-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NfLmZeA3evONO4gHh7IrjK8EcgAODy11U/o7uyqjveWlGZhtqK1KEaQF3BKgONFa Cd27TeV1yco+S+7pGWMGrA== 0000310823-95-000024.txt : 19951119 0000310823-95-000024.hdr.sgml : 19951119 ACCESSION NUMBER: 0000310823-95-000024 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951114 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HARTFORD STEAM BOILER INSPECTION & INSURANCE CO CENTRAL INDEX KEY: 0000310823 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 060384680 STATE OF INCORPORATION: CT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10527 FILM NUMBER: 95592364 BUSINESS ADDRESS: STREET 1: ONE STATE ST CITY: HARTFORD STATE: CT ZIP: 06102 BUSINESS PHONE: 2037221866 MAIL ADDRESS: STREET 1: ONE STATE STREET STREET 2: P.O. BOX 5024 CITY: HARTFORD STATE: CT ZIP: 06102-5024 10-Q 1 10-Q DOCUMENT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q /x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1995 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from --------- to ------- Commission File Number 0-13300 THE HARTFORD STEAM BOILER INSPECTION AND INSURANCE COMPANY (Exact name of registrant as specified in its charter) CONNECTICUT 06-0384680 State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) ONE STATE STREET, HARTFORD, CONNECTICUT 06102 (Address of principal executive offices) (Zip Code) (203) 722-1866 (Registrant's telephone number, including area code) Not Applicable (Former name, former address and former fiscal year, if changed since the last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No The number of shares outstanding of the registrant's common stock without par value, as of October 31, 1995: 20,334,813 THE HARTFORD STEAM BOILER INSPECTION AND INSURANCE COMPANY INDEX PART I FINANCIAL INFORMATION PAGE Consolidated Statements of Operations for the Quarters and Nine Months Ended September 30, 1995 and 1994 (unaudited)................................. 3 Consolidated Statements of Financial Position as of September 30, 1995 (unaudited) and December 31, 1994................................................ 4 Consolidated Statements of Cash Flow for the Nine Months Ended September 30, 1995 and 1994 (unaudited)......................................... 5 Notes to Consolidated Financial Statements.......... 6 Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations....................................... 8 PART II OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K........... 14 SIGNATURES.............................................. 15 2 Part I. Financial Information THE HARTFORD STEAM BOILER INSPECTION AND INSURANCE COMPANY Consolidated Statements of Operations Unaudited (In millions, except per share data) Quarter Nine Months Ended September 30 Ended September 30 1995 1994 1995 1994 ------- ------- ------- ------- Revenues: Insurance premiums $ 98.3 $ 84.3 $ 290.0 $ 251.7 Net engineering services 65.9 57.5 190.3 172.0 Net investment income 6.5 6.4 20.5 19.1 Realized investment gains 1.0 1.8 2.5 8.2 ------- ------- ------- ------- Total revenues 171.7 150.0 503.3 451.0 ------- ------- ------- ------- Expenses: Claims and adjustment 38.0 33.8 114.8 111.0 Policy acquisition 20.3 16.2 58.5 47.5 Underwriting and inspection 29.6 26.8 90.4 76.9 Net engineering services 60.3 52.6 173.0 158.8 Interest 0.4 0.4 1.2 1.2 Charge for Proposition 103 - 2.9 - 2.9 ------- ------- ------- ------- Total expenses 148.6 132.7 437.9 398.3 ------- ------- ------- ------- Equity in operations of insurance association - 0.4 - 1.1 ------- ------- ------- ------- Income before taxes 23.1 17.7 65.4 53.8 Income taxes: Current 6.1 3.8 19.2 12.7 Deferred 0.7 1.6 0.2 2.6 ------- ------- ------- ------- Total income taxes 6.8 5.4 19.4 15.3 Net income $ 16.3 $ 12.3 $ 46.0 $ 38.5 ======= ======= ======= ======= Net income per share $ 0.80 $ 0.60 $ 2.25 $ 1.88 ======= ======= ======= ======= Dividends declared per share $ 0.57 $ 0.55 $ 1.67 $ 1.61 Average shares outstanding 20.4 20.5 20.4 20.5
See Notes to Consolidated Financial Statements. 3 THE HARTFORD STEAM BOILER INSPECTION AND INSURANCE COMPANY Consolidated Statements of Financial Position (In millions, except per share data) September 30, December 31, 1995 1994 (Unaudited) ------------ ------------ Assets: Cash $ 6.4 $ 12.1 Short-term investments, at cost 112.5 73.8 Fixed maturities, at fair value (cost - $236.7; $205.2) 240.8 198.9 Equity securities, at fair value (cost - $151.7; $178.7) 204.5 204.9 ----------- ----------- Total cash and invested assets 564.2 489.7 Insurance premiums receivable 78.4 83.1 Engineering services receivable 69.8 72.1 Fixed assets 60.6 64.2 Prepaid acquisition costs 33.3 35.5 Capital lease 17.0 17.5 Reinsurance recoverable 33.5 44.9 Other assets 105.4 98.7 ----------- ---------- Total assets $ 962.2 $ 905.7 =========== ========== Liabilities: Unearned insurance premiums $ 207.6 $ 201.3 Claims and adjustment expenses 180.8 199.4 Short-term borrowings 42.8 50.9 Long-term borrowings 25.5 0.6 Capital lease 27.8 27.8 Deferred income taxes 9.4 (4.6) Dividends payable 11.6 11.2 Minority Interest 20.0 20.0 Other liabilities 103.7 99.6 ----------- ---------- Total liabilities 629.2 606.2 ----------- ---------- Shareholders' equity: Common Stock (stated value; shares authorized 50.0; shares issued 21.3; shares outstanding 20.4; 20.4) 10.0 10.0 Additional paid-in capital 33.9 34.0 Unrealized investment gains, net of tax 36.4 13.9 Retained earnings 300.1 288.1 Treasury stock, at cost; (shares 1.0; .9) (44.4) (41.9) Benefit plans (3.0) (4.6) ----------- ---------- Total shareholders' equity 333.0 299.5 ----------- ---------- Total liabilities and shareholders' equity $ 962.2 $ 905.7 ============ ========== Shareholders' equity per share 16.36 14.67
See Notes to Consolidated Financial Statements. 4 THE HARTFORD STEAM BOILER INSPECTION AND INSURANCE COMPANY Consolidated Statements of Cash Flows Unaudited (In Millions) Nine Months Ended September 30, 1995 1994 ------------ ---------- Operating Activities: Net income $ 46.0 $ 38.5 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 14.6 15.8 Deferred income taxes 0.2 2.6 Realized investment gains (2.5) (8.2) Change in: Insurance premiums receivable 4.7 5.7 Engineering services receivable 2.3 6.7 Prepaid acquisition costs 2.2 (0.6) Reinsurance recoverable 11.4 7.1 Unearned insurance premiums 6.3 (3.7) Claims and adjustment expenses (18.6) (27.3) Other (1.7) (5.5) ------------ ---------- Cash provided by operating activities 64.9 31.1 ------------ ---------- Investing Activities: Fixed asset additions (8.2) (9.8) Investments: Purchase of short-term investments, net (38.6) (13.1) Purchase of fixed maturities (134.2) (33.1) Proceeds from sale of fixed maturities 88.2 3.8 Redemption of fixed maturities 13.1 12.4 Purchase of equity securities (77.1) (119.7) Proceeds from sale of equity securities 107.7 178.6 ------------ --------- Cash provided by (used in) investment activities (49.1) 19.1 ------------ --------- Financing Activities: Dividends paid to shareholders (33.7) (32.6) Decrease in short-term borrowings, net (8.1) (11.6) Increase in long-term debt 25.0 0.0 Repayment of long-term debt (0.1) (0.1) Repayment of employee stock ownership plan debt (1.6) (1.5) Purchase of treasury stock (3.0) (5.0) ------------ -------- Cash used in financing activities (21.5) (50.8) ------------ --------- Net decrease in cash (5.7) (0.6) Cash at beginning of period 12.1 7.3 ------------ --------- Cash at end of period $ 6.4 $ 6.7 ============ ========= Interest paid $ 3.2 $ 3.0 ------------ --------- Federal income tax paid $ 14.7 $ 4.8 ------------ ---------
See Notes to Consolidated Financial Statements. 5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. General The interim financial statements in this report include adjustments based on management's best estimates and judgments, including estimates of future loss payments, which are necessary to present a fair statement of the results for the interim periods reported. These adjustments are of a normal, recurring nature. The financial statements are prepared on the basis of generally accepted accounting principles and should be read in conjunction with the financial statements and related notes in the 1994 Annual Report. Certain prior year amounts have been reclassified to conform with the 1995 presentation. 2. Engineering Insurance Group Acquisition In December 1994, the Company acquired the remaining 50 percent interest in Engineering Insurance Group (EIG) from General Reinsurance Corporation (Gen Re). Coincident with the acquisition, the partnership was incorporated with the Company acquiring all outstanding common shares and Gen Re acquiring preferred shares of the new Company, EIG, Co. The 1994 Consolidated Statement of Operations includes EIG's results in Equity in operations of insurance association. The Company's equity in EIG, Co. was fully consolidated at December 31,1994 in the Consolidated Statement of Financial Position. The 1995 amounts include EIG, Co. on a fully consolidated basis. 3. Radian Corporation Joint Venture On October 23, 1995, HSB and The Dow Chemical Company (Dow) announced plans for two of their wholly owned subsidiaries to form a new company, tentatively named Dow Radian LLC (Limited Liability Company), which will provide environmental, information technology, and strategic chemical management services to industries and government worldwide. The new company, consisting of assets contributed by Dow Environmental Inc. (DEI) and Radian Corporation, will be headquartered in Austin, TX. Dow Radian will integrate the engineering and environmental strengths of Radian and DEI, and DEI's access to the chemical industry process technology of Dow to provide a wide range of process and environmental systems and services to global customers. According to the terms of the agreement in principle, the ownership of Dow Radian will be 60 percent Dow and 40 percent HSB, via the wholly owned subsidiaries of each 6 company. Plans call for the transaction to be completed at or near year end subject to the completion of due diligence. 4. Industrial Risk Insurers Effective December 1, 1995 the Company will increase its participation in Industrial Risk Insurers (IRI) from approximately 0.05 percent to 14 percent. IRI is a voluntary joint underwriting association providing property insurance for the class of business known as Highly Protected Risks - larger manufacturing, processing, and industrial businesses which have invested in protection against loss through the use of sprinklers and other means. The increased participation will result in approximately $50 million to $60 million in additional revenue to HSB in 1996 with minimal impact on earnings in the near term. 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS SEPTEMBER 30, 1995 RESULTS OF OPERATIONS - --------------------- (dollar amounts in millions) Consolidated Overview - --------------------- Quarter Ended Nine Months Ended September 30 September 30 -------------------- -------------------- 1995 1994 1995 1994 -------- -------- -------- -------- Insurance premium $ 98.3 $ 84.3 $ 290.0 $ 251.7 Net engineering services revenues 65.9 57.5 190.3 172.0 Net investment income 6.5 6.4 20.5 19.1 Realized investment gains 1.0 1.8 2.5 8.2 -------- -------- -------- -------- Total revenues $ 171.7 $ 150.0 $ 503.3 $ 451.0 -------- -------- -------- -------- Net income $ 16.3 $ 12.3 $ 46.0 $ 38.5 ======== ======== ======== ========
Net income for the third quarter of 1995 increased 33 percent over the third quarter of 1994. The increase was achieved through improvements in both underwriting and engineering services results. Net income for the first nine months of 1995 increased 19 percent over the first nine months of 1994 with improvements in insurance and engineering results being offset, in part, by lower realized gains. The 1994 results were impacted by a $2.9 million charge for California proposition 103. Consolidated revenues in the third quarter of 1995 were up 14 percent from the same quarter in 1994. Insurance premiums increased 17 percent in the quarter. In 1994, EIG, Co. results were presented on the equity method of accounting and, accordingly, were not reflected under the revenue captions. If EIG had been 100 percent owned and fully consolidated in 1994, premiums would have increased by 6 percent in the current quarter. Engineering services revenues increased 15 percent from the third quarter last year with Radian Corporation accounting for most of the gain. Net investment income increased 2 percent in the current quarter while realized gains were lower. Consolidated revenues for the first nine months of 1995 increased 12 percent from the same period in 1994 with insurance, engineering services and investments all having positive variances to the prior year. The acquisition and full consolidation of EIG accounted for more than half of the increase. 8 The effective tax rate for the third quarter and the first nine months of 1995 was 29 percent and 30 percent, respectively, compared to 31 and 28 percent, respectively, for the comparable prior year periods. The year to date tax rate fluctuations resulted from improvement in insurance and engineering services operating results. This changes the mix of pre-tax income between fully taxable earnings and tax preferred investment income. The Company continues to manage its use of tax advantageous investments to maximize after tax investment earnings. Recent Accounting Developments - ------------------------------ In March 1995, the Financial Accounting Standards Board (the Board) issued Statement of Financial Accounting Standards No. 121 (SFAS 121) "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" effective for fiscal years beginning after December 31, 1995. SFAS 121 requires that entities review long-lived assets, certain intangibles and goodwill for possible impairment whenever circumstances indicate that the carrying amount of an asset may not be recoverable. The SFAS also requires that long-lived assets and certain intangibles to be disposed of be reported at the lower of carrying amount or fair value less cost to sell. Implementation of SFAS 121 is not expected to have a material impact on the Company's financial results or position. In October 1995, the Financial Accounting Standards Board (the Board) issued Statement of Financial Accounting Standards No. 123 (SFAS 123) "Accounting for Stock-Based Compensation" effective for fiscal years beginning after December 15, 1995. SFAS 123 allows entities to adopt the fair value based method of accounting for stock compensation or continue under the provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees. Entities electing to remain with the accounting in Opinion 25 must make pro forma disclosures of net income and earnings per share as if the fair value based method of accounting in this Statement had been applied. The Company has not yet determined which approach under the provisions of SFAS 123 will be adopted. 9 Insurance Operations - -------------------- Insurance operations include the insurance results of The Hartford Steam Boiler Inspection and Insurance Company, the Boiler Inspection and Insurance Company of Canada (BI & I) and EIG, Co. The 1995 results include EIG, Co. on a fully consolidated basis. The 1994 insurance results do not include EIG as their net results were recorded as Equity in operations of insurance association rather than in premium and other income statement accounts. Quarter Ended Nine Months Ended September 30 September 30 --------------- ----------------- 1995 1994 1995 1994 ------- ------- -------- -------- Gross earned premium $ 116.1 $ 97.1 $ 342.7 $ 286.4 Ceded premium 17.8 12.8 52.7 34.7 ------- ------- -------- -------- Insurance premium 98.3 84.3 290.0 251.7 Claims and adjustment expenses 38.0 33.8 114.8 111.0 Underwriting, acquisition and other expenses 49.9 45.9 148.9 127.3 ------- ------- -------- -------- Underwriting gain $ 10.4 $ 4.6 $ 26.3 $ 13.4 ======= ======= ======== ========
Insurance premiums in the third quarter of 1995 increased 17 percent from the third quarter of 1994. This increase was primarily attributable to the acquisition and full consolidation of EIG, Co. and growth in reinsurance assumed business, offset by slightly higher reinsurance costs. EIG, Co.'s premiums increased 34 percent in the current quarter compared to the third quarter 1994 and reinsurance assumed premiums increased 12 percent over the same periods. Insurance premiums for the first nine months of 1995 increased 15 percent from the comparable 1994 period with EIG, Co. and reinsurance assumed business accounting for the improvement. Reinsurance ceded costs increased 39 percent in the current quarter and 52 percent year to date from the comparable periods in 1994. The acquisition and full consolidation of EIG Co. accounted for $3.5 million of the third quarter increase and $ 11.7 million of the year to date increase. Higher reinsurance treaty costs also contributed to the variance. The loss ratio improved in the current quarter and on a year to date basis compared to the same periods in 1994 as both frequency and severity of claims continued to improve. Claims and adjustment expenses increased 12 percent in the current quarter compared to the third quarter 1994 and 3 percent on a year to date basis. These variances were due to the acquisition and full consolidation of EIG, Co. Exclusive of EIG, Co., claims and adjustment expenses decreased 7 percent for the first three quarters of 1995 from the same period in 1994. Claims for the first nine 10 months of 1994 reflect losses of $4.8 million for the California earthquake while in 1995 there have been no material catastrophic losses to date. Gross claims and adjustment expenses for the first nine months of 1995 and 1994 were $123.4 million and $142.1 million, respectively. Underwriting, acquisition and other expenses increased approximately 16 percent in the current quarter and 20 percent year to date compared to the same 1994 periods. These increases were primarily due to the acquisition and full consolidation of EIG, Co. and the increase in acquisition costs associated with the assumed book of business. Exclusive of EIG, Co., insurance operating expenses increased 6 percent in the first nine months of 1995 compared to the same period in 1994. The components of the combined ratio, were as follows: Quarter Ended Nine Months Ended September 30 September 30 --------------------- ------------------ 1995 1994* 1995 1994* ------ ------ ------ ------ Loss ratio 38.7% 40.1% 39.6% 44.1% Expense ratio 50.3% 51.0% 50.8% 49.4% ------ ------ ------ ------ Combined ratio 89.0% 91.1% 90.4% 93.5% ====== ====== ====== ======
* - 1994 ratios do not include the results of EIG. Engineering Services Operations - ------------------------------- Quarter Ended Nine Months Ended September 30 September 30 --------------- ----------------- 1995 1994 1995 1994 ------- ------- -------- -------- Net engineering services revenue $ 65.9 $ 57.5 $ 190.3 $ 172.0 Net engineering services expenses 60.3 52.6 173.0 158.8 ------- ------- -------- -------- Operating gain $ 5.6 $ 4.9 $ 17.3 $ 13.2 ======= ======= ======== ======== Net margin 8.5% 8.5% 9.1% 7.7%
Engineering services operations include the results of HSB's and BI&I's engineering services, Radian Corporation, HSB Reliability Technologies (HSBRT) and the Company's other engineering services subsidiaries. 11 Net engineering services revenues continued to show consistent growth as the third quarter and the first nine months of 1995 were up 15 percent and 11 percent, respectively, from the same periods in 1994. The growth in revenues was primarily due to increases generated by Radian Corporation, the Company's largest engineering and environmental services subsidiary. Radian's continues to be effective in increasing market share in the defense, petroleum/chemicals and general manufacturing sectors. The consolidated engineering services operating gain increased 14 percent in the current quarter and 31 percent on a year to date basis from the same periods in 1994. Improvements in operating margins by HSBRT and the gain on Radian's increased revenue generated the increases. HSBRT disposed of certain unprofitable operations in late 1994. Investment Operations - --------------------- Quarter Ended Nine Months Ended September 30 September 30 ------------------ ------------------- 1995 1994 1995 1994 ------ ------- ------- ------- Net investment income $ 6.5 $ 6.4 $ 20.5 $ 19.1 Realized investment gains 1.0 1.8 2.5 8.2 ------ ------- ------- ------- Pretax income from investment operations $ 7.5 $ 8.2 $ 23.0 $ 27.3 ====== ======= ======= =======
Net investment income increased 2 percent for the third quarter of 1995 compared to the third quarter of 1994 and 7 percent for the first nine months of 1995 from the first nine months of 1994. The increase was due to the acquisition and full consolidation of EIG, Co. The Company has continued to shift the mix of its portfolio to fixed maturities to maximize after tax investment income. The year to date effective tax rate on investment income decreased to 15.4 percent in 1995 from 16.2 percent for the first nine months of 1994. The Company's investment portfolio, including short term investments, fixed maturities and equity securities, increased $80.2 million in the first nine months of 1995. Unrealized market gains accounted for $36.7 million of the increase. 12 Liquidity and Capital Resources - ------------------------------- Balances at September 30 December 31 ----------------------------- 1995 1994 ------- ------- Total assets $ 962.2 $ 905.7 Short-term investments 112.5 73.8 Cash 6.4 12.1 Short-term borrowings 42.8 50.9 Long-term borrowings 25.5 0.6 Shareholder's equity 333.0 299.5
Liquidity refers to the Company's ability to generate sufficient funds to meet the cash requirements of its business operations. Cash provided from operations was $64.9 million in the first nine months of 1995 compared to $31.1 million in the first nine months of 1994. The increase over 1994 was due to improved cash flow from insurance and engineering services operations. Cash flow from operations improved primarily through increases in premiums and engineering services revenue collected and lower claims paid, partially offset by higher paid expenses. The Company receives a regular inflow of cash from maturing investments, engineering and insurance operations and maintains a highly liquid investment portfolio. The Company manages its cash and short-term investment position to meet its operating expense and claim payment needs. Capital resources consist of shareholders' equity and debt outstanding and represent those funds deployed or available to be deployed to support business operations. Shareholders' equity of $333.0 million at September 30, 1995 increased by $33.5 million since December 31, 1994, representing an increase in book value per share of $1.69 to $16.36 from $14.67. The increase in book value per share reflects an increase in unrealized gains, net of tax, of $22.5 million during the first nine months of 1995, and net income of $46.0 million, offset by dividends of $34.0 million. At September 30, 1995, the Company had significant short-term and long-term borrowing capacity. The Company is currently authorized to issue up to $75 million of commercial paper. Commercial paper outstanding at September 30, 1995 and December 31, 1994 was $42.7 and $26.7 million, respectively. The Company does not anticipate any significant capital commitment associated with the Radian/Dow transaction and currently has no significant capital commitments planned for the remainder of 1995 and beyond. 13 PART II - OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K (a) Exhibits - (10)(iii): Pre-Retirement Death Benefit and Supplemental Pension Agreement dated September 18, 1995 between the registrant and one of its executive officers. (27): Financial Data Schedule (b) Reports on Form 8-K - None during the quarterly period ended September 30, 1995. 14 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE HARTFORD STEAM BOILER INSPECTION AND INSURANCE COMPANY Date: November 14, 1995 By: /s/ Saul A. Basch Saul A. Basch Senior Vice President, Treasurer and Chief Financial Officer Date: November 14, 1995 By: /s/ Robert C. Walker Robert C. Walker Senior Vice President and General Counsel 15 EX-10 2 PRE-RETIREMENT DEATH BENEFIT AND SUPPLEMENTAL PENSION AGREEMENT THIS AGREEMENT, made and entered into this 18th day of September, 1995 between The Hartford Steam Boiler Inspection and Insurance Company, (hereinafter referred to as the "Corporation"), a Corporation organized and existing under the laws of the State of Connecticut and William A. Kerr (hereinafter referred to as the "Executive"). WHEREAS, the Executive is employed by the Corporation and is currently serving as Senior Vice President, and WHEREAS, the Executive has performed his duties in a capable and efficient manner, resulting in substantial growth and progress to the Corporation; and WHEREAS, the Corporation desires to retain the services of the Executive, and realizes that if he were to leave the Corporation it could suffer a substantial financial loss; and WHEREAS, the Executive is willing to continue in the employ of the Corporation if the Corporation will agree to pay him or his designees certain benefits in accordance with the provisions and conditions hereinafter set forth; and WHEREAS, it is now understood and agreed that this Agreement is to be effective as of September 18, 1995; NOW, THEREFORE, for value received and in consideration of the mutual covenants contained herein, the parties covenant and agree as follows: ARTICLE I - DEFINITIONS For purposes of this Agreement, the following terms have the meanings set forth below: 1.1 "Change in Control," as referred to in this Agreement, means a change in control of a nature that would be required to be reported in response to item 5(f) of Schedule 14 of Regulation 14A promulgated under the Securities Exchange Act of 1934 ("Exchange Act"); provided that, without limitation, such a change in control shall be deemed to have occurred if (i) any "person" (as such term is used in Sections 13(d) and 14 (d)(2) of the Exchange Act) is or becomes the beneficial owner (as defined under Rule 13-d of the Exchange Act) directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding securities; or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company cease for any reason to constitute at least a majority thereof unless the nomination for election or election of each director, who was not a director at the beginning of the period, was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period. 1.2 "Executive's Base Annual Salary" means annual salary, exclusive of bonuses, at the date of Termination of the Executive's Employment or the date of a Change in Control, whichever amount is higher. 1.3 "Full-Time Employment" means employment on a full-time basis with the Corporation or any wholly-owned subsidiary thereof. 1.4 "Retirement" means the Termination of the Executive's Employment after attaining age 55 for any reason other than for Cause or on account of the Executive's death. 1.5 "Termination of the Executive's Employment" means the cessation of the Executive's Full-Time Employment for any reason. 1.6 "Termination of the Executive's Employment for Cause" means the Termination of the Executive's Employment after (i) providing the Corporation with materially false reports concerning the Executive's business interests or employment- related activities; (ii) making materially false representations relied upon by the Corporation in furnishing information to shareholders, a stock exchange, or the Securities and Exchange Commission; (iii) maintaining an undisclosed, unauthorized and material conflict of interest in the discharge of duties owed by the Executive to the Corporation; (iv) misconduct causing a serious violation by the Corporation of state and federal laws; (v) theft of Corporate funds or corporate assets; or (vi) conviction of a crime (excluding traffic violations and similar misdemeanors). 1.7 "Total Disability" means the same as defined under the Corporation's Long Term Disability Plan or if no such plan is in effect at the time a total disability is being determined, then the same as for the purposes of the Executive's entitlement to Social Security benefits. ARTICLE II - PRE-RETIREMENT DEATH BENEFIT 2.1 If the Termination of the Executive's Employment is on account of the Executive's death, a death benefit equal to twenty-five (25%) of the Executive's Base Annual Salary at the time of his death will be paid subject to the limitations under Article VII. This death benefit will be paid by the Corporation to the beneficiary of the Executive each year for fifteen years (15) years. The amount to be paid each year will be paid in equal monthly installments beginning on the first day of the month following the date of the Executive's death and on the first day of the month thereafter. In the event the Termination of the Executive's Employment is on account of any event other than death, no benefit will be paid by the Corporation under this Article II. ARTICLE III - SUPPLEMENTAL PENSION BENEFIT 3.1 Eligibility for Supplemental Pension Benefit on Retirement after Age 65 If the Retirement of the Executive occurs after the Executive has attained age 65, the Executive will be entitled to receive an annual Supplemental Pension Benefit under this Agreement in an amount equal to seventeen and one-half percent (17.5%) of the Executive's Base Annual Salary. This Supplemental Pension Benefit will be paid by the Corporation to the Executive each year for fifteen (15) years. The amount to be paid each year will be paid in equal monthly installments beginning on the first day of the month, following the date of the Retirement of the Executive, and on the first day of each month thereafter. 3.2 Eligibility for Supplemental Pension Benefit on Retirement after Age 55 If the Retirement of the Executive occurs after the Executive has attained age 55 but prior to attaining age 65, the Executive will be entitled to receive an annual Supplemental Pension Benefit under this Agreement in an amount equal to seventeen and one-half (17.5%) percent of the Executive's Base Annual Salary, multiplied by the applicable percentage set forth in Appendix A and multiplied by the percentage set forth in Appendix B, if applicable. This Supplemental Pension Benefit will be paid by the Corporation to the Executive each year for fifteen (15) years. The amount to be paid each year will be paid in equal monthly installments beginning on the first day of the month following the date of the Retirement of the Executive and on the first day of each month thereafter. 3.3 Eligibility for Supplemental Pension Benefit on Total Disability (a) If the Termination of the Executive's Employment occurs on account of Total Disability, the Executive will be entitled to receive a Supplemental Pension Benefit under this Agreement in an amount equal to seventeen and one-half percent (17.5%) of the Executive's Base Annual Salary reduced by any benefit to which the Executive may be entitled under Social Security, the Corporation's Long-Term Disability Plan payments, Worker's Compensation awards, or any combination thereof, on account of Total Disability. This Supplemental Pension Benefit, if any, will be paid by the Corporation to the Executive each year for fifteen (15) years. The amount to be paid each year will be paid in equal monthly installments, beginning on the first day of the month following the date of the Termination of the Executive's Employment, and on the first day of each month thereafter. (b) If, at any time during a period in which the Executive is entitled to receive payments on account of Total Disability, the condition of Total Disability no longer exists, the Corporation's obligation to make any further payments on account of Total Disability will terminate on the date on which Total Disability no longer exists. If the Executive resumes employment with the Corporation following such Total Disability in the same or a similar capacity as the Executive occupied prior to such Total Disability, any supplemental pension or death benefit to which the Executive or his beneficiary otherwise becomes entitled shall be unreduced on account of the payments received on account of the Executive's Total Disability hereunder. 3.4 Termination of the Executive's Employment for Cause If the Termination of the Executive's Employment is a Termination of the Executive's Employment for Cause, notwithstanding any other provision of this Agreement, the Executive will not be entitled to receive any benefits under this Article III. 3.5 Eligibility for Supplemental Pension Benefit on Other Than Retirement or Total Disability Except, as provided in Article IV, if the Termination of the Executive's Employment occurs for any reason other than those provided in this Article III, or is for a reason provided for in this Article III but is under circumstances which do not meet the requirements for entitlement to a benefit under said Article, the Executive will not be entitled to receive a Supplemental Pension Benefit under this Agreement. ARTICLE IV TERMINATION OF EXECUTIVE'S EMPLOYMENT FOLLOWING CHANGE IN CONTROL 4.1 If the Executive's employment with the Corporation is terminated by the Corporation during the six (6) months following a Change in Control, and is not a Termination of the Executive's Employment for Cause or on account of the Executive's death or Total Disability, said termination shall be deemed a termination on account of the Retirement of the Executive after age 65, and the Executive shall be entitled to the benefit provided in Section 3.1 of Article III hereof, as if the Executive had retired on the date of such termination. 4.2 If the Termination of the Executive's Employment occurs six (6) months or later following a Change in Control, and is not a Termination of the Executive's Employment for Cause or on account of the Executive's death or Total Disability, said termination shall be deemed a termination on account of the Retirement of the Executive after age 65, and the Executive shall be entitled to the benefit provided in Section 3.1 of Article III hereof, as if the Executive had retired on the date of such termination. ARTICLE V - BENEFICIARY OF DEATH BENEFIT OR SUPPLEMENTAL PENSION 5.1 In the event that the termination of the Executive's employment with the Corporation is on account of the Executive's death or that the Executive should die prior to receipt of any amounts(s) due or remaining to be paid under Article III of this Agreement, the death benefit payable under Article II or any amounts remaining payable under Article III, shall be paid at the times and in the manner specified under the terms of Article II or Article III, as applicable, to such beneficiary or beneficiaries as the Executive may have designated by filing with the Corporation a notice in writing in a form acceptable to the Corporation. In the absence of any such designation, such unpaid amounts shall be paid to the Executive's surviving spouse, or if the Executive should die without a spouse surviving, to the Executive's estate. ARTICLE VI - CLAIMS PROCEDURE 6.1 Filing Claims Any insured, beneficiary or other individual (hereinafter, "Claimant") entitled to benefits under the Agreement shall file a claim request with the Administrator. 6.2 Notification of Claimant If a claim request is wholly or partially denied, the Administrator will furnish to the Claimant a notice of the decision within 90 days in writing and in a manner calculated to be understood by the Claimant, which notice will contain the following information: (a) The specific reason or reasons for the denial; (b) Specific reference to pertinent provisions of the Agreement upon which the denial is based; (c) A description of any additional material or information necessary for the Claimant to perfect the Claim and an explanation of why such material or information is necessary; and (d) An explanation of the claims review procedure under the Agreement describing the steps to be taken by a Claimant who wishes to submit his claim for review. 6.3 Review Procedure Claimant or his authorized representative may with respect to any denied claims: (a) Request a review upon written application filed within sixty (60) days after receipt by the Claimant of written notice of the denial of his claim; (b) Review pertinent documents; and (c) Submit issues and comments in writing. Any request or submission must be in writing and directed to the Fiduciary (or its designee). The Fiduciary (or its designee) will have the sole responsibility for the review of any denied claim and will take all steps appropriate in the light of its findings. 6.4 Decision on Review (a) The Fiduciary (or its designee) will render a decision following its review. If special circumstances (such as the need to hold a hearing on any matter pertaining to the denied claim) warrant additional time, the decision will be rendered as soon as possible, but not later than 120 days after receipt of the request for review. Written notice of any such extension will be furnished to the Claimant prior to the commencement of the extension. (b) The decision on review will be in writing and will include specific reasons for the decision, written in a manner calculated to be understood by the Claimant, as well as specific references to the pertinent provisions of the Agreement on which the decision is based. (c) If the decision on the review is not furnished to the Claimant within the time limits prescribed above, the claim will be deemed denied on review. ARTICLE VII - MISCELLANEOUS PROVISIONS 7.1 Misrepresentation (a) The Corporation may deem it appropriate to insure its obligation to provide all or any part of the benefits described in this Agreement. The Corporation may wish to make any insurance used to insure its obligation effective as of the date the Executive becomes entitled to the benefit insured with such insurance. If the Corporation does deem it appropriate to insure all or any part of any such benefits, the Corporation will so notify the Executive. The Executive agrees to take whatever actions may be necessary to enable the Corporation to timely apply for, acquire and maintain such insurance and to fulfill the requirements of the insurance company relative to the issuance thereof. (b) If the Executive is required by the Corporation to submit information to one or more insurers in order to secure insurance as described herein, and if the Executive has made a material misrepresentation in any application for such insurance, the Executive's right to a benefit under this Agreement will be reduced by the amount of the benefit that is not paid by the insurer(s) because of such material misrepresentation. 7.2 Suicide No benefit will be payable under this Agreement if the Executive dies by suicide within two years after the effective date of this Agreement or of any policy secured pursuant to Section 7.1. No increase in the amount of any benefit provided in this Agreement will be payable under this Agreement if the Executive dies by suicide within two years of the effective date of such increase or any policy secured by the Corporation to insure its obligation for such increase. 7.3 Satisfaction of Claims The Executive agrees that his rights and interests, and rights and interests of any persons taking under or through him, will be completely satisfied upon compliance by the Corporation with the provisions of this Agreement. 7.4 Amendment The Agreement may be altered, amended, or modified only by a written instrument signed by the Corporation and the Executive. This Agreement sets forth the entire understanding of the parties with respect to the subject matter thereof. 7.5 Governing Law This Agreement will be governed by the laws of the State of Connecticut. 7.6 Non-Assignable Rights Neither the Executive nor his spouse, nor other beneficiary, will have any right to commute, sell, assign, transfer or otherwise convey the right to receive any payments hereunder without the written consent of the Corporation. Such payments and the right thereto are expressly declared to be non-assignable and nontransferable. 7.7 Independence of Agreement The benefits under this Agreement will be independent of, and in addition to, any other agreement that may exist from time to time between the parties hereto, or any other compensation payable by the Corporation to the Executive, whether as salary, bonus or otherwise. This Agreement will not be deemed to constitute a contract of employment between the parties hereto, nor will any provision hereof restrict the right of the Corporation to discharge the Executive, or restrict the right of the Executive to terminate his employment. 7.8 Non-Secured Promise The rights of the Executive under this Agreement and of any beneficiary of the Executive will be solely those of an unsecured creditor of the Corporation. Any insurance policy or any other asset acquired or held by the Corporation in connection with the liabilities assumed by it hereunder, will not be deemed to be held under any trust for the benefit of the Executive or his beneficiaries or to be security for the performance of the obligations of the Corporation, but will be, and remain, a general, unpledged, unrestricted asset of the Corporation and the Corporation will retain all ownership rights in any such policy. 7.9 Change of Business Forms The Corporation agrees that it will not merge with, or permit its business activities to be taken over by, any other corporation or organization, unless and until the succeeding or continuing corporation or other organization agrees to assume the rights and obligations of the Corporation herein set forth. The Corporation further agrees that it will not cease its business activities or terminate its existence, other than as heretofore set forth in this Article VII, without having made adequate provisions for the fulfilling of its obligations hereunder. 7.10 Fiduciary and Administrator (a) The Corporation will be Fiduciary and Administrator of this Agreement. The Corporation's Board of Directors may authorize a person or group of persons to fulfill the responsibilities of the Corporation as Administrator. (b) The Fiduciary or the Administrator may employ others to render advice with regard to its responsibilities under this Agreement. The Fiduciary may also allocate fiduciary responsibilities to others and may exercise any other powers necessary for the discharge of its duties to the extent not in conflict with any provisions of the Employee Retirement Income Security Act of 1974 that may be applicable. 7.11 Waiver by Human Resources Committee The Human Resources Committee of the Board is authorized to waive any provisions of this Agreement which would otherwise operate to deny, reduce or delay any benefit payments under any provisions of this Agreement. IN WITNESS WHEREOF, the parties have hereunto set their hands and seals, the Corporation by its duly authorized officer, on the day and year first written above. /s/ William A. Kerr Executive THE HARTFORD STEAM BOILER INSPECTION AND INSURANCE COMPANY /s/ Gordon W. Kreh Its: President APPENDIX A ATTAINED AGE AT TERMINATION OF EMPLOYMENT PERCENTAGE OF BENEFIT 65 100 64 97 63 94 62 91 61 88 60 85 59 82 58 79 57 76 56 73 55 70 APPENDIX B YEARS OF SERVICE AT TERMINATION OF EMPLOYMENT PERCENTAGE OF BENEFIT 5 100 4 80 3 60 2 40 1 20 Less than 1 0 EX-27 3
7 1000000 9-MOS DEC-31-1995 SEP-30-1995 230 0 0 205 11 0 553 11 34 33 962 181 208 0 0 68 10 0 0 323 962 290 21 3 190 115 59 263 65 19 46 0 0 0 46 2.25 0 0 0 0 0 0 0 0
-----END PRIVACY-ENHANCED MESSAGE-----