EXHIBIT 99.1
MEDIA CONTACT: Patrick Hirigoyen
U.S. Telephone: 651.310.7598
E-mail: pat.hirigoyen@stpaul.com
INVESTOR CONTACT: Laura Gagnon
U.S. Telephone: 651.310.7696
E-mail: laura.gagnon@stpaul.com
April 30, 2003
For Immediate Release
THE ST. PAUL COMPANIES REPORTS RECORD QUARTERLY OPERATING EARNINGS
SAINT PAUL, Minn. -- The St. Paul Companies (NYSE: SPC) today announced
first-quarter 2003 net income of $181 million, or $0.75 per share, up 36.1
percent from first-quarter 2002 net income of $133 million, or $0.60 per share.
First-quarter 2003 operating earnings were $206 million, or $0.86 per share, up
21.9 percent compared to operating earnings of $169 million, or $0.76 per share,
for the comparable period of 2002. First-quarter 2003 net income and operating
earnings included a $9 million after-tax charge, or $0.04 per share, resulting
from the sale of the company's 68-acre campus in Baltimore. The company's
annualized operating earnings return on average equity was 16.2 percent, and
annualized net income return on average equity was 12.5 percent.
First Quarter
--------------------
($ in millions except per share, all after-tax) 2003 2002
- --------------------------------------------------------------------------------
Net Income $ 181 $ 133
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Adjustments to reconcile to operating earnings:
Net realized investment losses 25 21
Discontinued operations -- 9
Cumulative effect of accounting change -- 6
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Operating Earnings $ 206 $ 169
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Net Income per diluted share $0.75 $0.60
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Operating Earnings per diluted share $0.86 $0.76
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"Our first-quarter earnings clearly demonstrate the strength of our operations,"
said Jay Fishman, chairman and chief executive officer. "Solid execution, strong
pricing, improving retentions, targeted new business, continued expense
discipline, and exceptional performance at Nuveen Investments all contributed to
the quarter's results."
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FINANCIAL HIGHLIGHTS
During the quarter, the company eliminated a one-quarter reporting lag for St.
Paul at Lloyd's, resulting in the inclusion of two quarters of that unit's
financial results in the current period. Details related to the impact of
eliminating the reporting lag are provided in the Consolidated Financial Summary
table and in the Key Terms, Definitions and Reconciliations section.
Ongoing segments' net earned premiums grew 22.5 percent to $1.57 billion.
Excluding the impact of eliminating the one-quarter reporting lag, net earned
premiums were $1.47 billion, up 14.8 percent over the same period of 2002. Net
earned premiums in businesses being exited declined from $677 million in
first-quarter 2002 to $160 million in 2003. As a result of this decline, total
earned premiums for the quarter were $1.73 billion, compared to $1.96 billion in
2002, and total revenues were $2.11 billion, down from $2.33 billion for
first-quarter 2002.
The company's ongoing insurance segments, which accounted for 94.4 percent of
total net written premiums, recorded first-quarter net written premiums of $1.87
billion, up 32.4 percent over the same period of 2002. Excluding the impact of
eliminating the one-quarter reporting lag, net written premiums were $1.63
billion, up 15.8 percent over the same period of 2002. Net written premiums for
businesses being exited declined to $110 million from $708 million in 2002,
primarily due to the transfer of ongoing reinsurance operations to Platinum
Underwriters Holdings, Ltd. in November 2002. Total net written premiums of
$1.98 billion were down 6.6 percent from the same prior-year period.
The statutory combined ratio for ongoing segments was 91.0, compared with 99.3
for last year's first quarter. The ongoing segments' statutory combined ratio
consisted of a loss ratio of 60.7 and an expense ratio of 30.3. Excluding the
impact of eliminating the one-quarter reporting lag, the ongoing segments'
statutory combined ratio was 90.5. In addition, certain Lloyd's commission
expenses, which had previously been included in net written premiums, have been
reclassified to expense. The impact of the reclassification, combined with the
impact of eliminating the one-quarter reporting lag, resulted in 2.8 additional
points on the expense ratio for the ongoing segments. Prior periods have been
reclassified to conform to the current year presentation. Catastrophe losses for
the current quarter were not meaningful. The overall statutory combined ratio
was 97.2, consisting of a loss ratio of 65.5 and an expense ratio of 31.7, an
improvement over 99.5 in the first quarter of 2002.
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Nuveen Investments contributed after-tax net income and operating earnings of
$26 million in the quarter, compared to $23 million in the prior-year period.
Assets under management grew to $81.36 billion at March 31, up 17.0 percent from
a year ago.
The company's common shareholders' equity increased to $5.83 billion from $5.68
billion at the end of last year. Reported book value per common share at March
31, 2003 was $25.63, compared to $25.05 at year-end 2002, and $28.71 when
adjusted to include the company's investment in Nuveen Investments at market
value. The company's capital base was $9.45 billion, up $105 million from Dec.
31, 2002.
PROPERTY-LIABILITY OPERATING OVERVIEW
- -------------------------------------
The following discussion of first-quarter results relates to items that are
included in both net income and operating earnings. Effective the first quarter
of 2003, ongoing operations are composed of two underwriting segments: Specialty
Commercial and Commercial Lines. Specialty Commercial now also includes Surety &
Construction and International & Lloyd's. Information for prior periods has been
restated to conform to the new segment presentation.
The Other segment includes Healthcare, Reinsurance and other runoff operations,
as well as reserves related to the company's asbestos and environmental
exposures.
Underwriting profits do not include investment income.
SPECIALTY COMMERCIAL
- --------------------
Specialty Commercial net written premiums grew 46.2 percent to $1.33 billion.
Excluding the impact of eliminating the one-quarter reporting lag for Lloyd's,
net written premiums were $1.10 billion, up 20.5 percent. The reported statutory
combined ratio for the segment declined to 91.4 from 99.1 in the comparable
period last year. Pretax underwriting profit for the segment was $118 million in
the first quarter of 2003 compared to a loss of $6 million in 2002.
Net written premiums for the former Specialty Commercial - consisting of nine
individual, specialized underwriting units - increased 12.5 percent to $532
million. The segment's combined ratio was 87.3,
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St. Paul Companies Page 4 of 11
compared to 96.8 one year ago. Reported net written premium growth was impacted
by the company's election to shift certain reinsurance programs from
excess-of-loss to pro rata reinsurance, which increased ceded premiums, ceding
commission income and the level of reinsurance protection. Comparable period
gross written premiums for the former Specialty Commercial segment were up 18.9
percent. These nine operations generated pretax underwriting profits totaling
$59 million.
Surety & Construction, now a component of the Specialty Commercial segment,
reported net written premiums of $332 million, compared to $345 million for the
first quarter of 2002. The combined ratio for these operations was slightly
higher than last year at 95.7 compared to 95.0 in the same period of 2002.
Pretax underwriting profits were $14 million in 2003.
International & Lloyds, also within Specialty Commercial, recorded net written
premiums of $468 million. Excluding the impact of eliminating the one-quarter
reporting lag, net written premiums were $234 million, up from $93 million in
the same period of 2002. The premium growth resulted primarily from increasing
the company's ownership percentage of its specialty personal lines syndicate
from 75 percent to 100 percent and from strong rate gains in other Lloyd's and
International businesses. The first-quarter reported combined ratio of 90.9
compares to 117.2 in the same 2002 period. Pretax underwriting profits totaled
$45 million and included a $10 million benefit from the elimination of the
one-quarter reporting lag at Lloyd's.
COMMERCIAL LINES
- ----------------
Net written premiums for Commercial Lines - which includes Middle Market
Commercial, Small Commercial and Property Solutions - increased 7.2 percent to
$535 million. The combined ratio of 90.3 compared favorably with 99.4 for the
same period in 2002. This segment yielded pretax underwriting profits of $38
million in the first quarter of 2003, compared to an underwriting loss of $5
million in the comparable 2002 period.
OTHER
- -----
The Other segment includes the businesses the company decided to exit in late
2001 and early 2002. Pretax underwriting losses in this segment were $99 million
in the first quarter of 2003, compared to breakeven results in 2002. The
underwriting results in this segment reflect losses of $39 million as a
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result of net prior period reserve adjustments, primarily from Lloyd's. The
reserve adjustments are included in the impact of eliminating the one-quarter
reporting lag at Lloyd's.
INVESTMENTS
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Net investment income was $281 million in the quarter, compared to $293 million
in the first quarter of 2002 and $288 million in the fourth quarter of 2002. The
decline from fourth-quarter was primarily attributable to a previously disclosed
$740 million payment that was made in mid-January 2003 related to the Western
MacArthur settlement. The average credit quality of the company's fixed income
investment portfolio remains AA+.
ASSET MANAGEMENT OPERATING OVERVIEW
- -----------------------------------
Nuveen Investments produced another quarter of consistent, high-quality earnings
growth and strong net asset flows in an environment of continued market
volatility and investor uncertainty. Nuveen contributed after-tax net income and
operating earnings of $26 million in the quarter compared to $23 million in the
prior year period. During the first-quarter Nuveen Investments introduced the
industry's first Preferred and Convertible Income Fund, which invests about 60
percent of its assets in investment-grade, taxable preferred stocks, 30 percent
in convertible securities and 10 percent in other types of securities. The
initial public offering of this fund raised $1.3 billion. Total assets under
management grew to $81.36 billion at the end of the quarter, an increase of 17.0
percent from $69.54 billion at March 31, 2002 and up 2.1 percent from $79.72
billion at Dec. 31, 2002. Nuveen Investments' gross sales in the first-quarter
were $4.20 billion, with positive net flows of $2.11 billion.
SUPPLEMENTAL NOTE
- -----------------
The St. Paul Companies acknowledged in a Form 8-K filing today the receipt of
claim notices relating to a previously disclosed commercial surety bond
exposure.
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SUMMARY FINANCIAL DATA
CONSOLIDATED FINANCIAL SUMMARY
- ------------------------------
Results prior to Impact of As reported
elimination of elimination of Three Months
reporting lag* reporting lag* Ended March 31
- --------------------------------------------------------------------------------------------------------------------
(In millions, except per share amounts)
2003 2002
Total Revenues $2,002 $111 $2,113 $2,333
Property-Liability Insurance:
Underwriting Result by Segment:
Specialty Commercial $108 $10 $118 ($6)
Commercial Lines 38 -- 38 (5)
------ ---- ------ ------
Subtotal - ongoing segments 146 10 156 (11)
Other (62) (37) (99) --
------ ---- ------ ------
Total Underwriting Result 84 (27) 57 (11)
Other Expense (30) (3) (33) (26)
Net Investment Income 277 3 280 290
------ ---- ------ ------
Total Property-Liability Pretax Income 331 (27) 304 253
Asset Management 42 -- 42 38
Parent and Other (56) -- (56) (57)
------ ---- ------ ------
Pretax Operating Earnings 317 (27) 290 234
Income Tax Expense 92 (8) 84 65
------ ---- ------ ------
Operating Earnings 225 (19) 206 169
Realized Investment Losses, Net of Taxes (25) -- (25) (21)
Cumulative Effect of Accounting Change, Net of Taxes -- -- -- (6)
Discontinued Operations, Net of Taxes -- -- -- (9)
------ ----- ------ ------
Net Income $200 ($19) $181 $133
====== ===== ====== ======
Weighted average common shares outstanding 227.1 227.1 227.1 207.9
Weighted average diluted common shares outstanding 237.5 237.5 237.5 219.5
Net Income and impact per diluted share $0.83 ($0.08) $0.75 $0.60
Operating Earnings and impact per diluted share $0.94 ($0.08) $0.86 $0.76
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<FN>
*The elimination of the one-quarter reporting lag for St. Paul at Lloyd's is discussed in the Financial
Highlights section.
</FN>
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STATUTORY COMBINED RATIO ANALYSIS
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Three Months
Ended March 31
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2003 2002
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Property-Liability Statutory Combined Ratio 97.2 99.5
Impact of Other Segment (6.2) (0.2)
---- ----
Ongoing Segments' Statutory Combined Ratio 91.0 99.3
Impact of Catastrophe Losses (0.1) 0.5
---- ----
Subtotal Ongoing excluding Catastrophe Losses 90.9 99.8
Impact of prior period reserve adjustments 0.8 (0.9)
---- ----
Adjusted Ongoing Statutory Combined Ratio 91.7 98.9
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CONSOLIDATED BALANCE SHEET DATA
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MARCH 31 DECEMBER 31
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($ in millions, except per-share amounts) 2003 2002
ASSETS:
Investments $ 21,751 $ 22,733
Reinsurance Recoverables 8,332 8,300
Other Receivables 3,155 3,128
Other Assets 6,794 5,798
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TOTAL ASSETS $ 40,032 $ 39,959
====== ======
LIABILITIES:
Insurance Reserves $ 25,453 $ 26,428
Debt - Conventional 2,221 2,270
Debt - Equity Unit Related 443 443
Other Liabilities 5,125 4,183
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Total Liabilities 33,242 33,324
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Preferred Securities 890 889
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SHAREHOLDERS' EQUITY:
Common 5,830 5,681
Preferred 70 65
------ ------
TOTAL SHAREHOLDERS' EQUITY 5,900 5,746
------ ------
Total Liabilities and Equity $ 40,032 $ 39,959
====== ======
Ratio of conventional debt obligations to 23.5% 24.3%
total capitalization
Ratio of total debt obligations to total 28.2% 29.0%
capitalization
Book value per common share $ 25.63 $ 25.05
Book value per common share, adjusted for $ 28.71 $ 28.82
Nuveen at after-tax market value
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o Reserves include loss and loss adjustment net reserves of $6.9 billion for
Other, which is comprised of our runoff businesses, with a weighted average
life of 4.9 years.
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KEY TERMS, DEFINITIONS AND RECONCILIATIONS
Capital Base: Consists of common shareholders' equity, debt and preferred
securities.
Catastrophe Losses: Effective Jan. 1, 2003, the company changed its disclosure
so that it no longer classifies all losses from Insurance Services Office
(ISO) defined catastrophes 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. Prior
periods have been reclassified to conform to this definition.
Expense Ratio: The company uses the statutory definition of expense ratio:
expenses / net written premiums
Loss Ratio: The company uses the statutory definition of loss ratio: (loss +
loss adjustment expenses) / net earned premiums
Combined Ratio: The sum of the statutory expense and loss ratios.
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. Non-GAAP measures are
often not comparable among issuers, and are not a substitute for GAAP
information. Operating earnings consists 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. 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 and excludes from equity
the average unrealized appreciation or depreciation on fixed income
securities, net of tax. 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 to
supplement GAAP information. Average equity is calculated using beginning
plus ending values for the quarter, divided by two.
Underwriting Results: The company calculates underwriting results using
statutory financial information, adjusting for GAAP concepts, primarily
deferred acquisition costs. Underwriting Results as reported = net earned
premium - incurred losses and loss adjustment expenses - underwriting
expenses +/- GAAP adjustments, primarily deferred acquisition costs. This
represents our best proxy for segment profitability, given the company does
not allocate investment income to underwriting segments. A reconciliation
of statutory underwriting results to the company's reported underwriting
results can be found on the company's web site.
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Reconciliation from net income return on average equity to operating earnings
return on average equity:
In computing operating earnings return on average equity in the first quarter of
2003, we excluded from net income realized losses of $25 million and excluded
from average equity the average unrealized appreciation of $712 million on fixed
income securities.
Reconciliation of net written premiums and combined ratios for the impact of
eliminating the one-quarter reporting lag of St. Paul at Lloyd's:
- ------------------------------------------------------------------------------------------------
($ in millions) Impact of Results prior
eliminating to elimination
As reporting of reporting
reported lag lag
------------- ------------- -----------------
NET WRITTEN PREMIUMS:
Commercial Lines $ 535 $ -- $ 535
Specialty Commercial 1,332 234 1,098
------- ----- -------
Ongoing segments 1,867 234 1,633
Other 110 3 107
------- ----- -------
Consolidated $ 1,977 $ 237 $ 1,740
======= ===== =======
Lloyd's & International (in Spec. Comm'l) $ 468 $ 234 $ 234
======= ===== =======
NET EARNED PREMIUMS:
Ongoing segments $ 1,569 $ 98 $ 1,471
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COMBINED RATIO:
Commercial Lines 90.3 -- 90.3
Specialty Commercial 91.4 0.7 90.7
------- ----- -------
Ongoing segments 91.0 0.5 90.5
Other 167.4 20.7 146.7
------- ----- -------
Consolidated 97.2 2.4 94.8
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Lloyd's & International (in Spec. Comm'l) 90.9 0.4 90.5
======= ===== =======
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The St. Paul Companies is headquartered in Saint Paul, Minn., 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 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; 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; 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; 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.
All financial results herein are unaudited as of the date of this release.