SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
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Date of Report (Date of earliest
event reported): July 23, 2002
THE ST. PAUL COMPANIES, INC.
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(Exact name of Registrant as specified in its charter)
Minnesota 001-10898 41-0518860
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(State of (Commission File (I.R.S. Employer
Incorporation) Number) Identification No.)
385 Washington St., St. Paul, MN 55102
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(Address of principal (Zip Code)
executive offices)
(651) 310-7911
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(Registrant's telephone number,
including area code)
N/A
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(Former name or former address, if changed since last
report)
Item 5. Other Events
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The St. Paul Companies, Inc. today announced its
consolidated financial results for the second quarter and
six months ended June 30, 2002. Those results are
summarized as follows:
Three Months Ended Six Months Ended
June 30 June 30
(in millions except per ------------------ ----------------
share amounts) 2002 2001 2002 2001
------ ------ ------ ------
Revenues:
Premiums earned $1,920 $1,743 $3,855 $3,371
Net investment income 286 300 579 635
Asset management 89 85 179 170
Realized investment gains (losses) (33) 7 (71) 84
Other 52 28 89 65
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Total revenues 2,314 2,163 4,631 4,325
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Expenses
Insurance losses and
loss adjustment expenses 1,986 1,346 3,379 2,529
Policy acquisition expenses 405 356 815 736
Operating and
administrative expenses 287 328 605 629
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Total expenses 2,678 2,030 4,799 3,894
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Income (loss) from
continuing operations
before income taxes (364) 133 (168) 431
Income tax expense (benefit) (146) 37 (98) 126
------ ------ ------ ------
Income (loss) before cumulative
effect of accounting change (218) 96 (70) 305
Cumulative effect of accounting
change, net of taxes - - (6) -
------ ------ ------ ------
Income (loss) from continuing
operations (218) 96 (76) 305
Discontinued operations, net of taxes (5) 8 (14) 1
------ ------ ------ ------
Net income (loss) $ (223) $ 104 $ (90) $ 306
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Basic earnings (loss)
per share:
Income (loss) from
continuing operations $(1.07) $ 0.43 $(0.41) $ 1.37
Discontinued operations,
net of taxes (0.02) 0.04 (0.06) 0.01
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Net income (loss) $(1.09) $ 0.47 $(0.47) $ 1.38
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Diluted earnings (loss)
per share:
Income (loss) from
continuing operations $(1.07) $ 0.41 $(0.41) $ 1.32
Discontinued operations,
net of taxes (0.02) 0.04 (0.06) 0.01
------ ------ ------ ------
Net income (loss) $(1.09) $ 0.45 $(0.47) $ 1.33
====== ====== ====== ======
Dividends declared on
common stock $ 0.29 $ 0.28 $ 0.58 $ 0.56
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The St. Paul's results in the second quarter of 2002
included a $585 million pretax loss provision ($380 million
after-tax) related to the previously announced settlement of
the Western MacArthur asbestos litigation. Excluding the
impact of that settlement, net income for the second quarter
would have been $157 million, or $0.71 per diluted share.
The company's estimate of the impact of the Western
MacArthur settlement includes the application of
approximately $150 million of asbestos reserves and $250
million in net reinsurance recoverables. Related to the
Western MacArthur settlement, and as part of an in-depth
analysis of the company's asbestos and environmental
reserves, the company recorded a $150 million reduction in
net environmental reserves, and a corresponding $150 million
increase in net asbestos reserves. The Western MacArthur
litigation settlement agreement is filed as an exhibit to
this Current Report on Form 8-K.
The company established $941 million in net reserves
for the September 11, 2001 terrorist attack. Net paid
losses were $63 million in the second quarter, and totaled
$210 million through June 30, 2002.
The table on the following page summarizes key
financial results for each of The St. Paul's property-
liability underwriting business segments (underwriting
results are presented on a GAAP basis; combined ratios are
presented on a statutory accounting basis).
Three Months Ended Six Months Ended
(dollars in millions) June 30 June 30
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2002 2001 2002 2001
n ------ ------ ------ ------
Specialty Commercial:
Written Premiums $604 485 1,180 941
Underwriting Result $60 17 64 7
Combined Ratio 88.5 95.7 93.8 98.9
Commercial Lines Group:
Written Premiums $381 388 887 818
Underwriting Result $(530) 37 (527) 114
Combined Ratio 226.5 90.3 161.6 83.1
Surety and Construction:
Written Premiums $329 257 677 521
Underwriting Result $5 21 9 41
Combined Ratio 96.7 87.8 95.6 89.1
Health Care:
Written Premiums $29 147 177 324
Underwriting Result $(102) (124) (100) (254)
Combined Ratio 205.0 175.3 142.4 172.9
Lloyd's and Other:
Written Premiums $245 296 312 394
Underwriting Result $(20) (28) (59) (51)
Combined Ratio 111.2 113.5 120.9 115.2
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Total Primary Insurance:
Written Premiums $1,588 1,573 3,233 2,998
Underwriting Result $(587) (77) (613) (143)
Combined Ratio 137.8 105.2 120.1 104.6
Reinsurance:
Written Premiums $201 280 662 701
Underwriting Result $(4) (36) 11 (57)
Combined Ratio 104.5 114.6 96.5 107.5
------ ------ ------ ------
Total Property-
Liability Insurance:
Written Premiums $1,789 1,853 3,895 3,699
GAAP Underwriting Result $(591) (113) (602) (200)
Statutory Combined Ratio:
Loss and Loss Expense Ratio 103.5 77.2 87.7 75.0
Underwriting Expense Ratio 28.8 29.3 28.3 30.2
------ ------ ------ ------
Combined Ratio 132.3 106.5 116.0 105.2
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In the fourth quarter of 2001, The St. Paul announced
that it would exit its worldwide Health Care business,
significantly reposition its Reinsurance and Lloyd's
operations, and that such operations would exit certain
types of business and exit a number
of non-U.S. primary insurance markets.
The businesses being exited are termed "runoff"
businesses. In the second quarter of 2002, the company
announced its intention to sell the ongoing reinsurance
operations of St. Paul Re to Platinum
Underwriters Holdings, Ltd. upon Platinum's
completion of its initial public offering. The St. Paul
would retain the liabilities and associated reserves for
contracts incepting prior to January 1, 2002. The company
intends to execute this strategy as capital market
conditions allow. As a result, all reinsurance underwriting
operations are now considered runoff business. The
following table summarizes the written premiums and
underwriting results, by segment, of those businesses being
exited.
Three Months Ended Six Months Ended
(in millions) June 30 June 30
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2002 2001 2002 2001
Specialty Commercial: ------ ------ ------ ------
Written Premiums $15 35 42 55
Underwriting Result $(6) (12) (10) (17)
Surety and Construction:
Written Premiums $- 2 2 3
Underwriting Result $1 1 2 1
Health Care:
Written Premiums $29 147 177 324
Underwriting Result $(102) (124) (100) (254)
Lloyd's and Other:
Written Premiums $65 169 115 241
Underwriting Result $(29) (29) (53) (46)
------ ------ ------ ------
Total Primary Insurance:
Written Premiums $109 353 336 623
Underwriting Result $(136) (164) (161) (316)
Reinsurance:
Written Premiums $201 280 662 701
Underwriting Result $(4) (36) 11 (57)
------ ------ ------ ------
Total Runoff Operations:
Written Premiums $310 633 998 1,324
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GAAP Underwriting Result $(140) (200) (150) (373)
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A significant portion of the company's loss reserves relate to runoff
businesses. The payments for claims from these reserves will negatively
impact investment income as invested assets related to the reserves
decline.
Item 7. Exhibits
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An Exhibit Index is included herein.
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
THE ST. PAUL COMPANIES, INC.
By: Bruce A. Backberg
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Bruce A. Backberg
Senior Vice President
Date: July 23, 2002
EXHIBIT INDEX
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Exhibit
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99 (a) Settlement Agreement dated June 3, 2002 among
MacArthur Company, Western MacArthur Company and
Western Asbestos Company, together with each of
their predecessors and successors, affiliates and
subsidiaries, United States Fidelity & Guaranty
Co., The St. Paul Fire and Marine Insurance
Company, The St. Paul Companies, Inc., its
affiliates and subsidiaries, and the Asbestos
Plaintiffs.