen D. Nelson, M.D.*,
Director
Date: March 28, 2001 By /s/ Anita M. Pampusch
-------------- ---------------------
Anita M. Pampusch*, Director
Date: March 28, 2001 By /s/ Gordon M. Sprenger
-------------- ----------------------
Gordon M. Sprenger*,
Director
Date: March 28, 2001 *By /s/ Bruce A. Backberg
-------------- ---------------------
Bruce A. Backberg, Attorney-
in-fact
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULES
The Board of Directors and Shareholders
The St. Paul Companies, Inc.:
Under date of January 23, 2001, we reported on the consolidated
balance sheets of The St. Paul Companies, Inc. and subsidiaries
as of December 31, 2000 and 1999, and the related consolidated
statements of income, shareholders' equity, comprehensive income
and cash flows for each of the years in the three-year period
ended December 31, 2000, as contained in the 2000 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 2000. In connection with our audits of
the aforementioned consolidated financial statements we also have
audited the related financial statement schedules I through V, as
listed in the index in Item 14(a)2. of said Form 10-K. These
financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statement schedules based on our
audits.
In our opinion, based on our audits such financial statement
schedules I through V, when considered in relation to the basic
consolidated financial statements taken as a whole, present
fairly, in all material respects, the information set forth
therein.
Minneapolis, Minnesota /s/ KPMG LLP
March 28, 2001 --------
KPMG LLP
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
SCHEDULE I - SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN RELATED PARTIES
December 31, 2000
(In millions)
2000
-----------------------------------
Amount at
which shown
in the
Cost* Value* balance sheet
------- ------- -------------
Type of investment:
Fixed maturities:
- ----------------
United States Government and
government agencies and
authorities $ 1,900 $ 2,000 $ 2,000
States, municipalities and
political subdivisions 5,104 5,361 5,361
Foreign governments 1,020 1,051 1,051
Corporate securities 8,685 8,581 8,581
Asset-backed securities 890 902 902
Mortgage-backed securities 2,541 2,575 2,575
------- ------- -------
Total fixed maturities 20,140 20,470 20,470
------- ------- -------
Equity securities:
- -----------------
Common stocks:
Public utilities 12 13 13
Banks, trusts and insurance
companies 130 195 195
Industrial, miscellaneous and
all other 983 1,258 1,258
------- ------- -------
Total equity securities 1,125 1,466 1,466
------- ------- -------
Venture capital 657 1,064 1,064
------- ------- -------
Real estate and mortgage loans 1,256** 1,249
Securities lending collateral 1,233 1,233
Other investments 353 353
Short-term investments 1,264 1,264
------- -------
Total investments $ 26,028 $ 27,099
======= =======
* See Notes 1, 4, 5 and 7 to the consolidated financial statements
included in our 2000 Annual Report to Shareholders.
** The cost of real estate represents the cost of properties before
valuation provisions. (See Schedule V on page 34).
THE ST. PAUL COMPANIES, INC. (Parent Only)
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEET INFORMATION
December 31, 2000 and 1999
(In millions)
Assets: 2000 1999
------ ------
Investment in subsidiaries $ 8,797 $ 8,116
Investments:
Fixed maturities 218 109
Equity securities 70 78
Short-term investments 41 33
Cash - 4
Deferred income taxes 428 301
Refundable income taxes 81 152
Other assets 210 233
------ ------
Total assets $ 9,845 $ 9,026
====== ======
Liabilities:
Debt $ 2,123 $ 2,060
Dividends payable to shareholders 59 58
Other liabilities 436 436
------ ------
Total liabilities 2,618 2,554
------ ------
Shareholders' Equity:
Preferred:
Convertible preferred stock 117 129
Guaranteed obligation - PSOP (68) (105)
------ ------
Total preferred shareholders' equity 49 24
------ ------
Common:
Common stock, authorized 480 shares;
issued 218 shares (225 in 1999) 2,238 2,079
Retained earnings 4,243 3,827
Accumulated other comprehensive income:
Unrealized appreciation of investments 765 568
Unrealized loss on foreign
currency translation (68) (26)
------ ------
Total accumulated other
comprehensive income 697 542
------ ------
Total common shareholders' equity 7,178 6,448
------ ------
Total shareholders' equity 7,227 6,472
------ ------
Total liabilities and
shareholders' equity $ 9,845 $ 9,026
====== ======
See accompanying notes to condensed financial information.
THE ST. PAUL COMPANIES, INC. (Parent Only)
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENT OF INCOME INFORMATION
Years Ended December 31, 2000, 1999 and 1998
(In millions)
2000 1999 1998
------ ------ ------
Revenues:
Net investment income $ 29 $ 17 $ 18
Realized investment gains 8 10 6
------ ------ ------
Total revenues 37 27 24
------ ------ ------
Expenses:
Interest expense 165 145 67
Administrative and other expenses 97 51 66
------ ------ ------
Total expenses 262 196 133
------ ------ ------
Loss before income tax benefit (225) (169) (109)
Income tax benefit (89) (59) (80)
------ ------ ------
Loss from continuing operations -
parent company only (136) (110) (29)
Equity in net income of subsidiaries 1,149 889 228
------ ------ ------
Income from continuing operations
before cumulative effect of
accounting change 1,013 779 199
Cumulative effect of
accounting change - (30) -
------ ------ ------
Income from continuing operations 1,013 749 199
Gain (loss) from
discontinued operations (20) 85 (110)
------ ------ ------
Consolidated net income $ 993 $ 834 $ 89
====== ====== ======
See accompanying notes to condensed financial information.
THE ST. PAUL COMPANIES, INC. (Parent Only)
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENT OF CASH FLOWS INFORMATION
Years Ended December 31, 2000, 1999 and 1998
(In millions)
2000 1999 1998
------ ------ ------
Operating Activities:
Net loss - parent only $ (136) $ (110) $ (29)
Cash dividends from subsidiaries 510 320 223
Tax payments from subsidiaries 339 69 71
Net federal income tax refund (payments) (110) (71) 54
Adjustments to reconcile net
income (loss) to net cash provided
by operating activities:
Deferred tax expense
(benefit) - operations 44 38 (78)
Pretax realized investment gains (8) (10) (6)
Other (68) (38) (4)
------ ------ ------
Cash provided by operating activities 571 198 231
------ ------ ------
Investing Activities:
Purchases of investments (278) (155) (47)
Proceeds from sales and maturities
of investments 168 153 81
Capital contributions and loans
to subsidiaries (119) (4) (178)
Proceeds received upon assumption
of subsidiary debt 123 - -
Proceeds from repayment
of intercompany loans - 294 -
Discontinued operations (9) (10) (20)
Purchase of property and equipment (18) - -
Other (1) 6 10
------ ------ ------
Cash provided (used) by
investing activities (134) 284 (154)
------ ------ ------
Financing Activities:
Dividends paid to shareholders (241) (246) (210)
Proceeds from issuance of debt 498 204 239
Repayment of debt and capital securities (259) (121) (25)
Repurchase of common shares (536) (356) (135)
Stock options exercised and other 97 32 63
------ ------ ------
Cash used in financing activities (441) (487) (68)
------ ------ ------
Change in cash (4) (5) 9
Cash at beginning of year 4 9 -
------ ------ ------
Cash at end of year $ - $ 4 $ 9
====== ====== ======
See accompanying notes to condensed financial information.
THE ST. PAUL COMPANIES, INC. (Parent Only)
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL INFORMATION
1. The accompanying condensed financial information should be
read in conjunction with the consolidated financial
statements and notes included in our 2000 Annual Report to
Shareholders. The Annual Report includes our Consolidated
Statements of Shareholders' Equity and Comprehensive Income.
Some data in the accompanying condensed financial
information for the years 1999 and 1998 were reclassified to
conform with the 2000 presentation.
2. Debt of the parent company consisted of the following (in
millions):
December 31,
-------------------
2000 1999
----- -----
External:
Medium-term notes $ 617 $ 617
7-7/8% senior notes 249 -
8-1/8% senior notes 249 -
8-3/8% senior notes 150 150
Commercial paper 138 400
Zero coupon convertible notes 98 94
7-1/8% senior notes 80 80
Variable rate borrowings 64 64
----- -----
Total external debt 1,645 1,405
----- -----
Intercompany (1):
Subordinated debentures 353 492
Guaranteed PSOP debt 68 105
Notes payable to subsidiaries 57 58
----- -----
Total intercompany debt 478 655
----- -----
Total debt $2,123 $2,060
===== =====
(1) Eliminated in consolidation. The intercompany
subordinated debentures are payable to subsidiary trusts
holding solely convertible subordinated debentures of the
company. These trusts issued external financing in the form
of company-obligated mandatorily redeemable preferred
securities.
See Note 10 to the consolidated financial statements
included in the 2000 Annual Report to Shareholders for
further information on debt outstanding at Dec. 31, 2000.
The amount of debt, other than commercial paper and debt
eliminated in consolidation, that becomes due during each of
the next five years (including the debt discussed in Note 3
below) is as follows: $195 in 2001; 2002, $51 million; 2003,
$67 million; 2004, $55 million; and 2005, $433 million.
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION
(In millions)
At December 31,
----------------------------------------------
Other
Gross loss, policy
Deferred loss adjustment claims
policy expense reserves Gross and
acquisition and policy unearned benefits
expenses benefits premiums payable
---------- -------------- -------- --------
2000
- ----
Property-Liability Insurance:
Commercial Lines Group $ 140 $ 5,948 $ 813 $ -
Global Surety 92 308 319 -
Global Healthcare 50 2,642 428 -
Other Global Specialty 126 3,045 720 -
International 69 2,060 640 -
------- ------- ------- -------
Total Primary Underwriting 477 14,003 2,920 -
Reinsurance 100 3,698 434 -
------- ------- ------- -------
Total Property-Liability
Insurance 577 17,701 3,354 -
Life Insurance 511 5,460 - 98
------- ------- ------- -------
Total from continuing
operations 1,088 23,161 3,354 98
Discontinued operations N/A 495 293 N/A
------- ------- ------- -------
Total $ 1,088 $23,656 $ 3,647 $ 98
======= ======= ======= =======
1999
- ----
Property-Liability Insurance:
Commercial Lines Group $ 126 $ 6,545 $ 657 $ -
Global Surety 88 289 303 -
Global Healthcare 53 2,173 354 -
Other Global Specialty 115 3,603 488 -
International 23 688 422 -
------- ------- ------- -------
Total Primary Underwriting 405 13,298 2,224 -
Reinsurance 98 3,925 436 -
------- ------- ------- -------
Total Property-Liability
Insurance 503 17,223 2,660 -
Life Insurance 439 4,885 - 122
------- ------- ------- -------
Total from continuing
operations 942 22,108 2,660 122
------- ------- ------- -------
Discontinued operations N/A 497 388 N/A
------- ------- ------- -------
Total $ 942 $22,605 $ 3,048 $ 122
======= ======= ======= =======
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION
(In millions)
Insurance losses
loss adjustment
expenses, Amortization
Net and of policy Other
Premiums investment policy acquisition operating Premiums
2000 earned income benefits expenses expenses written
- ---- -------- --------- ---------- ----------- -------- --------
Property-Liability
Insurance:
Commercial
Lines Group $ 1,585 $ - $ 970 $ 362 $ 154 $ 1,657
Global Surety 410 - 130 177 50 426
Global
Healthcare 626 - 699 110 61 600
Other Global
Specialty 1,347 - 895 339 121 1,579
International 434 - 353 145 38 451
------- ------- ------- ------- ------- -------
Total Primary
Underwriting 4,402 - 3,047 1,133 424 4,713
Reinsurance 1,190 - 866 263 168 1,171
Net investment
income - 1,247 - - - -
Other - - - - 189 -
------- ------- ------- ------- ------- -------
Total Property-
Liability
Insurance 5,592 1,247 3,913 1,396 781 5,884
Life Insurance 306 354 494 46 44 -
------- ------- ------- ------- ------- -------
Total $ 5,898 $ 1,601 $ 4,407 $ 1,442 $ 825 $ 5,884
======= ======= ======= ======= ======= =======
1999
- ----
Property-Liability
Insurance:
Commercial
Lines Group $ 1,516 $ - $ 1,104 $ 502 $ 82 $ 1,450
Global Surety 387 - 125 123 100 419
Global
Healthcare 645 - 567 87 61 545
Other Global
Specialty 1,354 - 1,158 296 142 1,389
International 282 - 235 96 10 344
------- ------- ------- ------- ------- -------
Total Primary
Underwriting 4,184 - 3,189 1,104 395 4,147
Reinsurance 919 - 531 217 92 965
Net investment
income - 1,256 - - - -
Other - - - - 207 -
------- ------- ------- ------- ------- -------
Total Property-
Liability
Insurance 5,103 1,256 3,720 1,321 694 5,112
Life Insurance 187 298 367 4 39 -
------- ------- ------- ------- ------- -------
Total $ 5,290 $ 1,554 $ 4,087 $ 1,325 $ 733 $ 5,112
======= ======= ======= ======= ======= =======
1998
- ----
Property-Liability
Insurance:
Commercial
Lines Group $ 1,856 $ - $ 1,802 $ 552 $ 94 $ 1,714
Global Surety 345 - 82 141 47 386
Global
Healthcare 606 - 590 107 35 518
Other Global
Specialty 1,339 - 1,100 321 106 1,319
International 249 - 207 84 16 282
------- ------- ------- ------- ------- -------
Total Primary
Underwriting 4,395 - 3,781 1,205 298 4,219
Reinsurance 1,039 - 684 226 121 1,057
Net investment
income - 1,293 - - - -
Other - - - - 366 -
------- ------- ------- ------- ------- -------
Total Property-
Liability
Insurance 5,434 1,293 4,465 1,431 785 5,276
Life Insurance 119 276 273 56 43 -
------- ------- ------- ------- ------- -------
Total $ 5,553 $ 1,569 $ 4,738 $ 1,487 $ 828 $ 5,276
======= ======= ======= ======= ======= =======
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
SCHEDULE IV - REINSURANCE
Years Ended December 31, 2000, 1999 and 1998
(In millions)
Percentage
Ceded to Assumed of amount
Gross other from other Net assumed to
amount companies companies amount net
------- ---------- ---------- -------- ----------
2000
- ----
Life insurance
in force $17,073 $ 8,649 $ 95 $ 8,519 1.1%
======= ======= ======= ======= =======
Premiums earned:
Life insurance 392 87 1 306 0.3%
Property-liability
insurance 5,819 2,246 2,019 5,592 36.0%
------- ------- ------- -------
Total premiums $ 6,211 $ 2,333 $ 2,020 $ 5,898 34.2%
======= ======= ======= ======= =======
1999
- ----
Life insurance
in force $12,284 $ 4,452 $ 114 $ 7,946 1.4%
======= ======= ======= ======= =======
Premiums earned:
Life insurance 202 16 1 187 0.5%
Property-liability
insurance 4,621 1,055 1,537 5,103 30.1%
------- ------- ------- -------
Total premiums $ 4,823 $ 1,071 $ 1,538 $ 5,290 29.1%
======= ======= ======= ======= =======
1998
- ----
Life insurance
in force $10,637 $ 2,305 $ 137 $ 8,469 1.6%
======= ======= ======= ======= =======
Premiums earned:
Life insurance 131 13 1 119 1.2%
Property-liability
insurance 4,796 734 1,372 5,434 25.2%
------- ------- ------- -------
Total premiums $ 4,927 $ 747 $ 1,373 $ 5,553 24.7%
======= ======= ======= ======= ======
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
SCHEDULE V - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2000, 1999 and 1998
(In millions)
Additions
---------------------
Additions
Balance at Charged to due to Balance
beginning costs and acqui- Deduc- at end
Description of year expenses sitions tions(1) of year
- ----------- ---------- ---------- --------- -------- -------
2000
- ----
Real estate valuation
adjustment $7 - - - $ 7
======= ======= ======= ======= =======
Allowance for
uncollectible:
Agency loans $ 5 1 - - $ 6
======= ======= ======= ======= =======
Premiums receivable
from underwriting
activities $ 45 16 - 19 $ 42
======= ======= ======= ======= =======
Reinsurance $ 28 1 5 3 $ 31
======= ======= ======= ======= =======
Uncollectible
deductibles $ 23 - - 2 $ 21
======= ======= ======= ======= =======
1999
- ----
Real estate valuation
adjustment $ 16 - - 9 $ 7
======= ======= ======= ======= =======
Allowance for
uncollectible:
Agency loans $ 3 2 - - $ 5
======= ======= ======= ======= =======
Premiums receivable
from underwriting
activities $ 42 8 - 5 $ 45
======= ======= ======= ======= =======
Reinsurance $ 28 1 - 1 $ 28
======= ======= ======= ======= =======
Uncollectible
deductibles $ 23 - - - $ 23
======= ======= ======= ======= =======
1998
- ----
Real estate valuation
adjustment $ 12 4 - - $ 16
======= ======= ======= ======= =======
Allowance for
uncollectible:
Agency loans $ 2 1 - - $ 3
======= ======= ======= ======= =======
Premiums receivable
from underwriting
activities $ 41 8 - 7 $ 42
======= ======= ======= ======= =======
Reinsurance $ 30 - - 2 $ 28
======= ======= ======= ======= =======
Uncollectible
deductibles $ 19 8 - 4 $ 23
======= ======= ======= ======= =======
(1)Deductions include write-offs of amounts determined to be
uncollectible, unrealized foreign exchange gains and losses and, for
certain properties in real estate, a reduction in the valuation
allowance for properties sold during the year.
EXHIBIT INDEX*
-------------
Exhibit
- -------
(2) Plan of acquisition, reorganization, arrangement, liquidation,
or succession**......................................................
(3) Articles of incorporation and by-laws
(a) Articles of Incorporation***....................................
(b) By-laws.........................................................(1)
(4) Instruments defining the rights of security holders, including
indentures
(a) Specimen Common Stock Certificate***.............................
(9) Voting trust agreements**...........................................
(10) Material contracts..................................................
(a) Deferred Stock Plan for Non-Employee Directors...................(1)
(b) Senior Executive Severance Policy................................(1)
(c) The Amended and Restated 1994 Stock Incentive Plan...............(1)
(d) The Directors' Charitable Award Program, as Amended..............(1)
(e) Amendment to the Amended and Restated
Special Severance Policy......................................(1)
(f) Amended and Restated Letter Agreement between The St. Paul
and Mr. Stephen W. Lilienthal dated as of August 5, 1999
related to terms of his employment***.........................
(g) 1988 Stock Option Plan***........................................
(h) Non-Employee Director Stock Retainer Plan***.....................
(i) The Amended and Restated Special Severance Policy***.............
(j) The Annual Incentive Plan***.....................................
(k) The Deferred Management Incentive Awards Plan***.................
(l) The Directors' Deferred Compensation Plan***.....................
(m) Benefit Equalization Plan - 1995 Revision***.....................
(n) First Amendment to Benefit Equalization Plan - 1995
Revision***...................................................
(o) Executive Post-Retirement Life Insurance Plan - Summary
Plan Description***...........................................
(p) Executive Long-Term Disability Plan - Summary Plan
Description***................................................
(q) The St. Paul Re Long-Term Incentive Plan***......................
(r) Letter Agreement dated May 8, 1997 between The St. Paul
and Mr. Paul J. Liska related to the terms of his
employment***.................................................
(s) Letter Agreement, agreed to January 20, 1997 between The
St. Paul and Mr. Paul J. Liska related to severance
benefits***...................................................
(t) The Special Leveraged Stock Purchase Plan***.....................
(u) Outside Directors' Retirement Plan -Summary Description***.......
(v) Key Executive Special Incentive Arrangement***...................
(11) Statements re computation of per share earnings.....................(1)
(12) Statements re computation of ratios.................................(1)
(13) Annual report to security holders...................................(1)
(16) Letter re change in certifying accountant**.........................
(18) Letter re change in accounting principles**.........................
(21) Subsidiaries of The St. Paul........................................(1)
(22) Published report regarding matters submitted to vote
of security holders**.............................................
(23) Consents of experts and counsel.....................................
(a) Consent of KPMG LLP..............................................(1)
(24) Power of attorney...................................................(1)
(27) Financial data schedule**...........................................
(99) Additional exhibits**...............................................
* The exhibits are included only with the copies of
this report that are filed with the Securities and
Exchange Commission. However, copies of the
exhibits may be obtained from The St. Paul for a
reasonable fee by writing to the Corporate
Secretary, The St. Paul Companies, Inc., 385
Washington Street, St. Paul, Minnesota 55102.
** These items are not applicable.
*** These items are incorporated by reference as
described in Item 14(a)(3) of this report.
(1) Filed herewith.