Exhibit 99.1
Media Contact: Shane Boyd
U.S. Telephone: 651.310.3846
E-mail: shane.boyd@stpaul.com
Investor Contact: Laura Gagnon
U.S. Telephone: 651.310.7696
E-mail: laura.gagnon@stpaul.com
October 29, 2003
For Immediate Release
The St. Paul Companies Reports Strong Quarterly Results
- Net income per share of $0.88, up 226 percent
- Record operating earnings per share of $0.96, up 85 percent
SAINT PAUL, Minn. - The St. Paul Companies (NYSE: SPC) today
announced third-quarter 2003 net income of $214 million, or
$.88 per share, up from third-quarter 2002 net income of $63
million, or $.27 per share. Third-quarter 2003 operating
earnings of $233 million, or $.96 per share, were an all time
record for the company. Those operating earnings compared to
$121 million, or $.52 per share, for the same period of 2002.
Third quarter 2003 compared favorably to the third quarter of
2002:
- Ongoing segments' net written premiums of $1.89 billion,
up 24.5 percent
- Total net written premiums of $1.95 billion, up 6.9
percent
- Ongoing segments' statutory combined ratio of 90.9,
improved from 92.1
- Total statutory combined ratio of 94.0, improved from 105.7
- Nuveen Investments contribution of a record $29 million,
up 17.5 percent
The company's third-quarter annualized operating earnings
return on average adjusted equity was 17.1 percent, and
annualized net income return on average equity was 13.7
percent. The company's year-to-date annualized operating
earnings return on average adjusted equity was 15.4 percent,
and annualized net income return on average equity was 13.5
percent.
Three Months Nine Months
Ended Ended
September 30 September 30
-------------- --------------
($ in millions, except per 2003 2002 2003 2002
share amounts, net of tax) ---- ---- ---- ----
Net income (loss) $214 $ 63 $609 $(26)
Net realized investment
(gains) losses (4) 52 (22) 97
Cumulative effect of
accounting change 21 - 21 6
Discontinued operations 2 6 3 19
---- ---- ---- ----
Operating earnings $233 $121 $611 $ 96
==== ==== ==== ====
Net income (loss) per
diluted share $0.88 $ 0.27 $2.51 $(0.18)
Operating earnings
per diluted share $0.96 $ 0.52 $2.52 $ 0.40
"We continue to make tremendous progress in positioning The
St. Paul to generate stable, growing earnings for our
shareholders," said Jay Fishman, chairman and chief executive
officer. "Our ability to reap the benefits of our 2002
strategic restructuring, the continued concentration on
managing expenses and reducing legacy issues during 2003,
and our efforts to become a property-liability insurer of
choice for our agents, brokers and customers has resulted in
record operating earnings in
two of the past three quarters. I believe we are very well
positioned as we look forward to 2004."
Third Quarter Financial Highlights
- ----------------------------------
The company's ongoing insurance segments recorded third-
quarter net written premiums of $1.89 billion, or 97.0 percent
of total net written premiums. Ongoing segments' net written
premiums were up 24.5 percent over the same period of 2002.
In the Other segment, primarily businesses being exited, net
written premiums declined to $59 million from $305 million in
2002, primarily due to the transfer of our ongoing reinsurance
operations to Platinum Underwriters Holdings, Ltd. in November
2002. Total third-quarter net written premiums of $1.95
billion were up 6.9 percent from the same prior-year period.
Ongoing insurance segments' net earned premiums grew 23.5
percent to $1.73 billion. Net earned premiums in the Other
segment declined from $540 million in third-quarter 2002 to
$83 million in 2003. As a result of this decline, total
earned premiums for the quarter were $1.81 billion, compared
to $1.94 billion in 2002, and total revenues were $2.25
billion, down from $2.30 billion for third-quarter 2002.
The company's statutory combined ratio for ongoing segments
for the third quarter of 2003 was 90.9, with a loss ratio of
62.7, and an expense ratio of 28.2. The overall statutory
combined ratio was 94.0, consisting of a loss ratio of 66.3
and an expense ratio of 27.7, an improvement from 105.7 in the
third quarter of 2002. Statutory combined ratios for the Other
segment are not meaningful. Catastrophe losses in the quarter
were immaterial.
Nuveen Investments contributed after-tax net income and
operating earnings of $29 million in the quarter, up 17.5
percent compared to $25 million in the prior-year period.
Assets under management grew to $90.06 billion at Sept. 30,
up 17.1 percent from a year ago.
The company's common shareholders' equity increased to $6.19
billion from $5.68 billion at the end of last year. Reported
book value per common share at Sept. 30, 2003, was $27.15, and
$31.16, if adjusted to include the company's investment in
Nuveen Investments at after-tax market value. Reported book
value per common share was $25.05 at year-end 2002. The
company's debt to capital ratio increased to 36.3 percent due
to the adoption of SFAS No. 150, which required the company to
reclassify $897 million of mandatorily redeemable preferred
securities issued by trusts as debt. The conventional debt to
total capital ratio improved to 27.2 percent as of Sept. 30,
compared to 29.0 at year-end 2002. The company's capital base
was $9.84 billion at Sept. 30, up $493 million from Dec. 31,
2002.
Property-Liability Operating Overview
-------------------------------------
The following discussion of third-quarter results relates to
items that are included in both net income and operating
earnings. Underwriting profits do not include net investment
income.
Specialty Commercial
- --------------------
Specialty Commercial net written premiums grew 19.3 percent to
$1.27 billion. The combined ratio was 92.5, compared to 93.7
for the same period in 2002. The year-to-date combined ratio
was 93.5, compared to 94.7 for the first nine months of 2002.
This segment yielded pretax underwriting profits of $79
million in the third quarter of 2003 and $56 million in the
comparable 2002 period.
Commercial Lines
- ----------------
Net written premiums for Commercial Lines - which includes
Middle Market Commercial, Small Commercial and Property
Solutions - increased 36.9 percent to $620 million. The
combined ratio decreased to 87.2, compared to 88.5 for the
same period of 2002. Third-quarter pretax underwriting profit
for the segment was $58 million, compared with $41 million for
the same period last year.
Other
- -----
The Other segment primarily includes the businesses the
company decided to exit, as well as development on most of our
asbestos and environmental reserves. The company reported
pretax underwriting losses of $65 million in this segment in
the third quarter of 2003, compared with underwriting losses
of $192 million in the third quarter of 2002. The
underwriting results in this segment reflect losses of $39
million as a result of prior period reserve adjustments and
$26 million of current period losses. Year-to-date
underwriting losses of $213 million compared favorably to
losses of $904 million for the same period of 2002. The
company expects current year pretax underwriting losses in
this segment to be less than $10 million per quarter in 2004.
Investments
- -----------
Net investment income was $279 million in the quarter,
compared to $302 million in the third quarter of 2002 and $274
million in the second quarter of 2003. Insurance portfolio
assets, at cost, were $21.3 billion compared to $21.5 billion
at year-end 2002 and $20.8 billion as of June 30, 2003. The
average fixed maturity portfolio yield has declined from 6.0
percent at the end of second-quarter 2003 to 5.9 percent at
the end of third-quarter 2003. The average credit quality of
the company's fixed income investment portfolio remains AA+.
After-tax unrealized appreciation of fixed income investments
was $686 million, down $173 million from June 30, 2003. After-
tax realized investment gains were $4 million, compared with
after-tax realized losses of $52 million in the year-ago
period.
Asset Management Operating Overview
- -----------------------------------
Nuveen contributed record after-tax net income and operating
earnings of $29 million in the quarter, compared to $25
million in the prior-year period. Total assets under
management grew to $90.06 billion at the end of the quarter,
an increase of 17.1 percent from $76.93 billion at Sept. 30,
2002, and up 13.0 percent from $79.72 billion at Dec. 31, 2002.
Nuveen Investments' gross sales in the third quarter were $4.40
billion, with positive net asset flows of $2.09 billion.
Nuveen Investments' strong revenue and earnings growth in the
third quarter was driven by continuing momentum in retail
managed accounts and the introduction of new closed-end,
exchange-traded funds over the last 12 months. Managed
account sales totaled $2.8 billion in the quarter, compared
with $1.9 billion in the same 2002 period. The increase
reflected strong demand for value equity portfolios and
municipal accounts. In the quarter, Nuveen Investments raised
approximately $300 million with the introduction of its first
exchange-traded fund that blends debt and equity investment
strategies.
Summary Financial Data
Consolidated Financial Summary
- ------------------------------
Three Months Nine Months
Ended Ended
September 30 September 30
------------- -------------
(In millions, except 2003 2002 2003 2002
per share amounts) ---- ---- ---- ----
Total Revenues $2,246 $2,297 $6,531 $6,975
===== ===== ===== =====
Property-Liability Insurance:
Underwriting Result by Segment:
Specialty Commercial $ 79 $ 56 $ 209 $ 123
Commercial Lines 58 41 132 84
----- ----- ----- -----
Subtotal - ongoing segments 137 97 341 207
Other (65) (192) (213) (904)
----- ----- ----- -----
Total Underwriting Result 72 (95) 128 (697)
Other expense (9) (17) (62) (55)
Net investment income 279 300 833 873
----- ----- ----- -----
Total Property-
Liability Insurance 342 188 899 121
Asset Management 49 42 135 119
Parent and Other (64) (57) (177) (165)
----- ----- ----- -----
Pretax Operating Earnings 327 173 857 75
Income tax expense (benefit) 94 52 246 (21)
----- ----- ----- -----
Operating Earnings 233 121 611 96
Realized investment gains
(losses), net of taxes 4 (52) 22 (97)
Cumulative effect of
accounting change, net of taxes (21) - (21) (6)
Discontinued operations,
net of taxes (2) (6) (3) (19)
----- ----- ----- -----
Net Income (Loss) $ 214 $ 63 $ 609 $ (26)
===== ===== ===== =====
Weighted average common
shares outstanding* 227.8 220.5 227.5 212.3
Weighted average diluted
common shares outstanding* 240.0 229.8 239.1 212.3
Net Income (Loss) per
diluted share $0.88 $0.27 $2.51 $(0.18)
Net of taxes, per
diluted share:
Realized investment
(gains) losses (0.02) 0.23 (0.09) 0.46
Cumulative effect of
accounting change 0.09 - 0.09 0.03
Discontinued operations 0.01 0.02 0.01 0.09
----- ----- ----- -----
Operating Earnings
per diluted share $0.96 $ 0.52 $2.52 $ 0.40
===== ===== ===== =====
* The increase in outstanding shares is due primarily to the
company's issuance of equity in July 2002.
Consolidated Balance Sheet Data
- -------------------------------
Sept. 30 December 31
--------- -----------
($ in millions, except 2003 2002
per share amounts) --------- -----------
Assets:
Investments $22,673 $22,733
Reinsurance recoverables 8,298 8,300
Other receivables 3,064 3,176
Other assets 6,328 5,750
------ ------
Total Assets $40,363 $39,959
====== ======
Liabilities:
Insurance reserves* $25,122 $26,428
Debt - conventional 2,233 2,270
Debt - equity unit related 443 443
Debt - mandatorily redeemable
preferred securities 897 -
Other liabilities 5,400 4,183
------ ------
Total liabilities 34,095 33,324
------ ------
Mandatorily redeemable
preferred securities** - 889
------ ------
Shareholders' Equity:
Common 6,192 5,681
Preferred 76 65
------ ------
Total Shareholders' Equity 6,268 5,746
------ ------
Total Liabilities and Equity $40,363 $39,959
====== ======
Ratio of conventional debt obligations
to total capitalization 22.7% 24.3%
Ratio of total debt obligations and
mandatorily redeemable preferred
securities to total capitalization 36.3% 38.5%
Book value per common share $27.15 $25.05
Book value per common share,
adjusted for Nuveeen at after-tax
market value $31.16 $28.82
* Reserves include loss and loss adjustment net reserves of
$6.05 billion for Other, which is primarily comprised of
our runoff businesses, with a weighted average life of 5.0
years.
** The adoption of SFAS No. 150 required the company to reclassify
$897 million of mandatorily redeemable preferred securities
issued by trusts investing solely in debentures of the company
as debt. Prior periods were not restated.
Consolidated Financial Summary, adjusted for the Elimination
of the Reporting Lag for Lloyd's*
- --------------------------------
---------------------- Nine Months Ended September 30 ----------
Results Prior to Impact of
Elimination of Elimination of
Reporting Lag* Reporting Lag* As Reported
--------------- -------------- --------------
(In millions, except per
share amounts) 2003 2002
----- -----
Total Revenues $6,463 $ 68** $6,531 $6,975
===== ===== ===== =====
Property-Liability Insurance:
Underwriting Result by Segment:
Specialty Commercial $ 215 $ (6) $ 209 $ 123
Commercial Lines 132 - 132 84
----- ----- ----- -----
Subtotal - ongoing segments 347 (6) 341 207
Other (195) (18) (213) (904)
----- ----- ----- -----
Total Underwriting Result 152 (24) 128 (697)
Other income (expense) (68) 6 (62) (55)
Net investment income 829 4 833 873
----- ----- ----- -----
Total Property-
Liability Insurance 913 (14) 899 121
Asset Management 135 - 135 119
Parent and Other (177) - (177) (165)
----- ----- ----- -----
Pretax Operating Earnings 871 (14) 857 75
Income tax expense (benefit) 250 (4) 246 (21)
----- ----- ----- -----
Operating Earnings 621 (10) 611 96
Realized investment gains
(losses), net of taxes 22 - 22 (97)
Cumulative effect of
accounting change, net of taxes (21) - (21) (6)
Discontinued operations,
net of taxes (3) - (3) (19)
----- ----- ----- -----
Net Income (Loss) $ 619 $ (10) $ 609 $ (26)
===== ===== ===== =====
Weighted average common
shares outstanding 227.5 227.5 227.5 212.3
Weighted average diluted
common shares outstanding 239.1 239.1 239.1 212.3
Net Income (Loss) and
impact per diluted share $2.55 $(0.04) $2.51 $(0.18)
Operating Earnings and
impact per diluted share $2.56 $(0.04) $2.52 $ 0.40
* The elimination of the one-quarter reporting lag for St. Paul
at Lloyd's is also discussed in the first quarter 2003
release.
** Applicable net written premium impact of elimination of
reporting lag was $88 million.
Key terms, definitions and reconciliations
- ------------------------------------------
Book value per share adjusted for Nuveen Investments marked to
market, after-tax:
(in millions except Impact of Book value
per share) Nuveen at adjusted for
Reported market Nuveen at market
-------- --------- ----------------
Common Shareholders'
Equity $6,192 $915 $7,107
Common Shares
Outstanding 228.1 - 228.1
Book Value per
Common Share $27.15 $4.01 $31.16
The company consolidates Nuveen Investments, then excludes the
minority interest. For purposes of calculating the book value
per share adjustment in the foregoing table, the pretax
difference between
the carrying value of our investment in Nuveen Investments and
the quarter-end market value of the shares of Nuveen
Investments that we own is tax-effected at the
statutory rate of 35%, and the result is divided by the
number of our common shares outstanding. Since a market price
is available for the shares of Nuveen Investments, we believe
that providing our book value per share adjusted for Nuveen
Investments at market is useful supplemental information for
investors concerning our financial condition. There can be no
assurance that we would receive a price per share similar to
the market price if we were to seek to sell our shares of
Nuveen Investments.
Capital Base: Consists of shareholders' equity, debt and
preferred securities.
September 30, December 31,
($ in billions) 2003 2002
------------- -----------
Shareholders' equity $ 6.27 $ 5.75
Debt 3.57 2.71
Mandatorily redeemable
preferred securities - 0.89
----- -----
Capital Base $ 9.84 $ 9.35
===== =====
Each of the components of our capital base (other than a
modest amount of short-term debt) supports our operations over
the longer term, and we believe that showing a combined
capital base is useful information to investors evaluating our
financial condition.
Catastrophe Losses: Effective Jan. 1, 2003, the company
changed its disclosure in that it no longer classifies all
losses defined as catastrophes by the Insurance Services
Office (ISO) as "catastrophe losses." The company revised its
definition of losses reported as "catastrophes" to include
only those events that generate losses beyond a level normally
expected in its business. This revised definition has no
impact on recorded results.
Debt to Capital Ratio reconciliation: The company shows
conventional debt obligations to total capitalization, which
excludes the $897 million of debt associated with mandatorily
redeemable preferred securities and $443 million of debt
associated with equity units from the numerator. In August
2005 the holders of equity units, of which this debt is a
part, are obligated to purchase for an amount equal to the
principal amount of the debt a number of shares of our common
stock determined pursuant to a settlement formula specified in
the forward contracts that are part of the equity units. In
light of the special characteristics of the equity units, the
company believes that the conventional debt to capital ratio
presents useful supplemental information to investors
concerning its financial strength.
Sept. 30 December 31
2003 2002
------- -----------
Conventional debt to total
capital ratio 22.7% 24.3%
Impact of debt associated with
mandatorily redeemable preferred
securities and debt associated
with equity units on debt to
total capital ratio 13.6% 14.2%
------ ------
Debt and mandatorily redeemable
preferred securities to
total capital ratio 36.3% 38.5%
====== ======
Statutory Ratios:
----------------
Expense Ratio: The company uses the statutory definition of
expenses in calculating expense ratios disclosed. Expenses
are divided by net written premiums to arrive at the expense
ratio. "Statutory" expenses differ from "GAAP" expenses
primarily with regard to policy acquisition costs, which are
not deferred and amortized for statutory purposes, but rather
recognized as incurred.
Loss Ratio: The company uses the statutory definition of loss
ratio. This ratio is calculated by dividing the sum of
losses and loss adjustment expenses incurred by net earned
premiums. Net earned premiums, and losses and loss adjustment
expenses, are GAAP as well as statutory measures.
Combined Ratio: The sum of the statutory expense ratio and the
loss ratio.
Written and Earned Premiums: Net written premiums are a
statutory measure of premium volume that differs from the net
earned premiums reported in our GAAP statement of operations.
Written premiums for a period can be reconciled to earned
premiums by adding or subtracting the change in unearned
premium reserves in the period.
Operating Earnings: The company uses operating earnings, a
non-GAAP financial measure, to evaluate The St. Paul's
performance. "Operating earnings" shows net income exclusive
of certain items that are volatile and that we believe may
distort the analysis of trends in our business. Operating
earnings consist of net income excluding after-tax realized
gains and losses, after-tax income (or loss) from discontinued
operations, and the after-tax cumulative effect of accounting
changes, each of which may be highly variable from period to
period. Although the investment of premiums to generate
investment income and realized capital gains (or losses) is an
integral part of the company's insurance operations, the
determination to realize capital gains or losses is
independent of the insurance underwriting process. Moreover,
under applicable GAAP accounting requirements, losses can
result from other than temporary declines in value without
actual realization. We believe that the level of realized
gains or losses for any particular period is not indicative of
the performance of our ongoing underlying business operations
in a particular period. Results of discontinued operations
are not relevant to an assessment of our continuing
operations, and changes in accounting principles have nothing
to do with our underlying operations. Providing only a GAAP
presentation of net income makes it more difficult for users
of our financial information to evaluate the company's success
or failure in our basic business, and may lead to incorrect or
misleading assumptions and conclusions. We understand that
the equity analysts who follow the company focus on operating
earnings in their analyses for the same reasons discussed
above. The excluded items may be material in a period. The
company provides Operating Earnings to investors so that they
have what management believes to be a useful supplement to
GAAP information concerning the company's performance.
Operating Return on Equity: In calculating operating return
on equity, the company uses operating earnings as defined
above less preferred dividends and excludes from average
equity the average unrealized appreciation or depreciation on
fixed income securities, net of tax. Preferred dividends are
excluded so that the returns represent only returns available
to common shareholders. Unrealized appreciation
(depreciation) is primarily the result of interest rate
movements and the resultant valuation impact on fixed income
securities generally held to maturity. Such appreciation
(depreciation) is not related to management actions or
operational performance, nor is it likely to be realized.
Therefore, the company believes excluding this unrealized
appreciation (depreciation) provides a more consistent and
useful measurement of operating performance, which supplements
GAAP information. Average equity is calculated using
beginning plus ending values for the period, and dividing by
two. We believe that operating return on equity is useful to
investors evaluating our performance because it is a measure
of return that is calculated based on operating earnings
(which exclude volatile items that can distort trends as
discussed earlier) and common shareholders' equity adjusted to
eliminate increases and decreases that primarily result from
interest rate changes that are beyond management's control.
Operating Return on Equity Reconciliation
- -----------------------------------------
($ in millions) Three months Nine months
ended ended
September 30, September 30,
2003 2003
------------ ----------
Net income $ 214 $ 609
Realized gains 4 22
Discontinued operations (2) (3)
Cumulative effect of
accounting change (21) (21)
Preferred dividends 2 6
----- -----
Operating earnings available to
common shareholders $ 231 $ 605
===== =====
Annualized operating earnings
available to common shareholders $ 927 $ 807
Operating return on equity 17.1% 15.4%
Average adjusted equity $ 5,427 $ 5,241
Average unrealized appreciation 773 696
----- -----
Average common equity $ 6,200 $ 5,937
===== =====
Underwriting Results: The company calculates underwriting
results using statutory financial information, adjusting for
certain items (such as the amortization of deferred policy
acquisition costs) to arrive at an underwriting result as
calculated with GAAP measures. Our reported underwriting
result is calculated by subtracting incurred losses and loss
adjustment expenses and underwriting expenses (as adjusted for
items such as the impact of deferred policy acquisition costs)
from net earned premiums. This represents our best measure of
profitability for our property-liability underwriting
segments. A reconciliation of statutory underwriting results
to the company's reported underwriting results can be found in
the statistical supplement available on the company's web
site.
The St. Paul Companies is headquartered in Saint Paul,
Minnesota, and provides commercial property-liability
insurance and asset management services. The St. Paul
reported 2002 revenue from continuing operations of $8.92
billion and total assets of $39.96 billion, and ranks No. 207
on the 2002 Fortune 500 list of largest U.S. companies. For
additional information about The St. Paul's quarterly results,
go to the Investor Relations section of The St. Paul's Web
site: www.stpaul.com.
Certain statements made by the company in this release may
constitute forward-looking statements. Actual results may
differ materially from those projected in the forward-looking
statements. These forward-looking statements involve risks and
uncertainties including, but not limited to, the following:
competitive considerations, including the ability to implement
price increases; the frequency and severity of catastrophic
events, including the risk of large losses from man-made
catastrophes such as terrorist attacks; our achievement of
planned expense savings; the timing and impact of our exiting
of certain types of business; changes in the demand for,
pricing of, or supply of reinsurance or insurance;
uncertainties relating to reinsurance recoverables; increased
competitive pressure; the loss of significant customers; worse
than anticipated loss developments from business written in
prior years; the risk of greater than expected losses in our
Other segment; losses due to foreign currency exchange rate
fluctuations and losses in our investment portfolio; the risk
that losses related to credit-sensitive products, including
surety bonds, could be material in the event of a sustained
economic downturn or adverse developments affecting large
surety customers; changes in our estimate of insurance
industry losses resulting from the Sept. 11, 2001, terrorist
attack; the potential impact of the global war on terrorism
and Federal solutions to make available insurance coverage for
acts of terrorism; regulatory developments; general economic
conditions, including changing interest rates, rates of
inflation and the performance of the financial markets;
judicial decisions and rulings; risks relating to the approval
by the bankruptcy court of the settlement of the Western
MacArthur matter; changes in domestic and foreign laws,
regulations and taxes, including risks relating to possible
Federal legislation regarding asbestos related claims; effects
of acquisitions and divestitures; and various other factors.
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.
COMMENT ON REGULATION G
Throughout this press release, the company presents its
operations in the way it believes will be most meaningful and
useful, as well as most transparent, to the investing public
and others who use this financial information in evaluating
our performance. In addition to the GAAP presentations of net
income and certain statutory reporting information we show
certain non-GAAP measures, including operating earnings and
operating return on equity. All non-GAAP terms are defined in
this press release, together with an explanation of why we
believe such measures may provide useful information to
investors regarding our financial condition or results of
operations and a statement, to the extent material, of any
additional purposes our management uses the non-GAAP financial
measure. Reconciliations of non-GAAP measures (other than the
statutory information) to the most comparable GAAP figures are
included in accordance with the requirements of Regulation G
under the Securities Exchange Act of 1934. Non-GAAP measures
are often not comparable among issuers, and are not a
substitute for GAAP information.
All financial results herein are unaudited as of the date of
this release.
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