USF&G CORPORATION
Form 10-K
1993
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended Commission File Number
December 31, 1993 1-8233
USF&G CORPORATION
(Exact name of registrant as specified in its charter)
Maryland 52-1220567
(State of Incorporation) (IRS Employer Identification No.)
100 Light Street, Baltimore, Maryland 21202
(Address of principal executive offices) (zip code)
Telephone: 410-547-3000
Securities registered pursuant to Section 12(b) of the Act:
$4.10 Series A Convertible Exchangeable Preferred Stock,
Par Value $50
$5.00 Series C Cumulative Convertible Preferred Stock,
Par Value $50
Preferred Share Purchase Rights
Common Stock, Par Value $2.50
Securities registered pursuant to Section 12(g) of the Act: None
Registered-New York Stock Exchange
Registered-Pacific Stock Exchange
Registered-New York Stock Exchange
Registered-Pacific Stock Exchange
Registered-New York StockExchange
Registered-Pacific Stock Exchange
Registered-New York Stock Exchange
Registered-Pacific Stock Exchange
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 twelve
(12) months 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. [X]
The aggregate market value of voting stock held by
non-affiliates of the registrant as of March 28, 1994, was
$1,214,501,978.
Voting stock held by any persons who may be deemed to be
affiliates under Rule 405 would be immaterial.
The number of shares outstanding of the issuer's common stock as
of March 28, 1994:
Common Stock, Par Value $2.50; 85,228,209 shares outstanding.
Documents Incorporated by Reference:
Portions of the 1993 Annual Report to Shareholders are
incorporated by reference into Parts I and II.
Portions of the definitive proxy statement for the annual
meeting scheduled for May 4, 1994, are incorporated
by reference into Part III.
Exhibit Index is on page 18.
USF&G Corporation
Index
Part I
Item 1. Description of Business
1.1. General 1
1.2. Business Segments 1
1.3. Distribution Systems 5
1.4. Competition 6
1.5. Investments 6
1.6. Property/Casualty Loss Reserves 7
1.7. Life Benefit Reserves 11
1.8. Geographical Distribution 11
1.9. Executive Officers of the Registrant 12
Item 2. Business Properties 13
Item 3. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 14
Part II
Item 5. Market for Registrant's Common Equity and
Related Shareholder Matters 16
Item 6. Selected Financial Data 16
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
Item 8. Financial Statements and Supplementary Data 16
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 16
Part III
Item 10. Executive Officers and Directors of the Registrant 17
Item 11. Executive Compensation 17
Item 12. Security Ownership of Certain Beneficial Owners
and Management 17
Item 13. Certain Relationships and Related Transactions 17
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 18
USF&G Corporation
Part 1
Item I. Description of Business
1.1. General
USF&G Corporation (the "Corporation") is a holding corporation
organized in 1981 as a Maryland corporation. United States
Fidelity and Guaranty Company ("USF&G Company"), organized in
1896 under Maryland law, is the predecessor registrant of the
Corporation. The term "Corporation" as used in the Form 10-K
refers to the Corporation and all of its subsidiaries. As of
December 31, 1993, the Corporation had approximately 6,500
employees.
The Corporation, through its subsidiaries, is primarily engaged
in the business of insurance. Property/casualty insurance is its
primary business. USF&G Company, the Corporation's largest
subsidiary, is the 21st largest property/casualty insurer among
over 3,000 insurers in the United States based on 1992 statutory
net premiums written. Life insurance and annuity products are
sold by Fidelity and Guaranty Life Insurance Company ("F&G
Life"). Noninsurance operations are composed of the parent
company, asset management, and management consulting services.
1.2. Business Segments
Financial information about the Corporation's business segments
is set forth in Note 13 of the Notes to Consolidated Financial
Statements in the Corporation's 1993 Annual Report to Shareholders
(hereinafter referred to as "Consolidated Financial Statements")
and incorporated herein by reference. A description of the
Corporation's principal business segments begins with the Property/
Casualty Insurance Segment on page 1, and continues with the Life
Insurance Segment on page 4, and Parent and Noninsurance Operations
on page 5 of this Form 10-K.
1.2a. Property/Casualty Insurance Segment
USF&G Company currently underwrites most forms of property/
casualty insurance. USF&G Company's property/casualty business
is grouped into four business categories: commercial, personal,
reinsurance, and fidelity/surety. In 1993, the property/casualty
segment accounted for 85 percent of the Corporation's total
revenues and 67 percent of its total assets. Selected financial
data for the property/casualty insurance segment are as follows:
(dollars in millions) 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984
Operating Results
Premiums earned $2,327 $2,533 $3,018 $3,330 $3,532 $3,613 $3,746 $3,539 $2,962 $2,215
Losses and loss expenses incurred 1,758 2,088 2,545 2,763 2,732 2,648 2,734 2,765 2,623 1,980
Underwriting expenses 796 872 988 1,089 1,136 1,129 1,108 1,049 920 706
Underwriting loss $ (227) $ (427) $ (515) $ (522) $ (336) $ (164) $ (96) $ (275) $ (581) $ (471)
Net investment income $ 433 $ 475 $ 498 $ 576 $ 623 $ 621 $ 607 $ 565 $ 348 $ 333
Net income (loss) 281 193 (40) (192) 200 318 331 310 (116) (69)
Financial Position
Investments $6,916 $6,948 $7,599 $6,983 $7,479 $7,416 $6,649 $6,026 $4,997 $3,614
Assets 9,565 8,253 9,353 8,959 9,443 9,294 8,483 7,772 6,775 5,395
Unpaid losses and loss expenses 6,329 5,540 5,704 5,630 5,461 5,256 4,774 4,112 3,521 2,825
Operating ratios-GAAP:
Loss ratio 75.6 82.4 84.3 83.0 77.3 73.3 73.0 78.1 88.6 89.4
Expense ratio 34.2 34.4 32.7 32.7 32.2 31.2 29.6 29.6 31.0 31.9
Combined ratio 109.8 116.8 117.0 115.7 109.5 104.5 102.6 107.7 119.6 121.3
Statutory Data
Premiums written $2,429 $2,420 $3,032 $3,631 $3,698 $3,892 $3,845 $3,696 $3,151 $2,318
Policyholders' surplus (USF&G Company) 1,541 1,467 1,404 1,352 1,417 1,395 1,242 1,240 913 653
Operating ratios-statutory:
Loss ratio 75.4 82.0 84.1 81.9 76.5 73.1 73.2 79.1 90.7 90.5
Expense ratio 33.7 34.9 33.1 32.9 32.8 31.1 30.1 29.1 30.0 31.4
Combined ratio 109.1 116.9 117.2 114.8 109.3 104.2 103.3 108.2 120.7 121.9
Policyholders' dividend ratio .3 .3 .5 .5 .6 .6 .9 .8 1.0 1.2
USF&G Company reinsures portions of its policy risks with other
insurance companies or underwriters and remains contingently
liable under these contracts (ceded reinsurance). In addition,
it assumes policy risks from other insurance companies and
through participation in pools and associations (assumed
reinsurance). (Refer to the Assumed Reinsurance Category
discussion on page 3 of this Report). The information presented
for the property/casualty insurance segment is net of applicable
reinsurance amounts.
Reinsurance allows USF&G Company to obtain indemnification
against losses associated with insurance contracts it has
written by entering into a reinsurance contract with another
insurance enterprise (the reinsurer). USF&G Company pays (cedes)
an amount to the reinsurer who agrees to reimburse USF&G Company
for a specified portion of any claims paid on business under the
reinsured contracts. Reinsurance gives USF&G Company the ability
to write certain individually large risks or groups of risks,
and control its exposure to losses by ceding a portion of such
large risks. USF&G Company's ceding reinsurance agreements are
generally structured on a treaty basis whereby all risks meeting
a certain criteria are automatically reinsured.
USF&G Company may also use supplemental facultative reinsurance
based on an underwriter's evaluation of characteristics of a
specific insured risk. The following table summarizes the
approximate extent of the company's reinsurance coverages.
Coverage
Risk Type Percentage Coverage
Property* 90% $50 - $160 million
Casualty 100 7 - 43 million
Fidelity 100 2 - 50 million
Surety 100 5 - 30 million
Workers Compensation 100 1 - 525 million
*Individual property losses are recoverable in excess of a $1 to
$4 million net retention established by the underwriter.
Commercial Category: Commercial coverages provide protection
related to property loss, liability claims, and workers
compensation benefits to businesses and other institutions. This
type of insurance protects against loss from damage to the
insured's covered properties and protects against legal
liability for injuries to other persons or damage to their
property arising from the insured's business operations. Workers
compensation provides benefits to employees, as mandated by
state laws, for employment-related accidents, injuries, or
illnesses. Selected data for the commercial category are as
follows:
(dollars in millions) 1993 1992 1991
Automobile:
Premiums written $ 389 $ 413 $ 499
Statutory combined ratio 87.5 96.5 106.6
General Liability:
Premiums written $ 371 $ 366 $ 472
Statutory combined ratio 118.7 137.6 128.9
Property:
Premiums written $ 315 $ 315 $ 349
Statutory combined ratio 101.3 115.6 109.6
Workers Compensation:
Premiums written $ 164 $ 261 $ 460
Statutory combined ratio 233.8 150.0 152.5
Total Commercial:
Premiums written $1,239 $1,355 $1,780
Underwriting loss* (223) (343) (455)
Percent of total premiums written 51% 56% 59%
GAAP Underwriting Ratios:
Loss ratio 83.0 87.8 91.7
Expense ratio 35.3 35.4 32.5
Combined ratio 118.3 123.2 124.2
Statutory Underwriting Ratios:
Loss ratio 83.6 86.9 91.6
Expense ratio 34.7 36.3 33.4
Combined ratio 118.3 123.2 125.0
[FN]
*Reported in accordance with Generally Accepted Accounting
Principles ("GAAP")
Personal Category: Personal coverages for automobile and
homeowners insurance include aspects of property loss and
liability risks. Automobile policies cover liability to
third-parties for bodily injury and property damage, and cover
physical damage to the insured's own vehicle resulting from
collision and various other perils. Homeowners policies protect
against loss of dwellings and contents arising from a variety of
perils, as well as liability arising from ownership or
occupancy. Selected data for the personal category are as
follows:
(dollars in millions) 1993 1992 1991
Automobile:
Premiums written $ 489 $ 512 $ 668
Statutory combined ratio 100.6 103.5 107.2
Homeowners:
Premiums written $ 139 $ 169 $ 204
Statutory combined ratio 115.9 143.0 123.2
Other Property:
Premiums written $ 25 $ 45 $ 53
Statutory combined ratio 134.5 110.0 101.9
Total Personal:
Premiums written $ 653 $ 726 $ 925
Underwriting loss* (28) (110) (97)
Percent of total premiums written 27% 30% 30%
GAAP Underwriting Ratios:
Loss ratio 70.6 80.9 80.0
Expense ratio 33.5 33.1 30.5
Combined ratio 104.1 114.0 110.5
Statutory Underwriting Ratios:
Loss ratio 71.2 80.0 80.0
Expense ratio 33.9 33.2 30.4
Combined ratio 105.1 113.2 110.4
[FN]
*Reported in accordance with GAAP
Assumed Reinsurance Category: USF&G Company operates a
separate reinsurance division which underwrites treaty
reinsurance and is composed of various wholly-owned
subsidiaries. The lead company in this group, F&G Re, Inc., acts
as the reinsurance underwriting manager and solicits and
services assumed reinsurance for USF&G Company. F&G Re, Inc.,
writes reinsurance in North America and in specific foreign
countries (mainly in Western Europe and Japan). Reinsurance
prices and conditions are not normally subject to the same state
regulation applicable to the primary insurance market because
reinsurers contract solely with other insurance companies.
Selected data for the reinsurance category are as follows:
(dollars in millions) 1993 1992 1991
Premiums written $403 $243 $211
Underwriting gain* 32 20 26
Percent of total premiums written 17% 10% 7%
GAAP Underwriting Ratios:
Loss ratio 66.7 75.0 40.9
Expense ratio 22.6 12.1 31.5
Combined ratio 89.3 87.1 72.4
Statutory Underwriting Ratios:
Loss ratio 67.3 76.9 59.1
Expense ratio 24.6 17.0 29.9
Combined ratio 91.9 93.9 89.0
[FN]
*Reported in accordance with GAAP
Fidelity/Surety Category: Fidelity bonds indemnify employers
against the dishonesty or default of employees in their
employment. These types of bonds are written for mercantile
businesses, financial institutions, and public officials. Surety
bonds guarantee the performance of a principal who undertakes
contractual or statutory obligations, and indemnify third-party
obligees for damages caused by the principal+s failure to
perform. Selected data for the fidelity/surety category are as
follows:
(dollars in millions) 1993 1992 1991
Fidelity:
Premiums written $19 $ 18 $ 20
Statutory combined ratio 109.6 75.8 92.1
Surety:
Premiums written $101 $ 91 $ 96
Statutory combined ratio 106.4 100.1 99.9
Total Fidelity/Surety:
Premiums written $120 $109 $116
Underwriting gain (loss)* (8) 6 11
Percent of total premiums written 5% 4% 4%
GAAP Underwriting Ratios:
Loss ratio 50.2 32.3 35.5
Expense ratio 56.6 62.6 55.5
Combined ratio 106.8 94.9 91.0
Statutory Underwriting Ratios:
Loss ratio 50.5 32.0 42.3
Expense ratio 56.4 64.0 56.3
Combined ratio 106.9 96.0 98.6
[FN]
*Reported in accordance with GAAP
1.2b. Life Insurance Segment
The life insurance segment ("F&G Life") sells many forms of
annuity and life insurance products. In 1993, the segment
accounted for 14 percent of the Corporation's total revenues
and 34 percent of its total assets. Selected financial data
for the life insurance segment are as follows:
(dollars in millions) 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984
Operating Results
Premium income $ 129 $ 104 $ 169 $ 186 $ 165 $ 178 $ 133 $ 79 $ 67 $ 58
Net investment income 321 349 370 348 273 159 88 67 50 39
Net income (loss) 10 (5) 31 (16) 31 14 37 20 27 18
Life Insurance Sales
Annuities $ 162 $ 93 $ 195 $ 972 $ 872 $ 930 $ 198 $ 47 $ 88 $ 56
Permanent 4 9 12 17 20 106 51 10 9 7
Term and group 2 2 2 5 6 9 6 6 6 6
Total $ 168 $ 104 $ 209 $ 994 $ 898 $ 1,045 $ 255 $ 63 $ 103 $ 69
Financial Position
Investments $ 4,540 $ 4,512 $ 4,672 $ 4,308 $ 3,372 $ 2,240 $ 1,086 $ 707 $ 535 $ 403
Assets 4,848 4,856 5,012 4,721 3,645 2,471 1,194 784 607 468
Policy benefit reserves 3,973 3,896 3,773 3,924 2,838 1,875 795 501 402 282
Statutory surplus 316 310 283 254 245 169 107 82 56 53
Life Insurance In Force
Permanent $ 6,733 $ 6,769 $ 6,937 $ 7,014 $ 6,038 $ 4,930 $ 3,979 $ 3,035 $ 2,228 $ 1,613
Term 5,347 5,549 5,854 6,463 6,438 6,603 6,579 6,648 6,338 6,009
Group 30 42 586 4,373 4,605 4,058 2,834 2,687 2,737 2,695
Total $12,110 $12,360 $13,377 $17,850 $17,081 $15,591 $13,392 $12,370 $11,303 $10,317
F&G Life Products: Life insurance and annuity sales
(premiums and deposits) by product type are as
follows:
(in millions) 1993 1992 1991
Structured settlement annuities $ 66 $ 37 $ 71
Single premium deferred annuities 44 33 70
Tax-sheltered annuities 35 - -
Other annuities 17 23 54
Life insurance 6 11 14
Total $168 $104 $209
Single-premium deferred annuities ("SPDAs") offer the owner the
option of receiving a lump sum distribution at a future date or
a series of fixed payments over a specified period.
Tax-sheltered annuity ("TSA") products, which provide retirement
income, are a type of deferred annuity. Other annuities consist
of single-premium immediate annuities ("SPIAs"), which provide
for payments that begin within one year after the sale and
continue over a fixed period or an individual's lifetime.
Structured settlements are immediate annuities principally sold
through the property/casualty company in settlement of insurance
claims.
Other insurance products include recurring and single premium
universal life and term insurance that generally provide a fixed
benefit upon the death of the insured. These products were sold
on an individual and group basis. However, F&G Life sold its
group life business in 1991. Universal life insurance provides a death
benefit for the life of the insured and accumulates cash values
to which interest is credited. Term life insurance provides a
fixed death benefit if the insured dies during the contractual
period.
Universal life products, which represent all the permanent life
insurance sales in 1993 through 1991, and have been the majority
of permanent life insurance sales since 1988, also include a
cash value component that is credited with interest at
competitive rates. The interest rates are applied to premiums
for one year from receipt; new rates are declared quarterly on
recurring premium policies and semi-monthly on single premium
policies. Universal life cash values are charged for the cost
of life insurance coverage and for administrative expenses.
Additional information on the life insurance segment's products
is discussed on pages 42 and 43 in Management's Discussion and
Analysis to Consolidated Financial Statements.
1.2c. Parent and Noninsurance Operations
Selected financial data for the parent company and noninsurance operations
are as follows:
(in millions) 1993 1992 1991
Revenues before realized gains (losses):
Management consulting $ 32 $ 30 $ 36
Oil and gas - 19 23
Other noninsurance investments 10 4 8
Parent and other 8 14 8
Total revenues before realized
gains (losses) $ 50 $ 67 $ 75
Parent company expenses:
Interest expense $ (37) $ (35) $ (42)
Unallocated expense, net (35) (34) (20)
Noninsurance losses:
Management consulting (2) (4) (2)
Oil and gas - (18) (17)
Other noninsurance investments (9) (13) (22)
Realized losses on investments (45) (50) (37)
Restructuring charges - (2) (6)
Loss from discontinued operations - (7) (23)
Other 2 3 2
Total parent/noninsurance net loss $(126) $(160) $(167)
The parent company performs corporate functions including
managing the capital requirements of the Corporation and its
subsidiaries. The noninsurance operations include management
consulting services, asset management services, and discontinued
operations. As a result of restructuring, there were no oil and
gas operating losses in 1993. During 1992, the investment in oil
and gas properties was merged with another oil and gas
exploration and production company. Discontinued operations
included certain investment management, leasing, marketing, and
travel services, and other operations.
1.3. Distribution Systems
The Corporation's subsidiaries market a full range of property/
casualty insurance and life insurance products.
Property/Casualty Insurance: USF&G Company's products have been
sold exclusively by independent agents since its founding in
1896. Independent agents generally represent multiple insurance
companies. USF&G Company's products are sold through
approximately 3,900 independent agencies in the United States
on a commission basis.
USF&G Corporation
Part 1
During 1992, USF&G Company initiated the implementation of a
regionalization strategy to enhance marketing and underwriting
operations. Five regions have been established to improve
marketing effectiveness and further streamline branch operations.
In addition, product and market strategic business units have
been formed to implement highly focused strategies targeted at
the most attractive market segments.
USF&G Company maintains 5 regional offices and 30 branch offices
to service its independent agents and policyholders. The
regional offices are located in the Northeast, Southeast,
Midwest, and Western areas, and in Mississippi. The branch
offices are located throughout the United States. These offices
support the administration of underwriting standards, the
delivery of policies, and the supervision of the company's claim
offices.
Life Insurance: F&G Life's sales by distribution system are as
follows:
(in millions) 1993 1992 1991
Direct-structured settlement annuities $ 66 $ 37 $ 71
Independent agencies/insurance brokers 60 60 76
National wholesaler - TSA 35 - -
Member firm/financial institutions 7 7 62
Total $168 $104 $209
Structured settlements are annuities sold predominately through
the property/casualty company in settlement of certain of its
insurance claims. Tax-sheltered annuities are sold through a
national wholesale distribution network primarily to teachers.
SPDAs are sold primarily through independent agents and
insurance brokers. Prior to 1992, most SPDAs were sold through
securities brokerage firms (member firm and other financial
institutions).
1.4. Competition
Property/Casualty Insurance: The property/casualty insurance
industry is highly competitive with about 3,000 companies
nationwide. These insurers are not only stock companies but
also mutual companies and other underwriting organizations.
USF&G Company ranked 21st in the industry based on 1992
statutory net premiums written and 23rd based on 1992
statutory policyholders' surplus. USF&G Company competes with
other property/ casualty insurance companies whose products are
distributed through national, regional and local independent
agencies, direct sales and brokers. Consumers may also use
self-insurance, which includes captive insurance subsidiaries.
Pricing is a primary means of competition in the
property/casualty industry. The industry is currently in a
period of significant price competition, which adversely
affects USF&G Company's profitability. Availability and quality
of products, quality and speed of service (including claims
service), financial strength, distribution systems and technical
expertise are also important elements of competition. In
personal and other lines offered by USF&G Company, significant
price competition is experienced from direct-writing companies
that do not use independent agents and generally have lower
policy acquisition costs.
Life Insurance: The Corporation's life insurance subsidiaries
operate in a competitive environment, with approximately 2,000
companies in the industry including stock and mutual companies.
F&G Life ranked 74th in the United States based on 1992
statutory assets and 93rd based on 1992 statutory capital and
surplus.
In the life insurance industry, interest crediting rates, policy
features, financial stability and service quality are important
competitive factors. F&G Life's products compete not only with
those offered by other life insurance companies, but also with
other income accumulation-oriented products offered by other
financial institutions. F&G Life has experienced considerable
competitive pressure in recent periods as a result of its
relatively lower credit ratings. Competitive pressures for
agency business also have intensified in recent years because of
an increase in the variety of products available in the market
and efforts of competitors to expand their market shares.
Premium Rates: Most states have laws requiring that rate
schedules and other information be filed with a regulatory
authority for substantially all property, casualty, and surety
lines. Some states permit insurers to use rates without prior
regulatory approval whereas other states prohibit implementation
of new rates without such approval. The authority may disapprove
a filing if it finds that the rates are inadequate, excessive,
or unfairly discriminatory. Rates are not necessarily uniform
for all insurers. In states that require prior approval of
rates, regulators usually require the submission of historical
data to justify rate increases and, accordingly, there is often
a time lag between identifying the need for rate increases and
securing such increases. The effect of this lag is particularly
severe in times of rising claims and inflation. Rates for life
insurance are generally not regulated.
1.5. Investments
Investing the net cash flows from operations is a major
aspect of the property/casualty and life insurance
businesses. The components of the Corporation's investment
portfolio and investment performance are discussed on pages 45
through 49, and 65 through 67 of the 1993 Annual Report to
Shareholders incorporated herein by reference.
1.6. Property/Casualty Loss Reserves
1.6a. General
The reserve liabilities for property/casualty
losses and loss adjustment expenses ("LAE") represent estimates
of the ultimate net cost of all unpaid losses and loss adjustment
expenses incurred through December 31 of each year. The reserves
are determined using adjusters' individual case estimates and
actuarially based statistical projections.
USF&G Company's estimates of losses for reported claims are
established judgmentally on an individual case basis. Such
estimates are based on a claim adjuster's particular expertise
with the type of risk involved and knowledge of circumstances
surrounding the individual claims. These estimates are reviewed
on a regular basis and updated as additional facts become known.
The reserves derived from statistical projections are subject to
the effects of trends in claim severity and frequency.
Statistical projections are employed in three specific areas: 1)
to calculate bulk reserves for incurred but not reported
("IBNR") losses and provide for development of case basis loss
reserves; 2) to calculate allocated LAE reserves; and 3) to
calculate unallocated LAE reserves.
IBNR and Case Development Reserves: USF&G Company's estimates of
IBNR and case development reserves are derived from analyses of
historical patterns of development of paid and reported losses
by accident year for each line of business. The loss projection
procedures used in this analysis contain explicit provisions for
quantifying the effect of inflation on loss payments expected to
be made in the future. This process relies on the basic
assumption that past experience adjusted for the effect of
current developments and likely trends is an appropriate basis
for predicting future events.
Allocated LAE: USF&G Company's estimates of unpaid LAE are based
on analyses of the long-term relationship of projected ultimate
LAE to projected ultimate losses for each line of business. By
using incurred losses as a base, inflation assumptions
applicable to loss reserves apply equally to allocated expense
reserves.
Unallocated LAE: Unallocated LAE reserves are based on
historical relationships of paid unallocated expenses to paid
losses. As with allocated LAE, the inflation assumptions
applicable to loss reserves are presumed to apply equally to
unallocated expense reserves.
The process of estimating the liability for unpaid losses and
LAE is inherently judgmental. The process is influenced by
factors which are subject to significant variation. Possible
sources of variation include changing rates of inflation
(particularly medical cost inflation) as well as changes in
other economic conditions, the legal system and internal claims
settlement practices, among other variables. In many cases
significant periods of time may lapse between the occurrence of
an insured event, the reporting of a claim to USF&G Company and
USF&G Company's final settlement of the claim. More than 45
percent of USF&G Company's loss and LAE reserves are provided
for claims which have been incurred but not reported and for
future development on reported claims. While USF&G Company
reports a single amount as the estimate for unpaid loss and LAE
as of each valuation date, the reported reserves should be
considered the best estimate from a range of possible outcomes.
It is unlikely that future losses and LAE will develop exactly
as projected and may in fact vary significantly from
projections. These estimates are continually reviewed and
updated as experience develops and new information becomes
known. Any resulting adjustments are reflected in current
operating results.
1.6b. Discounted Loss Reserves
The reserves for permanent-total disability benefits and long-term
medical care benefits under workers compensation insurance are discounted
at rates of interest generally ranging from 3 percent to 5 percent. The
carrying amount of such workers compensation reserves, net of
reinsurance and net of discount, was $1.75 billion, $1.80
billion, and $1.85 billion at December 31, 1993, 1992, and 1991,
respectively. The discount is amortized over the expected
lifetimes of the claimants. Discounted reserves come from three
sources: reserves assumed from the Workers Compensation
Reinsurance Bureau (WCRB), reserves assumed from residual market
pools, and reserves for USF&G Company's net retained business.
WCRB is a voluntary association of primary workers compensation
insurers formed for the purpose of providing excess of loss
reinsurance to its members. At the end of 1993, a significant
portion of USF&G Company's reinsurance treaty with WCRB was
commuted. A large body of claims, previously ceded to WCRB and
then retroceded to WCRB member companies in proportion to
relative premium volume, is now retained directly by USF&G
Company. The reduction in USF&G Company's ceded reserves is
offset by a corresponding reduction in reserves assumed from
WCRB. Prior to this commutation, WCRB was the main source of
discount, utilizing a rate of 5 percent. Concurrently with the
commutation, the discount rate on the remaining portion of
reserves assumed from WCRB was reduced from 5 percent to 4
percent to comply with discount rate limitations prescribed by
state regulators. The following table shows the changes in
estimates of the workers compensation discount.
(in millions) 1993 1992 1991
Estimated discount, January 1 $680 $683 $631
Estimated (reduction) additional discount accrued (138) 29 73
Less estimated discount amortized 34 32 21
Estimated discount, December 31 $508 $680 $683
The source of the negative discount in 1993 results from the
WCRB commutation and the concurrent reduction in discount rates.
Additionally, the discount was reduced by a redistribution of
reserves to states and re-apportionment on reserves assumed
from residual market pools.
1.6c. Roll-Forward of Liability for Loss and Loss Adjustment
Expenses
The following table reconciles the changes in loss and
LAE reserves for the years presented.
(in millions) 1993 1992 1991
Reserve at beginning of year $5,540 $5,704 $5,630
Incurred for claims occurring during:
Current year 1,696 2,010 2,416
Prior years 62 78 129
Total incurred 1,758 2,088 2,545
Payments for claims occurring during:
Current year 562 684 821
Prior years 1,460 1,568 1,650
Total paid 2,022 2,252 2,471
Total reserve at end of year, net $5,276 $5,540 $5,704
Reinsurance receivable 1,053
Total reserve at end of year, gross $6,329
1.6d. Analysis of Loss and Loss Adjustment Expense Reserve
Development
The following table shows property/casualty loss reserves as
recorded in the indicated years and subsequent payments made
with respect to such reserves and re-estimates of such reserves.
The top line shows the estimated liability that was recorded at
the end of each of the indicated years for all current and prior
year unpaid losses and LAE. The upper portion of the table shows
the cumulative amount subsequently paid in succeeding years.
The lower portion of the table shows re-estimates of the original
recorded reserve as of the end of each successive year. Such
re-estimations result from development of additional facts and
circumstances pertaining to unsettled claims. The bottom line
shows the deficiency for each year and represents the dollar
amount of the cumulative change through 1993 that is attributable
to the original recorded reserve for each prior year. Such change
has been reflected in income of subsequent years.
The columns in the table below are cumulative. For example, the
deficiency related to losses settled in 1993 but incurred in
1983 and prior years would be included in the cumulative
deficiency amounts for 1983 through 1992, but the re-estimation
of such losses would have affected income for 1993 only.
Conditions and trends that have affected reserve development in
the past may change and may not necessarily occur in the future.
Therefore, care should be exercised in extrapolating future
reserve redundancies or deficiencies from such development.
Analysis of Loss and Loss Adjustment Expense Reserve Development
At December 31
(in millions) 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993
Liability for Unpaid losses
and LAE $2,352 $2,817 $3,510 $4,089 $4,741 $5,204 $5,461 $5,630 $5,704 $5,540 $5,276
Cumulative paid as of:
One year later 845 1,027 1,251 1,347 1,373 1,537 1,719 1,650 1,568 1,460
Two years later 1,354 1,659 2,040 2,163 2,256 2,611 2,789 2,740 2,524 -
Three years later 1,737 2,131 2,557 2,777 3,030 3,347 3,587 3,411 - -
Four years later 2,040 2,451 2,971 3,313 3,548 3,935 4,049 - - -
Five years later 2,246 2,708 3,362 3,639 3,990 4,261 - - - -
Six years later 2,415 2,947 3,595 3,863 4,237 - - - - -
Seven years later 2,592 3,112 3,759 4,055 - - - - - -
Eight years later 2,691 3,243 3,918 - - - - - - -
Nine years later 2,778 3,368 - - - - - - - -
Ten years later 2,874 - - - - - - - - -
Liability reestimated:
One year later 2,479 3,131 3,696 4,208 4,881 5,233 5,673 5,759 5,782 5,602
Two years later 2,655 3,249 3,914 4,443 4,941 5,481 5,794 5,899 5,911 -
Three years later 2,719 3,384 4,168 4,585 5,107 5,562 5,954 6,143 - -
Four years later 2,818 3,563 4,341 4,721 5,285 5,757 6,239 - - -
Five years later 2,944 3,696 4,457 4,916 5,440 6,025 - - - -
Six years later 3,049 3,778 4,631 5,048 5,698 - - - - -
Seven years later 3,118 3,932 4,743 5,278 - - - - - -
Eight years later 3,243 4,039 4,954 - - - - - - -
Nine years later 3,330 4,220 - - - - - - - -
Ten years later 3,475 - - - - - - - - -
Cumulative deficiency $(1,123) $(1,403) $(1,444) $(1,189) $ (957) $ (821) $ (778) $ (513) $ (207) $ (62)
Certain reserves are recorded on a discounted basis to reflect
the value of timing differences between the recording of
reserves and subsequent payment. The amortization of that
discount is included in the reserve deficiencies shown above.
The preceding table shows a $62 million increase in prior year
incurred losses representing current year adjustments to loss
reserves recorded in prior years. Such increase reflected
changes based on additional data and experience in the
evaluation of ultimate expected costs associated with prior year
exposures. The increase is primarily attributable to
strengthening of the unallocated loss expense reserve for
voluntary and servicing carrier business. In addition, as shown
in the workers compensation discount table, $34 million of
amortized discount in 1993 will contribute to the increase in
prior year incurred losses.
Effect of Reserve Reestimations on Calendar Year Operations
(increase) decrease in reserves
Total by
Accident
(in millions) 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 Year
Accident Years
1983 & Prior $(127) $(176) $(64) $(99) $(126) $(105) $(69) $(125) $(87) $(145) $(1,123)
1984 - (138) (54) (36) (53) (28) (13) (29) (20) (36) (407)
1985 - - (68) (83) (75) (40) (34) (21) (5) (30) (356)
1986 - - - 99 19 31 (20) (20) (20) (19) 70
1987 - - - - 95 82 (30) 17 (23) (28) 113
1988 - - - - - 31 (82) 97 (40) (10) (4)
1989 - - - - - - 36 (40) 35 (17) 14
1990 - - - - - - - (7) 21 41 55
1991 - - - - - - - - 61 115 176
1992 - - - - - - - - - 67 67
Total by calendar year $(127) $(314) $(186) $(119) $(140) $(29) $(212) $(128) $(78) $(62) $(1,395)
In the table above, each column total shows reserve
re-estimates made in the indicated calendar year and
details the accident year to which the re-estimates apply.
Cumulative reserves have generally developed favorably for
accident years from 1986 to 1992. Adverse development on
accident years prior to 1986 results primarily from the
continued reevaluation of data in the general liability and
workers compensation lines of business. Acquisition of
additional data, more refined data segments and enhancements in
reserve evaluation techniques have resulted in an increase in
the provision for losses and loss adjustment expenses in those
accident years.
1.6e. Loss Portfolio Transfers
Also included in the table "Analysis of Loss and Loss Adjustment
Expense Development" are various loss portfolio transfer
transactions. These transactions are reinsurance contracts
that do not involve the same type of risk as traditional
reinsurance. In a loss portfolio reinsurance contract, USF&G
Company assumes another insurer's outstanding loss reserves for
a price equal to their discounted value plus a fee. These contracts
generally provide for fixed loss payments at specified future dates.
The financial risk involved is whether the investment income earned
on the cash received will cover the discount associated with the
losses assumed. This financial risk is controlled by the
Corporation's asset/liability management techniques, which involve
matching the maturities of the investment portfolio to expected
patterns of future claim and benefit payments.
Loss portfolio transfers have had no impact on reported reserve
deficiencies and no future loss development, either adverse or
favorable, is anticipated. Loss portfolio transfers included in
outstanding reserves were as follows:
(in millions)
1993 $110
1992 123
1991 279
1990 324
1989 397
1988 394
1987 355
1986 241
1.6f. Structured Settlements
Structured settlements represent the settlement of claims
through the purchase of annuities. While they result in
accelerated claim payments, structured settlements generally
reduce the ultimate amount of claims paid. Structured
settlements are used primarily in the third-party liability
and workers compensation lines of business. These types of
settlements were not used extensively on liability lines
until 1985. Their use was extended to workers compensation
claims in 1987. The number of such settlements has grown
steadily and they appear to be having an impact on claim
payment patterns. USF&G Company has developed procedures
to ensure that the impact of structured settlements is given
appropriate recognition in estimating ultimate reserve liabilities.
1.6g. Reconciliation of Liability for Loss and Loss Adjustment
Expenses from SAP to GAAP
The following table presents the differences between property/
casualty insurance claim reserves reported in the Consolidated
Financial Statements in accordance with generally accepted
accounting principles ("GAAP"), and the consolidated annual
statement filed with state insurance departments in accordance
with statutory accounting practices ("SAP"):
At December 31
(in millions) 1993 1992 1991
SAP basis property/casualty reserves $ 4,961 $5,361 $5,417
Reserves of foreign subsidiaries (consolidated
for GAAP but not SAP) 315 240 355
Estimated salvage and subrogation
recoveries (primarily on property
and surety lines, cash basis for SAP
but accrual basis for GAAP), plus
other immaterial items - (61) (68)
GAAP basis property/casualty reserves, net 5,276 5,540 5,704
Reinsurance receivable 1,053
GAAP basis property/casualty reserves, gross 6,329
Reserves of life insurance subsidiaries, net 3,969 3,896 3,773
Reinsurance receivable 4
Reserves of life insurance subsidiaries, gross 3,973
Total liability on GAAP basis $10,302 $9,436 $9,477
1.7. Life Benefit Reserves
Ordinary life insurance future policy benefit reserves are
computed under the net level premium method using assumptions
for future investment yields, mortality, and withdrawal rates.
These assumptions reflect F&G Life's experience, modified to
reflect anticipated trends, and provide for possible adverse
deviation. Reserve interest rate assumptions are graded and
range from 4.25 percent to 8.25 percent.
Universal life and annuity reserves are computed on the
retrospective deposit method, which produces reserves equal to
the cash value of the contracts. Such reserves are not reduced
for charges that would be deducted from the cash value of
policies surrendered. Reserves on single premium annuities with
guaranteed payments are computed on the prospective deposit
method, which produces reserves equal to the present value of
future benefit payments.
The table below shows F&G Life's benefit reserves by policy type.
At December 31
(in millions) 1993 1992 1991
Single premium annuities:
Deferred $2,138 $2,077 $1,996
Immediate 815 788 790
Other annuities 462 508 500
Universal life/term/group life 554 523 487
Total, net $3,969 $3,896 $3,773
Reinsurance receivable 4
Total, gross $3,973
1.8. Geographical Distribution
The risks insured by the Corporation's insurance subsidiaries are
geographically diversified primarily throughout the United States.
Reinsurance risks are incurred throughout North America and
specific foreign countries (mainly in Western Europe and Japan).
The products marketed by the Corporation's management consulting
subsidiary, a part of noninsurance operations, are distributed
throughout the world. Total assets and revenues of foreign
operations are not material. The tables below show the composition
of statutory voluntary direct premiums written for the Corporation's
property/casualty operations and statutory premium income of its
life insurance operations by region for the year ended 1993.
Property/Casualty
Voluntary Direct Premiums Written
Northeast 28%
Southeast 25
Midwest 22
West 17
Mississippi 8
Total 100%
Life Statutory
Premium Income
Northeast 46%
South 17
Northwest 15
Midwest 12
Southwest 10
Total 100%
USF&G Corporation
Part 1
1.9. Executive Officers of the Registrant
Name Age Positions and Office with Registrant or Significant Subsidiaries
Norman P. Blake, Jr. 52 Chairman of the Board, President, Chief Executive Officer, and Director
Glenn W. Anderson 41 Executive Vice President-Commercial Lines
Gary C. Dunton 38 Executive Vice President-Field Operations
Dan L. Hale 49 Executive Vice President-Chief Financial Officer
Kenneth E. Cihiy 47 Senior Vice President-Claims
Thomas K. Lewis, Jr. 41 Senior Vice President-Chief Information Officer
John A. MacColl 45 Senior Vice President-General Counsel and Assistant Secretary
Amy P. Marks 37 Senior Vice President-Human Resources
Richard J. Potter 48 Senior Vice President-Personal Lines
Andrew A. Stern 36 Senior Vice President-Strategic Planning and Corporate Marketing
John C. Sweeney 49 Senior Vice President-Chief Investment Officer
All persons in the preceding table are officers of the
Registrant except Glenn W. Anderson, Kenneth E. Cihiy, and Gary
C. Dunton, who are executive officers of United States Fidelity
and Guaranty Company (a wholly owned subsidiary of the
Registrant).
Mr. Anderson was Vice President of Strategic Target Marketing
with Fireman's Fund Insurance Company, a domestic insurance
company, and joined the Corporation in December 1992. Mr. Blake
was Chairman and Chief Executive Officer of Heller International
Corporation, a world-wide commercial financial services
organization, and joined the Corporation in November 1990. Mr.
Cihiy was Resident Vice President of Sacramento Field Operations
with Aetna Life and Casualty Company, an insurance and financial
services company, and joined the Corporation in May 1993. Mr.
Dunton was Vice President and Division Manager of Standard
Lines with Aetna Life and Casualty Company and joined the
Corporation in December 1992. Mr. Hale was President and Chief
Executive Officer of Chase Manhattan Leasing Company, an
international leasing company, and joined the Corporation in
February 1991. Mr. Lewis was Vice President and General Manager
for Europe, Middle East, and Africa for Seer Technologies, a
joint venture of CS First Boston and IBM, and joined the
Corporation in November 1993. Mr. MacColl was previously a
partner in the Baltimore office of the law firm of Piper and
Marbury, and joined the Corporation in January 1989. Ms. Marks
was Senior Engagement Manager with McKinsey & Company, a
national business consulting firm, and joined the Corporation
in January 1992. Mr. Potter was President of Credit Life
Insurance Company before its merger with Aon Corporation, a
diversified insurance holding company, and joined the
Corporation in February 1991. Mr. Stern was Partner and Vice
President of Booz Allen & Hamilton, a national business
consulting firm, and joined the Corporation in May 1993. Mr.
Sweeney was a Principal and Practice Director with Towers
Perrin, an asset management and consulting company, and joined
the Corporation in November 1992.
Item 2. Business Properties
Real estate owned and used in the regular conduct of business
consists of 12 business properties located in various cities
throughout the United States. The Corporation's Mount Washington
Center, located in Baltimore, Maryland, is the principal owned
property. This is the headquarters for the life insurance
operations, and the location of the information systems and
training and development complexes.
In addition, the Corporation leases approximately 120 offices in
various cities in the regular course of business. See Note 5 of
Notes to the Consolidated Financial Statements. The principal
leased property is a 40-story home office building in Baltimore,
Maryland, sold in 1984 and leased back by the Corporation.
Item 3. Legal Proceedings
The Corporation's insurance subsidiaries are routinely engaged in
litigation in the normal course of their business, including
defending claims for punitive damages. As a liability insurer,
they defend third-party claims brought against their insureds.
As an insurer, they defend themselves against coverage claims.
In the opinion of management the litigation described herein is
not expected to have a material adverse effect on USF&G
Corporation's consolidated financial position, although it is
possible that the results of operations in a particular quarter
or annual period would be materially affected by an unfavorable
outcome.
3.1. Shareholder Class Action Suits
During 1990 and 1991, twelve class action complaints were filed
against the Corporation in the United States District Court for the
District of Maryland and the United States District Court for
the Eastern District of Pennsylvania. The Corporation moved to
dismiss all twelve complaints. The complaints refer to the
Corporation's public announcement on November 7, 1990, concerning
a reduction in its dividend and related matters. All class action
suits were consolidated for all purposes, under the caption IN RE
USF&G CORPORATION SECURITIES LITIGATION in the United States District
Court for the District of Maryland. By an order dated February 11,
1993, the court dismissed eleven of the class action complaints
and on April 23, 1993, the court dismissed the remaining action.
The plaintiffs have appealed these rulings and on January 6, 1994,
the Fourth Circuit of Appeals affirmed the dismissal of all twelve
suits. The plaintiffs have not yet indicated whether they will seek
review from the United States Supreme Court. While the outcome cannot
be predicted with any certainty, management believes the lawsuits are
without merit and the outcome is unlikely to have a material adverse
effect on the Corporation's financial position.
3.2. Maine "Fresh Start" litigation.
In 1987, the State of Maine adopted workers compensation reform
legislation which was intended to rectify historic rate inadequacies
and encourage insurance companies to reenter the Maine voluntary
workers compensation market. This legislation, which was popularly
known as "Fresh Start," required the Maine Superintendent of
Insurance to annually determine whether the premiums collected for
policies written in the involuntary market and related investment
income were adequate on a policy-year basis. The Superintendent
was required to assess a surcharge on policies written in later
policy years if it was determined that rates were inadequate.
Assessments were to be borne by workers compensation policyholders,
except that for policy years beginning in 1989 the Superintendent
could require insurance carriers to absorb up to 50 percent of
any deficits if the Superintendent found that insurance carriers
failed to make good faith efforts to expand the voluntary market
and depopulate the residual market. Insurance carriers which served
as servicing carriers for the involuntary market would be obligated
to pay 90 percent of the insurance industry's share. The Maine
Fresh Start statute requires the Superintendent to annually
estimate each year's deficit for seven years before making a
final determination with respect to that year.
In March 1993, the Superintendent affirmed a prior Decision and
Order (known as "1992 Fresh Start Order") in which he, among
other things, found that there were deficits for the 1988, 1989,
and 1990 policy years, and that insurance carriers had not made
a good faith effort to expand the voluntary market and
consequently were required to bear 50 percent of any deficits
relating to the 1989 and 1990 policy years. The Superintendent
further found that a portion of these deficits were attributable
to servicing carrier inefficiencies and poor investment
practices and ordered that these costs be absorbed by insurance
carriers. Also, in May 1993 the Superintendent found that
insurance carriers would be liable for 50 percent of any
deficits relating to the 1991 policy year (the "1993 Fresh Start
Order"), but indicated that he would make no further
determinations regarding the portions of any deficits
attributable to alleged servicing carrier inefficiencies and
poor investment practices until his authority to make such
determinations was clarified in the various suits involving
prior Fresh Start orders.
USF&G Company was a servicing carrier for the Maine residual
market in 1988, 1989, 1990, and 1991. The Corporation withdrew
from the Maine voluntary market and as a servicing carrier
effective December 31, 1991. The Corporation has joined in an
appeal of the 1992 Fresh Start Order which was filed April 5,
1993, in a case captioned THE HARTFORD ACCIDENT AND INDEMNITY
COMPANY, ET AL., V. SUPERINTENDENT OF INSURANCE filed in
Superior Court, State of Maine, Kennebec. In addition to The
Hartford Accident and Indemnity Company and USF&G Company, the
National Council of Compensation Insurance ("NCCI") and seven
other insurance companies which were servicing carriers during
this time frame have instituted similar appeals. These appeals
will be heard on a consolidated basis, in a case captioned,
NATIONAL COUNCIL OF COMPENSATION INSURANCE, ET AL., V.
ATCHINSON. USF&G Company is seeking, among other things, to have
the court set aside the Superintendent's findings that the
industry did not make a good faith effort to expand the
voluntary market and is responsible for deficiencies resulting
from alleged poor servicing and investments. Similar appeals of
the Superintendent's 1993 Fresh Start Order have been filed by
USF&G Company, the NCCI, and several other servicing carriers in
the same court. The appeals of the 1993 Fresh Start Order will
be heard on a consolidated basis in a case captioned THE
NATIONAL COUNCIL OF COMPENSATION INSURANCE, ET AL., V.
ATCHINSON.
Estimates of the potential deficits vary widely and are
continuously revised as loss and claims data matures. If the
Superintendent were to prevail on all issues, then the range of
liability for USF&G Company, based on the most recent estimates
provided by the Superintendent and the NCCI, respectively,
could range from approximately $12 million to approximately $19
million. However, USF&G Company believes that it has meritorious
defenses and has determined to defend the actions vigorously.
3.3. Arkansas Servicing Carrier Litigation
On September 14, 1993, Interstate Contractors, Inc. and two other
Arkansas corporations filed a class action in the U.S. District
Court for the Eastern District of Arkansas, Little Rock, against
the National Council on Compensation Insurance ("NCCI"), USF&G
and ten other insurance companies which served as servicing carriers
for the Arkansas involuntary workers compensation market. The case,
which is captioned INTERSTATE CONTRACTORS, INC., ET AL. V. NATIONAL
COUNCIL ON COMPENSATION INSURANCE, ET AL., alleges that the
defendants failed to provide safety and loss control services,
claim management services, and assistance in moving
insureds from the involuntary market to the voluntary market.
The plaintiffs are pursuing their claims under various legal
theories, including breach of contract, breach of fiduciary
duty, and negligence. The plaintiffs seek unspecified
compensatory damages based on the premiums attributable to
services allegedly not performed and damages allegedly incurred
as a result of the alleged failure to provide such services.
USF&G Company believes that it has meritorious defenses and has
determined to defend the action vigorously. Management believes
that it is unlikely such claims will have a material adverse
effect on USF&G Corporation's financial position.
3.4. North Carolina workers compensation Litigation
On November 24, 1993, N.C. Steel, Inc. and six other North
Carolina employers filed a class action in the General Court
of Justice, Superior Court Division, Wake County, North Carolina,
against the NCCI, North Carolina Rate Bureau, USF&G Company and
eleven other insurance companies which served as servicing carriers
for the North Carolina involuntary workers compensation market.
On January 20, 1994, the plaintiffs filed an amended complaint
seeking to certify a class of all employers who purchased workers
compensation insurance in the State of North Carolina after
November 24, 1989. The amended complaint, which is captioned
N.C. STEEL INC. ET AL., V. NATIONAL COUNCIL ON COMPENSATION
INSURANCE, ET AL., alleges that the defendants conspired to
suppress competition with respect to the North Carolina
voluntary and involuntary workers compensation business, thereby
artificially inflating the rates in such markets and the fees
payable to the insurers. The complaint also alleges that the
carriers agreed to improperly deny qualified companies from
acting as servicing carriers, improperly encouraged agents to
place employers in the assigned risk pool, and improperly
promoted inefficient claims handling. USF&G Company has acted as
a servicing carrier in North Carolina since 1990. The plaintiffs
are pursuing their claims under various legal theories,
including violations of the North Carolina antitrust laws,
unlawful conspiracy, breach of fiduciary duty, breach of implied
covenant of good faith and fair dealing, unfair competition,
constructive fraud, and unfair and deceptive trade practices.
The plaintiffs seek unspecified compensatory damages, punitive
damages for the alleged construction fraud, and treble damages
under the North Carolina antitrust laws. USF&G Company believes
that it has meritorious defenses and has determined to defend
the action vigorously. Management believes that it is unlikely
such claims will have a material adverse effect on USF&G
Corporation's financial position.
3.5. Proposition 103
In November 1988, California voters passed Proposition 103,
which required insurers doing business in that state to rollback
property/ casualty premium prices in effect between November 1988
and November 1989 to 1987 levels, less an additional 20 percent
discount, unless an insurer could establish that such rate levels
threatened its solvency. As a result of a court challenge, the
California Supreme Court ruled in May 1989 that an insurer does
not have to face insolvency in order to qualify for exemption
from the rollback requirements and is entitled to a "fair and
reasonable return." Significant controversy has surrounded the
numerous regulations proposed by the California Insurance
Department, which would be used to determine whether rate
rollbacks and premium refunds are required by insurers. Some
of the Insurance Department's proposals were disapproved by the
California Office of Administrative Law ("OAL"), which is
responsible for the review and approval of such regulations. The
most recent regulations proposed by the Insurance Department have
not yet been reviewed by the OAL, pending a recent court challenge
by various insurers to the Department's authority to issue such
regulations. On February 25, 1993, the trial judge presiding over
that court challenge voided substantial parts of the regulations
proposed by the Insurance Department. The court held that the Insurance
Department's regulations exceeded the Department's authority by
setting rates based upon an across-the-board formula. The court
indicated that rates and what constitutes a reasonable return
would have to be determined individually for each insurer and
that the Department's authority was to approve or disapprove
rates proposed by insurers rather than setting rates which
cannot vary from a prescribed formula. An appeal is currently
pending before the California Supreme Court.
During 1989, less than five percent of USF&G's total premiums
were written in the State of California. USF&G believes that the
returns it received, both during and since the one-year rollback
period, have not exceeded the "fair and reasonable return"
standard. Additionally, based on the long history of events and
the significant uncertainty about the Insurance Department's
regulations, management does not believe it is probable that the
revenue recognized during the rollback period will be subject to
a material refund. Management believes that no premium refund
should be required for any period after November 8, 1988, but
that any rate rollbacks and premium refunds, if ultimately
required, would not have a material adverse effect on USF&G
Corporation's financial position.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders,
through the solicitation of proxies or otherwise, during the
fourth quarter of 1993.
USF&G Corporation
Part II
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters
Market and dividend information for the Corporation's common
stock on page 88 of the Annual Report to Shareholders for 1993
is incorporated herein by reference.
Item 6. Selected Financial Data
Selected financial data of the Corporation on pages 56 and 57
of the Annual Report to Shareholders for 1993 is incorporated
herein by reference.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Management's Discussion and Analysis on pages 34 through 55 of
the Annual Report to Shareholders for 1993 is incorporated
herein by reference.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements of the Corporation and notes
to such financial statements on pages 58 through 82 of the
Annual Report to Shareholders for 1993 are incorporated herein
by reference.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Not applicable.
USF&G Corporation
Part III
Item 10. Executive Officers and Directors of the Registrant
Information regarding the Corporation's executive officers can
be found on page 12 of this Form 10-K. Information regarding the
Corporation's directors is incorporated herein by reference to
the Election of Directors section of the Corporation's
definitive proxy statement for its annual meeting of
shareholders to be held May 4, 1994.
Item 11. Executive Compensation
See the Compensation of Executive Officers and Directors
section of the Corporation's definitive proxy statement for
its annual meeting of shareholders to be held May 4, 1994,
which is incorporated herein by reference. To the best
of the Corporation's knowledge, there were no late filings under
Section 16(a) of the Securities Exchange Act of 1934.
Item 12. Security Ownership of Certain Beneficial Owners and Management
See the Stock Ownership of Certain Beneficial Owners, Directors
and Management section of the Corporation's definitive proxy
statement for its annual meeting of shareholders to be held
May 4, 1994, which is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
See the Other Information-Certain Business Relationships section of
the Corporation's definitive proxy statement for its annual meeting
of shareholders to be held May 4, 1994, which is incorporated
herein by reference.
USF&G Corporation
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K
(a) (1) Financial Statements
The following consolidated financial statements of USF&G
Corporation and its subsidiaries, included in the annual report
of the registrant to its shareholders for the year ended
December 31, 1993, are incorporated by reference in Item 8:
Consolidated Statement of Operations
Consolidated Statement of Financial Position
Consolidated Statement of Cash Flows
Consolidated Statement of Shareholders' Equity
Notes to Consolidated Financial Statements
Report of Independent Auditors
(2) Schedules
The following consolidated financial statement schedules of
USF&G Corporation and its subsidiaries are included in Item
14(d):
Page 24 Schedule I. Summary of Investments-Other than
Investments in Related Parties
25-27 Schedule III. Condensed Financial Information of
Registrant
28 Schedule V. Supplementary Insurance Information
29 Schedule VI. Reinsurance
30 Schedule IX. Short-term Borrowings
31 Schedule X. Supplemental Information Concerning
Consolidated Property/Casualty
Insurance Operations
All other schedules specified by Article 7 of Regulation S-X are
not required pursuant to the related instructions or are
inapplicable and, therefore, have been omitted.
(3) Exhibits
The following exhibits are included in Item 14:
Page __ Exhibit 11 Computation of Earnings Per Share
__ Exhibit 12 Computation of Ratio of
Consolidated Earnings to Fixed Charges
and Preferred Stock Dividends
A copy of all other exhibits not included with this Form 10-K
may be obtained without charge upon written request to the
Secretary at the address shown on page ___ of this Form 10-K.
Exhibit 3A
Charter of USF&G Corporation.
Exhibit 3B
Amended By-laws of USF&G Corporation. Incorporated by
reference to Exhibit 3B, 1985 Annual Report on Form 10-K.
Exhibit 4A
Rights agreement dated as of September 18, 1987,
between USF&G Corporation and First Chicago Trust Company of New
York (successor to Morgan Shareholder's Service Trust Company)
including Form of Rights Certificate. Incorporated by reference
to Exhibits 1 and 2 to the Registrant's Form 8-A filed
September 31, 1987, File No. 1-8233.
Exhibit 4B
Indenture dated as of October 15, 1986, between USF&G Corporation
and Chemical Bank (Delaware). Incorporated by reference to
Exhibit 4.1 to the Registrant's Form 10-Q for the quarter ended
September 30, 1986, File No. 1-8233.
Exhibit 4C
Officer's certificate dated November 19, 1986, classifying 8 7/8%
Notes of USF&G Corporation. Incorporated by reference to
Exhibit 4.1 to the Registrant's Form 8-K dated November 19, 1986,
File No. 1-8233.
Exhibit 4D
Bond issuance and payment agreement dated November
16, 1987, for Swiss Franc Public Issue of 5 1/2% Bonds 1988-1996
of Swiss Francs 120,000,000. Incorporated by reference to
Exhibit 4M to the Registrant's Form 10-K for the year ended
December 31, 1987, File No. 1-8233.
Exhibit 4E
Indenture dated as of January 28, 1994, between USF&G Corporation
and Chemical Bank.
Exhibit 4F
Form of Note dated March 3, 1994, for Zero Coupon
Convertible Subordinated Notes due 2009. Incorporated by
reference to Exhibit 4 to the Registrant's Form 8-K dated
March 3, 1994, File No. 1-8233.
Exhibit 10A
Credit Agreement dated as of March 20, 1990, as
amended on April 15, 1991, among USF&G Corporation, Morgan
Guaranty Trust Company of New York, and Swiss Bank Corporation
as agents. Incorporated by reference to Exhibit 4F to the
Registrant's Form 10-K for the year ended December 31, 1991,
File No. 1-8233.
Exhibit 10B
Stock Option Plan of 1987. Incorporated by reference to
Exhibit 4.1 to the Registrant's Form S-8 dated July 28, 1987,
File No. 33-16111.
Exhibit 10C
Employment Agreement dated November 20, 1990, between the
Registrant and Norman P. Blake, Jr. Incorporated by
reference to Exhibit 10A to the Registrant's Form 10-K for the
year ended December 31, 1990, File No. 1-8233.
Exhibit 10D
USF&G Supplemental Executive Retirement Agreement between the
Registrant and Norman P. Blake, Jr., dated November 20, 1990.
Incorporated by reference to Exhibit 10B to the Registrant's
Form 10-K for the year ended December 31, 1990, File No. 1-8233.
Exhibit 10E
Stock Option Plan of 1990. Incorporated by reference
to Exhibit 4 to the Registrant's Form S-8 Registration Statement
as filed December 7, 1990, File No. 33-38113. Certified Copy of
the Board Resolution adopted on December 6, 1990, amending the
Stock Option Plan of 1990. Incorporated by reference to Exhibit
10G to the Registrant's Form 10-K for the year ended December
31, 1990, File No. 1-8233.
USF&G Corporation
Part IV
Exhibit 10F
Description of Management Incentive Plan. Incorporated by reference
to Exhibit 10J to the Registrant's Form 10-K for the year ended
December 31, 1990, File No. 1-8233.
Exhibit 10G
Description of Long-Term Incentive Compensation
Plan. Incorporated by reference to Exhibit 10K to the
Registrant's Form 10-K for the year ended December 31, 1990,
File No. 1-8233.
Exhibit 10H
Stock Incentive Plan of 1991. Incorporated by
reference to Exhibit 4(a) to the Registrant's Form S-8
Registration Statement as filed February 11, 1992, File No.
33-45664.
Exhibit 10I
Form of Stock Option Agreement used in connection
with the Stock Option Plan of 1987, Stock Option Plan
of 1990, and Stock Incentive Plan of 1991.
Exhibit 10J
1993 Stock Plan for Non-Employee Directors. Incorporated
by reference to Exhibit 10N to the Registrant's Form 10-K
for the year ended December 31, 1992, File No. 1-8233.
Exhibit 10K
Employment Agreement dated November 10, 1993,
between the Registrant and Norman P. Blake, Jr.
Exhibit 10L
Stock Option Agreement dated November 10, 1993,
between the Registrant and Norman P. Blake, Jr.
Exhibit 10M
Stock Option Agreement dated November 10, 1993,
between the Registrant and Norman P. Blake, Jr.
Exhibit 10N
Waiver dated November 10, 1993, between the
Registrant and Norman P. Blake, Jr.
Exhibit 10O
First Amendment to USF&G Supplemental Executive
Retirement Agreement between the registrant and Norman P.
Blake, Jr. dated November 10, 1993.
Exhibit 10P
Letter dated November 19, 1992, describing
Employment Arrangement between the Registrant
and Gary C. Dunton.
Exhibit 10Q
USF&G Supplemental Retirement Plan.
Exhibit 11
Computation of ratio of consolidated earnings to
fixed charges and preferred stock dividends.
Exhibit 12
Computation of earnings per share.
Exhibit 13
1993 Annual Report to Shareholders.
Exhibit 21
Subsidiaries of the registrant.
Exhibit 23
Consent of independent auditors.
Exhibit 28
Information from reports furnished to state
insurance regulatory authorities.
All other exhibits specified by Item 601 of Regulation S-K are
not required pursuant to the related instructions or are
inapplicable and, therefore, have been omitted.
(b) Reports on Form 8-K No reports on Form 8-K were filed during
the fourth quarter 1993. The registrant filed a Form 8-K on
February 14, 1994, reporting under Item 5, Other Events, audited
financial statements for the year ended December 31, 1993, and a
related Management's Discussion and Analysis, and other related
financial information. The registrant filed a Form 8-K March 3,
1994, reporting under Item 5, Other Events, related to the sale
of Zero Coupon Subordinated Notes.
USF&G Corporation
Signatures
Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this
Annual Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
USF&G CORPORATION
BY NORMAN P. BLAKE, JR.
Norman P. Blake, Jr.
Chairman of the Board, President,
and Chief Executive Officer
Dated at Baltimore, Maryland
March 30, 1994
Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been
signed below by the following persons on
behalf of the Registrant and in the capacities
and on the dates indicated.
Principal Executive Officer:
NORMAN P. BLAKE, JR.
Norman P. Blake, Jr.
Chairman of the Board, President,
Chief Executive Officer, and Director
Principal Financial and Accounting
Officer:
DAN L. HALE
Dan L. Hale
Executive Vice President and
Chief Financial Officer
Dated at Baltimore, Maryland
March 30, 1994
Directors
H. FURLONG BALDWIN ROBERT J. HURST
H. Furlong Baldwin Robert J. Hurst
MICHAEL J. BIRCK WILBUR G. LEWELLEN
Michael J. Birck Wilbur G. Lewellen
GEORGE L. BUNTING, JR. HENRY A. ROSENBERG, JR.
George L. Bunting, Jr. Henry A. Rosenberg, Jr.
ROBERT E. DAVIS LARRY P. SCRIGGINS
Robert E. Davis Larry P. Scriggins
RHODA M. DORSEY ANNE MARIE WHITTEMORE
Rhoda M. Dorsey Anne Marie Whittemore
DALE F. FREY GEORGE S. WILLS
Dale F. Frey George S. Wills
ROBERT E. GREGORY, JR.
Robert E. Gregory, Jr.
USF&G Corporation
Schedule I. Summary of Investments - Other Than Investments in
Related Parties
At December 31, 1993
Amount at
which shown
in the
Statement of
Financial
Cost Value Position
(in millions)
Fixed maturities
Bonds:
Held to maturity:
United States Government and
government agencies and
authorities $ 1,269 $1,318 $ 1,269
States, municipalities, and
political subdivisions 23 22 23
Foreign governments 35 38 35
Public utilities 257 259 257
All other corporate bonds 3,077 3,159 3,077
Total fixed maturities held to maturity 4,661 4,796 4,661
Available for sale:
United States Government and
government agencies and
authorities 1,082 1,135 1,135
States, municipalities, and
political subdivisions 34 37 37
Foreign governments 91 97 97
Public utilities 105 110 110
All other corporate bonds 3,369 3,524 3,524
Total fixed maturities available
for sale 4,681 4,903 4,903
Total fixed maturities $ 9,342 $9,699 $ 9,564
Equity securities
Common stocks:
Public utilities $ - $ - $ -
Banks, trust, and insurance companies 13 13 13
Industrial, miscellaneous, and all other 85 74 74
Total common stocks 98 87 87
Nonredeemable preferred stocks 48 48 48
Total equity securities $ 146 $ 135 $ 135
Short-term investments 322 $ 322 322
Mortgage loans 302 304 302
Real estate 685 685
Other invested assets 369 369
Total investments $11,166 $11,377
USF&G Corporation
Schedule III. Condensed Financial Information of Registrant -
Statement of Financial Position (Parent Company)
At December 31
(in millions) 1993 1992 1991
Assets
Cash $ 2 $ 10 $ 1
Short-term investments, at market - - 1
Investment in subsidiaries, at equity 2,354 2,097 2,149
Due from subsidiaries 127 135 170
Other assets 23 34 44
Total assets $2,506 $2,276 $2,365
Liabilities
Debt (short-term, 1993, $395;
1992, $375;
1991, $388) $ 574 $ 574 $ 617
Dividends payable to shareholders 16 16 16
Due to subsidiaries 322 335 307
Other liabilities 83 81 102
Total liabilities 995 1,006 1,042
Shareholders' Equity
Preferred stock 455 455 455
Common stock 212 211 211
Paid-in-capital 963 957 955
Net unrealized gains (losses) on investments 192 (31) (21)
Net unrealized gains (losses) on foreign currency (2) 2 10
Minimum pension liability (85) - -
Retained earnings (deficit) (224) (324) (287)
Total shareholders' equity 1,511 1,270 1,323
Total liabilities and shareholders' equity $2,506 $2,276 $2,365
<FN>
See Note to Condensed Financial Statements
USF&G Corporation
Schedule III. Condensed Financial Information of Registrant -
Statement of Operations (Parent Company)
For the Years Ended December 31
(in millions) 1993 1992 1991
Revenues
Net investment income:
Dividends from subsidiaries $125 $125 $ 127
Interest expense on loans
from subsidiaries (6) (7) (9)
Other revenues:
From subsidiaries 7 9 13
From others 5 22 5
Revenues before realized gains 131 149 136
Realized gains on investments - - 15
Total revenues 131 149 151
Expenses
Interest expense 37 43 51
Lease expense 21 21 21
Other operating expense 19 20 8
77 84 80
Foreign currency (gains) losses - 1 -
Total expenses 77 85 80
Income before income taxes and equity
in earnings of subsidiaries 54 64 71
Provision for income taxes - - -
Income before equity in earnings
of subsidiaries 54 64 71
Equity in undistributed earnings of
subsidiaries:
Continuing operations 73 (29) (223)
Discontinued operations - (7) (24)
Income from cumulative effect of
adopting new accounting standards 38 - -
Net income (loss) $165 $ 28 $(176)
<FN>
See Note to Condensed Financial Statements
USF&G Corporation
Schedule III. Condensed Financial Information of Registrant -
Statement of Cash Flows (Parent Company)
For the Years Ended December 31
(in millions) 1993 1992 1991
Net Cash Provided From Operating
Activities $ 58 $ 71 $ 38
Investing Activities
Purchases of short-term investments - (23) (160)
Sales or maturities of short-term
investments - 23 160
Additional investments in subsidiaries - - (202)
Other, net (4) (12) (3)
Net cash used in investing activities (4) (12) (205)
Financing Activities
Short-term borrowings - - -
Repayments of short-term borrowings - - (35)
Intercompany advances, net (2) 49 92
Long-term borrowings - - -
Repayments of long-term borrowings - (36) -
Repurchases of securities pursuant to
put options - - (139)
Issuances of common stock 6 3 2
Issuances of preferred stock - - 310
Cash dividends paid to shareholders (66) (66) (62)
Net cash provided from (used in)
financing activities (62) (50) 168
Increase (decrease) in cash (8) 9 1
Cash at beginning of year 10 1 -
Cash at end of year $ 2 $ 10 $ 1
<FN>
See Note to Condensed Financial Statements
Note to Condensed Financial Statements
The accompanying condensed financial statements should be read in conjunction
with the Consolidated Financial Statements and Notes thereto of the 1993
Annual Report to Shareholders incorporated herein by
reference. Certain amounts have been reclassified to conform to
the 1993 presentation. The parent company's provision for income
taxes is based on the Corporation+s consolidated federal income
tax allocation policy.
USF&G Corporation
Schedule V. Supplementary Insurance Information
At December 31 For the Years Ended December 31
Unpaid Losses, Amortization
Deferred losses,loss Other loss of deferred
policy expenses policy Net expenses, policy Other
acquisi- & policy holders' invest- & acquisi- operating
tion bene- Unearned funds Premium ment policy tion expenses Premiums
costs fits(b) premiums (a) revenue income(a) benefits costs (a) written
1993
Property/casualty
insurance:
Commercial $168 $ 4,108 $444 $1,223 $1,014 $359 $ 71 $1,239
Personal 69 553 264 681 481 175 46 653
Reinsurance 6 559 29 305 204 71 28 403
Fidelity/surety 28 56 56 118 59 59 9 120
Reinsurance receivable - 1,053 124 - - - - -
Other - - - - - - - 14
Property/casualty 271 6,329 917 $ 7 2,327 $433 1,758 664 154 2,429
Life insurance 164 3,973 - 67 129 321 395 9 50 N/A
Total $435 $10,302 $917 $ 74 $2,456 $754 $2,153 $673 $204 $2,429
1992
Property/casualty
insurance:
Commercial $170 $ 4,348 $420 $1,480 $1,299 $426 $ 86 $1,356
Personal 76 626 286 785 635 210 42 727
Reinsurance 3 511 11 157 118 22 25 243
Fidelity/surety 28 55 53 111 36 55 19 109
Other - - - - - - - (15)
Property/casualty 277 5,540 770 $ 9 2,533 $475 2,088 713 172 2,420
Life insurance 189 3,896 - 56 104 349 377 25 51 N/A
Total $466 $ 9,436 $770 $ 65 $2,637 $824 $2,465 $738 $223 $2,420
1991
Property/casualty
insurance:
Commercial $208 $ 4,391 $555 $1,885 $1,728 $509 $ 83 $1,780
Personal 95 633 349 920 736 247 33 925
Reinsurance 3 633 22 96 40 31 30 211
Fidelity/surety 27 47 55 117 41 55 9 116
Property/casualty 333 5,704 981 $ 21 3,018 $498 2,545 842 155 3,032
Life insurance 201 3,773 - 58 169 370 437 44 50 N/A
Total $534 $ 9,477 $981 $ 79 $3,187 $868 $2,982 $886 $205 $3,032
<FN>
N/A - Not applicable to life insurance pursuant to Rule 12-16 of
Regulation S-X.
(a) Other policyholders' funds, net investment
income, and other operating expenses are not allocated to
property/casualty categories.
(b) Unpaid losses and loss expenses
reflect the implementation of SFAS No. 113, "Accounting and
Reporting for Reinsurance of Short-Duration and Long-Duration
Contracts," which increased liabilities by $1.2 billion with a
corresponding increase in assets at December 31, 1993. This
standard requires reinsurance receivables and prepaid
reinsurance premiums to be reported separately as assets instead
of the previous practice of netting such receivables against the
related loss and unearned premium liabilities.
USF&G Corporation
Schedule VI. Reinsurance
For the Years Ended December 31
Ceded to Assumed Percentage of
Gross other from other Net amount
(in millions) amount companies companies amount assumed to net
1993
Life insurance in force $11,955 $1,404 $155 $10,706 1.4%
Premiums earned:
Life insurance $ 133 $ 5 $ - $ 128 -%
Accident/health
insurance - - 1 1 99.1
Property/casualty
insurance 2,338 517 506 2,327 21.7
Total $ 2,471 $ 522 $507 $ 2,456 20.6%
1992
Life insurance in force $12,228 $1,444 $132 $10,916 1.2%
Premiums earned:
Life insurance $ 107 $ 5 $ 1 $ 103 .3%
Accident/health
insurance - - 1 1 94.0
Property/casualty
insurance 2,692 535 376 2,533 14.8
Total $ 2,799 $ 540 $378 $ 2,637 14.3%
1991
Life insurance in force $13,227 $1,481 $150 $11,896 1.3%
Premiums earned:
Life insurance $ 170 $ 5 $ - $ 165 .3%
Accident/health
insurance 3 - 1 4 41.2
Property/casualty
insurance 3,127 532 423 3,018 14.0
Total $ 3,300 $ 537 $424 $ 3,187 13.3%
USF&G Corporation
Schedule IX. Short-Term Borrowings
At December 31 For the Years Ended December 31
Maximum Average Weighted-
amount amount average
Weighted- outstanding outstanding interest rate
Balance at average during during during
(in millions) end of year interest rate the year the year (a) the year (b)
1993
Bank lines of
credit $376 3.6% $376 $375 3.7%
1992
Bank lines of
credit $376 3.6% $376 $376 4.6%
1991
Bank lines of
credit $376 5.9% $411 $390 6.9%
<FN>
(a) The average amount outstanding during the year was
calculated based on daily balances.
(b) The weighted-average
interest rate during the year was computed by dividing actual
interest expense by the average amount outstanding during the
period.
USF&G Corporation
Schedule X. Supplemental Information Concerning Consolidated
Property/Casualty Insurance Operations
At December 31
(in millions) 1993 1992 1991
Deferred policy acquisition costs $ 271 $ 277 $ 333
Reserves for unpaid claims and
claim adjustments (a) 6,329 5,540 5,704
Discount deducted from reserves (b) 508 680 683
Unearned premiums 917 770 981
<FN>
(a) Reserves for unpaid claims and claim adjustments reflect the
implementation of SFAS No. 113, "Accounting and Reporting for
Reinsurance of Short-Duration and Long-Duration Contracts," which
increased liabilities by $1.2 billion with a corresponding
increase in assets at December 31, 1993. This standard requires
reinsurance receivables and prepaid reinsurance premiums to be
reported separately as assets instead of the previous practice
of netting such receivables against the related loss and
unearned premium liabilities.
(b) Certain long-term disability payments for workers compensation
are discounted at rates ranging from 3% to 5%.
For the Years Ended December 31
1993 1992 1991
Earned premiums $2,327 $2,533 $3,018
Net investment income 433 475 498
Losses and loss adjustment
expenses incurred related to:
Current year 1,696 2,010 2,416
Prior years 62 78 129
Amortization of deferred policy
acquisition costs 664 713 842
Paid claims and claim adjustment expenses 2,022 2,252 2,471
Premiums written 2,429 2,420 3,032