-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, HHqLFM72OLROHbMLdaJ4lgHF9jgR4cWCVaIgYk1nAoFR5Ui3iT3jtQq+beuJUp9K HuVx4/9GoTrzHXCSqFmUGg== 0000354396-94-000019.txt : 19940404 0000354396-94-000019.hdr.sgml : 19940404 ACCESSION NUMBER: 0000354396-94-000019 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 17 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: USF&G CORP CENTRAL INDEX KEY: 0000354396 STANDARD INDUSTRIAL CLASSIFICATION: 6331 IRS NUMBER: 521220567 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-08233 FILM NUMBER: 94519341 BUSINESS ADDRESS: STREET 1: 100 LIGHT ST CITY: BALTIMORE STATE: MD ZIP: 21202 BUSINESS PHONE: 4105473000 MAIL ADDRESS: STREET 1: P. O. BOX 1138 CITY: BALTIMORE STATE: MD ZIP: 21203 10-K 1 FORM 10-K 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 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) 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 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 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% (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 (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
EX-3.A 2 CHARTER ARTICLES OF INCORPORATION OF USF&G CORPORATION USF&G CORPORATION ARTICLES OF INCORPORATION FIRST: THE UNDERSIGNED, Elver T. Pearson, whose address is 100 Light Street, Baltimore, Maryland 21202, being at least eighteen years of age, acting as incorporator, does hereby form a corporation under the General Laws of the State of Maryland. SECOND: The name of the corporation (which is hereinafter called the "Corporation") is: USF&G CORPORATION THIRD: The purposes for which and any of which the Corporation is formed and the business and objects to be carried on and promoted by it are: (1) To purchase, own, and hold the stock of other corporations, and to do every act and thing covered generally by the denomination "holding company"; (2) To purchase, subscribe for, acquire, own, hold, sell, exchange, assign, transfer, create security interests in, pledge, or otherwise dispose of shares, or voting trust certificates for shares, of the capital stock of, or any bonds, notes, securities, or evidences of indebtedness created by, any other corporation or corporations organized under the laws of this state or any other state or district, county, nation or government; and (3) To engage in any one or more businesses or transactions, or to acquire all or any portion of any entity engaged in any one or more businesses or transactions which the Board of Directors may from time to time authorize or approve, whether or not related to the business described elsewhere in this Article or to any other business at the time or theretofore engaged in by the Corporation. The foregoing enumerated purposes and objects shall be in no way limited or restricted by reference to, or inference from, the terms of any other clause of this or any other Article of the charter of the Corporation, and each shall be regarded as independent; and they are intended to be and shall be construed as powers as well as purposes and objects of the Corporation and shall be in addition to and not in limitation of the general powers of corporations under the General Laws of the State of Maryland. FOURTH: The present address of the principal office of the Corporation in this state is 100 Light Street, Baltimore, Maryland 21202. FIFTH: The name and address of the resident agent of the Corporation in this state are John A. MacColl, 100 Light Street, Baltimore, Maryland 21202. Said resident agent is a citizen of the State of Maryland who resides there. SIXTH: The total number of shares of stock of all classes which the Corporation has authority to issue is 252,000,000 having an aggregate par value of $1,200,000,000 of which 240,000,000 shares of the par value of $2.50 per share, amounting in aggregate par value to $600,000,000, shall be Common Stock, and 12,000,000 shares of the par value of $50.00 per share, amounting in aggregate par value to $600,000,000, shall be Preferred Stock. SEVENTH: The following is a description of the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption of the Common Stock and the Preferred Stock of the Corporation: COMMON STOCK (1) The Common Stock shall not be subject to classification or reclassification by the Board of Directors, and shall have the rights and terms hereinafter specified, subject to the terms of any other stock provided in the charter pursuant to classification or reclassification by the Board of Directors or otherwise in accordance with law. (2) Each share of Common Stock shall have one vote, and, except as otherwise provided in respect of any Preferred Stock, the exclusive voting power for all purposes shall be vested in the holders of the Common Stock. (3) Subject to the provisions of law and any preferences of any Preferred Stock, dividends may be paid on the Common Stock of the Corporation at such time and in such amounts as the Board of Directors may deem advisable. (4) In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of the Common Stock shall be entitled, after payment or provision for payment of the debts and other liabilities of the Corporation and the amount to which the holders of any Preferred Stock shall be entitled, to share ratably in the remaining net assets of the Corporation. PREFERRED STOCK (5) The Board of Directors shall have authority to classify and reclassify any unissued shares of the Preferred stock from time to time by setting or changing in any one or more respects the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, and qualifications, or terms or conditions of redemption, of the Preferred Stock; provided, that the Board of Directors shall not classify or reclassify any of such shares into shares of the Common Stock, or into any class or series of stock (i) which is not prior to the Common Stock either as to dividends or upon liquidation and (ii) which is not limited in some respects either as to dividends or upon liquidation. Subject to the foregoing, the power of the Board of Directors to classify and reclassify any of the shares of Preferred Stock shall include, without limitation, subject to the provisions of the charter, authority to classify or reclassify any unissued shares of such stock into a class or classes of preferred stock, preference stock, special stock or other stock, and to divide and classify shares of any class into one or more series of such class, by determining, fixing or altering one or more of the following: (a) The distinctive designation of such class or series and the number of shares to constitute such class or series; provided that, unless otherwise prohibited by the terms of such or any other class or series, the number of shares of any class or series may be decreased by the Board of Directors in connection with any classification or reclassification of unissued shares and the number of shares of such class or series may be increased by the Board of Directors in connection with any such classification or reclassification, and any shares of any class or series which have been redeemed, purchased, otherwise acquired or converted into shares of Common Stock or any other class or series shall remain part of the authorized Preferred Stock and be subject to classification and reclassification as provided in this Section. (b) Whether or not and, if so, the rates, amounts and times at which, and the conditions under which, dividends shall be payable on shares of such class or series, whether any such dividends shall rank senior or junior to or on a parity with the dividends payable on any other class or series of Preferred Stock, and the status of any such dividends as cumulative, cumulative to a limited extent, or non-cumulative and as participating or non-participating. (c) Whether or not shares of such class or series shall have voting rights, in addition to any voting rights provided by law and, if so, the terms of such voting rights. (d) Whether or not shares of such class or series shall have conversion or exchange privileges and, if so, the terms and conditions thereof, including provision for adjustment of the conversion or exchange rate in such events or at such times as the Board of Directors shall determine. (e) Whether or not shares of such class or series shall be subject to redemption and, if so, the terms and conditions of such redemption, including the date or dates upon or after which they shall be redeemable and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; and whether or not there shall be any sinking fund or purchase account in respect thereof, and if so, the terms thereof. (f) The rights of the holders of shares of such class or series upon the liquidation, dissolution or winding up of the affairs of, or upon any distribution of the assets of, the Corporation, which rights may vary depending upon whether such liquidation, dissolution or winding up is voluntary or involuntary and, if voluntary, may vary at different dates, and whether such rights shall rank senior or junior to or on a parity with such rights of any other class of series of Preferred Stock. (g) Whether or not there shall be any limitations applicable, while shares of such class or series are outstanding, upon the payment of dividends or making of distributions on, or the acquisition of, or the use of moneys for purchase or redemption of, any stock of the Corporation, or upon any other action of the Corporation, including action under this Section, and, if so, the terms and conditions thereof. (h) Any other preferences, rights, restrictions, including restrictions on transferability, and qualification of shares of such class or series, not inconsistent with law and the charter of the Corporation. (6) For the purposes hereof and of any articles supplementary to the charter providing for the classification or reclassification of any shares of Preferred Stock or of any other charter document of the Corporation (unless otherwise provided in any such articles or documents), any class or series of stock of the Corporation shall be deemed to rank: (a) prior to another class or series either as to dividends or upon liquidation, if the holders of such class or series shall be entitled to the receipt of dividends or of amounts distributable on liquidation, dissolution or winding up, as the case may be, in preference or priority to holders of such other class or series; (b) on a parity with another class or series either as to dividends or upon liquidation, whether or not the dividend rates, dividend payment dates, or redemption or liquidation price per share thereof be different from those of such others, if the holders of such class or series of stock shall be entitled to receipt of dividends or amounts distributable upon liquidation, dissolution or winding up, as the case may be, in proportion to their respective dividend rates or redemption or liquidation prices, without preferences or priority over the holders of such other class or series; and (c) junior to another class or series either as to dividends or upon liquidation, if the rights of the holders of such class or series shall be subject or subordinate to the rights of the holders of such other class or series in respect of the receipt of dividends or the amounts distributable upon liquidation, dissolution or winding up, as the case may be. EIGHTH: The number of directors of the Corporation shall be three (3), which number may be increased or decreased pursuant to the By-Laws of the Corporation, but shall never be less than the minimum number permitted by the General Laws of the State of Maryland now or hereafter in force. The names of the directors who will serve until the first annual meeting and until their successors are elected and qualify are as follows: Charles H. Foelber, Jack Moseley and Larry P. Scriggins. NINTH: The following provisions are hereby adopted for the purpose of defining, limiting, and regulating the powers of the Corporation and of the directors and stockholders: (1) The Board of Directors is hereby empowered to authorize the issuance from time to time of shares of its stock of any class, whether now or hereafter authorized, or securities convertible into shares of its stock of any class or classes, whether now or hereafter authorized, for such consideration as may be deemed advisable by the Board of Directors and without any action by the stockholders. (2) No holder of any stock or any other securities of the Corporation, whether now or hereafter authorized, shall have any preemptive right to subscribe for or purchase any stock or any other securities of the Corporation other than such, if any, as the Board of Directors, in its sole discretion, may determine and at such price or prices and upon such other terms as the Board of Directors, in its sole discretion, may fix; and any stock or other securities which the Board of Directors may determine to offer for subscription may, as the Board of Directors in its sole discretion shall determine, be offered to the holders of any class, series or type of stock or other securities at the time outstanding to the exclusion of the holders of any or all other classes, series or types of stock or other securities at the time outstanding. (3) The Board of Directors shall have power from time to time and in its sole discretion to determine in accordance with sound accounting practice, what constitutes annual or other net profits, earnings, surplus, or net assets in excess of capital; to fix and vary from time to time the amount to be reserved as working capital, or determine that retained earnings or surplus shall remain in the hands of the Corporation; to set apart out of any funds of the Corporation such reserve or reserves in such amount or amounts and for such proper purpose or purposes as it shall determine and to abolish any such reserve or any part thereof; to distribute and pay distributions or dividends in stock, cash or other securities or property, out of surplus or any other funds or amounts legally available therefor, at such times and to the stockholders of record on such dates as it may, from time to time, determine; and to determine whether and to what extent and at what times and places and under what conditions and regulations the books, accounts and documents of the Corporation, or any of them shall be open to the inspection of stockholders, except as otherwise provided by statute or by the By-Laws, and, except as so provided, no stockholder shall have any right to inspect any book, account or document of the Corporation unless authorized so to do by resolution of the Board of Directors. (4) A contract or other transaction between the Corporation and any of its directors or between the Corporation and any other corporation, firm or other entity in which any of its directors is a director or has a material financial interest is not void or voidable solely because of any one or more of the following: the common directorship or interest; the presence of the director at the meeting of the Board of Directors which authorizes, approves, or ratifies the contract or transaction; or the counting of the vote of the director for the authorization, approval, or ratification of the contract or transaction. This Section applies if: (a) the fact of the common directorship or interest is disclosed or known to: the Board of Directors and the Board authorizes, approves, or ratifies the contract or transaction by the affirmative vote of a majority of disinterested directors, even if the disinterested directors constitute less than a quorum; or the stockholders entitled to vote, and the contract or transaction is authorized, approved, or ratified by a majority of the votes cast by the stockholders entitled to vote other than the votes of shares owned of record or beneficially by the interested director or corporation, firm, or other entity; or (b) the contract or transaction is fair and reasonable to the Corporation. Common or interested directors or the stock owned by them or by an interested corporation, firm, or other entity may be counted in determining the presence of a quorum at a meeting of the Board of Directors or at a meeting of the stockholders, as the case may be, at which the contract or transaction is authorized, approved, or ratified. If a contract or transaction is not authorized, approved, or ratified in one of the ways provided for in clause (a) of the second sentence of this Section, the person asserting the validity of the contract or transaction bears the burden of proving that the contract or transaction was fair and reasonable to the Corporation at the time it was authorized, approved, or ratified. The procedures in this Section do not apply to the fixing by the Board of Directors of reasonable compensation for a director, whether as a director or in any other capacity. (5) The Corporation shall indemnify (a) its directors to the full extent provided by the General Laws of the State of Maryland now or hereafter in force, including the advance of expenses under the procedures provided by such laws; (b) its officers to the same extent it shall indemnify its directors; and (c) its officers who are not directors to such further extent as shall be authorized by the Board of Directors and be consistent with law. The foregoing shall not limit the authority of the Corporation to indemnify other employees and agents consistent with law. (6) The Corporation reserves the right from time to time to make any amendments of its charter which may now or hereafter be authorized by law, including any amendments changing the terms or contract rights, as expressly set forth in its charter, of any of its outstanding stock by classification, reclassification or otherwise; but no such amendment which changes such terms or contract rights of any of its outstanding stock shall be valid unless such amendment shall have been authorized by not less than a majority of the aggregate number of the votes entitled to be cast thereon, by a vote at a meeting or in writing with or without a meeting. (7) To the fullest extent permitted by Maryland statutory or decisional law, as amended or interpreted, no director or officer of this Corporation shall be personally liable to the Corporation or its stockholders for money damages. No amendment of the Charter of the Corporation or repeal of any of its provisions shall limit or eliminate the benefits provided to directors and officers under this provision with respect to any act or omission which occurred prior to such amendment or repeal. The enumeration and definition of particular powers of the Board of Directors included in the foregoing shall in no way be limited or restricted by reference to or inference from the terms of any other clause of this or any other Article of the charter of the Corporation, or construed as or deemed by inference or otherwise in any manner to exclude or limit any powers conferred upon the Board of Directors under the General Laws of the State of Maryland now or hereafter in force. TENTH: The duration of the Corporation shall be perpetual. IN WITNESS WHEREOF, I have signed these Articles of Incorporation acknowledging the same to be my act, on July 22, 1981. Witness: /SAMUEL H. McCOY, II/ /ELVER T. PEARSON/ USF&G CORPORATION ARTICLES OF AMENDMENT USF&G CORPORATION, a Maryland corporation , having its principal office in Baltimore City, Maryland (which is hereinafter called the "Corporation"), hereby certifies to the State Department of Assessments and Taxation of Maryland that: FIRST: The Charter of the Corporation is hereby amended as follows: (a) By changing and reclassifying each one (1) share of Common Stock, $2.50 par value, issued at the time of effectiveness of this Amendment into two (2) shares of Common Stock, $2.50 par value; and (b) by deleting Article SIXTH of the Articles of Incorporation in its entirety and in lieu thereof substituting the following: "SIXTH: The total number of shares of stock of all classes which the Corporation has authority to issue is 132,000,000 shares having an aggregate par value of $900,000,000, of which 120,000,000 shares of the par value of $2.50 per share, amounting in aggregate par value to $300,000,000, shall be Common Stock, and 12,000,000 shares of the par value of $50.00 per share, amounting in aggregate par value to $600,000,000, shall be Preferred Stock." SECOND: (a) As of immediately before the amendment the total number of shares of stock of all classes which the Corporation has authority to issue is 44,000,000 shares, of which 4,000,000 shares are Preferred Stock (par value $50.00 per share) and 40,000,000 shares are Common Stock (par value $2.50 per share). (b) As amended the total number of shares of stock of all classes which the Corporation has authority to issue is 132,000,000 shares, of which 12,000,000 shares are Preferred Stock (par value $50.00 per share) and 120,000,000 shares are Common Stock (par value $2.50 per share). (c) The aggregate par value of all shares having a par value is $300,000,000 before the amendment and $900,000,000 as amended. (d) The descriptions of each class of stock of the Corporation are not changed by the amendment. THIRD: The foregoing amendment to the Charter of the Corporation has been advised by the Board of Directors and approved by the stockholders of the Corporation. FOURTH: The foregoing amendment to the Charter of the Corporation shall be effective as of 5:00 p.m., Baltimore Time, on May 14, 1984. IN WITNESS WHEREOF, USF&G CORPORATION has caused these presents to be signed in its name and on its behalf by its Chairman of the Board and President and witnessed by its Secretary on May 14, 1984. WITNESS: USF&G CORPORATION By: William F. Spliedt, Jack Moseley, Secretary Chairman of the Board and President THE UNDERSIGNED, Chairman of the Board and President of USF&G CORPORATION, who executed on behalf of the Corporation the foregoing Articles of Amendment of which this certificate is made a part, hereby acknowledges in the name and on behalf of said Corporation the foregoing Articles of Amendment to be the corporate act of said Corporation and hereby certifies that to the best of his knowledge, information, and belief the matters and facts set forth therein with respect to the authorization and approval thereof are true in all material respects under the penalties of perjury. Jack Moseley, Chairman of the Board and President ARTICLES SUPPLEMENTARY Junior Participating Preferred Stock OF USF&G CORPORATION USF&G CORPORATION, a Maryland corporation, having its principal office in Baltimore City, Maryland (hereinafter called the "Corporation"), hereby certifies to the State Department of Assessments and Taxation of Maryland that: FIRST: Pursuant to authority expressly vested in the Board of Directors of the Corporation by Article Seventh of the Charter of the Corporation, the Board of Directors has duly divided and classified 1,200,000 shares of the Preferred Stock of the Corporation into a series designated "Junior Participating Preferred Stock" and has provided for the issuance of such series. SECOND: The terms of the Junior Participating Preferred Stock as set by the Board of Directors are as follows: 1. Designation and Amount. The shares of such series shall be designated as "Junior Participating Preferred Stock" (the "Junior Preferred Stock") and the number of shares constituting such series shall initially be 1,200,000, subject to increase or decrease by action of the Board of Directors effectuated by further Articles Supplementary. 2. Dividends and Distributions. (i) The holders of shares of Junior Preferred Stock, in preference to the holders of Common Stock and of any other junior stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the last day of March, June, September and December in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Junior Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) Sixty-Two dollars ($62.00) or (b) subject to the provision for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends, and 100 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of Common Stock of the Corporation or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Junior Preferred Stock. In the event the Corporation shall at any time after the date hereof declare or pay any dividend on Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of shares of Junior Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (ii) The Corporation shall declare a dividend or distribution on the Junior Preferred Stock as provided in subparagraph (i) of this paragraph 2 immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of Sixty-Two Dollars ($62.00) per share on the Junior Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. (iii) Dividends shall begin to accrue and be cumulative on outstanding shares of Junior Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Junior Preferred Stock, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Junior Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Junior Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Junior Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof. 3. Voting Rights. The holders of shares of Junior Preferred Stock shall have the following voting rights: (i) Subject to the provision for adjustment hereinafter set forth, each share of Junior Preferred Stock shall entitle the holder thereof to 100 votes on all matters submitted to a vote of the shareholders of the Corporation. In the event the Corporation shall at any time after the date hereof declare or pay any dividend on Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise) into a greater or lesser number of shares of Common Stock, then in each such case the number of votes per share to which holders of shares of Junior Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (ii) Except as otherwise provided herein or by law, the holders of shares of Junior Preferred Stock and the holders of shares of Common Stock and any other capital stock of the Corporation having general voting rights shall vote together as one class on all matters submitted to a vote of shareholders of the Corporation. (iii) (a) If on the date used to determine stockholders of record for any meeting of stockholders for the election of directors, accrued dividends on the shares of Junior Preferred Stock shall not have been paid in an aggregate amount equal to or greater than six quarterly dividends on the shares of Junior Preferred Stock at the time outstanding, then, and in any such event, the number of Directors then constituting the entire Board of Directors of the Corporation shall automatically be increased by two Directors and the holders of shares of Junior Preferred Stock and holders of any other shares of the Preferred Stock of the Corporation then outstanding ranking on a parity with the Junior Preferred Stock as to dividends and upon liquidation ("Parity Stock"), voting together as a single class, shall be entitled at such meeting to fill such newly created directorships. Such right to vote as a single class to elect two Directors shall, when vested, continue until all dividends in default on the shares of Junior Preferred Stock shall have been paid in full and, when so paid, such right to elect two Directors separately as a class shall cease, subject, always, to the same provisions for the vesting of such right to elect two Directors separately as a class in the case of future dividend defaults. (b) So long as any shares of Junior Preferred Stock are outstanding the number of Directors of the Corporation shall at all times be such that the exercise, by the holders of shares of Junior Preferred Stock and the holders of shares of Parity Stock, of the right to elect Directors under the circumstances provided in paragraph (a) of this subclause (iii) will not contravene any provisions of the Maryland General Corporation Law or the Charter of the Corporation. (c) Directors elected pursuant to paragraph (a) of this subclause (iii) shall serve until the earlier of (x) the next annual meeting of the stockholders of the Corporation and the election (by the holders of shares of Junior Preferred and Parity Stock) and qualification of their respective successors or (y) the date upon which all dividends in default on the shares of Junior Preferred and such Parity Stock shall have been paid in full. Directors elected pursuant to paragraph (a) of this subclause (iii) may be removed by, and shall not be removed except by, the vote of the holders of record of the outstanding shares of Junior Preferred and Parity Stock, voting together as a single class without regard to series, at a meeting of the stockholders, or the holders of shares of Junior Preferred and Parity Stock, called for that purpose. If, prior to the end of the term of any Director elected as aforesaid, a vacancy in the office of such Director shall occur during the continuance of a default in dividends on the shares of Junior Preferred Stock by reason other than removal, such vacancy shall be filled for the unexpired term by the appointment by the remaining Director elected as aforesaid of a new Director for the unexpired term of such former Director. (iv) Except as set forth herein, holders of Junior Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock and any other capital stock of the Corporation having general voting rights as set forth herein) for taking any corporate action. 4. Certain Restrictions. (i) Whenever quarterly dividends or other dividends or distributions payable on the Junior Preferred Stock as provided in paragraph 2 of this Section are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Junior Preferred Stock outstanding shall have been paid in full, the Corporation shall not: (a) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Junior Preferred Stock; (b) declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Junior Preferred Stock, except dividends paid ratably on the Junior Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (c) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior either as to dividends or upon liquidation, dissolution or winding up) with the Junior Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Junior Preferred Stock; or (d) purchase or otherwise acquire for consideration any shares of Junior Preferred Stock, or any shares of stock ranking on a parity with the Junior Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (ii) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under subparagraph (i) of this paragraph 4, purchase or otherwise acquire such shares at such time and in such manner. 5. Reacquired Shares. Any shares of Junior Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be classified again and reissued as part of a new series or class of Preferred Stock to be created by the Board of Directors pursuant to its power contained in the Charter, subject to the conditions and restrictions on issuance set forth herein. 6. Liquidation, Dissolution or Winding Up. Upon any liquidation, dissolution or winding up of the Corporation, no distribution shall be made (a) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Junior Preferred Stock unless, prior thereto, the holders of shares of Junior Preferred Stock shall have received One Hundred Forty dollars ($140) per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, provided that the holders of shares of Junior Preferred Stock shall be entitled to receive an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount to be distributed per share to holders of Common Stock, or (b) to the holders of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Junior Preferred Stock, except distributions made ratably on the Junior Preferred Stock and all other such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. In the event the Corporation shall at any time after the date hereof declare or pay any dividend on Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise) into a greater or lesser number of shares of Common Stock, then in each such case the aggregate amount to which holders of shares of Junior Preferred Stock were entitled immediately prior to such event under the proviso in clause (a) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. 7. Consolidation, Merger, etc. In case the Corporation shall enter into any consolidation, merger, share exchange, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case the shares of Junior Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 100 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time after the date hereof declare or pay any dividend on Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Junior Preferred Stock shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. 8. No Redemption. The shares of Junior Preferred Stock shall not be redeemable. 9. Rank. The Junior Preferred Stock shall rank junior with respect to payment of dividends and on liquidation to all other Preferred Stock of the Corporation unless the terms of any other Preferred Stock specifically provide that it shall rank junior to, or on a parity with, the Junior Preferred Stock. 10. Amendment. The Charter of the Corporation shall not be amended in any manner that would materially alter or change the powers, preferences or special rights of the Junior Preferred Stock so as to affect them adversely without the affirmative vote of the holders of two-thirds of the outstanding shares of Junior Preferred Stock, voting together as a single class. IN WITNESS WHEREOF, USF&G Corporation has caused these presents to be signed in its name and on its behalf by its Executive Vice President and witnessed by its Secretary on October 1, 1987. WITNESS: USF&G CORPORATION By William F. Spliedt, Secretary Paul J. Scheel Executive Vice President THE UNDERSIGNED, Executive Vice President of USF&G Corporation, who executed on behalf of the Corporation Articles Supplementary of which this Certificate is made a part, hereby acknowledges in the name and on behalf of said Corporation the foregoing Articles Supplementary to be the corporate act of said Corporation and hereby certifies that the matters and facts set forth herein with respect to the authorization and approval thereof are true in all material respects under the penalties of perjury. Paul J. Scheel Executive Vice President ARTICLES SUPPLEMENTARY $4.10 SERIES A CONVERTIBLE EXCHANGEABLE PREFERRED STOCK OF USF&G CORPORATION USF&G CORPORATION, a Maryland corporation, having its principal office in Baltimore City, Maryland (the "Corporation"), hereby certifies to the Maryland State Department of Assessments and Taxation that: FIRST: Pursuant to authority expressly vested in the Board of Directors of the Corporation by Article Seventh of the Charter of the Corporation, the Board of Directors has duly divided and classified 4,000,000 shares of the Preferred Stock of the Corporation into a series designated $4.10 Series A Convertible Exchangeable Preferred Stock and has provided for the issuance of such series. SECOND: The terms of the $4.10 Series A Convertible Exchangeable Preferred Stock are as follows: (i) Designation and Amount. The designation of said series of the Preferred Stock shall be "$4.10 Series A Convertible Exchangeable Preferred Stock" (the "Series A"). The number of shares of Series A shall initially be 4,000,000, subject to increase or decrease by action of the Board of Directors effectuated by further Articles Supplementary. (ii) Dividends. Holders of shares of Series A will be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available therefor, dividends from the date of issue thereof at the annual rate of $4.10 per share, payable quarterly, in arrears, on January 31, April 30, July 31 and October 31, (a "Dividend Payment Date") in each year, commencing on October 31, 1986. Such dividends shall be cumulative with respect to each share from the date of original issuance, whether or not earned or declared. The holders of Series A will not be entitled to any dividends other than the cash dividends described in this Clause (ii). Unless full cumulative dividends on all outstanding shares of Series A or any other class of preferred stock ranking on a parity with the Series A as to dividends and upon liquidation at the time such dividends are payable ("Parity Stock") have been paid or are contemporaneously declared and paid (or declared and a sum sufficient for the payment thereof is set apart for such payment), the Corporation will not (a) declare or pay any dividend on the Common Stock, $2.50 par value (the "Common Stock"), of the Corporation or on any other class of stock ranking junior to the Series A as to dividends and upon liquidation (the Common Stock and any such junior class being the "Junior Stock") or make any payment on account of, or set apart money for, a sinking or other analogous fund for, the purchase, redemption or other retirement of, any Junior Stock or make any distribution in respect thereof, either directly or indirectly and whether in cash or property or in obligations or shares of the Corporation (other than in shares of Junior Stock) or (b) purchase any shares of Series A or Parity Stock (except for consideration payable in Junior Stock) or redeem fewer than all of the shares of Series A or Parity Stock then outstanding. Unless and until all dividends accrued and payable but unpaid on the Series A and any Parity Stock at the time outstanding have been paid in full, all dividends declared by the Corporation upon such Series A or Parity Stock shall be declared pro rata with respect to all Series A and Parity Stock then outstanding, so that the amounts of any dividends declared on the Series A and such Parity Stock shall in all cases bear to each other the same ratio that, at the time of such declaration, all accrued and payable but unpaid dividends on the Series A and such other Parity Stock, respectively, bear to each other. (iii) Optional Redemptions for Cash. Shares of Series A shall be redeemable at the option of the Corporation at any time on or after October 31, 1989 at the following redemption prices per share, if redeemed during the 12-month period beginning October 31 in each of the following years:
Redemption Redemption Year Price Year Price 1989 $52.87 1993 $51.23 1990 52.46 1994 50.82 1991 52.05 1995 50.41 1992 51.64
and on or after October 31, 1996 at $50 per share, plus, in each case, any accrued and unpaid dividends thereon. The Corporation may not purchase or redeem less than all the Series A and Parity Stock then outstanding if, as of such time, the Corporation has failed to pay all accrued and unpaid dividends thereon, whether or not earned or declared. The Corporation will mail notice of redemption to each holder of record of Series A to be redeemed no less than 20 nor more than 60 days prior to the redemption date. Such notice shall specify the time and place of such redemption, the number of shares to be redeemed and the Conversion Price as defined in Clause (vi) below, the date on which the right to convert the Series A to be redeemed will terminate and the place or places where such Series A may be surrendered for conversion. Such notice shall be given by first class mail, postage prepaid, to the holders of record of the shares of Series A to be redeemed at their respective addresses as the same shall appear on the books of the Corporation, but neither failure to mail such notice, nor any defect therein or in the mailing thereof, to any particular holder shall affect the sufficiency of the notice or the validity of the proceedings for redemption with respect to the other holders. Any notice which was mailed in the manner herein provided shall be conclusively presumed to have been duly given whether or not the holder receives the notice. If fewer than all of the shares of Series A are to be redeemed, the shares to be redeemed shall be selected by lot or pro rata or in some other equitable manner determined by the Corporation. If a notice of redemption has been given pursuant to this Clause (iii) and if, on or before the date fixed for redemption, the funds necessary for such redemption shall have been set aside by the Corporation, separate and apart from its other funds, in trust for the pro rata benefit of the holders of the shares so called for redemption, then on and after the redemption date, notwithstanding that any certificates for such shares have not been surrendered for cancellation, dividends shall cease to accrue on the shares of Series A to be redeemed, such shares shall no longer be deemed to be outstanding and all rights of the holders of such shares as stockholders of the Corporation shall cease except the right to receive the moneys payable upon such redemption, without interest, upon surrender of the certificates evidencing such shares. (iv) Optional Redemption Through Debenture Exchange. (A) Shares of Series A shall be redeemable at the option of the Corporation, in whole but not in part, on any Dividend Payment Date beginning October 31, 1989, to and including October 31, 2011, through the issuance of the Corporation's 8.2% Convertible Subordinated Debentures due October 31, 2011 (hereinafter referred to as the "Debentures") in redemption of and in exchange for the shares of Series A, in the manner provided in this Clause (iv). (B) Holders of Series A will be entitled to receive $50 principal amount of the Debentures for each share of Series A held by them on the Exchange Date (as hereinafter defined). (C) The Corporation will mail notice of its intention to redeem through such an exchange to each holder of record of the shares of Series A no less than 20 nor more than 60 days prior to the redemption date. Such notice shall be given by first class mail, postage prepaid to the holders of record of shares of Series A at their respective addresses as the same shall appear on the books of the Corporation, specifying the effective date of the exchange (the "Exchange Date") and the place where certificates for shares of Series A are to be surrendered for Debentures and stating that dividends on shares of Series A will cease to accrue on the Exchange Date, but neither failure to mail such notice, nor any defect therein or in the mailing thereof, to any particular holder shall affect the sufficiency of the notice or the validity of the proceedings for redemption and exchange with respect to the other holders. Any notice which was mailed in the manner herein provided shall be conclusively presumed to have been duly given whether or not the holder received the notice. If notice of redemption and exchange has been given pursuant to this Clause (iv) then on or after the Exchange Date (unless the Corporation shall default in issuing Debentures in redemption of and in exchange for shares of Series A) and notwithstanding that any certificates for shares of this series have not been surrendered for exchange, the rights of the holders of the Series A as stockholders of the Corporation shall cease (except the right to receive accrued and unpaid dividends to the date of redemption, whether or not earned or declared), and the person or persons entitled to receive the Debentures issuable upon such redemption and exchange shall be treated for all purposes as the registered holder or holders of such Debentures. Upon the surrender (and endorsement, if required by the Corporation) in accordance with such notice of the certificates for shares of Series A, such certificates shall be exchanged for Debentures and such accrued dividends in accordance with this Clause (iv). (D) Prior to issuance of the Debentures, the Corporation will use reasonable efforts to list the Debentures for trading on the New York Stock Exchange or, if they cannot be so listed, the Corporation will use reasonable efforts to list the Debentures on another principal national securities exchange or include them on a national quotations system. (v) Liquidation. (A) In case of the voluntary or involuntary liquidation, dissolution or winding-up of the Corporation, the holders of any shares of Series A are entitled to receive a liquidation preference of $50 per share, plus an amount equal to the dividends accrued and unpaid thereon to the payment date, before any distribution is made to the holders of Junior Stock. (B) The holders of shares of Series A and all Parity Stock shall share ratably, in accordance with the respective amounts payable thereon, in any such distribution which is not sufficient to pay in full the aggregate of the amounts payable thereon. After payment in full of the liquidation price to which the holders of shares of Series A are entitled, the holders of shares of Series A will not be entitled to any further participation in any distribution of assets by the Corporation. (C) Neither a consolidation or merger of the Corporation with or into any other corporation, nor a merger of any other corporation with or into the Corporation, nor a sale or transfer of all or substantially all of the Corporation's assets for cash or securities nor a statutory share exchange in which stockholders of the Corporation may participate shall be considered a liquidation, dissolution or winding-up of the Corporation within the meaning of this Clause (v). (vi) Conversion. (A) Subject to the provisions for adjustment hereinafter set forth, each share of Series A shall be convertible at the option of the holder thereof, in the manner hereinafter set forth, into fully paid and nonassessable shares of Common Stock at the conversion price, determined as hereinafter provided, in effect on the date of conversion, provided that if any of the Series A is called for redemption (whether for cash or Debentures), the conversion rights pertaining thereto will terminate at the close of business on the redemption date. The price at which shares of Common Stock shall be delivered upon conversion (hereinafter referred to as the "Conversion Price") shall be initially $46.00 per share of Common Stock. The Conversion Price shall be adjusted in certain instances as provided in subclause (B) of this Clause (vi). Any holder of shares of Series A desiring to convert the same into shares of Common Stock shall surrender the certificate or certificates for the shares of Series A being converted, duly endorsed or assigned to the Corporation or in blank, at the principal office of the Corporation or at a bank or trust company appointed by the Corporation for that purpose, accompanied by a written notice of conversion specifying the number (in whole shares) of shares of Series A to be converted and the name or names in which such holder wishes the certificate or certificates for shares of Common Stock to be issued; in case such notice shall specify a name or names other than that of such holder, such notice shall be accompanied by payment of all transfer taxes payable upon the issue of shares of Common Stock in such name or names. In case less than all of the shares of Series A represented by a certificate are to be converted by a holder, upon such conversion the Corporation shall issue and deliver or cause to be issued and delivered, to the holder a certificate or certificates for the shares of Series A not so converted. The holders of shares of Series A at the close of business on a dividend payment record date shall be entitled to receive the dividend payable on such shares (except shares called for redemption on a redemption date between such record date and the Dividend Payment Date) on the corresponding dividend payment date notwithstanding the conversion thereof or the Corporation's default on payment of the dividend due on such Dividend Payment Date. However, shares of Series A surrendered for conversion during the period from the close of business on any dividend payment record date for the Series A to the opening of business on the corresponding Dividend Payment Date (except shares called for redemption on a redemption date during such period) must be accompanied by payment of an amount equal to the dividend payable on such shares on such Dividend Payment Date. A holder of shares of Series A on a dividend payment record date who (or whose transferee) converts shares of Series A on a dividend payment date will receive the dividend payable on such shares by the Corporation on such date, and the converting holder need not include payment in the amount of such dividend upon surrender of shares of Series A for conversion. Except as provided above, no payment or adjustment will be made on account of accrued or unpaid dividends upon the conversion of shares of Series A. (B) The Conversion Price shall be adjusted from time to time as follows: (1) on any class of capital stock of the Corporation in shares of Common Stock, the Conversion Price in effect at the opening of business on the day following the date fixed for the determination of stockholders entitled to receive such dividend or other distribution shall be reduced by multiplying such Conversion Price by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination and the denominator shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution, such reduction to become effective immediately after the opening of business on the day following the date fixed for such determination. (2) In case the Corporation shall issue rights or warrants to all holders of its shares of Common Stock entitling them to subscribe for or purchase Common Stock at a price per share less than the current market price per share (determined as provided in subclause (C)) of the Common Stock on the date fixed for the determination of stockholders entitled to receive such rights or warrants, the Conversion Price in effect at the opening of business on the day following the date fixed for such determination shall be reduced by multiplying such Conversion Price by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus the number of shares of Common Stock which the aggregate of the offering price of the total number of shares of Common Stock so offered for subscription or purchase would purchase at such current market price and the denominator shall be the number of shares of Common Stock outstanding at the close of business on the date fixed for such determination plus the number of shares of Common Stock so offered for subscription or purchase, such reduction to become effective immediately after the opening of business on the day following the date fixed for such determination. (3) In case the outstanding shares of Common Stock shall be subdivided into a greater number of shares, the Conversion Price in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be proportionately reduced, and, conversely, in case outstanding shares of Common Stock shall each be combined into a smaller number of shares, the Conversion Price in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately increased, such reduction or increase, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective. (4) In case the Corporation shall, by dividend or otherwise, distribute to all holders of shares of Common Stock evidences of indebtedness or assets (including securities, but excluding any rights or warrants referred to in subclause (B)(2), any dividend or distribution paid in cash out of the earned surplus of the Corporation and any dividend or distribution referred to in subclause (B)(1)), the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the close of business on the date fixed for the determination of stockholders entitled to receive such distribution by a fraction of which the numerator shall be the current market price per share (determined as provided in subclause (C)) of the Common Stock on the date fixed for such determination less the then fair market value (as determined by the Board of Directors, whose determination shall be conclusive) of the portion of the assets or evidences of indebtedness so distributed allocable to one share of Common Stock and the denominator shall be such current market price per share of the Common Stock, such adjustment to become effective immediately prior to the opening of business on the day following the date fixed for the determination of stockholders entitled to receive such distribution. (5) The reclassification of Common Stock into securities other than Common Stock (other than any reclassification upon a consolidation or merger to which subclause (F) applies) shall be deemed to involve (a) a distribution of such securities other than Common Stock to all holders of Common Stock (and the effective date of such reclassification shall be deemed to be "the date fixed for the determination of stockholders entitled to receive such distribution" and the "date fixed for such determination" within the meaning of subclause (B)(4), and (b) a subdivision or combination, as the case may be, of the number of shares of Common Stock outstanding immediately prior to such reclassification into the number of shares of Common Stock outstanding immediately thereafter (and the effective date of such reclassification shall be deemed to be "the day upon which such subdivision becomes effective", or "the day upon which such combination becomes effective", as the case may be, and "the day upon which such subdivision or combination becomes effective" within the meaning of subclause (B)(3) of this Section). (C) For the purpose of any computation under subclauses (B)(2) and (B)(4), the current market price per share of Common Stock on any day shall be deemed to be the average of the daily Closing Prices for the 15 consecutive Business Days selected by the Board of Directors commencing not less than 20 nor more than 30 Business Days before the day in question. The term "Closing Price" on any day shall mean the reported last sale price or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices regular way, in either case on the New York Stock Exchange, or, if the Common Stock is not listed or admitted to trading on such Exchange, on the principal national securities exchange on which the Common Stock is listed or admitted to trading or, if not listed or admitted to trading on any national securities exchange, on the National Association of Securities Dealers Automated Quotations National Market System or, if the Common Stock is not listed or admitted to trading on any national securities exchange or quoted on such National Market System, the average of the closing bid and asked prices in the over-the-counter market as furnished by any New York Stock Exchange member firm selected from time to time by the Board of Directors for that purpose; and the term "Businesss Day" shall mean each Monday, Tuesday, Wednesday, Thursday, and Friday which is not a day on which banking institutions in The City of New York are authorized or obligated by law or executive order to close. (D) Notwithstanding the provisions of subclause (B) above, no adjustment in the Conversion Price shall be required unless such adjustment (plus any adjustments not previously made by reason of this subclause (D)) would require an increase or decrease of at least 1% in such price; provided, however, that any adjustments which by reason of this subclause (D) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Clause (vi) shall be made to the nearest cent. (E) The Corporation may make such reductions in the Conversion Price, in addition to those required by this Clause (vi), as it considers to be advisable in order to avoid or diminish any income tax to any holder of shares of Common Stock resulting from any dividend or distribution of stock or issuance of rights or warrants to purchase or subscribe for stock or from any event treated as such for income tax purposes or for any other reasons. The Corporation shall have the power to resolve any ambiguity or correct any error in this Clause (vi) and its actions in so doing shall be final and conclusive. (F) In case the Corporation shall effect any capital reorganization of the Common Stock (other than a subdivision, combination, capital reorganization or reclassification provided for in subclause (B)) or shall consolidate, merge or engage in a statutory share exchange with or into any other corporation (other than a consolidation, merger or share exchange in which the Corporation is the surviving corporation and each share of Common Stock outstanding immediately prior to such consolidation or merger is to remain outstanding immediately after such consolidation or merger) or shall sell or transfer all or substantially all its assets to any other corporation, lawful provision shall be made as a part of the terms of such transaction whereby the holders of shares of Series A shall receive upon conversion thereof, in lieu of each share of Common Stock which would have been issuable upon conversion of such shares if converted immediately prior to the consummation of such transaction, the same kind and amount of stock (or other securities, cash or property, if any) as may be issuable or distributable in connection with such transaction with respect to each share of Common Stock outstanding at the effective time of such transaction, subject to subsequent adjustments for subsequent stock dividends and distributions, subdivisions or combinations of shares, capital reorganizations, reclassifications, consolidations mergers or share exchanges as nearly equivalent as possible to the adjustments provided for in this Clause (vi). (G) Whenever the Conversion Price is adjusted as herein provided: (1) the Corporation shall compute the adjusted Conversion Price and shall cause to be prepared a certificate signed by the chief financial or accounting officer of the Corporation setting forth the adjusted Conversion Price and showing in reasonable detail the facts upon which such adjustment is based and the computation thereof and such certificate shall forthwith be filed with each transfer agent for the shares of Series A; and (2) a notice stating that the Conversion Price has been adjusted and setting forth the adjusted Conversion Price shall, as soon as practicable, be mailed to the holders of record of outstanding shares of Series A. (H) In case: (1) the Corporation shall declare a dividend or other distribution on its shares of Common Stock otherwise than in cash out of its earned surplus; (2) the Corporation shall authorize the granting to the holders of its shares of Common Stock of rights or warrants entitling them to subscribe for or purchase any shares of capital stock of any class or of any other rights; (3) of any reclassification of the shares of Common Stock (other than a subdivision or combination of its outstanding shares of Common Stock), or of any consolidation, merger or share exchange to which the Corporation is a party and for which approval of any stockholders of the Corporation is required, or of the sale or transfer of all or substantially all the assets of the Corporation; or (4) of the voluntary or involuntary liquidation, dissolution or winding-up of the Corporation; then the Corporation shall cause to be mailed to each transfer agent for the shares of Series A and to the holders of record of the outstanding shares of Series A, at least 20 days (or 10 days in any case specified in subclauses (1) or (2) above) prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date as of which the holders of record of shares of Common Stock to be entitled to such dividend, distribution, rights or warrants are to be determined, or (y) the date on which such reclassification, consolidation, merger, share exchange, sale, transfer, liquidation, dissolution or winding-up is expected to become effective and the date as of which it is expected that holders of record of shares of Common Stock shall be entitled to exchange their shares for securities or other property, if any, deliverable upon such reclassification, consolidation, merger, share exchange, sale, transfer, liquidation, dissolution or winding-up. Such notice shall also state whether such transaction will result in any adjustment in the Conversion Price applicable to the shares of Series A and, if so, shall state what the adjusted Conversion Price will be and when it will become effective. Neither the failure to give the notice required by this subclause (H), nor any defect therein, to any particular holder shall affect the sufficiency of the notice or the legality or validity of the proceedings described in subclauses (H)(1) through (H)(4). (I) The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, for the purpose of issuance upon conversion of shares of Series A, the full number of shares of Common Stock then issuable upon the conversion of all shares of Series A then outstanding and shall take all action necessary so that shares of Common Stock so issued will be validly issued, fully paid and nonassessable. (J) The Corporation will pay any and all stamp or similar taxes that may be payable in respect of the issuance or delivery of shares of Common Stock on conversion of shares of Series A. The Corporation shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of shares of Common Stock in a name other than that in which the shares of Series A so converted were registered, and no such issuance or delivery shall be made unless and until the person requesting such issuance has paid to the Corporation the amount of any such tax or has established to the satisfaction of the Corporation that such tax has been paid. (K) No fractional shares or scrip representing fractional shares shall be issued upon the conversion of shares of Series A. If any such conversion would otherwise require the issuance of a fractional share an amount equal to such fraction multiplied by the Closing Price per share of Common Stock (determined as provided in subclause (C) above) on the day of conversion shall be paid to the holder in cash by the Corporation. (L) The certificate of any independent firm of public accountants of recognized standing selected by the Board of Directors shall be presumptive evidence of the correctness of any computation made under this Clause (vi). (vii) Voting Rights. Except as otherwise required by law, holders of shares of Series A shall have no voting rights; provided, however, that: (A) Dividend Defaults. (1) If on the date used to determine stockholders of record for any meeting of stockholders for the election of directors, accrued dividends on the shares of Series A or any Parity Stock shall not have been paid in an aggregate amount equal to or qreater than six quarterly dividends on the shares of Series A or such Parity Stock at the time outstanding, then, and in any such event, the number of Directors then constituting the entire Board of Directors of the Corporation shall automatically be increased by two Directors and the holders of shares of Series A and the holders of shares of Parity Stock, voting together as a single class, shall be entitled at such meeting to fill such newly created directorships. Such right to vote as a single class to elect two Directors shall, when vested, continue until all dividends in default on the shares of Series A and such Parity Stock, as the case may be, shall have been paid in full and, when so paid, such right to elect two Directors separately as a class shall cease, subject, always, to the same provisions for the vesting of such right to elect two Directors separately as a class in the case of future dividend defaults. (2) So long as any shares of Series A are outstanding the number of Directors of the Corporation shall at all times be such that the exercise, by the holders of shares of Series A and the holders of shares of Parity Stock, of the right to elect Directors under the circumstances provided in paragraph (1) of this subclause (A) will not contravene any provisions of the Maryland General Corporation Law or the Charter of the Corporation. (3) Directors elected pursuant to paragraph (1) of this subclause (A) shall serve until the earlier of (x) the next annual meeting of the stockholders of the Corporation and the election (by the holders of shares of Series A and Parity Stock) and qualification of their respective successors or (y) the date upon which all dividends in default on the shares of Series A and such Parity Stock shall have been paid in full. Directors elected pursuant to paragraph (1) of this Subclause (A) may be removed by, and shall not be removed except by, the vote of the holders of record of the outstanding shares of Series A and Parity Stock, voting together as a single class without regard to series, at a meeting of the stockholders, or the holders of shares of Series A and Parity Stock, called for that purpose. If, prior to the end of the term of any Director elected as aforesaid, a vacancy in the office of such Director shall occur during the continuance of a default in dividends on the shares of Series A or such Parity Stock by reason other than removal, such vacancy shall be filled for the unexpired term by the appointment by the remaining Director elected as aforesaid of a new Director for the unexpired term of such former Director. (B) Miscellaneous. (1) Without the affirmative vote of the holders of at least two-thirds of the outstanding shares of Series A and Parity Stock, voting as a single class, the Corporation may not: (x) amend any provision of the Charter which would materially adversely affect the voting powers (except as such voting powers may be affected by the authorization of any new series of Parity Stock having the same voting rights as Series A or by the authorization of any other shares of any class which are not entitled to vote together with Series A in any class vote) or other rights or preferences of holders of the shares of Series A; or (y) authorize or create any class of stock senior to the Series A as to dividends and upon liquidation. (2) Without the affirmative vote of the holders of at least a majority of the outstanding shares of Series A and Parity Stock, voting together as a single class, the Corporation may not increase the number of shares of Preferred Stock authorized in Article SEVENTH of the Charter or create any other class of capital stock of the Corporation ranking on a parity with the Preferred Stock as to dividends and upon liquidation. IN WITNESS WHEREOF, USF&G Corporation has caused these presents to be signed in its name and on its behalf by its President and witnessed by its Secretary on , 1986. WITNESS: USF&G CORPORATION William F. Spliedt Jack Moseley Secretary President, Chief Executive Officer and Chairman of the Board [CORPORATE SEAL] THE UNDERSIGNED, Chairman of the Board and President of USF&G Corporation, who executed on behalf of the Corporation Articles Supplementary of which this Certificate is made a part, hereby acknowledges in the name and on behalf of said Corporation the foregoing Articles Supplementary to be the corporate act of said Corporation and hereby certifies that the matters and facts set forth herein with respect to the authorization and approval thereof are true in all material respects under the penalties of perjury. _________________________________ Jack Moseley President, Chief Executive Officer and Chairman of the Board USF&G CORPORATION ARTICLES OF AMENDMENT USF&G CORPORATION, a Maryland corporation, having its principal office in Baltimore City, Maryland (which is hereinafter called the "Corporation"), hereby certifies to the State Department of Assessments and Taxation of Maryland that: FIRST: The Charter of the Corporation is hereby amended as follows: Article NINTH of the Charter is amended by adding the following paragraph (7) to said Article NINTH, as follows: "(7) To the fullest extent permitted by Maryland statutory or decisional law, as amended or interpreted, no director or officer of this Corporation shall be personally liable to the Corporation or its stockholders for money damages. No amendment of the Charter of the Corporation or repeal of any of its provisions shall limit or eliminate the benefits provided to directors and officers under this provision with respect to any act or omission which occurred prior to such amendment or repeal." SECOND: The amendment does not increase the authorized stock of the Corporation. THIRD: The foregoing amendment to the Charter of the Corporation has been advised by the Board of Directors and approved by the stockholders of the Corporation. IN WITNESS WHEREOF, USF&G CORPORATION has caused these presents to be signed in its name and on its behalf by its Chairman of the Board and President and witnessed by its Secretary on May 4, 1988. WITNESS: USF&G CORPORATION By: William F. Spliedt, Secretary Jack Moseley, Chairman of the Board and President Articles Supplementary Series B Cumulative Convertible Preferred Stock and 11% Preferred Stock of USF&G Corporation USF&G Corporation, a Maryland Corporation, having its principal office in Baltimore City, Maryland (the "Corporation"), hereby certifies to the Maryland State Department of Assessments and Taxation that: FIRST: Pursuant to authority expressly vested in the Board of Directors of the Corporation by Article SEVENTH of the Charter of the Corporation, the Board of Directors has duly divided and classified (i) 1,300,000 shares of the Preferred Stock of the Corporation into a Series designated Series B Cumulative Convertible Preferred Stock and has provided for the issuance of such Series and (ii) 1,000 shares of the Preferred Stock of the Corporation into a Series designated 11% Preferred Stock and has provided for the issuance of such Series. SECOND: The terms of the Series B Cumulative Convertible Preferred Stock are as follows: (i) Designation and Amount. The designation of the Series of the Preferred Stock described in clause (i) of Article FIRST hereof shall be "Series B Cumulative Convertible Preferred Stock" (the "Series B Preferred Stock"), which shall be further designated into three subseries, being the "Series B Cumulative Convertible Preferred Stock 1995" (the "Series B Preferred Stock 1995"), the "Series B Cumulative Convertible Preferred Stock 1996" (the "Series B Preferred Stock 1996") and the "Series B Cumulative Convertible Preferred Stock 1997" (the "Series B Preferred Stock 1997"). The number of shares of Series B Preferred Stock shall be 1,300,000, of which 650,000 shall be Series B Preferred Stock 1995, 325,000 shall be Series B Preferred Stock 1996 and 325,000 shall be Series B Preferred Stock 1997. (ii) Dividends. (a) Rate, etc. Except as such rate of dividends may be otherwise increased pursuant to the final sentence of this clause (ii), the holders of shares of Series B Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available therefor, annual dividends from the date of issue thereof at the rate of $10.25 per share, calculated on the basis of a 360-day year of 12 30-day months, accruing on a daily basis, payable quarterly, in arrears, on January 31, April 30, July 31 and October 31 (a "Dividend Payment Date"), in each year, commencing on July 31, 1991. Such dividends shall be cumulative with respect to each share from the date of original issuance, whether or not earned or declared. The rate per annum shall be increased from $10.25 per share, as set forth in the first sentence of this clause (ii), to $10.75 per share for the dividend period commencing August 1, 1991; provided, however, that this sentence shall be and become of no force and effect if the Corporation shall have received gross proceeds (exclusive of costs of issuance and underwriters' discounts and commissions) ("Gross Proceeds") of at least $170,000,000 pursuant to the issuance and sale of capital stock of the Corporation after the date of issuance of the Series B Preferred Stock and prior to September 30, 1991. (b) Rank, etc. The Series B Preferred Stock shall rank on a parity with the Corporation's $4.10 Series A Convertible Exchangeable Preferred Stock, 11% Preferred Stock (as defined in Article Third (i)) and Series C Cumulative Convertible Preferred Stock, $50.00 par value (the "Series C Preferred Stock"), if and when such Series C Preferred Stock, or any other series of Preferred Stock by its terms ranking on a parity with the Series B Preferred Stock as to dividends and upon liquidation, is duly divided and classified and so designated by the Board of Directors, as to dividends and upon liquidation. Unless full cumulative dividends on all outstanding shares of Series B Preferred Stock or any other class of Preferred Stock ranking on a parity with the Series B Preferred Stock as to dividends and upon liquidation at the time such dividends are payable ("Parity Stock") have been paid or are contemporaneously declared and paid (or declared and a sum sufficient for the payment thereof is set apart for such payment), the Corporation will not (1) declare or pay any dividend on the Common Stock, $2.50 par value (the "Common Stock"), of the Corporation or on any other class of stock ranking junior to the Series B Preferred Stock as to dividends and upon liquidation (the Common Stock and any such junior class being the "Junior Stock") or make any payment on account of, or set apart money for, a sinking or other analogous fund for the purchase, redemption or other retirement of, any Junior Stock or make any distribution in respect thereof, either directly or indirectly and whether in cash or property or in obligations or shares of the Corporation (other than in shares of Junior Stock) or (2) purchase any shares of Series B Preferred Stock or Parity Stock (except for consideration payable in Junior Stock) or redeem fewer than all of the shares of Series B Preferred Stock or Parity Stock then outstanding. Unless and until all dividends accrued and payable but unpaid on the Series B Preferred Stock and any Parity Stock at the time outstanding have been paid in full, all dividends declared by the Corporation upon such Series B Preferred Stock or Parity Stock shall be declared with respect to all Series B Preferred Stock and Parity Stock then outstanding, so that the amounts of any dividends declared on the Series B Preferred Stock and such Parity Stock shall in all cases bear to each other the same ratio that, at the time of such declaration, all accrued and payable but unpaid dividends on the Series B Preferred Stock and such other Parity Stock, respectively, bear to each other. (iii) Liquidation. (a) Preference on Liquidation. In the event of any liquidation, dissolution or winding up of the affairs of the Corporation (any or all of such events, a"liquidation"), whether voluntary or involuntary, the holders of shares of Series B Preferred Stock then outstanding shall be entitled, pari passu as if members of a single class of securities with the holders of other Parity Stock, to be paid out of the assets of the Corporation, before any payment shall be made to the holders of the Junior Stock or the holders of any other capital stock of the Corporation, an amount equal to $100 per share of such Series B Preferred Stock (the "Liquidation Value") plus an amount equal to the dividends accrued and unpaid thereon to the payment date. Alternatively, a holder of shares of Common Stock may convert any or all of such holder's shares of Series B Preferred Stock into shares of Common Stock in accordance with clause (vi) of this Article SECOND. (b) Insufficient Assets. If, upon any liquidation of the Corporation, the assets of the Corporation are insufficient to pay the holders of shares of the Parity Stock then outstanding the full amounts to which they shall be entitled, such assets shall be distributed to the holders of the Parity Stock pro rata in proportion to the amounts to which they shall be entitled. (c) Rights of Other Holders. In the event of any liquidation, after payment shall have been made to the holders of the Series B Preferred Stock and other Parity Stock of all preferential amounts to which they shall be entitled, the holders of shares of Junior Stock and other capital stock of the Corporation shall receive such amounts as to which they are entitled by the terms thereof. (d) Consolidation, Merger or Sale of Assets. Neither a consolidation or merger of the Corporation with or into any other Corporation, nor a sale or transfer of all or substantially all of the Corporation's assets for cash or securities nor a statutory share exchange in which stockholders of the Corporation may participate shall be considered a liquidation, dissolution or winding-up of the Corporation within the meaning of this clause (iii). (iv) Redemption. (a) Special Redemption at Holders' Option Upon Change in Control Event. Subject to and limited by the provisions of this paragraph, the Series B Preferred Stock shall be subject to redemption at the option of the holder exercisable for a period ending 30 days subsequent to receipt by such holder of notice from the Corporation to the effect that a Change in Control Event (as hereinafter defined) has occurred, upon written notice to the Corporation by such holder specifying the number of shares and the subseries of Series B Preferred Stock held by such holder to be redeemed. The Corporation shall give notice of any Change in Control Event to the holders of Series B Preferred Stock within five days of the occurrence of such Change in Control Event. The Corporation shall redeem the Series B Preferred Stock pursuant to the notice delivered by the requesting holder at a redemption price per share equal to the Liquidation Value plus the Redemption Premium (as hereinafter defined) plus dividends accrued thereon to the date of redemption (the "Special Redemption Price"). Anything in this clause (iv)(a) to the contrary notwithstanding, the Corporation shall be required to redeem such Series B Preferred Stock to, and only to, the extent to which, after receiving notice from the holder, the Corporation shall have, (1) using its best efforts, offered for sale in one or more issuances, non-redeemable (other than at the option of the Corporation) capital stock of the Corporation and (2) received net proceeds from the sale thereof equal to or greater than the Special Redemption Price with respect to such Series B Preferred Stock to be redeemed; provided, however, that to the extent such net proceeds are less than the aggregate amount required to redeem all such Series B Preferred Stock requested to be redeemed at the Special Redemption Price, the Corporation shall, to the extent of such net proceeds, redeem such Series B Preferred Stock pro rata from the holders requesting such redemption. For the purposes of this clause (iv) the following definitions shall apply: (A) "Change in Control Event" shall mean (i) the acquisition in one or more related transactions by any Person of beneficial ownership, direct or indirect, of securities of the Corporation representing 50% or more of the combined voting power of the Corporation's then outstanding voting securities, (ii) the sale, transfer or other disposition in one or more related transactions of all or substantially all of the assets of the Corporation or (iii) the merger or consolidation of the Corporation with or into another Person, other than a wholly-owned subsidiary, unless such merger or consolidation does not result in a reclassification, conversion, exchange or cancellation of any outstanding shares of Common Stock of the Corporation. (B) "Redemption Premium" shall mean: Period June 1, 1991 to May 31, 1992 $10.250 June 1, 1992 to May 31, 1993 9.225 June 1, 1993 to May 31, 1994 8.200 June 1, 1994 to May 31, 1995 7.175 June 1, 1995 to May 31, 1996 6.150 June 1, 1996 to May 31, 1997 5.125 June 1, 1997 to May 31, 1998 4.100 June 1, 1998 to May 31, 1999 3.075 June 1, 1999 to May 31, 2000 2.050 June 1, 2000 to May 31, 2001 1.025 June 1, 2001 and thereafter 0 provided, however, that if the dividend rate on the Series B Preferred Stock has been increased pursuant to the last sentence of Article Second (ii), "Redemption Premium" shall mean: Period June 1, 1991 to May 31, 1992 $10.750 June 1, 1992 to May 31, 1993 9.675 June 1, 1993 to May 31, 1994 8.600 June 1, 1994 to May 31, 1995 7.525 June 1, 1995 to May 31, 1996 6.450 June 1, 1996 to May 31, 1997 5.375 June 1, 1997 to May 31, 1998 4.300 June 1, 1998 to May 31, 1999 3.225 June 1, 1999 to May 31, 2000 2.150 June 1, 2000 to May 31, 2001 1.075 June 1, 2001 and thereafter 0 (b) Optional Redemption Upon Satisfaction of Certain Conditions. The Series B Preferred Stock shall be subject to redemption, at the option of the Corporation, in whole or from time to time in part, in each case as set forth in the second proviso below, (i) at any time on or after June 1, 1994 and prior to June 1, 1997, at a per share redemption price equal to the Liquidation Value plus any dividends accrued thereon to the date of redemption, and (ii) at any time on or after June 1, 1997, at a per share redemption price equal to the Special Redemption Price; provided, however, that in the event of a redemption described in clause (i), on the date notice of redemption is given and for each of the twenty consecutive trading days prior to such date, the closing price for a share of Common Stock on the principal national securities exchange for such Common Stock shall be equal to or greater than an amount equal to 150% of the Conversion Price (as defined in clause (vi) hereof) then in effect; provided, further, however, that the Corporation may redeem (i) only Series B Preferred Stock 1995 prior to June 1, 1995 and (ii) only Series B Preferred Stock 1995 or Series B Preferred Stock 1996 on or after June 1, 1995 and prior to June 1, 1996. (c) Notice of Redemption. The Corporation shall give each holder of Series B Preferred Stock written notice of each redemption pursuant to clause (iv) (b) hereof not less than 30 days nor more than 45 days prior to any redemption date, specifying such redemption date and the number of shares to be redeemed on such date. Notice of redemption having been given as aforesaid, the number of shares to be redeemed as specified in such notice shall be so redeemed on the redemption date specified, except to the extent that any share of Series B Preferred Stock which is to be so redeemed shall have been surrendered to the Corporation for conversion prior to such redemption date in accordance with clause (vi) hereof. (d) Effect of Redemption. On or after the date established for redemption, all rights in respect of the shares of Series B Preferred Stock to be redeemed, except the right to receive the applicable redemption price, including premium, if any, plus accrued dividends, if any, to the date of redemption, shall (unless default shall be made by the Corporation in the payment of the applicable redemption price, including premium, if any, plus accrued dividends, if any, in which event such rights shall be exercisable until such default is cured) cease and terminate, and such shares shall no longer be deemed to be outstanding, notwithstanding that any certificates representing such shares shall not have been surrendered to the Corporation. (e) Conversion Prior to Redemption. Anything to the contrary in this clause (iv) of this Article SECOND notwithstanding, the holders of Series B Preferred Stock shall have the right, exercisable at any time prior to the date set for redemption thereof, to convert all or any part of such Series B Preferred Stock into shares of Common Stock pursuant to clause (vi) hereof. (v) Voting Rights. Excepting the rights specified below in this clause (v), the holders of the Series B Preferred Stock shall not be entitled to any voting rights. For purposes of this clause (v) and in any case where the holders of the Series B Preferred Stock are entitled to vote upon any matter together with holders of Parity Stock as a single class, holders of Series B Preferred Stock shall have a number of votes per share determined by dividing the Liquidation Value of such share by $50.00. (a) Voting Rights Related to Unpaid Dividends. (1) If on the date used to determine stockholders of record for any meeting of stockholders for the election of directors, accrued dividends on the shares of Series B Preferred Stock or any Parity Stock shall not have been paid in an aggregate amount equal to or greater than two quarterly dividends on the shares of Series B Preferred Stock or such Parity Stock at the time outstanding, then, and in any such event, the number of Directors then constituting the entire Board of Directors of the Corporation shall automatically be increased by two Directors and the holders of shares of Series B Preferred Stock and the holders of shares of Parity Stock, voting together as a single class, shall be entitled at such meeting to fill such newly created directorships. Such right to vote as a single class to elect two Directors shall, when vested, continue until all dividends in default on the shares of Series B Preferred Stock and such Parity Stock, as the case may be, shall have been paid in full and, when so paid, such right to elect two Directors separately as a class shall cease, subject, always, to the same provisions for the vesting of such right to elect two Directors separately as a class in the case of future dividend defaults. (2) So long as any shares of Series B Preferred Stock are outstanding the number of Directors of the Corporation shall at all times be such that the exercise, by the holders of shares of Series B Preferred Stock and the holders of shares of Parity Stock, of the right to elect Directors under the circumstances provided in paragraph (1) of this subclause (a) will not contravene any provisions of the Maryland General Corporation Law or the Charter of the Corporation. (3) Directors elected pursuant to paragraph (1) of this subclause (a) shall serve until the earlier of (A) the next annual meeting of the stockholders of the Corporation and the election (by the holders of shares of Series B Preferred Stock and Parity Stock) and qualification of their respective successors or (B) the date upon which all dividends in default on the shares of Series B Preferred Stock and such Parity Stock shall have been paid in full. Directors elected pursuant to paragraph (1) of this subclause (a) may be removed by, and shall not be removed except by, the vote of the holders of record of the outstanding shares of Series B Preferred Stock and Parity Stock, voting together as a single class without regard to Series, at a meeting of the stockholders, or the holders of shares of Series B Preferred Stock and Parity Stock, called for that purpose. If, prior to the end of the term of any Director elected as aforesaid, a vacancy in the office of such Director shall occur during the continuance of a default in dividends on the shares of Series B Preferred Stock or such Parity Stock by reason other than removal, such vacancy shall be filled for the unexpired term by the appointment by the remaining Director elected as aforesaid of a new Director for the unexpired term of such former Director. (b) Additional Capital Stock, etc. The Corporation shall not, without the affirmative consent or approval of the holders of shares representing at least 66-2/3% of the Series B Preferred Stock then outstanding, voting as a single class (such consent or approval to be given by written consent in lieu of a meeting or by vote at a meeting called for such purpose for which notice shall have been given to the holders of the Series B Preferred Stock): (i) authorize the issuance of any new, or increase the authorized number of shares of any existing, class of capital stock of the Corporation which would be senior or superior as to dividends and upon liquidation to the Series B Preferred Stock, (ii) increase the number of shares of Preferred Stock authorized in the Charter or create any other class of stock (or any other Series of Preferred Stock) ranking on a parity with the Series B Preferred Stock, 11% Preferred Stock, Series C Preferred Stock and any other Parity Stock (which other Parity Stock, together with the Series C Preferred Stock, shall not exceed $170,000,000 in Liquidation Value plus an additional $25,500,000 in Liquidation Value of such stock which may be issued pursuant to an underwriter's over-allotment option) issued or issuable as part of the Total Equity Financing (as defined below) as to dividends and upon liquidation, (iii) reissue any shares of Series B Preferred Stock that have been redeemed or (iv) take any action to cause any amendment, alteration or repeal of any of the provisions of the Charter that would materially adversely affect the rights of holders of Series B Preferred Stock. (vi) Conversion Rights. (a) Optional Conversion of Series B Preferred Stock. The holder of a share of Series B Preferred Stock shall have the right, at such holder's option, at any time or from time to time to convert such share of Series B Preferred Stock into such number of fully paid and nonassessable shares of Common Stock (the "Conversion Shares") as is obtained by dividing the Liquidation Value by $12.025, being a price equal to the sum of (i) the average of the closing price for Common Stock on the New York Stock Exchange for each of the 20 consecutive trading days immediately preceding the date of issue of the Series B Preferred Stock (the "Average Price") plus (ii) 15% of the Average Price (the "Initial Conversion Price"). (b) If at any time after the date hereof and prior to June 1, 1992 the Corporation (i) shall have issued or sold any convertible security or instrument convertible into Common Stock at less than the Initial Conversion Price or (ii) shall have issued or sold any Common Stock at a price per share less than the Average Price or (iii) shall have issued or sold warrants, options or rights to purchase Common Stock at a price such that the sum of such price and the price at which such instrument maybe exercised is less than the Initial Conversion Price, then the Initial Conversion Price shall be adjusted to (xx) the price at which such convertible security or instrument may be exercised or (yy) the sale price of such Common Stock plus 15% of such sale price or (zz) the sum of the price of such instrument and its exercise price, respectively; provided, however, that there shall not be taken into account for the purposes of such adjustment (A) stock, options or rights issued to the officers or key employees of the Corporation and of its subsidiaries or the issuance of any securities pursuant to employee stock purchase plans or (B) any sale or issuance of such securities, instruments, capital stock or warrants that yields Gross Proceeds (including further proceeds, if any, upon the exercise thereof) of less than $15,000,000 in the aggregate; provided, further, however that in any case the Initial Conversion Price shall not be less than $10.00. If the Initial Conversion Price should be adjusted pursuant to clause (xx), (yy) or (zz) above prior to December 31, 1991 and such adjustment would result in the Series B Preferred Stock being convertible into more shares of Common Stock than the Corporation has authorized and reserved for such purpose, then no such adjustment shall be made at such time; provided, however, that the Corporation shall use its best efforts to increase the number of authorized and reserved shares of Common Stock to a number sufficient to effect such adjustment as promptly as practicable; provided, further, however, that any adjustment not made as a result of this sentence shall be made immediately upon the increase of authorized shares of Common Stock. The provisions of this paragraph (b) shall be of no further force and effect and the adjustments to the Initial Conversion Price required by this paragraph shall not be made for any event that occurs from and after the date, if any, that the Total Equity Financing (as hereinafter defined) exceeds $250,000,000. For the purposes of this clause (vi) of this Article Second, "Total Equity Financing" shall at any date mean Gross Proceeds (calculated using the Liquidation Value with respect to the Series B Preferred Stock) from the sale, on and after the date of issuance of the Series B Preferred Stock, of capital stock of the Corporation (including Series B Preferred Stock and Series C Preferred Stock, but excluding the issuance of any 11% Preferred Stock) or any other securities convertible into or exchangeable for capital stock of the Corporation. (c) If the Initial Conversion Price would have been reduced to less than $10.00 pursuant to any provision of clause (vi) (b) above but for the provisos therein prohibiting any Initial Conversion Price below $10.00 (the Initial Conversion Price as so adjusted without regard to any prohibition on a price below $10.00, being referred to as the "Fully Adjusted Conversion Price"), the Corporation shall, without additional consideration therefor, issue a number of shares of its 11% Preferred Stock to each holder of Series B Preferred Stock calculated pursuant to the following formula: Fully Adjusted Conversion Price multiplied by Incremental Shares multiplied by 0.5, divided by $10,000. For the purposes of this paragraph (c) "Incremental Shares" shall mean (A) that number of shares of Common Stock that each holder of Series B Preferred Stock would have received upon conversion of such Series B Preferred Stock if the Initial Conversion Price had been the Fully Adjusted Conversion Price, less (B) that number of shares of Common Stock each holder will receive upon conversion assuming an Initial Conversion Price of $10.00. Initial Conversion Price and Fully Adjusted Conversion Price, individually or collectively, as applicable, are hereinafter referred to as the "Conversion Price." The Conversion Shares and the Conversion Price are subject to certain adjustments as set forth herein, and the terms Conversion Shares and Conversion Price as used herein shall as of any time be deemed to include all such adjustments to be given effect as of such time in accordance with the terms hereof. Upon the exercise of the option of the holder of any shares of Series B Preferred Stock to convert Series B Preferred Stock into Common Stock, the holder of such shares of Series B Preferred Stock to be converted shall surrender the certificates representing the shares of Series B Preferred Stock so to be converted in the manner provided in clause (vi)(d) below. (d) Delivery of Stock Certificates; No Fractional Shares. The holder of any shares of Series B Preferred Stock may exercise the conversion right pursuant to clause (vi) (a) above by delivering to the Corporation during regular business hours at the office of the Corporation the certificate or certificates for the shares to be converted, duly endorsed or assigned either in blank or to the Corporation (if required by it), accompanied by written notice stating that such holder elects to convert such shares. Conversion shall be deemed to have been effected on the date when the aforesaid delivery is made, and such date is referred to herein as the "Conversion Date." As promptly as practicable thereafter the Corporation shall issue and deliver to or upon the written order of such holder to the place designated by such holder, a certificate or certificates for the number of full shares of Common Stock to which such holder is entitled and a check or cash in respect of any fractional interest in a share of Common Stock, as provided below, payable with respect to the shares of Series B Preferred Stock so converted; provided, however, that in the case of a conversion in connection with liquidation, no such certificates need be issued. The person in whose name the certificate or certificates for Common Stock are to be issued shall be deemed to have become the stockholder of record in respect of such Common Stock on the applicable Conversion Date unless the transfer books of the Corporation are closed on that date, in which event such holder shall be deemed to have become the stockholder of record in respect of such Common Stock on the next succeeding date on which the transfer books are open, but the Conversion Price shall be that in effect on the Conversion Date. Upon conversion of only a portion of the number of shares covered by a certificate representing shares of Series B Preferred Stock surrendered for conversion, the Corporation shall issue and deliver to or upon the written order of the holder of the certificate so surrendered for conversion, at the expense of the Corporation, a new certificate covering the number of shares of Series B Preferred Stock representing the unconverted portion of the certificate so surrendered. If the new certificate or certificates are to be issued to a person who is not the registered holder of the certificate delivered for conversion, any transfer taxes applicable to the transaction shall be paid by such transferee. (e) No Fractional Shares of Common Stock. (i) No fractional shares of Common Stock shall be issued upon conversion of shares of Series B Preferred Stock. Instead of any fractional share of Common Stock which would otherwise be issuable upon conversion of any shares of Series B Preferred Stock, the Corporation shall pay a cash adjustment in respect of such fractional interest in an amount equal to the then current Market Price (as defined in clause (vi)(f)(8) below) of a share of Common Stock multiplied by such fractional interest. The holders of fractional interests shall not be entitled to any rights as stockholders of the Corporation in respect of such fractional interests. In determining the number of shares of Common Stock and the payment, if any, in lieu of fractional shares that a holder of Series B Preferred Stock shall receive, the total number of shares of Series B Preferred Stock surrendered for conversion by such holder shall be aggregated. (ii) The Corporation shall forthwith upon conversion of all or any portion of the Series B Preferred Stock pay all dividends accrued on such Series B Preferred Stock to the date of such conversion. (f) Adjustment of Conversion Price Upon Issuance of Common Stock. If and whenever (i) after the date hereof and prior to June 1, 1992, the Total Equity Financing shall have yielded Gross Proceeds in excess of $250,000,000 and the Corporation shall thereafter take any of the actions described in subclauses (i), (ii) or (iii) of clause (b) above, (except (xx) upon conversion of the Series B Preferred Stock (yy) issuances subject to subclauses (A) and (B) of the first proviso set forth in clause (b) and (zz) the term "Average Price" in subclause (ii) of clause (b) shall mean the Conversion Price as then in effect); or (ii) at any time after the date hereof the Corporation takes any of the actions described in paragraphs (1) through (4) below involving the deemed issuance of shares of Common Stock for a consideration per share less than the Market Price on the day immediately prior to such deemed issue or sale, then, forthwith upon such actual or deemed issue or sale, as the case may be, the Conversion Price shall be reduced (but not increased, except as otherwise specifically provided in paragraph (3) below) to the price (calculated to the nearest cent) (or, where an event may occur which would require an adjustment under more than one provision hereof, to the lower of the prices) determined as follows: (A) in the case of taking any of the actions described above in subclause (i) of this clause (f), by dividing (i) an amount equal to the sum of (A) the aggregate number of shares of Common Stock outstanding immediately prior to such issue or sale multiplied by the then existing Conversion Price and (B) the consideration, if any, received by the Corporation upon such issue or sale (determined, in the case of warrants, options, rights or convertible securities, on the basis described below in paragraphs (1) and (2) as the Rights Formula and the Convertible Formula), by (ii) the aggregate number of shares of Common Stock of all classes outstanding immediately after such issue or sale (determined, in the case of warrants, options, rights or convertible securities, on the basis described below in paragraphs (1) and (2) as the Rights Formula and the Convertible Formula); and (B) in the case of taking any of the actions described above in subclause (ii) of this clause (f), by multiplying the Conversion Price in effect immediately prior to the time of such deemed issue or sale by a fraction, the numerator of which shall be the sum of (i) the aggregate number of shares of Common Stock outstanding immediately prior to such issue or sale multiplied by the Market Price on the day immediately prior to such issue or sale plus (ii) the consideration received by the Corporation upon such issue or sale, and the denominator of which shall be the product of (iii) the aggregate number of shares of Common Stock of all classes outstanding immediately after such issue or sale, multiplied by (iv) the Market Price on the day immediately prior to such issue or sale. No adjustment of the Conversion Price, however, shall be made in an amount less than $.10 per share, but any such lesser adjustment shall be carried forward and taken into account at the time of and together with the next subsequent adjustment. For the purposes of subclause (ii) of this clause (vi)(f), the following paragraphs (1) through (4) shall also be applicable; and for purposes of this clause (vi)(f) generally, the following paragraphs (5) through (10) shall be applicable: (1) Issuance of Rights or Options - In case at any time after the date hereof the Corporation shall in any manner grant (whether directly or by assumption in a merger or otherwise, except in the circumstances described in clause (vi)(g) below) any rights to subscribe for or to purchase, or any options for the purchase of, Common Stock or any stock or securities convertible into or exchangeable for Common Stock (such convertible or exchangeable stock or securities being herein called "Convertible Securities"), whether or not such rights or options or the right to convert or exchange any such Convertible Securities are immediately exercisable, and the price per share for which Common Stock is issuable upon the exercise of such rights or options or upon conversion or exchange of such Convertible Securities (determined by dividing (i) the total amount, if any, received or receivable by the Corporation as consideration for the granting of such rights or options, plus the minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the exercise of such rights or options, plus, in the case of such rights or options which relate to Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable upon the issue or sale of such Convertible Securities and upon the conversion or exchange thereof, by (ii) the total maximum number of shares of Common Stock issuable upon the exercise of such rights or options or upon the conversion or exchange of all such Convertible Securities issuable upon the exercise of such rights or options (the "Rights Formula")) shall be less than the Market Price, determined as of the date of granting such rights or options, then the total maximum number of shares of Common Stock issuable upon the exercise of such rights or options or upon conversion or exchange of all such Convertible Securities issuable upon the exercise of such rights or options shall (as of the date of granting of such rights or options) be deemed to be outstanding and to have been issued for such price per share. Except as provided in paragraph (3), no further adjustment of the Conversion Price shall be made upon the actual issue of such Common Stock or of such Convertible Securities upon exercise of such rights or options or upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities. (2) Issuance of Convertible Securities - In case at any time after the date hereof the Corporation shall in any manner issue (whether directly or by assumption in a merger or otherwise) or sell any Convertible Securities, whether or not the rights to exchange or convert thereunder are immediately exercisable, and the price per share for which Common Stock is issuable upon such conversion or exchange (determined by dividing (i) the total amount received or receivable by the Corporation as consideration for the issue or sale of such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the conversion or exchange thereof, by (ii) the total maximum number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities (the "Convertible Formula")) shall be less than the Market Price, determined as of the date of such issue or sale of such Convertible Securities, then the total maximum number of shares of Common Stock issuable upon conversion or exchange of all such Convertible Securities shall (as of the date of the issue or sale of such Convertible Securities) be deemed to be outstanding and to have been issued for such price per share; provided, however, that (a) except as otherwise provided in paragraph (3), no further adjustment of the Conversion Price shall be made upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities, and (b) if any such issue or sale of such Convertible Securities is made upon exercise of any rights to subscribe for or to purchase or any option to purchase any such Convertible Securities for which adjustments of the Conversion Price have been or are to be made pursuant to other provisions of this clause (vi) (f), no further adjustment of the Conversion Price shall be made by reason of such issue or sale. (3) Change in Option Price or Conversion Rate - Upon the happening of any of the following events, namely, if the purchase price provided for in any right or option referred to in paragraph (1), the additional consideration, if any, payable upon the conversion or exchange of any Convertible Securities referred to in paragraph (1) or (2), or the rate at which any Convertible Securities referred to in paragraph (1) or (2) are convertible into or exchangeable for Common Stock shall change (other than under or by reason of provisions designed to protect against dilution), the Conversion Price then in effect hereunder shall forthwith be readjusted (increased or decreased, as the case maybe) to the Conversion Price which would have been in effect at such time had such rights, options or Convertible Securities still outstanding provided for such changed purchase price, additional consideration or conversion rate, as the case may be, at the time initially granted, issued or sold. On the expiration of any such option or right referred to in paragraph (1) or the termination of any such right to convert or exchange any such Convertible Securities referred to in paragraph (1) or (2), the Conversion Price then in effect hereunder shall forthwith be readjusted (increased or decreased, as the case may be) to the Conversion Price which would have been in effect at the time of such expiration or termination had such right, option or Convertible Securities, to the extent outstanding immediately prior to such expiration or termination, never been granted, issued or sold, and the Common Stock issuable thereunder shall no longer be deemed to be outstanding. If the purchase price provided for in any such right or option referred to in paragraph (1) or the rate at which any Convertible Securities referred to in paragraph (1) or (2) are convertible into or exchangeable for Common Stock shall be reduced at any time under or by reason of provisions with respect thereto designed to protect against dilution, then in case of the delivery of shares of Common Stock upon the exercise of any such right or option or upon conversion or exchange of any such Convertible Securities, the Conversion Price then in effect hereunder shall, if not already adjusted, forthwith be adjusted to such amount as would have obtained had such right, option or Convertible Securities never been issued as to such shares of Common Stock and had adjustments been made upon the issuance of the shares of Common Stock delivered as aforesaid, but only if as a result of such adjustment the Conversion Price then in effect hereunder is thereby reduced. (4) Stock Dividends - In case at any time the Corporation shall declare a dividend or make any other distribution upon any class or series of stock of the Corporation payable in shares of Common Stock or Convertible Securities, any shares of Common Stock or Convertible Securities, as the case may be, issuable in payment of such dividend or distribution shall be deemed to have been issued or sold without consideration. (5) Consideration for Stock - Anything herein to the contrary notwithstanding, in case at any time any shares of Common Stock or Convertible Securities or any rights or options to purchase any such Common Stock or Convertible Securities shall be issued or sold for cash, the consideration received therefor shall be deemed to be the amount received by the Corporation therefor, without deduction therefrom of any expenses incurred or any underwriting discounts, commissions or concessions paid or allowed by the Corporation in connection therewith. In case at any time any shares of Common Stock or any class of Convertible Securities or any rights or options to purchase any such shares of Common Stock or Convertible Securities shall be issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Corporation shall be deemed to be the fair value of such consideration as determined reasonably and in good faith by the Board of Directors of the Corporation, without deduction of any expenses incurred or any underwriting discounts, commissions or concessions paid or allowed by the Corporation in connection therewith. In case at any time any shares of Common Stock or any class or Convertible Securities or any rights or options to purchase such shares of Common Stock or Convertible Securities shall be issued in connection with any merger or consolidation in which the Corporation is the surviving Corporation, the amount of consideration received therefor shall be deemed to be the fair value as determined reasonably and in good faith by the Board of Directors of the Corporation of such portion of the assets and business of the nonsurviving Corporation as such Board may determine to be attributable to such shares of Common Stock, Convertible Securities, rights or options, as the case may be. In case at any time any rights or options to purchase any shares of Common Stock or Convertible Securities shall be issued in connection with the issue and sale of other securities of the Corporation, together comprising one integral transaction in which no consideration is allocated to such rights or options by the parties thereto, such rights or options shall be deemed to have been issued for an amount of consideration equal to the fair value thereof as determined reasonably and in good faith by the Board of Directors of the Corporation. (6) Record Date - In case the Corporation shall take a record of the holders of its Common Stock for the purpose of entitling them (i) to receive a dividend or other distribution payable in shares of Common Stock or in Convertible Securities, or (ii) to subscribe for or purchase shares of Common Stock or Convertible Securities, then such record date shall be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold as a result of the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase,as the case may be. (7) Treasury Shares - The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Corporation, and the disposition of any such shares shall be considered an issue or sale of Common Stock for the purposes of this clause (vi)(f). (8) Definition of Market Price - Unless otherwise set forth in these Articles, "Market Price" shall mean, for any day, the last sale price of the Common Stock on the principal national securities exchange on which the Common Stock may at the time be listed, or, if there shall have been no sales on any such exchange on any such day, the average of the bid and asked prices at the end of such day, or, if the Common Stock shall not be so listed, the average of the bid and asked prices at the end of the day in the domestic over-the-counter market. If at any time the Common Stock is not listed on any exchange or quoted in the domestic over-the-counter market, the "Market Price" shall be deemed to be the higher of (aa) the book value thereof, as determined (in accordance with generally accepted accounting principles consistent with those then being applied by the Corporation) by any firm of independent public accountants (which may be the regular auditors of the Corporation) of recognized national standing selected by the Board of Directors of the Corporation, as of the last day of the month ending within 31 days preceding the date as of which the determination is to be made, and (bb) the fair value thereof, as determined in good faith by the Board of Directors of the Corporation. (9) Determination of Market Price under Certain Circumstances- Anything herein to the contrary notwithstanding, in case at any time after the date hereof the Corporation shall issue any shares of Common Stock or Convertible Securities, or any rights or options to purchase any such Common Stock or Convertible Securities, in connection with the acquisition by the Corporation of the stock or assets of any other Corporation or the merger of any other Corporation into the Corporation under circumstances where on the date of the issuance of such shares of Common Stock or Convertible Securities or such rights or options the consideration received for such Common Stock or deemed to have been received for the Common Stock into which such Convertible Securities or such rights or options are convertible is less than the Market Price of the Common Stock but on the date the number of shares of Common Stock or Convertible Securities (or in the case of Convertible Securities other than stock, the aggregate principal amount of Convertible Securities) or the number of such rights or options was determined (as set forth in a binding agreement between the Corporation and the other party to the transaction) the consideration received for such Common Stock or deemed to have been received for the Common Stock into which such Convertible Securities or such rights or options are convertible would not have been less than the Market Price thereof, such shares of Common Stock shall not be deemed to have been issued for less than the Market Price of the Common Stock. (10) Adjustment to Determination of Market Price. When making the calculations and determinations described in clause (vi) (f) (1) through clause (vi) (f) (9) hereof, the issuance to officers or key employees of the Corporation and of its subsidiaries of shares of Common Stock or warrants, options or rights for Common Stock issued pursuant to any instruments or agreements or plans, or shares issuable to employees under employee stock purchase plans, shall not be taken into account. (g) Liquidating Dividends; Purchase Rights. (i) In case at any time after the date hereof the Corporation shall declare a dividend upon the shares of Common Stock of any class payable otherwise than in shares of Common Stock or Convertible Securities, otherwise than out of consolidated earnings or consolidated earned surplus (determined in accordance with generally accepted accounting principles, but excepting quarterly Common Stock dividends at the rate of $.05 per share or increases therein out of consolidated net income of the Corporation determined in accordance with generally accepted accounting principles for the period from the end of the last fiscal year to the date of the most recent consolidated quarterly financial statements of the Corporation as at the time of the declaration of the dividend), and otherwise than in the securities to which the provisions of clause (ii) below apply, the Corporation shall pay over to each holder of Series B Preferred Stock, upon conversion thereof on or after the dividend payment date, the securities and other property (including cash) which such holder would have received (together with all distributions thereon) if such holder had converted the Series B Preferred Stock held by it on the record date fixed in connection with such dividend, and the Corporation shall take whatever steps are necessary or appropriate to keep in reserve at all times such securities and other property as shall be required to fulfill its obligations hereunder in respect of the shares issuable upon the exercise or conversion of all the Series B Preferred Stock. (ii) If at any time or from time to time on or after the date hereof, the Corporation shall grant, issue or sell any options or rights (other than Convertible Securities) to purchase stock, warrants, securities or other property pro rata to the holders of Common Stock of all classes ("Purchase Rights"), and if the holder shall be entitled to an adjustment pursuant to clause (vi) (f) above, then in lieu of such adjustment, and if deemed by the Board of Directors to be not materially adverse to the interests of the holders of Series B Preferred Stock, the Corporation shall reserve for distribution to holders of Series B Preferred Stock upon conversion of the same and upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such holder could have acquired if such holder had held the number of shares of Common Stock issuable upon conversion of such Series B Preferred Stock immediately prior to the time or times at which the Corporation granted, issued or sold such Purchase Rights. (h) Subdivision or Combination of Stock. In case the Corporation shall at any time subdivide its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision shall be proportionately reduced, and conversely, in case the outstanding shares of Common Stock of the Corporation shall be combined into a smaller number of shares, the Conversion Price in effect immediately prior to such combination shall be proportionately increased. (i) Changes in Common Stock. If any capital reorganization or reclassification of the capital stock of the Corporation, or consolidation or merger of the Corporation with another Corporation, or the sale, transfer or other disposition of all or substantially all of its properties to another Corporation, shall be effected, then, as a condition of such reorganization, reclassification, consolidation, merger, sale, transfer or other disposition, lawful and adequate provision shall be made whereby each holder of Series B Preferred Stock shall thereafter have the right to purchase and receive upon the basis and upon the terms and conditions herein specified and in lieu of the shares of the Common Stock of the Corporation immediately theretofore issuable upon conversion of the Series B Preferred Stock, such shares of stock, securities or properties as may be issuable or payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of shares of such Common Stock immediately theretofore issuable upon conversion of the Series B Preferred Stock had such reorganization, reclassification, consolidation, merger, sale, transfer or other disposition not taken place, and in any such case appropriate provisions shall be made with respect to the rights and interests of each holder of Series B Preferred Stock to the end that the provisions hereof (including without limitation provisions for adjustment of the Conversion Price) shall thereafter be applicable, as nearly equivalent as may be practicable in relation to any shares of stock, securities or properties thereafter deliverable upon the exercise thereof. The Corporation shall not effect any such consolidation, merger, sale, transfer or other disposition, unless prior to or simultaneously with the consummation thereof the successor corporation (if other than the Corporation) resulting from such consolidation or merger or the corporation purchasing or otherwise acquiring such properties shall assume, by written instrument executed and mailed or delivered to the holders of Series B Preferred Stock at the last address of such holders appearing on the books of the Corporation, the obligation to deliver to such holders such shares of stock, securities or properties as, in accordance with the foregoing provisions, such holders may be entitled to acquire. The above provisions of this subparagraph shall similarly apply to successive reorganizations, reclassifications, consolidations, mergers, sales, transfers, or other dispositions. (j) Certain Events. If any event occurs as to which in the opinion of the Board of Directors of the Corporation the other provisions of this clause (vi) are not strictly applicable or if strictly applicable would not fairly protect the conversion rights of the holders of the Series B Preferred Stock in accordance with the essential intent and principles of such provisions, then such Board of Directors shall appoint a firm of independent certified public accountants (which may be the regular auditors of the Corporation) of recognized national standing, which shall give their opinion upon the adjustment, if any, on a basis consistent with such essential intent and principles, necessary to preserve, without dilution, the rights of the holders of the Series B Preferred Stock. Upon receipt of such opinion by the Board of Directors, the Corporation shall forthwith make the adjustments described therein; provided, however, that no such adjustment shall have the effect of increasing the Conversion Price as otherwise determined pursuant to this clause (vi) except in the event of a combination of shares of the type contemplated in clause (vi)(h) and then in no event to an amount larger than the Conversion Price as adjusted pursuant to clause (vi) (h). (k) Prohibition of Certain Actions. The Corporation will not (i) authorize or issue, or agree to authorize or issue, any shares of its capital stock of any class preferred as to dividends or as to the distribution of assets upon voluntary or involuntary liquidation, dissolution or winding-up of the Corporation unless the rights of the holders thereof shall be limited to a fixed sum or percentage of par value in respect of participation in dividends and in the distribution of such assets, or (ii), except in accordance with clause (vi)(b), take any action which would result in any adjustment of the Conversion Price if the total number of shares of Common Stock issuable after such action upon conversion of all of the Series B Preferred Stock would exceed the total number of shares of Common Stock then authorized by the Corporation's Charter. (l) Stock to be Reserved. Except as otherwise provided in clause (vi) (b) hereof, the Corporation will at all times reserve and keep available out of its authorized Common Stock, solely for the purpose of issue upon the conversion of Series B Preferred Stock as herein provided, such number of shares of Common Stock as shall then be issuable upon the conversion of all outstanding Series B Preferred Stock, and the Corporation will maintain at all times all other rights and privileges sufficient to enable it to fulfill all its obligations hereunder. The Corporation covenants that all shares of Common Stock which shall be so issuable shall, upon issuance, be duly authorized, validly issued, fully paid and nonassessable, free from preemptive or similar rights on the part of the holders of any shares of capital stock or securities of the Corporation, and without limiting the generality of the foregoing, the Corporation covenants that it will from time to time take all such action as may be requisite to assure that the par value, if any, per share of the Common Stock is at all times equal to or less than the then effective Conversion Price. The Corporation will use its best efforts to take all such action as may be necessary to assure that such shares of Common Stock may be so issued without violation by the Corporation of any applicable law or regulation, or of any requirements of any domestic securities exchange upon which the Common Stock may be listed. (m) Registration and Listing of Common Stock. If any shares of Common Stock required to be reserved for purposes of conversion of Series B Preferred Stock hereunder require registration with or approval of any governmental authority under any Federal or state law (other than the Securities Act of 1933 or any state "blue sky" law) before such shares may be issued upon conversion, the Corporation will, at its expense and as expeditiously as possible, use its best efforts to cause such shares to be duly registered or approved, as the case may be. If and so long as the Common Stock is listed on any national securities exchange, the Corporation will, at its expense, use its best efforts to obtain promptly and maintain the approval for listing on each such exchange upon official notice of issuance, of shares of Common Stock issuable upon conversion of the then outstanding Series B Preferred Stock and maintain the listing of such shares after their issuance; and the Corporation will also use its best efforts to list on such national securities exchange, to register under the Securities Exchange Act of 1934 and to maintain such listing of, any other securities that at any time are issuable upon conversion of the Series B Preferred Stock, if and at the time that any securities of the same class shall be listed on such national securities exchange by the Corporation. (n) Closing of Books. The Corporation will at no time close its transfer books against the transfer of any Preferred Stock or of any shares of Common Stock issued or issuable upon the conversion of any Series B Preferred Stock in any manner which interferes with the timely conversion of such Series B Preferred Stock. (o) Statement of Adjustment of Conversion Price. Whenever the Conversion Price shall be adjusted as provided in clause (vi) (f) above, the Corporation shall forthwith file at its office a statement, signed by its independent certified public accountants, showing in detail the facts requiring such adjustment and the Conversion Price that shall be in effect after such adjustment. The Corporation shall also cause a copy of such statement to be sent by certified mail, return receipt requested, to each holder of shares of Series B Preferred Stock to such holder's address appearing on the Corporation's records. Where appropriate, such copy may be given in advance and may be included as part of a notice required to be mailed under the provisions of clause (vi) (p) below. (p) Notice. In the event the Corporation shall propose to take any action of the types described in clause (vi)(f) above, the Corporation shall give notice to each holder of shares of Series B Preferred Stock, in the manner set forth in clause (vi) (o) above, which notice shall specify the record date, if any, (or the method of determining the same) with respect to any such action and the date (or the method of determining the same) on which such action is to take place. Such notice shall also set forth such facts with respect thereto as shall be reasonably necessary to indicate the effect of such action (to the extent such effect may be known at the date of such notice) on the Conversion Price and the number, kind or class of shares or other securities or property which shall be deliverable or purchasable upon the occurrence of such action or deliverable upon conversion of shares of Series B Preferred Stock. In the case of any action which would require the fixing of a record date, such notice shall be given at least 20 days prior to the date so fixed, and in case of all other action, such notice shall be given at least 30 days prior to the taking of such proposed action. (q) Taxes. The Corporation shall pay all documentary, stamp or other transactional taxes attributable to the issuance or delivery of shares of capital stock of the Corporation upon conversion of any shares of Series B Preferred Stock. THIRD: The terms of the 11% Preferred Stock are as follows: (i) Designation and Amount. The designation of the Series of Preferred Stock described in clause (ii) of Article First hereof shall be "11% Preferred Stock" (the "11% Preferred Stock"). The number of shares of 11% Preferred Stock shall initially be 1,000. (ii) Dividends. (a) Rate, etc. The holders of shares of 11% Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of the funds legally available therefor, annual dividends from the date of issue thereof at the rate of $1,100.00 per share, calculated on the basis of a 360-day year of 12 30-day months, accruing on a daily basis, payable quarterly, in arrears, on each Dividend Payment Date in each year commencing on the first Dividend Payment Date subsequent to the issuance of any shares of such 11% Preferred Stock. Such dividends shall be cumulative with respect to each share from the date of original issuance, whether or not earned or declared. (b) Rank, etc. The 11% Preferred Stock shall rank on a parity with the Corporation's $4.10 Series A Convertible Exchangeable Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and any other Parity Stock as to dividends and upon liquidation. Unless full cumulative dividends on all outstanding shares of 11% Preferred Stock or any other class of Parity Stock have been paid or are contemporaneously declared and paid (or declared and a sum sufficient for the payment thereof is set apart for such payment), the Corporation will not (1) declare or pay any dividend on the Common Stock of the Corporation or on any other class of Junior Stock or make any payment on account of, or set apart money for, a sinking or other analogous fund for the purchase, redemption or other retirement of, any Junior Stock or make any distribution in respect thereof, either directly or indirectly and whether in cash or property or in obligations or shares of the Corporation (other than in shares of Junior Stock) or (2) purchase any shares of 11% Preferred Stock or Parity Stock (except for consideration payable in Junior Stock) or redeem fewer than all of the shares of 11% Preferred Stock or Parity Stock then outstanding. Unless and until all dividends accrued and payable but unpaid on the 11% Preferred Stock and any Parity Stock at the time outstanding have been paid in full, all dividends declared by the Corporation upon such 11% Preferred Stock or Parity Stock shall be declared pro rata with respect to all 11% Preferred Stock and Parity Stock then outstanding, so that the amounts of any dividends declared on the 11% Preferred Stock and such Parity Stock shall in all cases bear to each other the same ratio that, at the time of such declaration, all accrued and payable but unpaid dividends on the 11% Preferred Stock and such other Parity Stock, respectively, bear to each other. (iii) Liquidation. (a) Preference on Liquidation. In the event of any liquidation, dissolution or winding up of the affairs of the Corporation (any or all of such events, a "liquidation"), whether voluntary or involuntary, the holders of shares of 11% Preferred Stock then outstanding shall be entitled, pari passu as if members of a single class of securities with the holders of other Parity Stock, to be paid out of the assets of the Corporation, before any payment shall be made to the holders of the Junior Stock or the holders of any other capital stock of the Corporation, an amount equal to $10,000 per share of such 11% Preferred Stock plus an amount equal to the dividends accrued and unpaid thereon to the payment date. (b) Insufficient Assets. If, upon any liquidation of the Corporation, the assets of the Corporation are insufficient to pay the holders of shares of the Parity Stock then outstanding the full amounts to which they shall be entitled, such assets shall be distributed to the holders of the Parity Stock pro rata in proportion to the amounts to which they shall be entitled. (c) Rights of Other Holders. In the event of any liquidation, after payment shall have been made to the holders of the 11% Preferred Stock and other Parity Stock of all preferential amounts to which they shall be entitled, the holders of shares of Junior Stock and other capital stock of the Corporation shall receive such amounts as to which they are entitled by the terms thereof. (d) Consolidation, Merger or Sale of Assets. Neither a consolidation or merger of the Corporation with or into any other Corporation, nor a sale or transfer of all or substantially all of the Corporation's assets for cash or securities nor a statutory share exchange in which stockholders of the Corporation may participate shall be considered a liquidation, dissolution or winding-up of the Corporation within the meaning of this clause (iii). (iv) Redemption. (a) Mandatory Redemption. On June 1, 2001, the Corporation will redeem the 11% Preferred Stock then outstanding at a redemption price equal to $10,000 per share, together with dividends accrued thereon to the date of redemption. (b) Optional Redemption. The 11% Preferred Stock shall be subject to redemption, at the option of the Corporation, in whole or from time to time in part, at any time on or after June 1, 1994 at a redemption price equal to $10,000 per share, plus the Redemption Premium (as hereinafter defined), together with dividends accrued thereon to the date of redemption. For the purposes of this clause (iv) "Redemption Premium" shall mean: Period June 1, 1994 to May 31, 1995 $770 June 1, 1995 to May 31, 1996 660 June 1, 1996 to May 31, 1997 550 June 1, 1997 to May 31, 1998 440 June 1, 1998 to May 31, 1999 330 June 1, 1999 to May 31, 2000 220 June 1, 2000 to May 31, 2001 110 June 1, 2001 and thereafter 0 (v) Voting Rights. Excepting the rights specified below in this clause (v), the holders of the 11% Preferred Stock shall not be entitled to any voting rights. For purposes of this clause (v) and in any case where holders of the 11% Preferred Stock are entitled to vote upon any matter together with holders of Parity Stock as a single class, holders of 11% Preferred Stock have a number of votes per share determined by dividing $10,000 by $50.00. (a) Voting Rights Relating to Unpaid Dividends. (1) If on the date used to determine stockholders of record for any meeting of stockholders for the election of directors, accrued dividends on the shares of 11% Preferred Stock or any Parity Stock shall not have been paid in an aggregate amount equal to or greater than two quarterly dividends on the shares of 11% Preferred Stock or such Parity Stock at the time outstanding, then, and in any such event, the number of Directors then constituting the entire Board of Directors of the Corporation shall automatically be increased by two Directors and the holders of shares of 11% Preferred Stock and the holders of shares of Parity Stock, voting together as a single class, shall be entitled at such meeting to fill such newly created directorships. Such right to vote as a single class to elect two Directors shall, when vested, continue until all dividends in default on the shares of 11% Preferred Stock and such Parity Stock, as the case may be, shall have been paid in full and, when so paid, such right to elect two Directors separately as a class shall cease, subject, always, to the same provisions for the vesting of such right to elect two Directors separately as a class in the case of future dividend defaults. (2) So long as any shares of 11% Preferred Stock are outstanding the number of Directors of the Corporation shall at all times be such that the exercise, by the holders of shares of 11% Preferred Stock and the holders of shares of Parity Stock, of the right to elect Directors under the circumstances provided in paragraph (1) of this subclause (a) will not contravene any provisions of the Maryland General Corporation Law or the Charter of the Corporation. (3) Directors elected pursuant to paragraph (1) of this subclause (a) shall serve until the earlier of (A) the next annual meeting of the stockholders of the Corporation and the election (by the holders of shares of 11% Preferred Stock and Parity Stock) and qualification of their respective successors or (B) the date upon which all dividends in default on the shares of 11% Preferred Stock and such Parity Stock shall have been paid in full. Directors elected pursuant to paragraph (1) of this subclause (a) may be removed by, and shall not be removed except by, the vote of the holders of record of the outstanding shares of 11% Preferred Stock and Parity Stock, voting together as a single class without regard to Series, at a meeting of the stockholders, or the holders of shares of 11% Preferred Stock and Parity Stock, called for that purpose. If, prior to the end of the term of any Director elected as aforesaid, a vacancy in the office of such Director shall occur during the continuance of a default in dividends on the shares of 11% Preferred Stock or such Parity Stock by reason other than removal, such vacancy shall be filled for the unexpired term by the appointment by the remaining director elected as aforesaid of a new Director for the unexpired term of such former Director. (b) Additional Capital Stock, etc. The Corporation shall not, without the affirmative consent or approval of the holders of shares representing at least 66- 2/3% of the 11% Preferred Stock and Parity Stock then outstanding, voting as a single class (such consent or approval to be given by written consent in lieu of a meeting or by vote at a meeting called for such purpose for which notice shall have been given to the holders of the 11% Preferred Stock and Parity Stock): (i) authorize the issuance of any new, or increase the authorized number of shares of any existing, class of capital stock of the Corporation which would be senior or superior as to dividends and upon liquidation to the 11% Preferred Stock, (ii) increase the number of shares of Preferred Stock authorized in the charter or create any other class of stock (but not any other series of Preferred Stock) ranking on a parity with the 11% Preferred Stock, Series B Preferred Stock and Parity Stock as to dividends and upon liquidation, (iii) reissue any shares of 11% Preferred Stock that have been redeemed or (iv) take any action to cause any amendment, alteration or repeal of any of the provisions of the Corporation's Charter that would materially adversely affect the rights of holders of 11% Preferred Stock. (vi) Exchange for Depositary Shares. The shares of 11% Preferred Stock shall be subject to exchange, in whole or in part, at the option of the holder thereof exercisable at any time and from time to time in part, upon 30 days written notice to the Corporation specifying the number of shares of 11% Preferred Stock to be so exchanged. The Corporation shall accept deposit of such shares and hold them in trust for the benefit of the holders making such deposit and shall deliver to such holders in exchange therefor depositary shares of the Corporation (the "Depositary Shares") of equal aggregate liquidation value to the shares of 11% Preferred Stock delivered for deposit, each such Depositary Share having a liquidation value of $25.00. On each Dividend Payment Date with respect to the 11% Preferred Stock, upon any redemption thereof, and upon any liquidation, dissolution or winding-up of the Corporation, the holders of each Depositary Share shall be paid, from the proceeds of any such dividend, redemption or payment upon liquidation, dissolution or winding-up payable with respect to the shares of 11% Preferred Stock so deposited, the portion of such proceeds allocable to the Depositary Shares held by such holder. IN WITNESS WHEREOF, USF&G Corporation has caused these presents to be signed in its name and on its behalf by its Chairman of the Board and President and witnessed by its Secretary on May 31, 1991. WITNESS: USF&G Corporation WILLIAM F. SPLIEDT By: NORMAN P. BLAKE, JR. - ------------------ -------------------- William F. Spliedt Norman P. Blake, Jr. Secretary Chairman of the Board and President THE UNDERSIGNED, Chairman of the Board and President of USF&G Corporation, who executed on behalf of the Corporation Articles Supplementary of which this certificate is made a part, hereby acknowledges in the name and on behalf of said Corporation the foregoing Articles Supplementary to be the corporate act of said Corporation and hereby certifies that the matters and facts set forth herein with respect to the authorization and approval thereof are true in all material respects under the penalties of perjury. NORMAN P. BLAKE, JR. -------------------- Norman P. Blake, Jr. Chairman of the Board and President ARTICLES SUPPLEMENTARY $5.00 SERIES C CUMULATIVE CONVERTIBLE PREFERRED STOCK OF USF&G CORPORATION USF&G CORPORATION, a Maryland corporation, having its principal office in Baltimore City, Maryland (the "Corporation"), hereby certifies to the Maryland State Department of Assessments and Taxation that: FIRST: Pursuant to authority expressly vested in the Board of Directors of the Corporation by Article SEVENTH of the Charter of the Corporation, the Board of Directors has duly divided and classified 3,800,000 shares of the Preferred Stock of the Corporation into a series designated $5.00 Series C Cumulative Convertible Preferred Stock and has provided for the issuance of such series. SECOND: The terms of the $5.00 Series C Cumulative Convertible Preferred Stock are as follows: (1) Designation and Amount. The designation of said series of the Preferred Stock shall be "$5.00 Series C Cumulative Convertible Preferred Stock" (the "Series C Preferred Stock"). The number of shares of Series C Preferred Stock shall initially be 3,800,000, subject to increase or decrease by action of the Board of Directors effectuated by further Articles Supplementary. (2) Dividends. (a) The holders of record of Series C Preferred Stock, on such respective dates as shall be determined by the Board of Directors in advance of the payment of each dividend provided for herein, shall be entitled to receive, as and when declared by the Board of Directors out of assets of the Corporation which are by law available for the payment of dividends, cumulative preferential cash dividends, at the rate of $5.00 per share per annum payable quarterly on January 31, April 30, July 31, and October 31 of each year, commencing on July 31, 1991 (each such day being hereinafter called a "dividend date" and each quarterly period ending on a dividend date being hereinafter called a "dividend period"), which dividends on each share of Series C Preferred Stock shall accrue from the date of issue thereof. Each such dividend shall be payable to the holders of record as they appear on the stock books of the Corporation on such record dates, not exceeding forty-five (45) days preceding the payment dates thereof, as shall be fixed by the Board of Directors of the Corporation. Dividends on the Series C Preferred Stock for any period greater or less than a full dividend period shall be computed on the basis of a 360-day year consisting of twelve 30-day months. Dividends on the Series C Preferred Stock for each full dividend period shall be computed by dividing the annual dividend rate by four. (b) Dividends on the Series C Preferred Stock shall be cumulative, whether or not in any dividend period or periods there shall be funds of the Corporation legally available for the payment of such dividends or whether or not earned or declared. (c) Accumulations of dividends on any shares of Series C Preferred Stock shall not bear interest. (d) All dividends declared on the Series C Preferred Stock for any dividend period and on any class or series of stock ranking on a parity with the Series C Preferred Stock as to dividends and upon liquidation ("Parity Stock") shall be declared pro rata so that the amounts of dividends per share declared for such period on the Series C Preferred Stock and on any classes of Parity Stock that were outstanding during such period shall in all cases bear to each other the same proportions that the respective dividend rates of such stock for such period bear to each other. (e) The Corporation shall not (i) declare or pay dividend or other distribution with respect to any junior stock of the Corporation or (ii) redeem or set apart funds for the purchase or redemption of any junior stock through a sinking fund or otherwise, unless (A) all cumulating and accrued dividends with respect to the Series C Preferred Stock have been paid or funds have been set apart for payment of such dividends and (B) sufficient funds have been set apart for the payment of the dividend for the current dividend period with respect to the Series C Preferred Stock. (f) As used herein the term "dividends" does not include dividends payable solely in shares of junior stock, or rights to holders of junior stock to subscribe for or purchase any junior stock. (g) As used herein, the phrase "set apart" in respect of the payment of dividends or redemption prices shall require deposit of any funds in a bank or trust company in a separate deposit account maintained for the benefit of the holders of the Series C Preferred Stock. (h) As used herein, the term "junior stock" means the Common Stock and any other class of capital stock of the Corporation now or hereafter issued and outstanding which ranks junior in priority to the Series C Preferred Stock as to dividends and upon liquidation. (i) As used herein, the term "cumulating or accrued" in respect of dividends with respect to the Series C Preferred Stock means an amount equal to dividends thereon at the rate of $5.00 per share per annum, computed from the date on which such dividends commenced to cumulate, and cumulating on each dividend date thereafter, less the aggregate amount of all dividends previously paid with respect to such Series C Preferred Stock. (3) Liquidation Preference. (a) The amount which the holders of Series C Preferred Stock shall be entitled to receive in the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, shall be $50 per share plus an amount per share equal to all dividends cumulating or accrued and unpaid thereon to the date of such liquidation, dissolution or winding up, and no more. (b) Upon any such liquidation, dissolution or winding up, the preferential amounts with respect to the Series C Preferred Stock and any class of Parity Stock shall be distributed pro rata in accordance with the aggregate preferential amounts of the Series C Preferred Stock and such other classes of Parity Stock, if any, out of or to the extent of the net assets of the Corporation legally available for such distribution, before any distributions are made with respect to any junior stock. (c) Neither a consolidation or merger of the Corporation with or into any corporation nor a merger of any other corporation with or into the Corporation, nor a sale or transfer of all or substantially all of the Corporation's assets for cash or securities nor a statutory share exchange in which stockholders of the Corporation may participate shall be considered a liquidation or dissolution or winding-up of the Corporation within the meaning of this paragraph (3). (4) Redemption. (a) At any time on and after June 13, 1994 all the Series C Preferred Stock, or any part thereof, at any time outstanding, may be redeemed by the Corporation, at any time or from time to time at its election expressed by resolution of the Board of Directors upon not less than 30 nor more than 60 days previous notice to the holders of record of the Series C Preferred Stock to be redeemed, given by (i) registered or certified mail, postage prepaid, and (ii) the single publication of such notice in the The Wall Street Journal or similar daily financial publication of general circulation in the United States, at the redemption prices set forth below during the 12 month periods beginning on June 13 of the years shown below, in each case plus accrued and unpaid dividends to the date fixed for redemption (the "redemption date").
Year Redemption Price 1994 $53.50 1995 53.00 1996 52.50 1997 52.00 1998 51.50 1999 51.00 2000 50.50 2001 and thereafter 50.00
(b) Any notice of redemption mailed to a holder of Series C Preferred Stock at his address as the same appears on the books of the Corporation shall be conclusively presumed to have been given whether or not the holder receives the notice. Each such notice shall state the redemption date; the number of shares of Series C Preferred Stock to be redeemed, and, if less than all shares of Series C Preferred Stock held by such holder are to be redeemed, the number of such shares to be redeemed from such holder and the fact that a new certificate or certificates representing any unredeemed shares shall be issued without cost to such holder; the redemption price applicable to the shares to be redeemed; the place or places where such shares are to be surrendered; and that dividends on shares to be redeemed shall cease to accrue and accumulate on the redemption date. No defect in any such notice as to any shares of Series C Preferred Stock shall affect the validity of the proceedings for the redemption of any other shares of Series C Preferred Stock. (c) The Corporation shall not give notice of redemption of Series C Preferred Stock after the record date for the payment of any dividend on the Common Stock payable for the dividend period in which the redemption date occurs unless the record date for the payment of dividends on the Series C Preferred Stock is the same as the record date for the payment of dividends on the Common Stock. (d) The Corporation may not purchase or redeem less than all of the outstanding shares of Series C Preferred Stock and any other series of Parity Stock unless all cumulating or accrued dividends with respect to the shares of Series C Preferred Stock and any Parity Stock which shall not be so redeemed or purchased have either been paid or set aside for payment. (e) If less than all of the outstanding shares of Series C Preferred Stock are to be redeemed, the redemption may be made either pro rata or by lot or in some other equitable manner as may be prescribed by resolution of the Board of Directors. (f) Any shares of Series C Preferred Stock called for redemption pursuant to this paragraph (4) shall not be deemed to be outstanding for the purposes of voting, determining the total number of shares entitled to vote, or payment of dividends thereon on or after the date on which the notice of redemption is mailed to the holders thereof and a sum sufficient to redeem such shares has been set apart for payment of the redemption price upon surrender of the certificates therefor. Any money set apart for such payment which is not required to redeem such shares because of conversions shall be promptly returned to the Corporation. In addition, any money set apart for such payment which remains unclaimed for a period of six years after the redemption date shall be repaid to the Corporation upon the request of the Corporation as expressed by a resolution of the Board of Directors. The holders of record of the shares so called for redemption who have not made a claim against such moneys prior to such repayment to the Corporation shall be deemed to be unsecured creditors of the Corporation for an amount equivalent to the amount set apart for payment of the redemption price and so repaid to the Corporation, but in no event shall any such holder be entitled to any interest thereon. The Corporation shall be entitled to receive any interest paid from time to time on the money so set apart. (5) Conversion. (a) Subject to and upon compliance with the provisions of this paragraph (5), the holder of a share of Series C Preferred Stock, shall have the right, at his option, at any time after the issue date thereof, to convert such share into that number of fully paid and nonassessable shares of Common Stock obtained by dividing $50.00 by the Conversion Price and by surrender of such share so to be converted, such surrender to be made in the manner provided in subparagraph (b) of this paragraph (5); provided, however, that the right to convert shares called for redemption pursuant to paragraph (4) shall terminate at the close of business on the date fixed for such redemption, unless the Corporation shall default in making payment of the amount payable upon such redemption. (b) In order to exercise the conversion privilege, the holder of each share of Series C Preferred Stock to be converted shall surrender the certificate representing such share, duly endorsed or assigned to the Corporation or in blank, at the office of the transfer agent for the Series C Preferred Stock in the Borough of Manhattan, City of New York, or at the office of any agent or agents of the Corporation as may be designated by the Board of Directors (the "Transfer Agent") accompanied by written notice to the Corporation that the holder thereof elects to convert the Series C Preferred Stock. Unless the shares issuable on conversion are to be issued in the same name as the name in which such share of Series C Preferred Stock is registered, each share surrendered for conversion shall be accompanied by instruments of transfer, in form satisfactory to the Corporation, duly executed by the holder or such holder's duly authorized attorney and an amount sufficient to pay any transfer or similar tax (or evidence reasonably satisfactory to the Corporation demonstrating that such taxes have been paid). In the event that some but not all of the shares of the Series C Preferred Stock represented by certificates surrendered by a holder are converted, the Corporation shall execute and deliver to or on the order of the holder, at the expense of the Corporation, a new certificate representing the number of shares of Series C Preferred Stock which were not converted. Upon conversion of the Series C Preferred Stock, (i) no payment shall be made on account of any dividends cumulating or accrued and unpaid on such Series C Preferred Stock to the conversion date, and (ii) no adjustment in the conversion rate will be made on account of any such dividends. Notwithstanding the foregoing, if any share of Series C Preferred Stock is converted after any record date for the payment of a dividends on the Series C Preferred Stock but before the due date for payment therefor then (i) such dividend shall be payable on such due date to the record holder of such share on such record date, and (ii) such share, when surrendered for conversion, shall be accompanied by payment of an amount equal to the dividend payable on such due date on such share (unless such share has been called for redemption prior to the due date for payment therefor). As promptly as practicable after the surrender of the certificates for shares of Series C Preferred Stock as aforesaid, the Corporation shall issue and shall deliver at such office to such holder, or on his written order, a certificate or certificates for the number of full shares of Common Stock issuable upon the conversion of such shares in accordance with the provisions of this paragraph (5), and any fractional interest in respect of a share of Common Stock arising upon such conversion shall be settled as provided in subparagraph (c) of this paragraph (5). Each conversion shall be deemed to have been effected immediately prior to the close of business on the date on which the certificates for shares of Series C Preferred Stock shall have been surrendered and such notice received by the Corporation as aforesaid, and the person or persons in whose name or names any certificate or certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of the shares represented thereby at such time on such date and such conversion shall be at the Conversion Price in effect at such time on such date, unless the stock transfer books of the Corporation shall be closed on that date, in which event such person or persons shall be deemed to have become such holder or holders of record at the opening of business on the next succeeding day on which such stock transfer books are open, but such conversion shall be at the Conversion Price in effect on the date upon which such shares shall have been surrendered and such notice received by the Corporation. All shares of Common Stock delivered upon conversions of the Series C Preferred Stock will upon delivery be duly and validly issued and fully paid and nonassessable, free of all liens and charges and not subject to any preemptive rights. (c) No fractional shares or script representing fractions of shares of Common Stock shall be issued upon conversion of the Series C Preferred Stock. Instead of any fractional interest in a share of Common Stock which would otherwise be deliverable upon the conversion of a share of Series C Preferred Stock, the Corporation shall pay to the holder of such share an amount in cash (computed to the nearest cent) based upon the last reported sales price (as defined in subparagraph (d)(iv) of this paragraph (5)) of the Common Stock on the date of conversion. If more than one share shall be surrendered for conversion at one time by the same holder, the number of full shares of Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate liquidation preference of the shares of Series C Preferred Stock so surrendered. (d) The Conversion Price shall be adjusted from time to time as follows: (i) In case the Corporation shall after the issue date of the Series C Preferred Stock (the "Issue Date") (A) pay a dividend or make a distribution on its Common Stock in shares of its Common Stock, (B) subdivide its outstanding Common Stock into a greater number of shares, (C) combine its outstanding Common Stock into a smaller number of shares or (D) issue any shares of capital stock by reclassification of its Common Stock, the Conversion Price in effect immediately prior thereto shall be adjusted so that the holder of any share of Series C preferred Stock thereafter surrendered for conversion shall be entitled to receive the number of shares of Common Stock and other shares of capital stock, if appropriate, of the Corporation which such holder would have owned or have been entitled to receive after the happening of any of the events described above had such share been converted immediately prior to the happening of such event or the record date therefor, whichever is earlier. An adjustment made pursuant to this clause (i) shall become effective immediately after the close of business on the record date in the case of a dividend or distribution (except as provided in subparagraph (i) below) and shall become effective immediately after the effective date in the case of a subdivision, combination or reclassification. (ii) In case the Corporation shall issue after the Issue Date rights or warrants to all holders of Common Stock entitling them (for a period expiring within 45 days after the record date mentioned below) to subscribe for or purchase Common Stock at a price per share less than the then current market price per share of Common Stock (as defined in clause (iv) below) at the record date for the determination of shareholders entitled to receive such rights or warrants, then in each such case the Conversion Price in effect immediately prior thereto shall be adjusted to equal the price determined by multiplying (I) the Conversion Price in effect immediately prior to the date of issuance of such rights or warrants by (II) a fraction, the numerator of which shall be the sum of (A) the number of shares of Common Stock outstanding on the record date for the issuance of such rights or warrants and (B), the number of shares which the aggregate proceeds from the exercise of such rights or warrants for Common Stock would purchase at such current market price, and the denominator of which shall be the sum of (A) the number of shares of Common Stock outstanding on such record date and (B), the number of additional shares of Common Stock offered for subscription or purchase. Such adjustment shall be made successively whenever any such rights or warrants are issued, and shall become effective immediately after such record date after the date of issuance thereof. In determining whether any rights or warrants entitle the holders of Common Stock to subscribe for or purchase shares of Common Stock at less than such current market price, there shall be taken into account any consideration received by the Corporation upon issuance and upon exercise of such rights or warrants, the value of such consideration, if other than cash, to be determined by the Board of Directors. (iii) In case the Corporation shall distribute to all holders of its Common Stock any shares of capital stock of the Corporation (other than Common Stock) or evidences of its indebtedness or assets (excluding cash dividends or distributions paid from consolidated earnings or consolidated earned surplus of the Corporation (determined in accordance with generally accepted accounting principles, but excepting quarterly Common Stock dividends at the rate of $.05 per share or increases therein out of consolidated net income of the Corporation determined in accordance with generally accepted accounting principles for the period from the end of its most recent fiscal year to the date of the most recent consolidated quarterly financial statements of the Corporation as at the time of the declaration of the dividend (herein called "Normal Cash Dividends")) or rights or warrants to subscribe for or purchase any of its securities (excluding those referred to in clause (ii) above) (any of the foregoing being hereinafter in this clause (iii) called the "Securities"), then in each such case, unless the Corporation elects to reserve shares or other units of such Securities for distribution to the holders of the Series C Preferred Stock, upon the conversion of the shares of Series C Preferred Stock, so that any such holder converting shares of Series C Preferred Stock will receive upon such conversion, in addition to the shares of the Common Stock to which such holder is entitled, the amount and kind of such Securities which such holder would have received if such holder had, immediately prior to the record date for the distribution of the Securities, converted its shares of Series C Preferred Stock into Common Stock (such election to be based upon a determination by the Board of Directors that such reservation will not materially adversely affect the interests of any holder of Series C Preferred Stock in any such reserved Securities), the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying (I) the Conversion Price in effect immediately prior to the date of such distribution by (II) a fraction, the numerator of which shall be the current market price per share (as defined in clause (iv) below) of the Common Stock on the record date mentioned below less the then fair market value (as determined by the Board of Directors, whose determination shall, if made in good faith, be conclusive) of the portion of the capital stock or assets or evidences of indebtedness so distributed or of such rights or warrants applicable to one share of Common Stock, and the denominator of which shall be the current market price per share (as defined in clause (iv) below) of the Common Stock. Such adjustment shall become effective immediately, except as provided in subparagraph (i) below, after the record date for the determination of shareholders entitled to receive such distribution. (iv) For the purpose of any computation under clause (ii) above, the current market price per share of Common Stock on any date shall be deemed to be the average of the last reported sales price for the thirty consecutive Trading Days commencing forty-five Trading Days before the date in question. For the purpose of any computation under clause (iii) above, the current market price per share of Common Stock on any date shall be deemed to be the average of the last reported sales price for the ten consecutive Trading Days preceding the record date for the distribution with respect to which such computation relates. The last reported sales price for each day shall be the last reported sales price regular way on The New York Stock Exchange, or, if not reported for such Exchange, on the Composite Tape, or, in case no such reported sale takes place one such day, the average of the reported closing bid and asked quotations on The New York Stock Exchange, or, if the Common Stock is not listed on such Exchange or no such quotations are available, the average of the high bid and low asked quotations in the over-the-counter market as reported by the National Quotation Bureau, Incorporated, or similar organization, or, if no such quotations are available, the fair market value of such class of stock as determined by a member firm of The New York Stock Exchange selected by the Corporation. (v) Notwithstanding anything in clauses (ii) or (iii) above, if such rights or warrants shall by their terms provide for an increase or increases with the passage of time or otherwise in the price payable to the Corporation upon the exercise thereof, the Conversion Price upon any such increase becoming effective shall forthwith be readjusted (but to no greater extent than originally adjusted by reason of such issuance or sale) to reflect the same. Upon the expiration or termination of such rights or warrants, if any such rights or warrants shall not have been exercised, then the Conversion Price thereof shall forthwith be readjusted and thereafter be the rate which it would have been had an adjustment been made on the basis that the only rights or warrants so issued or sold were those so exercised and they were issued or sold for the consideration actually received by the Corporation upon such exercise, plus the consideration, if any, actually received by the Corporation for the granting of all such rights or warrants whether or not exercised. An adjustment made pursuant to this clause (v) shall be made on the next Business Day following the date on which any such issuance is made and shall be effective immediately after the close of business on such date. For purposes of clauses (ii) and (v), the aggregate consideration received by the Corporation in connection with the issuance of rights or warrants shall be deemed to be equal to the sum of the aggregate offering price (before deduction of underwriting discounts or commissions and expenses payable to third parties) of all such securities plus the minimum aggregate amount, if any, payable upon exercise of such rights or warrants. (vi) No adjustment in the Conversion Price shall be required unless such adjustment would require an increase or decrease of at least 1% in such price; provided, however, that any adjustments which by reason of this subparagraph (vi) are not required to be made shall be carried forward and taken into account in any subsequent adjustment; and provided, further, any adjustment shall be required and made in accordance with the provisions of this paragraph (5) (other than this clause (vi)) not later than such time as may be required in order to preserve the tax-free nature of a distribution to the holders of shares of Common Stock. All calculations under this paragraph (5) shall be made to the nearest cent (with $.005 being rounded upward) or to the nearest 1/100 of a share (with .005 of a share being rounded upward), as the case may be. Anything in this subparagraph (d) to the contrary notwithstanding, the Corporation shall be entitled, to the extent permitted by law, to make such reductions in the Conversion Price, in addition to those required by this subparagraph (d), as it in its discretion shall determine to be advisable in order that any stock, dividends, subdivision of shares, distribution of rights or warrants to purchase stock or securities, or a distribution of other assets (other than cash dividends) hereafter made by the Corporation to its stockholders shall not be taxable. (e) Notwithstanding any other provision herein to the contrary, if any Fundamental Change occurs, then the Conversion Price in effect will be adjusted, in accordance with this subparagraph (e), immediately after such Fundamental Change. In addition, in the event of a Common Stock Fundamental Change, each share of Series C Preferred Stock shall be convertible solely into common stock of the kind received by holders of Common Stock as the result of such Common Stock Fundamental Change (the amount of such common stock to be determined in accordance with this subparagraph (e)). The Corporation shall not consent or agree to the occurrence of any Fundamental Change until the Corporation has entered into an agreement with the successor or purchasing entity, as the case may be, for the benefit of the holders of the Series C Preferred Stock, which shall contain provisions which will enable the holders of the Series C Preferred Stock to convert into the consideration received by holders of Common Stock at the Conversion Price immediately after such Fundamental Change. For purposes of calculating any adjustment to be made pursuant to the preceding paragraph in the event of a Fundamental Change, immediately after such Fundamental Change: (A) in the case of a Non-Stock Fundamental Change, the Conversion Price of the shares of Series C Preferred Stock shall become the lower of (a) the then applicable Conversion Price (after giving effect to any adjustments required pursuant to subparagraph (d) of this paragraph (5) and (b) the result obtained by multiplying the greater of the Applicable Price or the then applicable Reference Market Price by (i) if such Non-Stock Fundamental Change occurs on or after June 13, 1994 a fraction of the numerator of which shall be $50.00 and the denominator of which shall be the amount at which one share of Series C Preferred Stock would be redeemed by the Corporation pursuant to paragraph (4) if the redemption date were the date of such Non-Stock Fundamental Change (such amount being the sum of the redemption price set forth in paragraph (4) and any accrued and accumulated and unpaid dividends); and (ii) if such Non-Stock Fundamental Change occurs prior to June 13, 1994 a fraction the numerator of which shall be $50.00 and the denominator of which shall be the sum of the relevant amount relating to one share of Series C Preferred Stock during the twelve-month period beginning on June 13 in each of the following years within which such Non-Stock Fundamental Change occurs plus any accrued and accumulated and unpaid dividends:
Year Amount 1991 $55.00 1992 $54.50 1993 to and including June 12, 1994 $54.00
(B) in the case of a Common Stock Fundamental Change, the Conversion Price shall be the then applicable Conversion Price after giving effect to any adjustment required pursuant to subparagraph (d) of the paragraph (5) multiplied by a fraction, the numerator of which is the Purchaser Stock Price and the denominator of which is the Applied Price. The provisions of this subparagraph (e) shall similarly apply to successive Fundamental Changes. (f) In case the Corporation shall be a party to any transaction (including without limitation a merger, consolidation, sale of all or substantially all of the Corporation's assets, liquidation or recapitalization of the Common Stock and excluding any transaction as to which subparagraph d(i) of this paragraph (5) applies, each of the foregoing being referred to as a "Transaction"), in each case (except in the case of a Common Stock Fundamental Change) as a result of which shares of Common Stock shall be converted into the right to receive stock, securities or other property (including cash or any combination thereof), each share of Series C Preferred Stock shall thereafter be convertible into the kind and amount of shares of stock and other securities and property receivable (including cash) upon the consummation of such Transaction by a holder of that number of shares of Common Stock into which one share of Series C Preferred Stock was convertible immediately prior to such Transaction (but after giving effect to any adjustment required by subparagraph (e) of this paragraph (5) if such Transaction constitutes a Fundamental Change). The Corporation shall not be a party to any Transaction unless the terms of such Transaction are consistent with the provisions of this subparagraph (f) and it shall not consent or agree to the occurrence of any Transaction until the Corporation has entered into an agreement with the successor or purchasing entity, as the case may be, for the benefit of the holders of the Series C Preferred Stock which will contain provisions enabling the holders of the Series C Preferred Stock to convert into the consideration received by holders of Common Stock at the Conversion Price immediately after such Transaction. The provisions of this paragraph (f) shall similarly apply to successive Transactions. (g) If: (i) the Corporation shall declare a dividend (or any other distribution) on the Common Stock (other than in cash out of consolidated earnings or consolidated earned surplus and Normal Cash Dividends); (ii) the Corporation shall authorize the granting to the holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of any class or any other rights or warrants; or (iii) there shall be any reclassification of the Common Stock (other than an event to which subparagraph (d)(i) of this paragraph (5) applies) or any consolidation or merger to which the Corporation is a party and for which approval of any stockholders of the Corporation is required, or the sale or transfer of all or substantially all of the assets of the Corporation; or (iv) there shall be any Fundamental Change; then the Corporation shall cause to be filed with the Transfer Agent for the Series C Preferred Stock, and shall cause to be mailed to the holders of shares of the Series C Preferred Stock at their addresses as shown on the stock books of the Corporation, as promptly as possible, but at least 15 days, prior to the applicable date hereinafter specified, a notice stating (A) the date (or the manner of determining the date) on which a record is to be taken for the purpose of such dividend, distribution or rights or warrants, or, if a record is not to be taken, the date (or the manner of determining the date) as of which the holders of Common Stock of record to be entitled to such dividend, distribution or rights or warrants are to be determined or (B) the date on which such reclassification, consolidation, merger, sale, transfer or Fundamental Change is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or Fundamental Change. Failure to give such notice or any defect therein shall not affect the legality or validity of the proceedings described in this paragraph (5). (h) Whenever the Conversion Price is adjusted, as herein provided, the Corporation shall promptly file with any transfer agent for the Series C Preferred Stock, an officers' certificate setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. Promptly after delivery of such certificate, the Corporation shall prepare a notice of such adjustment of the Conversion Price setting forth the adjusted Conversion Price and the date on which such adjustment became effective and shall mail such notice of such adjustment of the Conversion Price to the holder of each share of Series C Preferred Stock at his last address as shown on the stock books of the Corporation. (i) In any case in which subparagraph (d) of this paragraph (5) provides that an adjustment shall become effective immediately after a record date for an event, the Corporation may defer until the occurrence of such event (A) issuing to the holder of any share of Series C Preferred Stock, converted after such record date and before the occurrence of such event the additional shares of Common Stock issuable upon such conversion by reason of the adjustment required by such event over and above the Common Stock issuable upon such conversion before giving effect to such adjustment and (B) paying to such holder any amount in cash in lieu of any fraction pursuant to subparagraph (c) of this paragraph (5). (j) For purposes of this paragraph (5), the number of shares of Common Stock at any time outstanding shall not include any shares of Common Stock then owned or held by or for the account of the Corporation. (k) There shall be no adjustment of the Conversion Price in case of the issuance of any stock of the Corporation in a reorganization, acquisition or other similar transaction except as specifically set forth in this paragraph (5). If any action or transaction would require adjustment of the Conversion Price pursuant to more than one subparagraph of this paragraph (5), only one adjustment shall be made and such adjustment shall be the amount of adjustment which has the highest absolute value. (l) In case the Corporation shall take any action affecting the Common Stock, other than action described in this paragraph (5), which in the opinion of the Board of Directors would materially adversely affect the conversion rights of the holders of the shares of Series C Preferred Stock, the Conversion Price for the Series C Preferred Stock may be adjusted, to the extent permitted by law, in such manner, if any, and at such time, as the Board of Directors may determine to be equitable in the circumstances. Failure of the Board of Directors to provide for any such adjustment prior to the effective date of any such action by the Corporation affecting the Common Stock shall be evidence that such Board of Directors has determined that it is equitable to make no adjustment in the circumstances. (m) The Corporation covenants that it will at all times reserve and keep available, free from preemptive rights, out of the aggregate of its authorized but unissued shares of Common Stock, for the purpose of effecting conversion of the Series C Preferred Stock, the full number of shares of Common Stock deliverable upon the conversion of all outstanding shares of Series C Preferred Stock not theretofore converted. Before taking any action which would cause an adjustment reducing the Conversion Price below the then par value (if any) of the shares of Common Stock deliverable upon conversion of the Series C Preferred Stock, the Corporation will take any corporate action which may, in the opinion of its counsel, be necessary in order that the Corporation may validly and legally issue fully paid and nonassessable shares of Common Stock at such adjusted Conversion Price. The Corporation will endeavor to list the shares of Common Stock required to be delivered upon conversion of the Series C Preferred Stock, prior to such delivery, upon each national securities exchange, if any, upon which the outstanding Common Stock is listed at the time of delivery. (n) The Corporation will pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of shares of Common Stock on conversion of the Series C Preferred Stock, pursuant hereto; provided, however, that the Corporation shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue or delivery of shares of Common Stock in a name other than that of the holder of the Series C Preferred Stock to be converted and no such issue or delivery shall be made unless and until the person requesting such issue or delivery has paid to the Corporation the amount of any such tax or has established, to the reasonable satisfaction of the Corporation, that such tax has been paid. (o) For purposes of this paragraph (5), the following terms shall have the meanings indicated: "Applicable Price" means (i) in the event of a Non-Stock Fundamental Change in which the holders of the Common Stock receive only cash, the amount of cash received by the holder of one share of Common Stock, and (ii) in the event of any other Non-Stock Fundamental Change or any Common Stock Fundamental Change, the average of the last reported sales price for the Common Stock during the ten Trading Days immediately prior to the record date for the determination of the holders of Common Stock entitled to receive cash, securities, property or other assets in connection with such Non-Stock Fundamental Change and Common Stock Fundamental Change, or, if there is no such record date, the date upon which the holders of the Common Stock shall have the right to receive such cash, securities, property or other assets. "Common Stock Fundamental Change" means any Fundamental Change in which more than 50% (by value as determined in good faith by the Board of Directors) of the consideration received by holders of Common Stock consists of common stock that for the consecutive ten Trading Days immediately prior to such Fundamental Change has been admitted for listing or that immediately prior to such Common Stock Fundamental Change has been admitted for listing subject to notice of issuance on a national securities exchange or quoted on the National Market of the National Association of Securities Dealers, Inc. Automated Quotations System. "Conversion Price" shall mean the conversion price per share of Common Stock for which the Series C Preferred Stock is convertible, as such Conversion Price may be adjusted pursuant to paragraph (5). The initial conversion Price will be $12.025 per share of Common Stock. "Fundamental Change" means the occurrence of any transaction or event in connection with a plan pursuant to which all or substantially all the Common Stock shall be exchanged for, converted into, acquired for or constitute solely the right to receive, cash or securities, property or other assets (whether by means of an exchange offer, liquidation, tender offer, consolidation, merger, combination, reclassification, recapitalization or otherwise); provided that, in the case of a plan involving more than one such transaction or event, for purposes of adjustment of the Conversion Price, such Fundamental Change shall be deemed to have occurred when substantially all of the Common Stock of the Corporation shall be exchanged for, converted into or acquired for or constitute solely the right to receive cash, securities, property or other assets, but the adjustment shall be based upon the consideration which the holders of Common Stock received in such transaction or event as a result of which more than 50% of the Common Stock of the Corporation shall have been exchanged for, converted into or acquired for or constitute solely the right to receive cash, securities, property or other assets; provided, further, however, that such term does not include (i) any such transaction or event in which the Corporation and/or its subsidiaries are the issuers of all the cash, securities, property or other assets exchanged, acquired or otherwise issued in such transaction or event, or (ii) any such transaction or event in which the holders of Common Stock receive securities of an issuer other than the Corporation if, immediately following such transaction or event, the holders of Common Stock hold a majority of the securities having the power to vote normally in the election of directors of such other issuer outstanding immediately following such transaction or other event. "Non-Stock Fundamental Change" means any Fundamental Change other than a Common Stock Fundamental Change. "Purchaser Stock Price" means, with respect to any Common Stock Fundamental Change, the average of the last reported sales price (determined as set forth in subparagraph (d)(iv) of paragraph (5)) for the common stock, on the principal national securities exchange or National Market System on which such common stock is listed, received in such Common Stock Fundamental Change during the ten days which such exchange or system is open immediately prior to the record date for the determination of the holders of Common Stock entitled to receive such common stock, or if there is no such record date, the date upon which the holders of the Common Stock shall have the right to receive such common stock; provided, however, if no such last reported sales price for the common stock during the last ten days prior to the record date exists, then the Purchaser Stock Price shall be set at a price determined in good faith by the Board of Directors. "Reference Market Price" shall initially mean $6.42 and in the event of any adjustment to the Conversion Price pursuant to paragraph (5) other than an adjustment pursuant to subparagraph (e) thereof, the Reference Market Price shall also be adjusted so that the ratio of the Reference Market Price to the Conversion Price after giving effect to any such adjustment shall always be the same as the ratio of $6.42 to the initial Conversion Price (without regard to any adjustment thereto). "Trading Day" means a day on which the principal national securities exchange or National Market System on which the Common Stock is listed or admitted to trading (currently the New York Stock Exchange) is open for the transaction of business or, if the Common Stock is not listed or admitted to trading on any national securities exchange or National Market System, a Business Day. (6) Voting Rights. Except as otherwise required by law, holders of shares of Series C Preferred Stock shall have no voting rights; provided, however, that: (a)(i) If on the date used to determine stockholders of record for any meeting of stockholders for the election of directors, accrued dividends on the shares of Series C Preferred Stock or any Parity Stock shall not have been paid in an aggregate amount equal to or greater than two quarterly dividends on the shares of Series C Preferred Stock or such Parity Stock at the time outstanding, then and in any such event, the number of Directors then constituting the entire Board of Directors of the Corporation shall automatically be increased by two Directors and the holders of shares of Series C Preferred Stock and the holders of shares of Parity Stock, voting together as a single class, shall be entitled at such meeting to fill such newly created directorships. Such right to vote as a single class to elect two Directors shall, when vested, continue until all dividends in default on the shares of Series C Preferred Stock and such Parity Stock, as the case may be, shall have been paid in full and, when so paid, such right to elect two Directors separately as a class shall cease, subject, always, to the same provisions for the vesting of such right to elect two Directors separately as a class in the case of future dividend defaults. (ii) So long as any shares of Series C Preferred Stock are outstanding the number of Directors of the Corporation shall at all times be such that the exercise, by the holders of shares of Series C Preferred Stock and the holders of shares of Parity Stock, of the right to elect Directors under the circumstances provided in clause (i) of this subparagraph (a) will not contravene any provisions of the Maryland General Corporation Law or the Charter of the Corporation. (iii) Directors elected pursuant to clause (i) of this subparagraph (a) shall serve until the earlier of (x) the next annual meeting of the stockholders of the Corporation and the election (by the holders of shares of Series C Preferred Stock and Parity Stock) and qualification of their respective successors or (y) the date upon which all dividends in default on the shares of Series C Preferred Stock and such Parity Stock shall have been paid in full. Directors elected pursuant to clause (i) of this subparagraph (a) may be removed by, and shall not be removed except by, the vote of the holders of record of the outstanding shares of Series C Preferred Stock and Parity Stock, voting together as a single class without regard to series, at a meeting of the stockholders, or the holders of shares of Series C Preferred Stock and Parity Stock, called for that purpose. If, prior to the end of the term of any Director elected as aforesaid, a vacancy in the office of such Director shall occur during the continuance of a default in dividends on the shares of Series C Preferred Stock or such Parity Stock by reason other than removal, such vacancy shall be filled for the unexpired term by the appointment by the remaining Director elected as aforesaid of a new Director for the unexpired term of such former Director. (b)(i) Without the affirmative vote of the holders of at least two-thirds of the votes entitled to be cast by the outstanding shares of Series C Preferred Stock and Parity Stock, voting as a single class, the Corporation may not: (A) amend any provision of the Charter which would materially adversely affect the voting powers (except as such voting powers may be affected by the authorization of any new series of Parity Stock having the same voting rights as the Series C Preferred Stock or by the authorization of any other shares of any class which are not entitled to vote together with the Series C Preferred Stock in any class vote) or other rights or preferences of holders of the shares of Series C Preferred Stock; or (B) authorize or create any class of stock senior to the Series C Preferred Stock as to dividends and upon liquidation. (ii) Without the affirmative vote of the holders of at least a majority of the votes entitled to be cast by the outstanding shares of Series C Preferred Stock and Parity Stock, voting together as a single class, the Corporation may not increase the number of shares of Preferred Stock authorized in Article SEVENTH of the Charter or create any other class of capital stock of the Corporation ranking on a parity with the Preferred Stock as to dividends and upon liquidation. (c) For purposes of this paragraph (6) each share of Series C Preferred Stock shall have one vote per share. Parity Stock shall have the number of votes per share specified in the Charter documents governing such Parity Stock. (7) Reacquired Shares. Shares of Series C Preferred Stock converted, redeemed, or otherwise purchased or acquired by the Corporation shall be restored to the status of authorized but unissued shares of Preferred Stock without designation as to series. (8) No Sinking Fund. Shares of Series C Preferred Stock are not subject to the operation of a sinking fund. IN WITNESS WHEREOF, USF&G Corporation has caused these presents to be signed in its name and on its behalf by its Chairman of the Board and President and witnessed by its Secretary on June 18, 1991. Witness: USF&G CORPORATION William F. Spliedt Norman P. Blake, Jr. Secretary Chairman of the Board and President [CORPORATE SEAL] THE UNDERSIGNED, Chairman of the Board and President of USF&G Corporation, who executed on behalf of the Corporation Articles Supplementary of which this certificate is made a part, hereby acknowledges in the name and on behalf of said Corporation the foregoing Articles Supplementary to be the corporate act of said Corporation and hereby certifies that the matters and facts set forth herein with respect to the authorization and approval thereof are true in all material respects under the penalties of perjury. Norman P. Blake, Jr. Chairman of the Board and President USF&G CORPORATION ARTICLES OF AMENDMENT USF&G CORPORATION, a Maryland corporation, having its principal office in Baltimore City, Maryland (which is hereinafter called the "Corporation"), hereby certifies to the State Department of Assessments and Taxation of Maryland that: FIRST: The Charter of the Corporation is hereby amended by deleting Article SIXTH of the Articles of Incorporation in its entirety and in lieu thereof substituting the following: "SIXTH: The total number of shares of stock of all classes which the Corporation has authority to issue is 252,000,000 having an aggregate par value of $1,200,000,000 of which 240,000,000 shares of the par value of $2.50 per share, amounting in aggregate par value to $600,000,000, shall be Common Stock, and 12,000,000 shares of the par value of $50.00 per share, amounting in aggregate par value to $600,000,000, shall be Preferred Stock." SECOND: (a) As of immediately before the amendment the total number of shares of stock of all classes which the Corporation has authority to issue is 132,000,000, having an aggregate par value of $900,000,000, of which 120,000,000 shares of the par value of $2.50 per share, amounting to an aggregate par value of $300,000,000, designated as Common Stock, and 12,000,000 shares of the par value of $50.00 per share, amounting to an aggregate par value of $600,000,000, designated as Preferred Stock. (b) As amended, the total number of shares of stock of all classes which the Corporation has authority to issue is 252,000,000, having an aggregate par value of $1,200,000,000, of which 240,000,000 shares of the par value of $2.50 per share, amounting in aggregate par value to $600,000,000, shall be Common Stock, and 12,000,000 shares of the par value of $50.00 per share, amounting in aggregate par value to $600,000,000, shall be Preferred Stock. (c) The aggregate par value of all shares having a par value is $900,000,000 before the amendment and $1,200,000,000 as amended. (d) The shares of stock of the Corporation are divided into classes, but the descriptions of each class of stock of the Corporation are not changed by the amendment. THIRD: The foregoing amendment to the Charter of the Corporation has been advised by the Board of Directors and approved by the stockholders of the Corporation. FOURTH: The foregoing amendment to the Charter of the Corporation shall be effective at the time these Articles of Amendment are accepted for recording by the Maryland State Department of Assessments and Taxation. IN WITNESS WHEREOF, USF&G CORPORATION has caused these presents to be signed in its name and on its behalf by its Chairman of the Board and President and witnessed by its Secretary on May 7, 1992. WITNESS: USF&G CORPORATION By John F. Hoffen, Jr. Norman P. Blake, Jr. Secretary Chairman of the Board and President CERTIFICATION THE UNDERSIGNED, Chairman of the Board and President of USF&G Corporation, who executed on behalf of the Corporation the foregoing Articles of Amendment of which this certificate is made a part, hereby acknowledges in the name and on behalf of said Corporation the foregoing Articles of Amendment to be the corporate act of said Corporation and hereby certifies that to the best of his knowledge, information, and belief the matters and facts set forth therein with respect to the authorization and approval thereof are true in all material respects under the penalties of perjury. Norman P. Blake, Jr. Chairman of the Board and President EX-4.E 3 INDENTURE AGREEMENT USF&G CORPORATION AND CHEMICAL BANK, TRUSTEE INDENTURE Dated as of January 28, 1994 ___________________ Subordinated Debt Securities USF&G CORPORATION Reconciliation and tie between certain Sections of this Indenture, dated as of January 28, 1994, and Sections 310 through 318, inclusive, of the Trust Indenture Act of 1939: Trust Indenture Indenture Act Section Section Section 310(a)(1) 609 (a)(2) 609 (a)(3) Not Applicable (a)(4) Not Applicable (b) 608 610 Section 311(a) 613 (b) 613 Section 312(a) 701 702(a) (b) 702(b) (c) 702(c) Section 313(a) 703(a) (b) 703(a) (c) 703(a) (d) 703(b) Section 314(a) 704 (a)(4) 101 1004 (b) Not Applicable (c)(1) 102 (c)(2) 102 (c)(3) Not Applicable (d) Not Applicable (e) 102 Section 315(a) 601 _________________ NOTE: This reconciliation and tie shall not, for any purpose, be deemed to be a part of the Indenture. (b) 602 (c) 601 (d) 601 (e) 514 Section 316(a) 101 (a)(1)(A) 502 512 (a)(1)(B) 513 (a)(2) Not Applicable (b) 508 (c) 104(c) Section 317(a)(1) 503 (a)(2) 504 (b) 1003 Section 318(a) 107 TABLE OF CONTENTS PAGE PARTIES 1 RECITALS OF THE COMPANY 1 ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION Section 101. Definitions 1 Act 2 Authenticating Agent 2 Board of Directors 2 Board Resolution 2 Business Day 2 Commission 2 Common Stock 2 Company 3 Company Request 3 conversion price 3 Corporate Trust Office 3 Corporation 3 Covenant Defeasance 3 Debt 3 Defaulted Interest 4 Defeasance 4 Depositary 4 Event of Default 4 Exchange Act 4 Floating or Adjustable Rate Provision 4 Floating or Adjustable Rate Security 4 Foreign Government Obligations 4 Global Security 4 Hedging Obligations 4 Holder 4 Indenture 4 interest 5 Intercompany Debt 5 Interest Payment Date 5 Maturity 5 Notice of Default 5 - -------------- Note: This table of contents shall not, for any purpose, be deemed to be part of the Indenture. Officers' Certificate 5 Opinion of Counsel 5 Original Issue Discount Security 5 Outstanding 5 Paying Agent 6 Place of Payment 6 Predecessor Security 7 Principal Insurance Subsidiary 7 Proceeding 7 Redemption Date 7 Redemption Price 7 Regular Record Date 7 Responsible Officer 7 Securities 7 Security Register 7 Senior Debt 8 Special Record Date 8 Stated Maturity 8 Subsidiary 8 Trustee 8 Trust Indenture Act 8 U.S. Government Obligations 8 Vice President 9 Section 102. Compliance Certificates and Opinions 9 Section 103. Form of Documents Delivered to Trustee 9 Section 104. Acts of Holders; Record Dates 10 Section 105. Notices, Etc., to Trustee and Company 11 Section 106. Notice to Holders; Waiver 12 Section 107. Conflict with Trust Indenture Act 12 Section 108. Effect of Headings and Table of Contents 12 Section 109. Successors and Assigns 12 Section 110. Separability Clause 13 Section 111. Benefits of Indenture 13 Section 112. Governing Law 13 Section 113. Legal Holidays 13 Section 114. Personal Liability from Incorporators; Stockholders 13 ARTICLE TWO SECURITY FORMS Section 201. Forms Generally 14 Section 202. Form of Face of Security 14 Section 203. Form of Reverse of Security 16 Section 204. Form of Legend for Global Securities 21 Section 205. Form of Trustee's Certificate of Authentication 21 Section 206. Form of Conversion Notice 22 ARTICLE THREE THE SECURITIES Section 301. Amount Unlimited; Issuable in Series 23 Section 302. Denominations 26 Section 303. Execution, Authentication, Delivery and Dating 26 Section 304. Temporary Securities 28 Section 305. Registration, Registration of Transfer and Exchange 29 Section 306. Mutilated, Destroyed, Lost and Stolen Securities 30 Section 307. Payment of Interest; Interest Rights Preserved 31 Section 308. Persons Deemed Owners 32 Section 309. Cancellation 33 Section 310. Computation of Interest 33 ARTICLE FOUR SATISFACTION AND DISCHARGE Section 401. Satisfaction and Discharge of Indenture 33 Section 402. Application of Trust Fund 35 ARTICLE FIVE REMEDIES Section 501. Events of Default 35 Section 502. Acceleration of Maturity; Rescission and Annulment 38 Section 503. Collection of Indebtedness and Suits for Enforcement by Trustee 39 Section 504. Trustee May File Proofs of Claim 40 Section 505. Trustee May Enforce Claims Without Possession of Securities 40 Section 506. Application of Money Collected 41 Section 507. Limitation on Suits 41 Section 508. Unconditional Right of Holders to Receive Principal, Premium and Interest 42 Section 509. Restoration of Rights and Remedies 42 Section 510. Rights and Remedies Cumulative 42 Section 511. Delay or Omission Not Waiver 43 Section 512. Control by Holders 43 Section 513. Waiver of Past Defaults 44 Section 514. Undertaking for Costs 44 ARTICLE SIX THE TRUSTEE Section 601. Certain Duties and Responsibilities 44 Section 602. Notice of Defaults 45 Section 603. Certain Rights of Trustee 45 Section 604. Not Responsible for Recitals or Issuance of Securities 46 Section 605. May Hold Securities 46 Section 606. Money Held in Trust 47 Section 607. Compensation and Reimbursement 47 Section 608. Disqualification; Conflicting Interests 48 Section 609. Corporate Trustee Required; Eligibility 48 Section 610. Resignation and Removal; Appointment of Successor 48 Section 611. Acceptance of Appointment by Successor 50 Section 612. Merger, Conversion, Consolidation or Succession to Business 51 Section 613. Preferential Collection of ClaimsAgainst Company 51 Section 614 Appointment of Authenticating Agent 51 ARTICLE SEVEN HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY Section 701. Company to Furnish Trustee Names and Addresses of Holders 53 Section 702. Preservation of Information; Communications to Holders 53 Section 703. Reports by Trustee 54 Section 704. Reports by Company 54 ARTICLE EIGHT CONSOLIDATION, MERGER, OR SALE OF ASSETS Section 801. Company May Consolidate, Etc., Only on Certain Terms 54 Section 802. Successor Substituted 55 ARTICLE NINE SUPPLEMENTAL INDENTURES Section 901. Supplemental Indentures Without Consent of Holders 56 Section 902. Supplemental Indentures with Consent of Holders 57 Section 903. Execution of Supplemental Indentures 59 Section 904. Effect of Supplemental Indentures 59 Section 905. Conformity with Trust Indenture Act 59 Section 906. Reference in Securities to Supplemental Indentures 59 Section 907. Waiver of Compliance by Holders 60 Section 908. Subordination Unimpaired 60 ARTICLE TEN COVENANTS Section 1001. Payment of Principal, Premium and Interest 60 Section 1002. Maintenance of Office or Agency 60 Section 1003. Money for Securities Payments to Be Held in Trust 61 Section 1004. Statement by Officers as to Default 62 Section 1005. Limitations on Liens on Common Stock of Principal Insurance Subsidiaries 62 ARTICLE ELEVEN REDEMPTION OF SECURITIES Section 1101. Applicability of Article 62 Section 1102. Election to Redeem; Notice to Trustee 63 Section 1103. Selection by Trustee of Securities to Be Redeemed 63 Section 1104. Notice of Redemption 64 Section 1105. Deposit of Redemption Price 64 Section 1106. Securities Payable on Redemption Date 65 Section 1107. Securities Redeemed in Part 65 ARTICLE TWELVE CONVERSION OF SECURITIES Section 1201. Applicability of Article 66 Section 1202. Exercise of Conversion Privilege 66 Section 1203. No Fractional Shares 67 Section 1204. Adjustment of Conversion Price 68 Section 1205. Notice of Certain Corporate Actions 68 Section 1206. Reservation of Shares of Common Stock 69 Section 1207. Payment of Certain Taxes Upon Conversion 69 Section 1208. Nonassessability 69 Section 1209. Effect of Consolidation or Merger on Conversion Privilege 70 Section 1210. Duties of Trustee Regarding Conversion 71 Section 1211. Repayment of Certain Funds Upon Conversion 71 ARTICLE THIRTEEN DEFEASANCE AND COVENANT DEFEASANCE Section 1301. Company's Option to Effect Defeasance or Covenant Defeasance 71 Section 1302. Defeasance and Discharge 72 Section 1303. Covenant Defeasance 72 Section 1304. Conditions to Defeasance or Covenant Defeasance 73 Section 1305. Deposited Money and U.S. Government Obligations or Foreign Government Obligations to be Held In Trust; Other Miscellaneous Provisions 76 Section 1306. Reinstatement 76 ARTICLE FOURTEEN SINKING FUNDS Section 1401. Applicability of Article 77 Section 1402. Satisfaction of Sinking Fund Payments with Securities 77 Section 1403. Redemption of Securities for Sinking Fund 78 ARTICLE FIFTEEN SUBORDINATION OF SECURITIES Section 1501. Securities Subordinate to Senior Debt 78 Section 1502. Payment Over of Proceeds Upon Dissolution, Etc. 78 Section 1503. Prior Payment to Senior Debt Upon Acceleration of Securities 80 Section 1504. No Payment When Senior Debt in Default 80 Section 1505. Payment Permitted If No Default 81 Section 1506. Subrogation to Rights of Holders of Senior Debt 81 Section 1507. Provisions Solely to Define Relative Rights 82 Section 1508. Trustee to Effectuate Subordination 82 Section 1509. No Waiver of Subordination Provisions 82 Section 1510. Notice to Trustee 83 Section 1511. Reliance on Judicial Order or Certificate of Liquidating Agent 84 Section 1512. Trustee Not Fiduciary For Holders of Senior Debt 84 Section 1513. Rights of Trustee as Holder of Senior Debt; Preservation of Trustee's Rights 84 Section 1514. Article Applicable to Paying Agents 84 Section 1515. Defeasance of This Article Fifteen 84 Section 1516. Certain Conversions Deemed Payment 85 TESTIMONIUM 86 SIGNATURES AND SEALS 86 ACKNOWLEDGEMENTS 87 INDENTURE, dated as of January 28, 1994, between USF&G CORPORATION, a Maryland corporation (herein called the "Company"), having its principal office at 100 Light Street, Baltimore, Maryland 21202, and CHEMICAL BANK , a New York corporation, as Trustee (herein called the "Trustee"). RECITALS OF THE COMPANY The Company has duly authorized the execution and delivery of this Indenture to provide for the issuance from time to time of its debentures, notes or other evidences of indebtedness (herein called the "Securities"), to be issued in one or more series as in this Indenture provided. All things necessary to make this Indenture a valid agreement of the Company, in accordance with its terms, have been done. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually agreed, for the equal and proportionate benefit of all Holders of the Securities or of series thereof, as follows: ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION Section 101. Definitions. For all purposes of this Indenture and of any indenture supplemental hereto, except as otherwise expressly provided or unless the context otherwise requires: (1) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular; (2) all other terms used herein which are defined in the Trust Indenture Act or the Securities Act of 1933, as amended, either directly or by reference therein, have the meanings assigned to them therein; (3) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles, and, except as otherwise herein expressly provided, the term "generally accepted accounting principles" with respect to any computation required or permitted hereunder shall mean such accounting principles as are generally accepted at the date of such computation; (4) the words "Article" and "Section" refer to an Article and Section, respectively, of this Indenture; and (5) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. "Act", when used with respect to any Holder, has the meaning specified in Section 104. "Authenticating Agent" means any Person authorized by the Trustee pursuant to Section 614 to act on behalf of the Trustee to authenticate Securities of one or more series. "Board of Directors" means either (i) the board of directors of the Company, the executive committee of such board of directors or any other duly authorized committee of directors and/or officers appointed by such board of directors or executive committee, or (ii) one or more duly authorized officers of the Company to whom the board of directors of the Company or a committee thereof has delegated the authority to act with respect to the matters contemplated by this Indenture. "Board Resolution" means (i) a copy of a resolution certified by the Corporate Secretary or an Assistant Corporate Secretary of the Company to have been duly adopted by the Board of Directors or a committee thereof and to be in full force and effect on the date of such certification or (ii) a certificate signed by the authorized officer or officers of the Company to whom the board of directors of the Company or a committee thereof has delegated its authority (as described in the definition of Board of Directors), and in each case, delivered to the Trustee. "Business Day", when used with respect to any Place of Payment, means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in that Place of Payment are authorized or obligated by law, regulation or executive order to close. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Common Stock" means, with respect to the Company, its common stock, $2.50 par value per share, or any other shares of capital stock of the Company into which the Common Stock shall be reclassified or changed and with respect to any Principal Insurance Subsidiary, stock of any class, however designated, except stock which is non-participating beyond fixed dividend and liquidation preferences and the holders of which have either no voting rights or limited voting rights entitling them, only in the case of certain contingencies, to elect less than a majority of the directors (or persons performing similar functions) of such Principal Insurance Subsidiary, and shall include securities of any class, however designated, which are convertible into such Common Stock. "Company" means the Person named as the "Company" in the first paragraph of this instrument until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor Person. "Company Request" or "Company Order" means a written request or order signed in the name of the Company by (i) any two of the following individuals: the Chairman, the President, an Executive Vice President or a Vice President, or (ii) by one of the foregoing individuals and by any other Vice President, the Treasurer, an Assistant Treasurer, the Corporate Secretary or an Assistant Corporate Secretary or any other individual authorized by the Board of Directors for such purpose, and delivered to the Trustee. "conversion price" means the amount of Common Stock issuable upon conversion of any Securities and, in the case of any specific series of Securities, may be expressed in terms of either a conversion price or a conversion rate. "Corporate Trust Office" means the principal office of the Trustee at which at any particular time its corporate trust business shall be administered. "Corporation" means a corporation, association, company, joint-stock company, partnership or business trust. "Covenant Defeasance" has the meaning specified in Section 1303. "Debt" means (without duplication and without regard to any portion of principal amount that has not accrued and to any interest component thereof (whether accrued or imputed) that is not due and payable) with respect to any Person, whether recourse is to all or a portion of the assets of such Person and whether or not contingent, (i) every obligation of such Person for money borrowed, (ii) every obligation of such Person evidenced by bonds, debentures, notes or other similar instruments, including obligations incurred in connection with the acquisition of property, assets or businesses, (iii) every reimbursement obligation of such Person with respect to letters of credit, bankers' acceptances or similar facilities issued for the account of such Person, (iv) every obligation of such Person issued or assumed as the deferred purchase price of property or services (but excluding trade accounts payable or accrued liabilities arising in the ordinary course of business), (v) every capital lease obligation of such Person, (vi) every Hedging Obligation, (vii) every obligation of others secured by a lien on any asset of such Person, whether or not such obligation is assumed by such Person, (viii) every obligation of the type referred to in clauses (i) through (vii) of another Person and all dividends of another Person the payment of which, in either case, such Person has guaranteed or is responsible or liable, directly or indirectly, as obligor or otherwise, and (ix) any and all deferrals, renewals, extensions and refundings of, or amendments, modifications or supplements to any liability of the kind described in any of the preceding clauses (i) through (viii). "Defaulted Interest" has the meaning specified in Section 307. "Defeasance" has the meaning specified in Section 1302. "Depositary" means, with respect to Securities of any series issuable in whole or in part in the form of one or more Global Securities, a clearing agency registered under the Exchange Act that is designated to act as Depositary for such Securities as contemplated by Section 301. "Event of Default" has the meaning specified in Section 501. "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, and any successor statute thereto. "Floating or Adjustable Rate Provision" means a formula or provision, specified in or pursuant to a Board Resolution or an indenture supplemental hereto, providing for the determination, whether pursuant to objective factors or pursuant to the sole discretion of any Person (including the Company), and periodic adjustment of the interest rate borne by a Floating or Adjustable Rate Security. "Floating or Adjustable Rate Security" means any Security which provides for interest thereon at a periodic rate that may vary from time to time over the term thereof in accordance with a Floating or Adjustable Rate Provision. "Foreign Government Obligations" has the meaning specified in Section 1304. "Global Security" means a Security that evidences all or part of the Securities of any series and is authenticated and delivered to, and registered in the name of, the Depositary for such Securities or a nominee thereof. "Hedging Obligations" means, with respect to any Person, all obligations of such Person under (i) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements, (ii) foreign exchange contracts, currency swap agreements or similar agreements, and (iii) other agreements or arrangements designed to protect such Person against fluctuations, or otherwise to establish financial hedges in respect of, exchange rates, currency rates or interest rates. "Holder" means a Person in whose name a Security is registered in the Security Register. "Indenture" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof, including, for all purposes of this instrument, and any such supplemental indenture, the provisions of the Trust Indenture Act that are deemed to be a part of and govern this instrument and any such supplemental indenture, respectively. The term "Indenture" shall also include the terms of particular series of Securities established as contemplated by Section 301. "interest", when used with respect to an Original Issue Discount Security which by its terms bears interest only after Maturity, means interest payable after Maturity. "Intercompany Debt" means Debt of the Company to United States Fidelity and Guaranty Company and its subsidiaries. "Interest Payment Date", when used with respect to any Security, means the Stated Maturity of an instalment of interest on such Security. "Maturity", when used with respect to any Security, means the date on which the principal of such Security or an instalment of principal becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise. "Notice of Default" means a written notice of the kind specified in Section 501(4). "Officers' Certificate" means a certificate signed by (i) any two of the following individuals: the Chairman, the President, an Executive Vice President or a Vice President, or (ii) by one of the foregoing individuals and by any other Vice President, the Treasurer, an Assistant Treasurer, the Corporate Secretary or an Assistant Corporate Secretary, of the Company, or any other individual authorized by the Board of Directors for such purpose, and delivered to the Trustee. "Opinion of Counsel" means a written opinion of counsel, who may be an employee of or counsel to the Company or other counsel, and who is reasonably satisfactory to the Trustee. "Original Issue Discount Security" means any Security which provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 502. "Outstanding", when used with respect to Securities, means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except: (i) Securities theretofore cancelled by the Trustee or delivered to the Trustee for cancellation; (ii) Securities for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities; provided that, if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; (iii) Securities as to which Defeasance has been effected pursuant to Section 1302; and (iv) Securities which have been paid pursuant to Section 306 or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Securities are held by a bona fide purchaser in whose hands such Securities are valid obligations of the Company; provided, however, that in determining whether the Holders of the requisite principal amount of the Outstanding Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder, (A) the principal amount of an Original Issue Discount Security that shall be deemed to be Outstanding shall be the amount of the principal thereof that would be due and payable as of the date of such determination upon acceleration of the Maturity thereof pursuant to Section 502, (B) the principal amount of a Security denominated in one or more foreign currencies or currency units shall be the U.S. dollar equivalent, determined in the manner provided as contemplated by Section 301 on the date of original issuance of such Security, of the principal amount (or, in the case of an Original Issue Discount Security, the U.S. dollar equivalent on the date of original issuance of such Security of the amount determined as provided in (A) above) of such Security, and (C) Securities owned by the Company or any other obligor upon the Securities or any Subsidiary of the Company or of such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which the Trustee knows to be so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Subsidiary of the Company or of such other obligor. "Paying Agent" means any Person authorized by the Company to pay the principal of or any premium or interest on any Securities on behalf of the Company. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Place of Payment", when used with respect to the Securities of any series, means the place or places where the principal of and any premium and interest on the Securities of that series are payable as specified as contemplated by Section 301. "Predecessor Security" of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 306 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Security. "Principal Insurance Subsidiary" means only United States Fidelity and Guaranty Company and Fidelity and Guaranty Life Insurance Company, and any other Subsidiary of the Company which shall hereafter succeed by merger or otherwise to a major part of the business of one or more of the Principal Insurance Subsidiaries. The decision as to whether a Subsidiary shall have succeeded to a major part of the business of one or more of the Principal Insurance Subsidiaries shall be made in good faith by the board of directors of the Company or a committee thereof by the adoption of a resolution so stating, and the Company shall within 30 days of the date of the adoption of such resolution deliver to the Trustee a copy thereof, certified by the Corporate Secretary or an Assistant Corporate Secretary of the Company. "Proceeding" has the meaning specified in Section 1502. "Redemption Date", when used with respect to any Security to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture. "Redemption Price", when used with respect to any Security to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture. "Regular Record Date" for the interest payable on any Interest Payment Date on the Securities of any series means the date specified for that purpose as contemplated by Section 301. "Responsible Officer", when used with respect to the Trustee, means the chairman or any vice-chairman of the board of directors, the chairman or any vice-chairman of the executive committee of the board of directors, the chairman of the trust committee, the president, any vice president, the secretary, any assistant secretary, the treasurer, any assistant treasurer, the cashier, any assistant cashier, any trust officer or assistant trust officer, the controller or any assistant controller or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his or her knowledge of and familiarity with the particular subject. "Securities" has the meaning stated in the first recital of this Indenture and more particularly means any Securities authenticated and delivered under this Indenture. "Security Register" and "Security Registrar" have the respective meanings specified in Section 305. "Senior Debt" means the principal of (and premium, if any) and interest, if any, (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Company to the extent that such claim for post-petition interest is allowed in such proceeding) payable on, and fees, expenses, reimbursement obligations, indemnity obligations and other amounts due on or in connection with any Debt, incurred, assumed or guaranteed by the Company whether on or prior to the date of the Indenture or thereafter incurred, assumed or guaranteed, unless, in the instrument creating or evidencing the same or pursuant to which the same is outstanding, it is provided that such obligations are not superior in right of payment to the Securities or to other Debt which is pari passu with, or subordinated to the Securities; provided, however, that Senior Debt shall not be deemed to include (i) the Securities, (ii) intercompany debt of the Company to any Subsidiary other than United States Fidelity and Guaranty Company and its subsidiaries or (iii) Intercompany Debt in excess of $250,000,000. "Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 307. "Stated Maturity", when used with respect to any Security or any instalment of principal thereof or interest thereon, means the date specified in such Security as the fixed date on which the principal of such Security or such instalment of principal or interest is due and payable. "Subsidiary" means a corporation more than 50% of the voting power of which is controlled, directly or indirectly, by the Company or by one or more other Subsidiaries, or by the Company and one or more other Subsidiaries. For the purposes of this definition, "voting power" means the power to vote for the election of directors, whether at all times or only so long as no senior class of stock has such voting power by reason of any contingency. "Trustee" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean or include each Person who is then a Trustee hereunder, and if at any time there is more than one such Person, "Trustee" as used with respect to the Securities of any series shall mean the Trustee with respect to Securities of that series. "Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at the date as of which this instrument was executed; provided, however, that in the event the Trust Indenture Act of 1939 is amended after such date, "Trust Indenture Act" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended. "U.S. Government Obligations" has the meaning specified in Section 1304. "Vice President", when used with respect to the Company or the Trustee, means any vice president, whether or not designated by a number or a word or words added before or after the title "vice president". "Section 102. Compliance Certificates and Opinions. Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee such certificates and opinions as may be required under the Trust Indenture Act. Each such certificate or opinion shall be given in the form of an Officers' Certificate, if to be given by an officer of the Company, or an Opinion of Counsel, if to be given by counsel, and shall comply with the requirements of the Trust Indenture Act and any other requirements set forth in this Indenture. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (excluding certificates provided for in Section 1004) shall include: (1) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of each such individual, such individual has made such examination or investigation as is necessary to enable such individual to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. Section 103. Form of Documents Delivered to Trustee. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which its certificate or opinion is based are erroneous. Any such certificate or opinion of counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. Any certificate, statement or opinion of an officer of the Company or of counsel may be based, insofar as it relates to accounting matters, upon a certificate, opinion or representation by an accountant or firm of accountants in the employ of the Company, unless such officer or counsel, as the case may be, knows, or in the exercise of reasonable care should know, that the certificate, opinion or representation with respect to such accounting matters upon which its certificate, statement or opinion may be based is erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. "Section 104. Acts of Holders; Record Dates. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided or permitted by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 601) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section. (b) The fact and date of the execution by any Person of any such instrument or writing may be proved in any reasonable manner which the Trustee deems sufficient. (c) The Company may, in the circumstances permitted by the Trust Indenture Act, fix any day as the record date for the purpose of determining the Holders of Outstanding Securities of any series entitled to give or take any request, demand, authorization, direction, notice, consent, waiver or other action, or to vote on any action, authorized or permitted to be given or taken by Holders of Outstanding Securities of such series. If not set by the Company prior to the first solicitation of a Holder of Securities of such series made by any Person in respect of any such action, or, in the case of any such vote, prior to such vote, the record date for any such action or vote shall be the 30th day (or, if later, the date of the most recent list of Holders required to be provided pursuant to Section 701) prior to such first solicitation or vote, as the case may be. With regard to any record date for action to be taken by the Holders of one or more series of Securities, only the Holders of Securities of such series on such date (or their duly designated proxies) shall be entitled to give or take, or vote on, the relevant action. (d) The ownership of Securities shall be proved by the Security Register or by a certificate of the Security Registrar. (e) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Security. (f) Without limiting the foregoing, a Holder entitled hereunder to give or take any action hereunder with regard to any particular Security may do so with regard to all or any part of the principal amount of such Security or by one or more duly appointed agents each of which may do so pursuant to such appointment with regard to all or any different part of such principal amount. "Section 105. Notices, Etc., to Trustee and Company". Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with, (1) the Trustee by any Holder or by the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at 450 West 33rd Street, New York, New York 10001, Attention: Corporate Trust Group, 15th Floor, or (2) the Company by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to the Company addressed to it at the address of its principal office specified in the first paragraph of this instrument, Attention: Treasurer, (until another address is furnished in writing to the Trustee by the Company). "Section 106. Notice to Holders; Waiver". Where this Indenture provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder affected by such event, at its address as it appears in the Security Register, not later than the latest date (if any), and not earlier than the earliest date (if any), prescribed for the giving of such notice; provided, however, that the Company or the Trustee, upon a good faith determination that mailing is in the circumstances impractical, may give such notice by any other method which, in the reasonable belief of the Company or, in the case of the Trustee, of the Company and the Trustee, is likely to be received by the Holders. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder. Section 107. Conflict with Trust Indenture Act. If any provision hereof limits, qualifies or conflicts with a provision of the Trust Indenture Act that is required under such Act to be a part of and govern this Indenture, the latter provision shall control. If any provision of this Indenture modifies or excludes any provision of the Trust Indenture Act that may be so modified or excluded, the latter provision shall be deemed to apply to this Indenture as so modified or to be excluded, as the case may be. Section 108. Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. Section 109. Successors and Assigns. All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not. Section 110. Separability Clause. In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 111. Benefits of Indenture. Nothing in this Indenture or in the Securities, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder and the Holders, any benefit or any legal or equitable right, remedy or claim under this Indenture. Section 112. Governing Law. This Indenture and the Securities shall be governed by and construed in accordance with the laws of the State of New York, but without regard to principles of conflicts of laws. Section 113. Legal Holidays. In any case where any Interest Payment Date, Redemption Date or Stated Maturity of any Security or the last day on which a Holder has the right to convert a Security at a particular conversion price shall not be a Business Day at any Place of Payment, then (notwithstanding any other provision of this Indenture or of the Securities (other than a provision of the Securities of any series which specifically states that such provision shall apply in lieu of this Section)) payment of interest or principal (and premium, if any) or conversion need not be made at such Place of Payment on such date, but may be made on the next succeeding Business Day at such Place of Payment with the same force and effect as if made on the Interest Payment Date or Redemption Date, or at the Stated Maturity, provided that no interest shall accrue with respect to such payment for the period from and after such Interest Payment Date, Redemption Date or Stated Maturity, as the case may be. Section 114. Personal Immunity from Liability for Incorporators, Stockholders, Etc. No recourse shall be had for the payment of the principal of or premium, if any, or interest, if any, on any Security, or for any claim based thereon, or otherwise in respect of any Security, or based on or in respect of this Indenture or any indenture supplemental hereto, against any incorporator, or against any past, present or future stockholder, director or officer, as such, of the Company or of any successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability being expressly waived and released as a condition of, and as consideration for, the execution of this Indenture and the issue of the Securities. ARTICLE TWO SECURITY FORMS Section 201. Forms Generally. The Securities of each series shall be in substantially the form set forth in this Article, or in such other form as shall be established by or pursuant to a Board Resolution or in one or more indentures supplemental hereto, in each case with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the rules of any securities exchange or as may, consistent herewith, be determined by the officers executing such Securities, as evidenced by their execution of the Securities. If the form of Securities of any series is established by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by the Corporate Secretary or an Assistant Corporate Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Company Order contemplated by Section 303 for the authentication and delivery of such Securities. The definitive Securities shall be printed, lithographed or engraved on steel engraved borders or may be produced in any other manner, all as determined by the officers executing such Securities, as evidenced by their execution of such Securities. Section 202. Form of Face of Security. (Insert any legend required by the Internal Revenue Code and the regulations thereunder.) USF&G CORPORATION No. _____________________ $___________________ USF&G CORPORATION, a Maryland corporation (herein called the "Company", which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to ------------ or registered assigns, the principal sum of --------- dollars (if other than Dollars, substitute other currency or currency units) (if the Security is to bear interest prior to Maturity, insert--, and to pay interest thereon from ----------------------- or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on - ------------------ and --------------- in each year) (if other than semi-annual payments, insert frequency of payments and payment dates), commencing --------------, at (if the Security is to bear interest at a fixed rate, insert -- the rate of -----% per annum) (if the Security is a Floating or Adjustable Rate Security, insert -- a rate per annum computed-determined in accordance with, -- insert defined name of Floating or Adjustable Rate Provision set forth below) (if the security is to bear interest at a rate determined with reference to an index, refer to description of index below) until the principal hereof is paid or made available for payment (if applicable, insert -- , and (to the extent that the payment of such interest shall be legally enforceable) at the rate of ------% per annum on any overdue principal and premium and on any overdue instalment of interest.) The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the ------------- or ----------- (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture. The indebtedness evidenced by this Security is, to the extent provided in the Indenture, subordinate and subject in right of payment to the prior payment in full of all Senior Debt, and this Security is issued subject to the provisions of the Indenture with respect thereto. Each Holder of this Security, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination so provided and (c) appoints the Trustee his attorney-in-fact for any and all such purposes. (If the Securities are Floating or Adjustable Rate Securities with respect to which the principal of or any premium or interest may be determined with reference to an index, insert the text of the Floating or Adjustable Rate Provision.) (If the Security is not to bear interest prior to Maturity, insert -- The principal of this Security shall not bear interest except in the case of a default in payment of principal upon acceleration, upon redemption or at Stated Maturity and in such case the overdue principal of this Security shall bear interest at the rate of ------% per annum compounded semi-annually (to the extent that the payment of such interest shall be legally enforceable), which shall accrue from the date of such default in payment to the date payment of such principal, including interest thereon, has been made or duly provided for. All interest on any overdue principal shall be payable on demand. Any such interest on any overdue principal that is not so paid on demand shall bear interest at the rate of -------% per annum (to the extent that the payment of such interest shall be legally enforceable), which shall accrue from the date of such demand for payment to the date payment of such interest has been made or duly provided for, and such interest shall also be payable on demand.) Payment of the principal of (and premium, if any) and (if applicable, insert -- any such interest on this Security) will be made at the office or agency of the Company maintained for that purpose in -----------------, in such coin or currency of the United States of America (if the Security is denominated in a currency other than U.S. dollars, specify other currency or currency unit in which payment of the principal of and any premium or interest may be made] as at the time of payment is legal tender for payment of public and private debts (if applicable, insert -- ; provided, however, that at the option of the Company payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register). Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal. Dated: USF&G CORPORATION By:________________________________ Attest: _______________________________ Section 203. Form of Reverse of Security. This Security is one of a duly authorized issue of securities of the Company (herein called the "Securities"), issued and to be issued in one or more series under an Indenture, dated as of __________ (herein called the "Indenture"), between the Company and _________, as Trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, obligations, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. This Security is one of the series designated on the face hereof(, limited in aggregate principal amount to $_________). (If applicable, insert -- The Securities of this series are subject to redemption upon not less than 30 days' nor more than 60 days' notice by mail, (if applicable, insert -- (1) on _______ in any year commencing with the year ____ and ending with the year ______ through operation of the sinking fund for this series at a Redemption Price equal to 100% of the principal amount, and (2)) at any time on or after ______, 19__), as a whole or in part, at the election of the Company, at the following Redemption Prices (expressed as percentages of the principal amount): If redeemed (on or before ______, __%, and if redeemed) during the 12-month period beginning ______ of the years indicated, Redemption Redemption Year Price Year Price and thereafter at a Redemption Price equal to ___% of the principal amount, together in the case of any such redemption (if applicable, insert -- (whether through operation of the sinking fund or otherwise)) with accrued interest to the Redemption Date, but interest installments whose Stated Maturity is on or prior to such Redemption Date will be payable to the Holders of such Securities, or one or more Predecessor Securities, of record at the close of business on the relevant Record Dates referred to on the face hereof, all as provided in the Indenture.) (If applicable, insert -- The Securities of this series are subject to redemption upon not less than 30 days' nor more than 60 days' notice by mail, (1) on ________ in any year commencing with the year ____ and ending with the year ____ through operation of the sinking fund for this series at the Redemption Prices for redemption through operation of the sinking fund (expressed as percentages of the principal amount) set forth in the table below, and (2) at any time on or after______, as a whole or in part, at the election of the Company, at the Redemption Prices for redemption otherwise than through operation of the sinking fund (expressed as percentages of the principal amount) set forth in the table below: If redeemed during the 12-month period beginning ______ of the years indicated, Redemption Price Redemption Price For For Redemption Redemption Otherwise Through Operation Than Through Operation Year of the Sinking Fund of the Sinking Fund and thereafter at a Redemption Price equal to ___% of the principal amount, together in the case of any such redemption (whether through operation of the sinking fund or otherwise) with accrued interest to the Redemption Date, but interest installments whose Stated Maturity is on or prior to such Redemption Date will be payable to the Holders of such Securities, or one or more Predecessor Securities, of record at the close of business on the relevant Record Dates referred to on the face hereof, all as provided in the Indenture.) (The sinking fund for this series provides for the redemption on _______ in each year beginning with the year ____ and ending with the year ____ of (not less than $_______ ("mandatory sinking fund") and not more than $______) aggregate principal amount of Securities of this series. Securities of this series acquired or redeemed by the Company otherwise than through (mandatory) sinking fund payments may be credited against subsequent (mandatory) sinking fund payments otherwise required to be made in the inverse order in which they become due.) (If the Security is subject to redemption, insert -- In the event of redemption of this Security in part only, a new Security or Securities of this series and of like tenor for the unredeemed portion hereof will be issued in the name of the Holder hereof upon the cancellation hereof.] The Indenture contains provisions for defeasance at any time of (1) the entire indebtedness of this Security or (2) certain restrictive covenants and Events of Default with respect to this Security, in each case upon compliance with certain conditions set forth in the Indenture. [If the Security is convertible into Common Stock of the Company, insert -- Subject to the provisions of the Indenture, the Holder of this Security is entitled, at its option, at any time on or before _______ (except that, in case this Security or any portion hereof shall be called for redemption, such right shall terminate with respect to this Security or portion hereof, as the case may be, so called for redemption at the close of business on the date fixed for redemption as provided in the Indenture unless the Company defaults in making the payment due upon redemption), to convert the principal amount of this Security (or any portion hereof which is $1,000 or an integral multiple thereof), into fully paid and non-assessable shares (calculated as to each conversion to the nearest 1/100th of a share) of the Common Stock of the Company, as said shares shall be constituted at the date of conversion, at the conversion price of $_____ principal amount of Securities for each share of Common Stock, or at the adjusted conversion price in effect at the date of conversion determined as provided in the Indenture, upon surrender of this Security, together with the conversion notice hereon duly executed, to the Company at the designated office or agency of the Company in __________________, accompanied (if so required by the Company) by instruments of transfer, in form satisfactory to the Company and to the Trustee, duly executed by the Holder or by its duly authorized attorney in writing. Such surrender shall, if made during any period beginning at the close of business on a Regular Record Date and ending at the opening of business on the Interest Payment Date next following such Regular Record Date (unless this Security or the portion being converted shall have been called for redemption on a Redemption Date during such period), also be accompanied by payment in funds acceptable to the Company of an amount equal to the interest payable on such Interest Payment Date on the principal amount of this Security then being converted. Subject to the aforesaid requirement for payment and, in the case of a conversion after the Regular Record Date next preceding any Interest Payment Date and on or before such Interest Payment Date, to the right of the Holder of this Security (or any Predecessor Security) of record at such Regular Record Date to receive an installment of interest (with certain exceptions provided in the Indenture), no adjustment is to be made on conversion for interest accrued hereon or for dividends on shares of Common Stock issued on conversion. The Company is not required to issue fractional shares upon any such conversion, but shall make adjustment therefor in cash on the basis of the current market value of such fractional interest as provided in the Indenture. The conversion price is subject to adjustment as provided in the Indenture. In addition, the Indenture provides that in case of certain consolidations, mergers or share exchanges to which the Company is a party or the sale of substantially all of the assets of the Company, the Indenture shall be amended, without the consent of any Holders of Securities, so that this Security, if then outstanding, will be convertible thereafter, during the period this Security shall be convertible as specified above, only into the kind and amount of securities, cash and other property receivable upon the consolidation, merger, share exchange or sale by a holder of the number of shares of Common Stock into which this Security might have been converted immediately prior to such consolidation, merger, share exchange or sale (assuming such holder of Common Stock failed to exercise any rights of election and received per share the kind and amount received per share by a plurality of non-electing shares) (, assuming if such consolidation, merger, share exchange or sale is prior to _________, 19__, that this Security were convertible at the time of such consolidation, merger, share exchange or sale at the initial conversion price specified above as adjusted from _____, 19__ to such time pursuant to the Indenture. In the event of conversion of this Security in part only, a new Security or Securities for the unconverted portion hereof shall be issued in the name of the Holder hereof upon the cancellation hereof.) (If the Security is convertible into other securities of the Company, specify the conversion features.) (If the Security is not an Original Issue Discount Security, insert -- If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture.) (If the Security is an Original Issue Discount Security, insert-- If an Event of Default with respect to Securities of this series shall occur and be continuing, an amount of principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. Such amount shall be equal to -- insert formula for determining the amount. Upon payment (i) of the amount of principal so declared due and payable and (ii) of interest on any overdue principal and overdue interest (in each case to the extent that the payment of such interest shall be legally enforceable), all of the Company's obligations in respect of the payment of the principal of and interest, if any, on the Securities of this series shall terminate.) The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in principal amount of the Securities at the time Outstanding of each series to be affected. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities of each series at the time Outstanding, on behalf of the Holders of all Securities of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange hereof or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and any premium and interest on this Security at the times, place and rates, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registerable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any place where the principal of and any premium and interest on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities of this series and of like tenor, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Securities of this series are issuable only in registered form without coupons in denominations of $_____ and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series and of like tenor of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security is overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. No recourse shall be had for the payment of the principal of (and premium, if any) or interest on this Security, or for any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Indenture or any indenture supplemental thereto, against any incorporator, stockholder, officer or director, as such, past, present or future, of the Company or of any successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released. All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. Section 204. Form of Legend for Global Securities. Every Global Security authenticated and delivered hereunder shall bear a legend in substantially the following form or such other legends as may be required: This Security is a Global Security within the meaning of the Indenture hereinafter referred to and is registered in the name of a Depositary or a nominee thereof. This Security may not be transferred to, or registered or exchanged for Securities registered in the name of, any Person other than the Depositary or a nominee thereof and no such transfer may be registered, except in the limited circumstances described in the Indenture. Every Security authenticated and delivered upon registration of transfer of, or in exchange for or in lieu of, this Security shall be a Global Security subject to the foregoing, except in such limited circumstances. Section 205. Form of Trustee's Certificate of Authentication. The Trustee's certificate of authentication shall be in substantially the following form: This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. ___________________________________ As Trustee By_________________________________ Authorized Officer Section 206. Form of Conversion Notice. To USF&G Corporation The undersigned owner of this Security hereby irrevocably exercises the option to convert this Security, or portion hereof (which is $1,000 or an integral multiple thereof) below designated, into shares of Common Stock of the Company in accordance with the terms of the Indenture referred to in this Security, and directs that the shares issuable and deliverable upon the conversion, together with any check in payment for fractional shares and any Securities representing any unconverted principal amount hereof, be issued and delivered to the registered holder hereof unless a different name has been indicated below. If this Notice is being delivered on a date after the close of business on a Regular Record Date and prior to the opening of business on the related Interest Payment Date (unless this Security or the portion thereof being converted has been called for redemption on a Redemption Date within such period), this Notice is accompanied by payment, in funds acceptable to the Company, of an amount equal to the interest payable on such Interest Payment Date of the principal of this Security to be converted. If shares are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect hereto. Any amount required to be paid by the undersigned on account of interest accompanies this Security. Principal Amount to be Converted (in an integral multiple of $1,000, if less than all): $____________ Dated _________________________ __________________________ Signature Signature(s) must be guaranteed by a commercial bank or trust company or a member firm of a national stock exchange if shares of Common Stock are to be delivered, or Securities to be issued, other than to and in the name of the registered holder. ____________________________ Signature Guarantee Fill in for registration of shares of Common Stock and Security if to be issued otherwise than to the registered holder. ______________________________ Social Security or other Taxpayer (Name) Identifying Number_________________ ______________________________ (Address) ______________________________ Please print Name and Address (including zip code number) ARTICLE THREE THE SECURITIES Section 301. Amount Unlimited; Issuable in Series. The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is unlimited. The Securities may be issued in one or more series. There shall be established in or pursuant to a Board Resolution or established in one or more indentures supplemental hereto, prior to the issuance of Securities of any series, (1) the title of the Securities of the series (which shall distinguish the Securities of the series from Securities of any other series); (2) any limit upon the aggregate principal amount of the Securities of the series which may be authenticated and delivered under this Indenture (except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities of the series pursuant to Sections 304, 305, 306, 906 or 1107 and except for any Securities which, pursuant to Section 303, are deemed never to have been authenticated and delivered hereunder); (3) the Person to whom any interest on a Security of the series shall be payable, if other than the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest; (4) the date or dates on which the principal of the Securities of the series is payable; (5) the rate or rates at which the Securities of the series shall bear interest, if any, or the Floating or Adjustable Rate Provision pursuant to which such rates shall be determined, the date or dates from which such interest shall accrue, the Interest Payment Dates on which any such interest shall be payable and the Regular Record Date for any interest payable on any Interest Payment Date; (6) whether the Securities of the series would be secured pursuant to Section 901(6); (7) the place or places where the principal of and any premium and interest on Securities of the series shall be payable; (8) the period or periods within which, the price or prices at which (including premium, if any) and the terms and conditions upon which Securities of the series may be redeemed, in whole or in part, at the option of the Company pursuant to a sinking fund or otherwise; (9) the obligation, if any, of the Company to redeem or purchase Securities of the series pursuant to any sinking fund or analogous provisions or at the option of a Holder thereof and the period or periods within which, the price or prices at which and the terms and conditions upon which Securities of the series shall be redeemed or purchased, in whole or in part, pursuant to such obligation; (10) the terms of any right to convert Securities of the series into shares of Common Stock of the Company or other securities or property; (11) if other than denominations of $1,000 and any integral multiple thereof, the denominations in which Securities of the series shall be issuable; (12) the currency or currencies, including composite currencies, or currency units in which payment of the principal of and any premium and interest on any Securities of the series shall be payable if other than the currency of the United States of America and the manner of determining the equivalent thereof in the currency of the United States of America for purposes of the definition of "Outstanding" in Section 101; (13) if the amount of payments of principal of or any premium or interest on any Securities of the series may be determined with reference to one or more indices, the manner in which such amounts shall be determined; (14) if the principal of or any premium or interest on any Securities of the series is to be payable, at the election of the Company or a Holder thereof, in one or more currencies, including composite currencies, or currency units other than that or those in which the Securities are stated to be payable, the currency, currencies, including composite currencies, or currency units in which payment of the principal of and any premium and interest on Securities of such series as to which such election is made shall be payable, and the periods within which and the terms and conditions upon which such election is to be made; (15) if other than the principal amount thereof, the portion of the principal amount of Securities of the series which shall be payable upon declaration of acceleration of the Maturity thereof pursuant to Section 502 or provable under any applicable federal or state bankruptcy or similar law pursuant to Section 503; (16) if and as applicable, that the Securities of the series shall be issuable in whole or in part in the form of one or more Global Securities and, in such case, the Depositary or Depositaries for such Global Security or Global Securities and any circumstance other than those set forth in Section 305 in which any such Global Security may be transferred to, and registered and exchanged for Securities registered in the name of, a Person other than the Depositary for such Global Security or a nominee thereof and in which any such transfer may be registered; (17) any other event or events of default applicable with respect to the Securities of the series in addition to those provided in Section 501(1) through (7); (18) any other covenant or warranty included for the benefit of Securities of the series in addition to (and not inconsistent with) those included in this Indenture for the benefit of Securities of all series, or any other covenant or warranty included for the benefit of Securities of the series in lieu of any covenant or warranty included in this Indenture for the benefit of Securities of all series, or any provision that any covenant or warranty included in this Indenture for the benefit of Securities of all series shall not be for the benefit of Securities of the series, or any combination of such covenants, warranties or provisions; (19) any restriction or condition on the transferability of the Securities of the series; (20) any authenticating or paying agents, registrars, conversion agents or any other agents with respect to the Securities of the series; and (21) any other terms of the series (which terms shall not be inconsistent with the provisions of this Indenture, except as permitted by Section 901(5)). All Securities of any one series shall be substantially identical except as to denomination and except as may otherwise be provided in or pursuant to the Board Resolution referred to above or in any such indenture supplemental hereto. If any of the terms of the series are established by action taken pursuant to a Board Resolution, a copy of such action shall be delivered to the Trustee. Section 302. Denominations. The Securities of each series shall be issuable in registered form without coupons in such denominations as shall be specified as contemplated by Section 301. In the absence of any such provisions with respect to the Securities of any series, the Securities of such series shall be issuable in denominations of $1,000 and any integral multiple thereof. Section 303. Execution, Authentication, Delivery and Dating. The Securities shall be executed on behalf of the Company by its Chairman, its President, any Executive Vice President, any Vice President, its Treasurer or Assistant Treasurer, under its corporate seal reproduced thereon attested by its Corporate Secretary or one of its Assistant Corporate Secretaries. The signature of any of these officers on the Securities may be manual or facsimile. The seal of the Company may be in the form of a facsimile thereof and may be impressed, affixed, imprinted or otherwise reproduced on the Securities. Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities. Minor typographical and other minor errors in the text of any Security or minor defects in the seal or facsimile signature on any Security shall not affect the validity or enforceability of such Security if it has been duly authenticated and delivered by the Trustee. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities of any series executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Securities, and the Trustee in accordance with the Company Order shall authenticate and deliver such Securities. If the form or terms of the Securities of the series have been established in or pursuant to one or more Board Resolutions as permitted by Sections 201 and 301, in authenticating such Securities, and accepting the additional responsibilities under this Indenture in relation to such Securities, the Trustee shall be entitled to receive, and (subject to Section 601) shall be fully protected in relying upon, an Opinion of Counsel stating, (a) if the form of such Securities has been established by or pursuant to a Board Resolution as permitted by Section 201, that such form has been established in conformity with the provisions of this Indenture; (b) if the terms of such Securities have been established by or pursuant to a Board Resolution as permitted by Section 301, that such terms have been established in conformity with the provisions of this Indenture; and (c) that such Securities, when authenticated and delivered by the Trustee and issued by the Company in the manner and subject to any conditions specified in such Opinion of Counsel, will constitute valid and legally binding obligations of the Company enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium, rehabilitation and similar laws of general applicability relating to or affecting creditors' rights generally or the rights of creditors of insurance companies or insurance holding companies generally and to general equity principles. The Trustee shall have the right to decline to authenticate and deliver any Securities under this Section if the Trustee, being advised by counsel, determines that such action may not lawfully be taken or if the Trustee in good faith by its board of directors, executive committee, or a trust committee of directors or responsible officers of the Trustee shall determine that such action would expose the Trustee to personal liability to existing Holders of Securities. Notwithstanding the provisions of Section 301 and of the preceding paragraph, if all Securities of a series are not to be originally issued at one time, it shall not be necessary to deliver the Board Resolution otherwise required pursuant to Section 301 or the Company Order and Opinion of Counsel otherwise required pursuant to such preceding paragraph at or prior to the time of authentication of each Security of such series if such documents are delivered at or prior to the authentication upon original issuance of the first Security of such series to be issued. Each Security shall be dated the date of its authentication. No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein executed by the Trustee by manual signature, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder. Notwithstanding the foregoing, if any Security shall have been authenticated and delivered hereunder but never issued and sold by the Company, and the Company shall deliver such Security to the Trustee for cancellation as provided in Section 309, for all purposes of this Indenture such Security shall be deemed never to have been authenticated and delivered hereunder and shall never be entitled to the benefits of this Indenture. Section 304. Temporary Securities. Pending the preparation of definitive Securities of any series, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Securities which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as evidenced by their execution of such Securities. Every temporary Security shall be executed by the Company and authenticated by the Trustee upon the same conditions and in substantially the same manner, and with like effect, as the definitive Securities. If temporary Securities of any series are issued, the Company will cause definitive Securities of that series to be prepared without unreasonable delay. After the preparation of definitive Securities of such series, the temporary Securities of such series shall be exchangeable for definitive Securities of such series upon surrender of the temporary Securities of such series at the office or agency of the Company in a Place of Payment for that series, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities of any series, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor one or more definitive Securities of the same series, of any authorized denominations and of a like aggregate principal amount and tenor. Until so exchanged the temporary Securities of any series shall in all respects be entitled to the same benefits under this Indenture as definitive Securities of such series and tenor. Section 305. Registration, Registration of Transfer and Exchange. The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register (the register maintained in such office and in any other office or agency of the Company in a Place of Payment being herein sometimes collectively referred to as the "Security Register") in which, subject to such reasonable regulations as it or the Trustee may prescribe, the Company shall provide for the registration of Securities and of transfers of Securities. The Trustee is hereby appointed "Security Registrar" for the purpose of registering Securities and transfers of Securities as herein provided. Upon surrender for registration of transfer of any Security of any series at the office or agency in a Place of Payment for that series, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of the same series, of any authorized denominations and of a like aggregate principal amount and tenor. At the option of the Holder, Securities of any series may be exchanged for other Securities of the same series, of any authorized denominations and of a like aggregate principal amount and tenor, upon surrender of the Securities to be exchanged at such office or agency. Whenever any Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive and bearing numbers not contemporaneously outstanding. All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange. Every Security presented or surrendered for registration of transfer, exchange, redemption or payment shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed, by the Holder thereof or his attorney duly authorized in writing. No service charge shall be made for any registration of transfer or exchange of Securities, but the Company or the Trustee may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Section 304, 906 or 1107 not involving any transfer. Neither the Company nor the Trustee shall be required (i) to issue, register the transfer of or exchange Securities of any series during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of Securities of that series selected for redemption under Section 1103 and ending at the close of business on the day of such mailing, or (ii) to register the transfer of or exchange any Security so selected for redemption in whole or in part, except the unredeemed portion of any Security being redeemed in part. Notwithstanding any other provision in this Indenture, no Global Security may be transferred to, or registered or exchanged for Securities registered in the name of, any Person other than the Depositary for such Global Security or any nominee thereof, and no such transfer may be registered, unless (1) such Depositary (A) notifies the Company and the Trustee that it is unwilling or unable to continue as Depositary for such Global Security or (B) ceases to be a clearing agency registered under the Exchange Act, (2) the Company executes and delivers to the Trustee a Company Order that such Global Security shall be so transferable, registrable and exchangeable, and such transfers shall be registrable, (3) there shall have occurred and be continuing an Event of Default with respect to the Securities evidenced by such Global Security or (4) there shall exist such other circumstances, if any, as have been specified for this purpose as contemplated by Section 301. Notwithstanding any other provision in this Indenture, a Global Security to which the restriction set forth in the preceding sentence shall have ceased to apply may be transferred only to, and may be registered and exchanged for Securities registered only in the name or names of, such Person or Persons as the Depositary for such Global Security shall have directed and no transfer thereof other than such a transfer may be registered. Every Security authenticated and delivered upon registration of transfer of, or in exchange for or in lieu of, a Global Security to which the restriction set forth in the first sentence of the preceding paragraph shall apply, whether pursuant to this Section, Section 304, 306, 906 or 1107 or otherwise, shall be authenticated and delivered in the form of, and shall be, a Global Security. Section 306. Mutilated, Destroyed, Lost and Stolen Securities. If there shall be delivered to the Company and the Trustee (i) a mutilated Security, or (ii) evidence to their satisfaction of the destruction, loss or theft of any Security and in either case such security or indemnity as may be required by either of them to save each of them and any agent of either of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and the Trustee shall authenticate and deliver, in lieu of any such mutilated, destroyed, lost or stolen Security, a new Security of the same series and of like tenor and principal amount and bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security. Upon the issuance of any new Security under this Section, the Company or the Trustee may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Security of any series issued pursuant to this Section in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of (but shall be subject to all the limitations of rights set forth in) this Indenture equally and proportionately with any and all other Securities of that series duly issued hereunder. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities. Section 307. Payment of Interest; Interest Rights Preserved. Except as otherwise provided as contemplated by Section 301 with respect to any series of Securities, interest on any Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest. Any interest on any Security of any series which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease to be payable to the Holder on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in Clause (1) or (2) below: (1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities of such series (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security of such series and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this Clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 15 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder of Securities of such series at its address as it appears in the Security Register, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so mailed, such Defaulted Interest shall be paid to the Persons in whose names the Securities of such series (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following Clause (2). (2) The Company may make payment of any Defaulted Interest on the Securities of any series in any other lawful manner not inconsistent with the requirements of any securities exchange on which such Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this Clause, such manner of payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security. Subject to the provisions of Section 1202, in the case of any Security which is converted after any Regular Record Date and on or prior to the next succeeding Interest Payment Date (other than any Security the principal of (or premium, if any, on) which shall become due and payable, whether at a Stated Maturity or by declaration of acceleration, call for redemption, or otherwise, prior to such Interest Payment Date), interest whose Stated Maturity is on such Interest Payment Date shall be payable on such Interest Payment Date notwithstanding such conversion and such interest (whether or not punctually paid or duly provided for) shall be paid to the person in whose name that Security (or any one or more Predecessor Securities) is registered at the close of business on such Regular Record Date. Except as otherwise expressly provided in the immediately preceding sentence, in the case of any Security which is converted, interest whose Stated Maturity is after the date of conversion of such Security shall not be payable. Section 308. Persons Deemed Owners. Prior to due presentment of a Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Security is registered as the owner of such Security for the purpose of receiving payment of principal of and any premium and (subject to Section 307) any interest on such Security and for all other purposes whatsoever, whether or not such Security be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary. Section 309. Cancellation. All Securities surrendered for payment, redemption, registration of transfer or exchange or for credit against any sinking fund or analogous payment or for conversion shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly cancelled by it. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and may deliver to the Trustee (or to any other Person for delivery to the Trustee) for cancellation any Securities previously authenticated hereunder which the Company has not issued and sold, and all Securities so delivered shall be promptly cancelled by the Trustee. No Securities shall be authenticated in lieu of or in exchange for any Securities cancelled as provided in this Section, except as expressly permitted by this Indenture. All cancelled Securities shall be destroyed by the Trustee and a certificate of destruction shall be sent to the Company, unless otherwise instructed by the Company. Acquisition by the Company of any Security shall not operate as a redemption or satisfaction of the indebtedness represented by such Security unless and until the same is delivered to the Trustee for cancellation. Section 310. Computation of Interest. Except as otherwise specified as contemplated by Section 301 for Securities of any series, interest on the Securities of each series shall be computed on the basis of a 360-day year of twelve 30-day months. ARTICLE FOUR SATISFACTION AND DISCHARGE Section 401. Satisfaction and Discharge of Indenture. This Indenture shall upon Company Request cease to be of further effect (except as to any surviving rights of conversion, registration of transfer or exchange of Securities of a series herein expressly provided for) with respect to Securities of any series, and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture with respect to a series, when (1) either (A) all Securities of such series theretofore authenticated and delivered (other than (i) Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 306 and (ii) Securities of such series for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 1003) have been delivered to the Trustee for cancellation; or (B) all such Securities of such series not theretofore delivered to the Trustee for cancellation (i) have become due and payable, or (ii) will become due and payable at their Stated Maturity within one year, or (iii) are to be called for redemption within one year under arrangements reasonably satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, and the Company, in the case of (i), (ii) or (iii) above, has irrevocably deposited or caused to be deposited with the Trustee in trust for the purpose (A) money (either in United States dollars or such other currency or currency unit in which the Securities of any series may be payable) in an amount, or (B) U.S. Government Obligations (or Foreign Government Obligations if the Securities are denominated in a foreign currency or currencies) that through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than one day before the due date of any payment, money in an amount, or (C) a combination thereof, sufficient to pay and discharge the entire indebtedness on such Securities of such series not theretofore delivered to the Trustee for cancellation, for principal of (and premium, if any) and interest to the date of such deposit (in the case of Securities of such series which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be; (2) the Company has paid or caused to be paid all other sums payable hereunder by the Company including, but not limited to, all amounts due the Trustee under Section 607; and (3) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture with respect to such series have been complied with. In the event there are Securities of two or more series outstanding hereunder, the Trustee shall be required to execute an instrument acknowledging satisfaction and discharge of this Indenture only if requested to do so with respect to Securities of a particular series as to which it is Trustee and if the other conditions thereto are met. In the event that there are two or more Trustees hereunder, then the effectiveness of any such instrument shall be conditioned upon receipt of such instruments from all Trustees hereunder. Notwithstanding the satisfaction and discharge of this Indenture with respect to a particular series, the obligations of the Company to the Trustee under Section 607, the obligations of the Trustee to any Authenticating Agent under Section 614 and, if money shall have been deposited with the Trustee pursuant to subclause (B) of Clause (1) of this Section, the obligations of the Trustee under Section 402 and the last paragraph of Section 1003 shall survive until there are no Securities Outstanding with respect to a particular series and the obligations of the Company and the Trustee with respect to all other series of Securities shall survive. Section 402. Application of Trust Fund. Subject to provisions of the last paragraph of Section 1003, all amounts deposited with the Trustee pursuant to Section 401 shall be held in trust and applied by it, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal and any premium and interest for whose payment such funds have been deposited with the Trustee. Money deposited pursuant to this Section not in violation of this Indenture shall not be subject to claims of the holders of Senior Debt under Article Fifteen. ARTICLE FIVE REMEDIES Section 501. Events of Default. "Event of Default" whenever used with respect to Securities of a series means any one of the following event s and such other events as may be established with respect to the Securities of such series as contemplated by Section 301 hereof (whether or not it shall be occasioned by the provisions of Article Fifteen): (1) Default in the payment of any instalment of interest upon any of the Securitie s of such series as and when the same shall become due and payable, and continuance of such default for a period of 30 days; or (2) Default in the payment of the principal of or premium, if any, on any of the Securities of such series as and when the same shall become due and payable either at maturity, upon redemption, by declaration or otherwise; or (3) Default in the making of any sinking fund payment, whether mandatory or optional, as and when the same shall become due and payable by the terms of the Securities of such series; or (4) Failure on the part of the Company duly to observe or perform in any material respect any other of the covenants or agreements on the part of the Company contained in this Indenture or in the Securities (other than those set forth exclusively in the terms of any other particular series of Securities established as contemplated by this Indenture for the benefit of such other series) and written notice of such failure, stating that such notice is a "Notice of Default" hereunder, and requiring the Company to remedy the same, shall have been given by registered or certified mail, return receipt requested, to the Company by the Trustee, or to the Company and the Trustee by the holders of at least 25% in aggregate principal amount of the Outstanding Securities of that series, and such failure shall have continued unremedied for a period of 90 days after the date of the Company's receipt of such Notice of Default; or (5) An event of default, as defined in any indenture or instrument evidencing or under which the Company or any Principal Insurance Subsidiary shall have outstanding indebtedness for borrowed money in a principal amount in excess of $50,000,000, shall happen and be continuing and such indebtedness shall have been accelerated so that the same shall be or become due and payable prior to the date on which the same would otherwise have become due and payable or the Company or any Principal Insurance Subsidiary shall default in the payment at final maturity of outstanding indebtedness for borrowed money in a principal amount in excess of $50,000,000, and such acceleration or default at maturity shall not be waived, rescinded or annulled within 30 days after written notice thereof, stating that such notice is a "Notice of Default" hereunder, shall have been given to the Company by the Trustee (if such event be known to it), or to the Company and the Trustee by the holders of at least 25% in aggregate principal amount of the Outstanding Securities of that series; provided, however, that if such acceleration under such indenture or instrument or default at maturity shall be remedied or cured by the Company or Principal Insurance Subsidiary, or waived, rescinded or annulle d by the requisite holders of such indebtedness, then the Event of Default hereunder by reason thereof shall be deemed likewise to have been thereupon remedied, cured or waived without further action upon the part of either the Trustee or any of the Holders; and provided further, that, subject to the provisions of Sections 601 and 602, the Trustee shall not be charged with knowledge of any such default unless written notice thereof shall have been given to the Trustee by the Company, by the holder of any such indebtedness or an agent of the holder of any such indebtedness, by the trustee then acting under any such indenture or other instrument under which such default shall have occurred, or by the holders of at least 25% in aggregate principal amount of the Outstanding Securities of that series; or (6) A decree or order by a court having jurisdiction in the premises shall have been entered adjudging the Company or any Principal Insurance Subsidiary a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of the Company or any Principal Insurance Subsidiary under any applicable Federal or State bankruptcy or similar law, and such decree or order shall have continued undischarged and unstayed for a period of 90 days; or a decree or order of a court having jurisdiction in the premises for the appointment of a receiver, liquidator, trustee, assignee, sequestrator or similar official in bankruptcy or insolvency of the Company or any Principal Insurance Subsidiary or of all or substantially all of its property, or for the winding up or liquidation of its affairs, shall have been entered, and such decree or order shall have continued undischarged and unstayed for a period of 90 days; or (7) The Company or any Principal Insurance Subsidiary shall institute proceedings to be adjudicated a voluntary bankrupt, or shall consent to the filing of a bankruptcy proceeding against it, or shall file a petition or answer or consent seeking reorganization, arrangement, adjustment or composition under any applicable Federal or State bankruptcy or similar law, or shall consent to the filing of any such petition, or shall consent to the appointment of a receiver, liquidator, trustee, assignee, sequestrator or similar official in bankruptcy or insolvency of the Company or any Principal Insurance Subsidiary or of all or substantially all of its property, or shall make an assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts generally as they become due and its willingness to be adjudged a bankrupt, or corporate action shall be taken by the Company or any Principal Insurance Subsidiary in furtherance of any of the aforesaid purposes. Section 502. Acceleration of Maturity; Rescission and Annulment. If an Event of Default with respect to Securities of any series at the time Outstanding occurs and is continuing, then in every such case the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Securities of that series may declare the principal amount (or, if any of the Securities of that series are Original Issue Discount Securities, such portion of the principal amount of such Securities as may be specified in the terms thereof) of all of the Securities of that series to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by Holders), and upon any such declaration such principal amount (or specified amount) shall become immediately due and payable; provided, however, that if an Event of Default specified in Section 501(6) or (7) occurs and is continuing, such principal amount of all such Securities shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holders; provided, further, that, except in the case of a default in the payment of the principal of (or premium, if any) or interest on any Security or in the payment of any sinking fund payment, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of directors and/or Responsible Officers of the Trustee in good faith determine that the withholding of such notice is in the interests of the Holders of such Securities. At any time after such a declaration of acceleration with respect to Securities of any series has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Holders of a majority in principal amount of the Outstanding Securities of that series, by written notice to the Company and the Trustee, may waive all defaults and may rescind and annul such declaration and its consequences if (1) the Company has paid or deposited with the Trustee a sum sufficient to pay (A) all overdue interest on all Securities of that series, (B) the principal of (and premium, if any, on) any Securities of that series which have become due otherwise than by such declaration of acceleration and any interest thereon at the rate or rates prescribed therefor in such Securities, (C) to the extent that payment of such interest is lawful, interest upon overdue interest at the rate or rates prescribed therefor in such Securities, and (D) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel except such costs and expenses as are a result of negligence or bad faith on the part of the Trustee; and (2) all Events of Default with respect to Securities of that series, other than the non-payment of the principal of and interest, if any, on the Securities of that series which have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 513. No such rescission shall affect any subsequent default or impair any right consequent thereon. Section 503. Collection of Indebtedness and Suits for Enforcement by Trustee. The Company covenants that if (1) default is made in the payment of any interest on any Security when such interest becomes due and payable and such default continues for a period of 30 days, or (2) default is made in the payment of the principal of (or premium, if any, on) any Security at the Maturity thereof, the Company will, upon written demand of the Trustee, pay to it, for the benefit of the Holders of such Securities, the whole amount then due and payable on such Securities for principal and any premium and interest and, to the extent that payment of such interest shall be legally enforceable, interest on any overdue principal and premium and on any overdue interest, at the rate or rates prescribed therefor in such Securities, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, except such costs and expenses as are a result of negligence or bad faith on the part of the Trustee. Until such demand is made by the Trustee, the Company may pay the principal of and premium, if any, and interest, if any, on the Securities of any series to the registered holders, whether or not the Securities of such series are overdue. If an Event of Default with respect to Securities of any series occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders of Securities of such series by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. Section 504. Trustee May File Proofs of Claim. In case of any judicial proceeding relative to the Company (or any other obligor upon the Securities), its property or its creditors, the Trustee shall be entitled and empowered, by intervention in such proceeding or otherwise, to take any and all actions authorized under the Trust Indenture Act in order to have claims of the Holders and the Trustee allowed in any such proceeding. In particular, the Trustee shall be authorized to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 607 except such costs and expenses, as are a result of negligence or bad faith on the part of the Trustee. No provision of this Indenture shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding; provided, however, that the Trustee may, on behalf of the Holders, vote for the election of a trustee in bankruptcy or similar official and be a member of a creditors' or other similar committee. Section 505. Trustee May Enforce Claims Without Possession of Securities. All rights of action and claims under this Indenture or the Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel except such costs and expenses, as are a result of negligence or bad faith on the part of the Trustee, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered. Section 506. Application of Money Collected. Any money collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal or any premium or interest, upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: FIRST: To the payment of all amounts due the Trustee under Section 607; SECOND: Subject to Article 15, to the payment of the amounts then due and unpaid for principal of and any premium and interest on the Securities in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities for principal and any premium and interest, respectively; and THIRD: To the payment of the remainder, if any, to the Company. Section 507. Limitation on Suits. No Holder of any Security of any series shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless (1) such Holder has previously given written notice to the Trustee of a continuing Event of Default with respect to the Securities of that series; (2) the Holders of not less than 25% in principal amount of the Outstanding Securities of that series shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (3) such Holder or Holders have offered to the Trustee indemnity reasonably satisfactory in form and substance to the Trustee against the costs, expenses and liabilities to be incurred in compliance with such request; (4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Securities of that series; it being understood and intended that no one or more of such Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other of such Holders, or to obtain or to seek to obtain priority or preference over any other of such Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all of such Holders. Section 508. Unconditional Right of Holders to Receive Principal, Premium and Interest. Notwithstanding any other provision in this Indenture, but subject to Article 15, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment of the principal of and any premium and (subject to Section 307) any interest on such Security on the Stated Maturity or Maturities expressed in such Security (or, in the case of redemption, on the Redemption Date) and to convert such Securities in accordance with Article Twelve and to institute suit for the enforcement of any such payment or such right of conversion, and such rights shall not be impaired without the consent of such Holder. Section 509. Restoration of Rights and Remedies. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. Section 510. Rights and Remedies Cumulative. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in the last paragraph of Section 306, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. Section 511. Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder of any Securities to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Subject to Section 507, every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. Section 512. Control by Holders. The Holders of a majority in principal amount of the Outstanding Securities of any series shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee, with respect to the Securities of such series, provided that (1) such direction shall not be in conflict with any rule of law or with this Indenture, shall not expose the Trustee to personal liability and shall not unduly prejudice Holders not joining therein, and (2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. Upon receipt by the Trustee of any such direction with respect to Securities of any series, a record date shall be set for determining the Holders of Outstanding Securities of such series entitled to join in such direction, which record date shall be the close of business on the day the Trustee receives such direction. The Holders of Outstanding Securities of such series on such record date (or their duly appointed agents), and only such Persons, shall be entitled to join in such direction, whether or not such Holders remain Holders after such record date; provided that, unless such direction shall have become effective by virtue of Holders of at least a majority in principal amount of Outstanding Securities of such series on such record date (or their duly appointed agents) having joined therein on or prior to the 90th day after such record date, such direction shall automatically and without any action by any Person be cancelled and of no further effect.Nothing in this paragraph shall prevent a Holder (or a duly appointed agent thereof) from giving, before or after the expiration of such 90-day period, a direction contrary to or different from, or, after the expiration of such period, identical to, a direction that has been cancelled pursuant to the proviso to the preceding sentence, in which event a new record date in respect thereof shall be set pursuant to this paragraph. Section 513. Waiver of Past Defaults. The Holders of not less than a majority in principal amount of the Outstanding Securities of any series may on behalf of the Holders of all the Securities of such series waive any past default hereunder with respect to such series and its consequences, except a default (1) in the payment of the principal of or any premium or interest on any Security of such series, or (2) in respect of a covenant or provision hereof which under Article Nine cannot be modified or amended without the consent of the Holder of each Outstanding Security of such series affected. Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. Section 514. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, a court may require any party litigant in such suit to file an undertaking to pay the costs of such suit, and may assess costs against any such party litigant, in the manner and to the extent provided in the Trust Indenture Act. ARTICLE SIX "THE TRUSTEE" Section 601. Certain Duties and Responsibilities. The duties and responsibilities of the Trustee shall be as provided by the Trust Indenture Act. Notwithstanding the foregoing, no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section. Section 602. Notice of Defaults. If a default occurs hereunder with respect to Securities of any series, the Trustee shall give the Holders of Securities of such series notice of such default as and to the extent provided by the Trust Indenture Act; provided, however, that in the case of any default of the character specified in Section 501(4) with respect to Securities of such series, no such notice to Holders shall be given until at least 30 days after the occurrence thereof. For the purpose of this Section, the term "default" means any event which is, or after notice or lapse of time or both would become, an Event of Default with respect to Securities of such series. Section 603. Certain Rights of Trustee. Subject to the provisions of Section 601: (a) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution; (c) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate; (d) the Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (e) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee security or indemnity reasonably satisfactory in form and substance to the Trustee against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (f) prior to the occurrence of an Event of Default and after the remedy or waiver of all Events of Default, the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall upon reasonable notice to the Company be entitled to examine the books, records and premises of the Company, personally or by agent or attorney at a time and place acceptable to the Company; and (g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder. Section 604. Not Responsible for Recitals or Issuance of Securities. The recitals contained herein and in the Securities, except the Trustee's certificates of authentication, shall be taken as the statements of the Company, and the Trustee or any Authenticating Agent assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities. The Trustee or any Authenticating Agent shall not be accountable for the use or application by the Company of Securities or the proceeds thereof. Section 605. May Hold Securities. The Trustee, any Authenticating Agent, any Paying Agent, any Security Registrar or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Securities and, subject to Sections 608 and 613, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Authenticating Agent, Paying Agent, Security Registrar or such other agent. Section 606. Money Held in Trust. Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed in writing with the Company. Section 607. Compensation and Reimbursement. The Company agrees (1) to pay to the Trustee from time to time reasonable compensation for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (2) except as otherwise expressly provided herein, to reimburse the Trustee upon its written request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation, and reasonable expenses and disbursements of its agents and outside counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and (3) to indemnify the Trustee for, and to hold it harmless against, any loss, liability or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of the trust or trusts hereunder, including the reasonable costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. To secure the Company's payment obligations in this Section 607, the Trustee shall have a lien prior to the Securities on all assets or money held or collected by the Trustee, in its capacity as Trustee (but not in any other capacity), except assets or money held in trust to pay principal of (premium, if any) or interest on particular Securities. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 5.01(6) or (7) occurs, such expenses and the compensation for such services are intended to constitute expenses of administration under any bankruptcy, insolvency or other similar law. Section 608. Disqualification; Conflicting Interests. If the Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Indenture. Section 609. Corporate Trustee Required; Eligibility. There shall at all times be a Trustee hereunder which shall be a Person that is eligible pursuant to the Trust Indenture Act to act as such and has a combined capital and surplus of at least $50,000,000 or is a subsidiary of a corporation which shall be a Person that has a combined capital and surplus of at least $50,000,000 and which unconditionally guarantees the obligations of the Trustee hereunder. If such Person publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Person shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. Section 610. Resignation and Removal; Appointment of Successor. (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 611. (b) The Trustee may resign at any time with respect to the Securities of one or more series by giving written notice thereof to the Company. If the instrument of acceptance by a successor Trustee required by Section 611 shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series. (c) The Trustee may be removed at any time with respect to the Securities of any series by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series, delivered to the Trustee and to the Company. (d) If at any time: (1) the Trustee shall fail to comply with Section 608 after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months, or (2) the Trustee shall cease to be eligible under Section 609 and shall fail to resign after written request therefor by the Company or by any such Holder, or (3) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, (i) the Company by a Board Resolution may remove the Trustee with respect to all Securities, or (ii) subject to Section 514, any Holder who has been a bona fide Holder of a Security for at least six months may, on behalf of itself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee with respect to all Securities and the appointment of a successor Trustee or Trustees. (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, with respect to the Securities of one or more series, the Company, by a Board Resolution, shall promptly appoint a successor Trustee or Trustees with respect to the Securities of that or those series (it being understood that any such successor Trustee may be appointed with respect to the Securities of one or more or all of such series and that at any time there shall be only one Trustee with respect to the Securities of any particular series) and shall comply with the applicable requirements of Section 611. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee with respect to the Securities of any Series shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment in accordance with the applicable requirements of Section 611, become the successor Trustee with respect to the Securities of such series and to that extent supersede the successor Trustee appointed by the Company. If no successor Trustee with respect to the Securities of any Series shall have been so appointed by the Company or the Holders and accepted appointment in the manner required by Section 611, any Holder who has been a bona fide Holder of a Security of such series for at least six months may, on behalf of itself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series. (f) The Company shall give notice of each resignation and each removal of the Trustee with respect to the Securities of any series and each appointment of a successor Trustee with respect to the Securities of any series to all Holders of Securities of such series in the manner provided in Section 106. Each notice shall include the name of the successor Trustee with respect to the Securities of such series and the address of its Corporate Trust Office. Section 611. Acceptance of Appointment by Successor. (a) In case of the appointment hereunder of a successor Trustee with respect to all Securities, every such successor Trustee so appointed shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on the request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges and all other amounts due it under Section 607, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder, subject nevertheless to its lien, if any, provided for in Section 607. (b) In case of the appointment hereunder of a successor Trustee with respect to the Securities of one or more (but not all) series, the Company, the retiring Trustee and each successor Trustee with respect to the Securities of such series shall execute and deliver an indenture supplemental hereto wherein each successor Trustee shall accept such appointment and which (1) shall contain such provisions as shall be necessary or desirable to transfer the rights, powers, trust and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates, (2) if the retiring Trustee is not retiring with respect to all Securities, shall contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series as to which the retiring Trustee is not retiring shall continue to be vested in the retiring Trustee, and (3) shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustee co-trustees of the same trust and that each such Trustee shall be trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee; and upon the execution and delivery of such supplemental indenture the resignation or removal of the retiring Trustee shall become effective to the extent provided therein and each such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates; but, on request of the Company or any successor Trustee, such retiring Trustee shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder with respect to the Securities of that or those series to which the appointment of such successor Trustee relates, subject nevertheless to its lien, if any, provided for in Section 607. (c) Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts referred to in paragraphs (a) and (b) of this Section, as the case may be. (d) No successor shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article. Section 612. Merger, Conversion, Consolidation or Succession to Business. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities. Section 613. Preferential Collection of Claims Against Company. If and when the Trustee shall be or become a creditor of the Company (or any other obligor upon the Securities), the Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of claims against the Company (or any such other obligor). Section 614. Appointment of Authenticating Agent. The Trustee may with the consent of the Company appoint an Authenticating Agent or Agents with respect to one or more series of Securities which shall be authorized to act on behalf of the Trustee to authenticate Securities of such series issued upon original issue and upon exchange, registration of transfer, partial conversion or partial redemption thereof or pursuant to Section 306, and Securities so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. Wherever reference is made in this Indenture to the authentication and delivery of Securities by the Trustee or the Trustee's certificate of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent and a certificate of authentication executed on behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent shall be acceptable to the Company and shall at all times be a corporation organized and doing business under the laws of the United States of America, any State thereof or the District of Columbia, authorized under such laws to act as Authenticating Agent, having a combined capital and surplus of not less than $50,000,000 and subject to supervision or examination by Federal or State authority. If such Authenticating Agent publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Authenticating Agent shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section. Any corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to the corporate agency or corporate trust business of an Authenticating Agent, shall continue to be an Authenticating Agent, provided such corporation shall be otherwise eligible under this Section, without the execution or filing of any paper or any further act on the part of the Trustee or the Authenticating Agent. An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee and to the Company. The Trustee or the Company may at any time terminate the agency of an Authenticating Agent by giving written notice thereof to such Authenticating Agent and to the Company or the Trustee, as the case may be. Upon receiving such a notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, the Trustee may appoint a successor Authenticating Agent which shall be acceptable to the Company and shall mail written notice of such appointment by first-class mail, postage prepaid, to all Holders of Securities of the series with respect to which such Authenticating Agent will serve, as their names and addresses appear in the Security Register. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section. The Trustee agrees to pay to each Authenticating Agent from time to time reasonable compensation for its services under this Section, and the Trustee shall be entitled to be reimbursed for such payments, subject to the provisions of Section 607. If an appointment with respect to one or more series is made pursuant to this Section, the Securities of such series may have endorsed thereon, in addition to the Trustee's certificate of authentication, an alternative certificate of authentication in the following form: This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. CHEMICAL BANK, As Trustee By________________________________, As Authenticating Agent By________________________________, Authorized Officer ARTICLE SEVEN HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY Section 701. Company to Furnish Trustee Names and Addresses of Holders. The Company will furnish or cause to be furnished to the Trustee (a) semi-annually, not later than 10 days after each Regular Record Date in each year, a list for each series of Securities, in such form as the Trustee may reasonably require, of the names and addresses of the Holders of Securities of such series as of the preceding Regular Record Date, and (b) at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished; provided no such list need be furnished if the Trustee shall be the Security Registrar. Section 702. Preservation of Information; Communications to Holders. (a) The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list furnished to the Trustee as provided in Section 701 and the names and addresses of Holders received by the Trustee in its capacity as Security Registrar. The Trustee may destroy any list furnished to it as provided in Section 701 upon receipt of a new list so furnished. (b) The rights of the Holders to communicate with other Holders with respect to their rights under this Indenture or under the Securities, and the corresponding rights and privileges of the Trustee, shall be as provided by the Trust Indenture Act. (c) Every Holder of Securities, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of either of them shall be held accountable by reason of any disclosure of information as to names and addresses of Holders made pursuant to the Trust Indenture Act. Section 703. Reports by Trustee. (a) The Trustee shall transmit to Holders such reports concerning the Trustee and its actions under this Indenture as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant thereto. To the extent that any such report is required by the Trust Indenture Act with respect to any 12 month period, such report shall cover the 12 month period ending May 15 and shall be transmitted by the next succeeding July 15. (b) A copy of each such report shall, at the time of such transmission to Holders, be filed by the Trustee with each stock exchange upon which any Securities are listed, with the Commission and with the Company. The Company will notify the Trustee when any Securities are listed on any stock exchange. Section 704. Reports by Company. The Company shall file with the Trustee and the Commission, and transmit to Holders, such information, documents and other reports, and such summaries thereof, as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant to such Act; provided that any such information, documents or reports required to be filed with the Commission pursuant to Section 13 or 15(d) of the Exchange Act shall be filed with the Trustee within 15 days after the same is so required to be filed with the Commission. ARTICLE EIGHT CONSOLIDATION, MERGER, OR SALE OF ASSETS Section 801. Company May Consolidate, Etc., Only on Certain Terms. The Company shall not consolidate with or merge into any other Person or convey, transfer, lease or sell its properties and assets as, or substantially as, an entirety to any Person, and the Company shall not permit any Person to consolidate with or merge into the Company, unless: (1) in case the Company shall consolidate with or merge into another Person or convey, transfer, lease or sell its properties and assets as, or substantially, as an entirety to any Person, the Person formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance, transfer, lease or sale the properties and assets of the Company as, or substantially as, an entirety shall be a corporation, partnership or trust, shall be organized and validly existing under the laws of the United States of America, any State thereof or the District of Columbia and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, all of the obligations of the Company under the Securities, including without limitation, the due and punctual payment of the principal of and any premium and interest on all the Securities and the performance or observance of every covenant of this Indenture on the part of the Company to be performed or observed and the conversion rights, if any, shall be provided for in accordance with Article Twelve, by supplemental indenture satisfactory in form to the Trustee, executed and delivered to the Trustee, by the Person (if other than the Company) formed by such consolidation or into which the Company shall have been merged or by the corporation which shall have acquired or leased the Company's assets; (2) immediately after giving effect to such transaction, no Event of Default shall have happened and be continuing; and (3) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, or conveyance, transfer, lease or sale and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture comply with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with. For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise) of the properties and assets of United States Fidelity and Guaranty Company (other than to the Company or another Subsidiary), which, if such assets were owned by the Company, would constitute all or substantially all of the properties and assets of the Company, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company. Section 802. Successor Substituted. Upon any consolidation of the Company with, or merger of the Company into, any other Person or any sale of the properties and assets of the Company as, or substantially as, an entirety in accordance with Section 801, the successor Person formed by such consolidation or into which the Company is merged or to which such sale is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein, and thereafter, the predecessor Person shall be relieved of all obligations and covenants under this Indenture and the Securities. ARTICLE NINE SUPPLEMENTAL INDENTURES Section 901. Supplemental Indentures Without Consent of Holders. Without the consent of any Holders, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes: (1) to evidence the succession of another Person to the Company and the assumption by any such successor of the covenants of the Company herein and in the Securities; or (2) to add to the covenants of the Company for the benefit of the Holders of all or any series of Securities (and if such covenants are to be for the benefit of less than all series of Securities, stating that such covenants are expressly being included solely for the benefit of such series) or to surrender any right or power herein conferred upon the Company; or (3) to add any additional Events of Default; or (4) to add to or change any of the provisions of this Indenture to such extent as shall be necessary to permit or facilitate the issuance of Securities in bearer form, registrable or not registrable as to principal, and with or without interest coupons, or to permit or facilitate the issuance of Securities in uncertificated form, or to permit or facilitate the issuance of Original Issue Discount Securities; or (5) to add to, change or eliminate any of the provisions of this Indenture in respect of one or more series of Securities, including, without limitation, with respect to any of the provisions set forth in Article Fifteen, provided that any such addition, change or elimination (i) shall neither (A) apply to any Security of any series created prior to the execution of such supplemental indenture and entitled to the benefit of such provision nor (B) modify the rights of the Holder of any such Security with respect to such provision or (ii) shall become effective only when there is no such Security Outstanding; or (6) to secure the Securities pursuant to the requirements of Section 1005, or to otherwise secure the Securities of any series; or (7) to establish the form or terms of Securities of any series as permitted by Sections 201 and 301; or (8) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Securities of one or more series and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, pursuant to the requirements of Section 611(b); or (9) to cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture, provided that such action pursuant to this clause (9) shall not adversely affect the interests of the Holders of Securities of any series in any material respect; or (10) to make provision with respect to the conversion rights of Holders pursuant to the requirements of Article Twelve, including providing for the conversion of the securities into any security (other than the Common Stock of the Company) or property of the Company; or (11) to conform to any mandatory provisions of law. Section 902. Supplemental Indentures with Consent of Holders. With the consent of the Holders of not less than a majority of principal amount of the Outstanding Securities of each series affected by such supplemental indenture, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders of Securities of such series under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Security affected thereby, (1) change the Stated Maturity of the principal of, or any instalment of principal of or interest on, any Security, or reduce the principal amount thereof or the rate of interest thereon (including any change in the Floating or Adjustable Rate Provision pursuant to which such rate is determined that would reduce such rate for any period) or any premium payable upon the redemption thereof, or reduce the amount of the principal of an Original Issue Discount Security that would be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 502, or change any Place of Payment where, or the coin or currency in which, any Security or any premium or interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date), or modify the provisions of this Indenture with respect to the subordination of the Securities of any series in a manner adverse to the Holders, or (2) reduce the percentage in principal amount of the Outstanding Securities of any series, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver (of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in this Indenture, or (3) if applicable, make any change that adversely affects the right to convert any security to which the provisions of Article Twelve are applicable or, except as provided in this Indenture, decrease the conversion rate or increase the conversion price of any such security, or (4) modify any of the provisions of this Section, Section 513 or Section 907, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Security affected thereby, provided, however, that this clause shall not be deemed to require the consent of any Holder with respect to changes in the references to "the Trustee" and concomitant changes in this Section and Section 907, or the deletion of this proviso, in accordance with the requirements of Sections 611(b) and 901(8). A supplemental indenture which changes or eliminates any covenant or other provision of this Indenture which has expressly been included solely for the benefit of one or more particular series of Securities, or which modifies the rights of the Holders of Securities of such series with respect to such covenant or other provision, shall be deemed not to affect the rights under this Indenture of the Holders of Securities of any other series. It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. Section 903. Execution of Supplemental Indentures. In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 601) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture and, to the extent that such supplemental indenture establishes the form or terms of Securities of any series, covering the matters that would be included in the Opinion of Counsel described in Section 303 if such Securities were established by Board Resolution. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. Section 904. Effect of Supplemental Indentures. Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. Section 905. Conformity with Trust Indenture Act. Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act. Section 906. Reference in Securities to Supplemental Indentures. Securities of any series authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities of any series so modified as to conform, in the opinion of the Trustee and the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities of such series. Section 907. Waiver of Compliance by Holders. Anything in this Indenture to the contrary notwithstanding, any of the acts which the Company is required to do, or is prohibited from doing, by any of the provisions of this Indenture may, to the extent that such provisions might be changed or eliminated by a supplemental indenture pursuant to Section 902 upon consent of holders of not less than a majority in aggregate principal amount of the then Outstanding Securities of the series affected, be omitted or done by the Company, if there is obtained the prior consent or waiver of the holders of at least a majority in aggregate principal amount of the then Outstanding Securities of such series. Section 908. Subordination Unimpaired. No provision in any supplemental indenture that affects the superior position of the holders of Senior Debt shall be effective against holders of Senior Debt. ARTICLE TEN COVENANTS Section 1001. Payment of Principal, Premium and Interest. The Company covenants and agrees for the benefit of each series of Securities that it will duly and punctually pay or cause to be paid the principal of and any premium and interest on the Securities of that series in accordance with the terms of the Securities and this Indenture. Section 1002. Maintenance of Office or Agency. So long as any Securities are Outstanding, the Company will maintain in each Place of Payment for any series of Securities an office or agency where Securities of that series may be presented or surrendered for payment, where Securities of that series may be surrendered for registration of transfer or exchange, where Securities of that series may be surrendered for conversion and where notices and demands to or upon the Company in respect of the Securities of that series and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands. The Company may also from time to time designate one or more other offices or agencies where the Securities of one or more series may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in each Place of Payment for Securities of any series for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. Section 1003. Money for Securities Payments to Be Held in Trust. If the Company shall at any time act as its own Paying Agent with respect to any series of Securities, it will, on or before each due date of the principal of or any premium or interest on any of the Securities of that series, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal and any premium and interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and will promptly notify the Trustee of its action or failure so to act. Whenever the Company shall have one or more Paying Agents for any series of Securities, it will, on or prior to each due date of the principal of or any premium or interest on any Securities of that series, deposit with a Paying Agent a sum sufficient to pay such amount, such sum to be held as provided by the Trust Indenture Act, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its action or failure so to act. The Company will cause each Paying Agent for any series of Securities other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will (i) comply with the provisions of the Trust Indenture Act applicable to it as a Paying Agent and (ii) during the continuance of any default by the Company (or any other obligor upon the Securities of that series) in the making of any payment in respect of the Securities of that series, and upon the written request of the Trustee, forthwith pay to the Trustee all sums held in trust by such Paying Agent for payment in respect of the Securities of that series. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of or any premium or interest on any Security of any series and remaining unclaimed for two years after such principal, premium or interest has become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company mail to all Holders or cause to be published once, in a newspaper published in the English language, customarily published on each Business Day and of general circulation in the Borough of Manhattan, the City of New York, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such mailing or publication, any unclaimed balance of such money then remaining will be repaid to the Company. Section 1004. Statement by Officers as to Default. The Company will deliver to the Trustee within 120 days after the end of each fiscal year (which as of the date hereof is December 31) of the Company ending after the date hereof, a certificate signed by the Company's principal executive officer, principal financial officer or principal accounting officer stating whether or not to the best knowledge of the signer thereof the Company is in compliance with all terms, conditions and covenants of this Indenture (without regard to any period of grace or requirement of notice provided hereunder) and if the signer has obtained knowledge of any continuing default by the Company in the performance, observation or fulfillment of any such term, condition or covenant, specifying each such default and the nature thereof. Section 1005. Limitations on Liens on Common Stock of Principal Insurance Subsidiaries. As long as any of the Securities remains outstanding, the Company will not, and will not permit any Principal Insurance Subsidiary to, issue, assume, incur or guarantee any indebtedness for borrowed money secured by a mortgage, pledge, lien or other encumbrance, directly or indirectly, on any of the Common Stock of a Principal Insurance Subsidiary, which Common Stock is owned by the Company or by any Principal Insurance Subsidiary, unless the Securities and, if the Company so elects, any other indebtedness of the Company ranking on a parity with the Securities, shall be secured equally and ratably with, or prior to, such secured indebtedness for borrowed money so long as it is outstanding. ARTICLE ELEVEN REDEMPTION OF SECURITIES Section 1101. Applicability of Article. Securities of any series which are redeemable before their Stated Maturity shall be redeemable in accordance with their terms and (except as otherwise specified as contemplated by Section 301 for Securities of any series) in accordance with this Article. Section 1102. Election to Redeem; Notice to Trustee. In case of any redemption at the election of the Company of less than all the Securities of any series, the Company shall, at least 60 days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date, of the principal amount of Securities of such series to be redeemed and, if applicable, of the tenor of the Securities to be redeemed. In the case of any redemption of Securities prior to the expiration of any restriction on such redemption provided in the terms of such Securities or elsewhere in this Indenture, the Company shall furnish the Trustee with an Officers' Certificate evidencing compliance with such restriction. Section 1103. Selection by Trustee of Securities to Be Redeemed. If less than all the Securities of any series are to be redeemed (unless all of the Securities of such series and of a specified tenor are to be redeemed), the particular Securities to be redeemed shall be selected not more than 45 days prior to the Redemption Date by the Trustee, from the Outstanding Securities of such series not previously called for redemption, by such method as the Trustee shall deem fair and appropriate and which may provide for the selection for redemption of portions (equal to the minimum authorized denomination for Securities of that series or any integral multiple thereof) of the principal amount of Securities of such series of a denomination larger than the minimum authorized denomination for Securities of that series. If less than all of the Securities of such series and of a specified tenor are to be redeemed, the particular Securities to be redeemed shall be selected not more than 45 days prior to the Redemption Date by the Trustee, from the Outstanding Securities of such series and specified tenor not previously called for redemption in accordance with the preceding sentence. If any Security selected for partial redemption is converted in part before termination of the conversion right with respect to the portion of the Security so selected, the converted portion of such Security shall be deemed (so far as may be) to be the portion selected for redemption. Securities which have been converted during a selection of Securities to be redeemed shall be treated by the Trustee as Outstanding for the purpose of such selection. The Trustee shall promptly notify the Company in writing of the Securities selected for redemption and, in the case of any Securities selected for partial redemption, the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Securities redeemed or to be redeemed only in part, to the portion of the principal amount of such Securities which has been or is to be redeemed. Notice of Redemption. Notice of redemption shall be given by first-class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption Date, to each Holder of Securities to be redeemed, at its address appearing in the Security Register. All notices of redemption shall state: (1) the Redemption Date, (2) the Redemption Price, (3) if less than all the Outstanding Securities of any series are to be redeemed, the identification (and, in the case of partial redemption of any Securities, the principal amounts) of the particular Securities to be redeemed, (4) that on the Redemption Date the Redemption Price will become due and payable upon each such Security to be redeemed and, if applicable, that interest thereon will cease to accrue on and after said date, (5) if applicable, the conversion price, and that the date on which the right to convert the principal of the Securities or the portions thereof to be redeemed will terminate will be the Redemption Date and the place or places where such Securities may be surrendered for conversion, (6) the place or places where such Securities are to be surrendered for payment of the Redemption Price, and (7) that the redemption is for a sinking fund, if such is the case. Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company. Section 1105. Deposit of Redemption Price. On or prior to any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 1003) an amount of money sufficient to pay the Redemption Price of, and (except if the Redemption Date shall be an Interest Payment Date) accrued interest on, all the Securities which are to be redeemed on that date, other than any Securities called for redemption on that date which have been converted prior to the date of such deposit. If any Security or portion thereof called for redemption is converted, any money deposited with the Trustee or with any Paying Agent or so segregated and held in trust for the redemption of such Security or portion thereof shall (subject to any right of the Holder of such Security or any Predecessor Security to receive interest as provided in the last paragraph of Section 307) be paid to the Company upon Company Request or, if then held by the Company, shall be discharged from such trust. Section 1106. Securities Payable on Redemption Date. Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified, and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued interest) such Securities shall cease to bear interest. Upon surrender of any such Security for redemption in accordance with said notice, such Security shall be paid by the Company at the Redemption Price, together with accrued interest to the Redemption Date; provided, however, that, unless otherwise specified as contemplated by Section 301, installments of interest whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Record Dates according to their terms and the provisions of Section 307. If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal and any premium shall, until paid, bear interest from the Redemption Date at the rate prescribed therefor in the Security. Section 1107. Securities Redeemed in Part. Any Security which is to be redeemed only in part shall be surrendered at a Place of Payment therefor (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Security or Securities of the same series and of like tenor, of any authorized denomination as requested by such Holder, in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Security so surrendered. ARTICLE TWELVE CONVERSION OF SECURITIES Section 1201. Applicability of Article. The provisions of this Article shall be applicable to the Securities of any series which are convertible into shares of Common Stock of the Company, and the issuance of such shares of Common Stock upon the conversion of such Securities, except as otherwise specified as contemplated by Section 301 for the Securities of such series. Section 1202. Exercise of Conversion Privilege. In order to exercise a conversion privilege, the Holder of a Security of a series with such a privilege shall surrender such Security to the Company at the office or agency maintained for that purpose pursuant to Section 1002, accompanied by written notice to the Company that the Holder elects to convert such Security or a specified portion thereof. Such notice shall also state, if different from the name and address of such Holder, the name or names (with address) in which the certificate or certificates for shares of Common Stock which shall be issuable on such conversion shall be issued. Securities surrendered for conversion shall (if so required by the Company or the Trustee) be duly endorsed by or accompanied by instruments of transfer in forms satisfactory to the Company and the Trustee duly executed by the registered Holder or its attorney duly authorized in writing; and Securities so surrendered for conversion during the period from the close of business on any Regular Record Date to the opening of business on the next succeeding Interest Payment Date (excluding Securities or portions thereof called for redemption during such period) shall also be accompanied by payment in funds acceptable to the Company of an amount equal to the interest payable on such Interest Payment Date on the principal amount of such Security then being converted, and such interest shall be payable to such registered Holder notwithstanding the conversion of such Security, subject to the provisions of Section 307 relating to the payment of Defaulted Interest by the Company. As promptly as practicable after the receipt of such notice and of any payment required pursuant to a Board Resolution and, subject to Section 303, set forth, or determined in the manner provided, in an Officers' Certificate, or established in one or more indentures supplemental hereto setting forth the terms of such series of Security, and the surrender of such Security in accordance with such reasonable regulations as the Company may prescribe, the Company shall issue and shall deliver, at the office or agency at which such Security is surrendered, to such Holder or on its written order, a certificate or certificates for the number of full shares of Common Stock issuable upon the conversion of such Security (or specified portion thereof), in accordance with the provisions of such Board Resolution, Officers' Certificate or supplemental indenture, and cash as provided therein in respect of any fractional share of such Common Stock otherwise issuable upon such conversion. Such conversion shall be deemed to have been effected immediately prior to the close of business on the date on which such notice and such payment, if required, shall have been received in proper order for conversion by the Company and such Security shall have been surrendered as aforesaid (unless such Holder shall have so surrendered such Security and shall have instructed the Company to effect the conversion on a particular date following such surrender and such Holder shall be entitled to convert such Security on such date, in which case such conversion shall be deemed to be effected immediately prior to the close of business on such date) and at such time the rights of the Holder of such Security as such Security Holder shall cease and the person or persons in whose name or names any certificate or certificates for shares of Common Stock of the Company shall be issuable upon such conversion shall be deemed to have become the Holder or Holders of record of the shares represented thereby. Except as set forth above and subject to the final paragraph of Section 307, no payment or adjustment shall be made upon any conversion on account of any interest accrued on the Securities surrendered for conversion or on account of any dividends on the Common Stock of the Company issued upon such conversion. In the case of any Security which is converted in part only, upon such conversion the Company shall execute and the Trustee shall authenticate and deliver to or on the order of the Holder thereof, at the expense of the Company, a new Security or Securities of the same series, of authorized denominations, in aggregate principal amount equal to the unconverted portion of such Security. Section 1203. No Fractional Shares. No fractional share of Common Stock of the Company shall be issued upon conversions of Securities of any series. If more than one Security shall be surrendered for conversion at one time by the same Holder, the number of full shares which shall be issuable upon conversion shall be computed on the basis of the aggregate principal amount of the Securities (or specified portions thereof to the extent permitted hereby) so surrendered. If, except for the provisions of this Section 1203, any Holder of a Security or Securities would be entitled to a fractional share of Common Stock of the Company upon the conversion of such Security or Securities, or specified portions thereof, the Company shall pay to such Holder an amount in cash equal to the current market value of such fractional share computed, (i) if such Common Stock is listed or admitted to unlisted trading privileges on a national securities exchange, on the basis of the last reported sale price regular way on such exchange on the last trading day prior to the date of conversion upon which such a sale shall have been effected, or (ii) if such Common Stock is not at the time so listed or admitted to unlisted trading privileges on a national securities exchange, on the basis of the average of the bid and asked prices of such Common Stock in the over-the-counter market, on the last trading day prior to the date of conversion, as reported by the National Association of Securities Dealers Automated Quotation System, or if not so available, the fair market price as determined by the Board of Directors. For purposes of this Section, "trading day" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday other than any day on which the Common Stock is not traded on the New York Stock Exchange, or if the Common Stock is not traded on the New York Stock Exchange, on the principal exchange or market on which the Common Stock is traded or quoted. Section 1204. Adjustment of Conversion Price. The conversion price of Securities of any series that is convertible into Common Stock of the Company shall be adjusted for any stock dividends, stock splits, reclassification, combinations or similar transactions in accordance with the terms of the supplemental indenture or Board Resolutions setting forth the terms of the Securities of such series. Whenever the conversion price is adjusted, the Company shall compute the adjusted conversion price in accordance with terms of the applicable Board Resolution or supplemental indenture and shall prepare an Officers' Certificate setting forth the adjusted conversion price and showing in reasonable detail the facts upon which such adjustment is based, and such certificate shall forthwith be filed at each office or agency maintained for the purpose of conversion of Securities pursuant to Section 1002 and, if different, with the Trustee. The Company shall forthwith cause a notice setting forth the adjusted conversion price to be mailed, first class postage prepaid, to each Holder of Securities of such series at its address appearing on the Security Register and to any conversion agent other than the Trustee. Section 1205. Notice of Certain Corporate Actions. In case: (a) the Company shall declare a dividend (or any other distribution) on its Common Stock (other than dividends or distributions which will not require an adjustment of the conversion price of Securities of any series pursuant to Section 1204); or (b) the Company shall authorize the granting to the holders of its Common Stock of rights, options or warrants to subscribe for or purchase any shares of capital stock of any class or of any other rights (other than any such grant for which approval of any shareholders of the Company is required or which will not require an adjustment of the conversion price of Securities of any series pursuant to Section 1204); or (c) of any reclassification of the Common Stock of the Company (other than a subdivision or combination of its outstanding shares of Common Stock, or any consolidation, merger or share exchange to which the Company is a party and for which approval of any shareholders of the Company is required or which will not require an adjustment of the conversion price of Securities of any series pursuant to Section 1204), or of the sale of all or substantially all of the assets of the Company; or (d) of the voluntary or involuntary dissolution, liquidation or winding up of the Company; then the Company shall cause to be filed with the Trustee, and shall cause to be mailed to all Holders at their last addresses as they shall appear in the Securities Register, at least 20 days (or 10 days in any case specified in clause (a) or (b) above) prior to the applicable record date hereinafter specified, a notice stating (i) the date on which a record is to be taken for the purpose of such dividend, distribution, rights, options or warrants, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, rights, options or warrants are to be determined, or (ii) the date on which such reclassification, consolidation, merger, share exchange, sale, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, share exchange, sale, dissolution, liquidation or winding up. If at any time the Trustee shall not be the conversion agent, a copy of such notice shall also forthwith be filed by the Company with the conversion agent. Section 1206. Reservation of Shares of Common Stock. The Company shall at all times reserve and keep available, free from preemptive rights, out of its authorized but unissued Common Stock, for the purpose of effecting the conversion of Securities, the full number of shares of Common Stock of the Company then issuable upon the conversion of all outstanding Securities of any series that have conversion rights. Section 1207. Payment of Certain Taxes Upon Conversion. The Company will pay any and all taxes that may be payable in respect of the issue or delivery of shares of its Common Stock on conversion of Securities pursuant hereto. The Company shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of its Common Stock in a name other than that of the Holder of the Security or Securities to be converted, and no such issue or delivery shall be made unless and until the person requesting such issue has paid to the Company the amount of any such tax, or has established, to the satisfaction of the Company, that such tax has been paid. Section 1208. Nonassessability. The Company covenants that all shares of its Common Stock which may be issued upon conversion of Securities will upon issue in accordance with the terms hereof be duly and validly issued and fully paid and nonassessable. Section 1209. Effect of Consolidation or Merger on Conversion Privilege. In case of any consolidation of the Company with, or merger of the Company into or with any other Person, or in the case of a statutory share exchange to which the Company is a party or in case of any sale or conveyance of all or substantially all of the properties or assets of the Company (including cash), the Company or the Person formed by such consolidation or the Person into which the Company shall have been merged or the Person which shall have acquired such assets, or the surviving entity in such share exchange, as the case may be, shall execute and deliver to the Trustee a supplemental indenture providing that the Holder of each Security then outstanding of any series that is convertible into Common Stock of the Company shall have the right, which right shall be the exclusive conversion right thereafter available to said Holder (until the expiration of the conversion right of such Security), to convert such Security into the kind and amount of shares of stock or other securities or property (including cash) receivable upon such consolidation, merger, share exchange, conveyance or sale by a holder of the number of shares of Common Stock of the Company into which such Security might have been converted immediately prior to such consolidation, merger, share exchange, conveyance or sale, subject to compliance with the other provisions of this Indenture, such Security and such supplemental indenture. Such supplemental indenture shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in such Security. The above provisions of this Section shall similarly apply to successive consolidations, mergers, share exchanges, conveyances or sales. It is expressly agreed and understood that anything in this Indenture to the contrary notwithstanding, if, pursuant to such merger, consolidation, share exchange, conveyance or sale, holders of outstanding shares of Common Stock of the Company do not receive shares of common stock of the surviving corporation but receive other securities, cash or other property or any combination thereof, Holders of Securities shall not have the right to thereafter convert their Securities into common stock of the surviving corporation or the corporation which shall have acquired such assets, but rather, shall have the right upon such conversion to receive the other securities, cash or other property receivable by a holder of the number of shares of Common Stock of the Company into which the Securities held by such holder might have been converted immediately prior to such consolidation, merger, share exchange, conveyance or sale, all as more fully provided in the first sentence of this Section 1209. Anything in this Section 1209 to the contrary notwithstanding, the provisions of this Section 1209 shall not apply to a merger or consolidation of another corporation with or into the Company or any share exchange to which the Company is a party pursuant to which both of the following conditions are applicable: (i) the Company is the surviving or successor corporation and (ii) the outstanding shares of Common Stock of the Company are not changed or converted into any other securities or property (including cash) or changed in number or character or reclassified pursuant to the terms of such merger, consolidation or share exchange. As evidence of the kind and amount of shares of stock or other securities or property (including cash) into which Securities may properly be convertible after any such consolidation, merger, share exchange, conveyance or sale, or as to the appropriate adjustments of the conversion prices applicable with respect thereto, the Trustee shall be furnished with and may accept the certificate or opinion of an independent certified public accountant with respect thereto; and, in the absence of bad faith on the part of the Trustee, the Trustee may conclusively rely thereon, and shall not be responsible or accountable to any Holder of Securities for any provision in conformity therewith or approved by such independent certified accountant which may be contained in said supplemental indenture. Section 1210. Duties of Trustee Regarding Conversion. Neither the Trustee nor any conversion agent shall at any time be under any duty or responsibility to any Holder of Securities of any series that is convertible into Common Stock of the Company to determine whether any facts exist which may require any adjustment of the conversion price, or with respect to the nature or extent of any such adjustment when made, or with respect to the method employed, whether herein or in any supplemental indenture, any resolutions of the Board of Directors or written instrument executed by one or more officers of the Company provided to be employed in making the same. Neither the Trustee nor any conversion agent shall be accountable with respect to the validity or value (or the kind or amount) of any shares of Common Stock of the Company, or of any securities or property, which may at any time be issued or delivered upon the conversion of any Securities and neither the Trustee nor any conversion agent makes any representation with respect thereto. Subject to the provisions of Section 601, neither the Trustee nor any conversion agent shall be responsible for any failure of the Company to issue, transfer or deliver any shares of its Common Stock or stock certificates or other securities or property upon the surrender of any Security for the purpose of conversion or to comply with any of the covenants of the Company contained in this Article Twelve or in the applicable supplemental indenture, resolutions of the Board of Directors or written instrument executed by one or more duly authorized officers of the Company. Section 1211. Repayment of Certain Funds Upon Conversion. Any funds which at any time shall have been deposited by the Company or on its behalf with the Trustee or any other paying agent for the purpose of paying the principal of, and premium, if any, and interest, if any, on any of the Securities (including funds deposited for the sinking fund referred to in Article Three hereof) and which shall not be required for such purposes because of the conversion of such Securities as provided in this Article Twelve shall after such conversion be repaid to the Company by the Trustee upon the Company's written request. ARTICLE THIRTEEN DEFEASANCE AND COVENANT DEFEASANCE Section 1301. Company's Option to Effect Defeasance or Covenant Defeasance. The Company may elect, at any time, to have either Section 1302 or Section 1303 applied to the Outstanding Securities of any series, upon compliance with the conditions set forth below in this Article Thirteen. Section 1302. Defeasance and Discharge. Upon the Company's exercise of the option provided in Section 1301 to have this Section 1302 applied to the Outstanding Securities of any series, the Company shall be deemed to have been discharged from its obligations, and the provisions of Article Fifteen shall cease to be effective, with respect to the Outstanding Securities of such series as provided in this Section on and after the date the conditions set forth in Section 1304 are satisfied (hereinafter called "Defeasance"). For this purpose, such Defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by the Outstanding Securities of such series and to have satisfied all its other obligations under the Securities of such series and this Indenture insofar as the Securities of such series are concerned (and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the same), subject to the following which shall survive until otherwise terminated or discharged hereunder: (1) the rights of Holders of Securities of such series to receive, solely from the trust fund described in Section 1304 and as more fully set forth in such Section, payments in respect of the principal of and any premium and interest on such Securities of such series when payments are due, (2) the Company's obligations with respect to the Securities of such series under Sections 304, 305, 306, 1002 and 1003, (3) the rights, powers, trusts, duties and immunities of the Trustee hereunder, including, without limitation, its rights under Section 607 and (4) this Article Thirteen. Subject to compliance with this Article Thirteen, the Company may exercise its option provided in Section 1301 to have this Section 1302 applied to the Outstanding Securities of any series notwithstanding the prior exercise of its option provided in Section 1301 to have Section 1303 applied to the Outstanding Securities of such series. Section 1303. Covenant Defeasance. Upon the Company's exercise of the option provided in Section 1301 to have this Section 1303 applied to the outstanding Securities of any series, (1) the Company shall be released from its obligations under Section 1005 and Section 801 and any provision of a supplemental indenture specified for release pursuant to the terms thereof and (2) the occurrence of any event specified in Sections 501(3), 501(4) (with respect to Section 1005 and Section 801) and 501(5) shall be deemed not to be or result in an Event of Default, and (3) the provisions of Article Fifteen shall cease to be effective, in each case with respect to the Outstanding Securities of such series as provided in this Section on and after the date the conditions set forth in Section 1304 are satisfied (hereinafter called "Covenant Defeasance"). For this purpose, such Covenant Defeasance means that the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such specified Section (to the extent so specified in the case of Section 501(4)), whether directly or indirectly by reason of any reference elsewhere herein to any such Section or by reason of any reference in any such Section to any other provision herein or in any other document, but the remainder of this Indenture and the Securities of such series shall be unaffected thereby. Section 1304. Conditions to Defeasance or Covenant Defeasance. The following shall be the conditions to application of either Section 1302 or Section 1303 to the Outstanding Securities of any series: (1) The Company shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee that satisfies the requirements contemplated by Section 609 and agrees to comply with the provisions of this Article Thirteen applicable to it) as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of Outstanding Securities of such series, (A) in the case of Securities of such series denominated in U.S. dollars, (i) money in an amount, or (ii) U.S. Government Obligations that through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than one day before the due date of any payment, money in an amount, or (iii) a combination thereof, in each case sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee (or any such other qualifying trustee) to pay and discharge, the principal of and any premium and interest on the Securities of such series on the respective Stated Maturities, in accordance with the terms of this Indenture and the Securities of such series. As used herein, "U.S. Government Obligation" means (x) any security that is (i) a direct obligation of the United States of America for the payment of which full faith and credit of the United States of America is pledged or (ii) an obligation of a Person controlled or supervised by and acting as an agency or instrumentality for the United States of America the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case (i) or (ii), is not callable or redeemable at the option of the issuer thereof, and (y) any depositary receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act of 1933, as amended) as custodian with respect to any specific payment of principal of or interest on any such U.S. Government Obligation specified in Clause (x) and held by such custodian for the account of the holder of such depositary receipt, or with respect to any specific payment of principal of or interest on any such U.S. Government Obligation, provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the Holder of such depositary receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of principal or interest evidenced by such depositary receipt; or (B) in the case of Securities of such series denominated in a currency other than the U.S. dollar, (i) money in such currency in an amount, or (ii) Foreign Government Obligations that through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than one day before the due date of any payment, money in such currency in an amount, or (iii) a combination thereof, in each case sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee (or any such other qualifying trustee) to pay and discharge, the principal of and any premium and interest on the Securities of such series on the respective Stated Maturities, in accordance with the terms of this Indenture and the Securities of such series. As used herein, "Foreign Government Obligation" means (x) any security that is (i) a direct obligation of the government that issued such currency for the payment of which full faith and credit of such government is pledged or (ii) an obligation of a Person controlled or supervised by and acting as an agency or instrumentality for such government the payment of which is unconditionally guaranteed as a full faith and credit obligation by such government, which, in either case (i) or (ii), is not callable or redeemable at the option of the issuer thereof, and (y) any depositary receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act of 1933, as amended) as custodian with respect to any specific payment of principal of or interest on any such Foreign Government Obligation specified in Clause (x) and held by such custodian for the account of the holder of such depositary receipt, or with respect to any specific payment of principal of or interest on any such Foreign Government Obligation, provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the Holder of such depositary receipt from any amount received by the custodian in respect of the Foreign Government Obligation or the specific payment of principal or interest evidenced by such depositary receipt. (2) In the case of an election under Section 1302, the Company shall have delivered to the Trustee an Opinion of Counsel stating that the Holders of the Outstanding Securities of such series will not recognize gain or loss for Federal income tax purposes as a result of the deposit, Defeasance and discharge to be effected with respect to the Securities of such series and will be subject to Federal income tax on the same amount, in the same manner and at the same times as would be the case if such deposit, Defeasance and discharge were not to occur. (3) In the case of an election under Section 1303, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holder of the Outstanding Securities of such series will not recognize gain or loss for Federal income tax purposes as result of the deposit and Covenant Defeasance to be effected with respect to the Securities of such series and will be subject to Federal income tax on the same amount, in the same manner and at the same times as would be the case if such deposit and Covenant Defeasance were not to occur. (4) The Company shall have delivered to the Trustee an Officers' Certificate to the effect that the Securities of such series, if then listed on any securities exchange, will not be delisted as a result of such deposit. (5) No Event of Default or event that (after notice or lapse of time or both) would become an Event of Default shall have occurred and be continuing at the time of such deposit or, with regard to any Event of Default or any such event specified in Sections 501(6) and 501(7), at any time on or prior to the 90th day after the date of such deposit (it being understood that this condition shall not be deemed satisfied until after such 90th day). (6) The Company shall have delivered to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that all conditions precedent with respect to such Defeasance or Covenant Defeasance have been complied with. (7) Such Defeasance or Covenant Defeasance shall not result in the trust arising from such deposit constituting an investment company within the meaning of the Investment Company Act of 1940, as amended, unless such trust shall be qualified under such Act or exempt from regulation thereunder. (8) At the time of such deposit: (A) no default in the payment of principal of (or premium, if any) or interest on any Senior Debt shall have occurred and be continuing or (B) no other event of default with respect to any Senior Debt shall have occurred and be continuing and shall have resulted in such Senior Debt becoming or being declared due and payable prior to the date on which it would otherwise have become due and payable, or, in the case of either Clause (A) or Clause (B) above, each such default or event of default shall have been cured or waived or shall have ceased to exist. Section 1305. Deposited Money and U.S. Government Obligations or Foreign Government Obligations to be Held In Trust; Other Miscellaneous Provisions. Subject to the provisions of the last paragraph of Section 1003, all money and U.S. Government Obligations or Foreign Government Obligations (including the proceeds thereof) deposited with the Trustee or other qualifying trustee (solely for purposes of this Section and Section 1306, the Trustee and any such other trustee are referred to collectively as the "Trustee") pursuant to Section 1304 in respect of the Securities of any Defeasible Series shall be held in trust and applied by the Trustee, in accordance with the provisions of the Securities of such series and this Indenture, to the payment, either directly or through any such Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Holders of Securities of such series, of all sums due and to become due thereon in respect of principal and any premium and interest, but money so held in trust need not be segregated from other funds except to the extent required by law. Money so held in trust shall not be subject to the provisions of Article Fifteen. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the U.S. Government Obligations or Foreign Government Obligations deposited pursuant to Section 1304 or the principal and interest received in respect thereof. Anything in this Article Thirteen to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon Company Request any money or U.S. Government Obligations or Foreign Government Obligations held by it as provided in Section 1304 with respect to Securities of any Defeasible Series that, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Defeasance or Covenant Defeasance with respect to the Securities of such series. Section 1306. Reinstatement. If the Trustee or the Paying Agent is unable to apply any money in accordance with this Article Thirteen with respect to the Securities of any series by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's obligations under this Indenture and the Securities of such series shall be revived and reinstated as though no deposit had occurred pursuant to this Article Thirteen with respect to Securities of such series until such time as the Trustee or Paying Agent is permitted to apply all money held in trust pursuant to Section 1305 with respect to Securities of such series in accordance with this Article Thirteen; provided, however, that if the Company makes any payment of principal of or any premium or interest on any Security of such series following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of Securities of such series to receive such payment from the money so held in trust. ARTICLE FOURTEEN SINKING FUNDS Section 1401. Applicability of Article. The provisions of this Article shall be applicable to any sinking fund for the retirement of Securities of a series except as otherwise specified as contemplated by Section 301 for Securities of such series. The minimum amount of any sinking fund payment provided for by the terms of Securities of any series is herein referred to as a "mandatory sinking fund payment", and any payment in excess of such minimum amount provided for by the terms of Securities of any series is herein referred to as an "optional sinking fund payment". If provided for by the terms of Securities of any series, the cash amount of any sinking fund payment may be subject to reduction as provided in Section 1402. Each sinking fund payment shall be applied to the redemption of Securities of any series as provided for by the terms of Securities of such series. Section 1402. Satisfaction of Sinking Fund Payments with Securities. The Company (1) may deliver Outstanding Securities of a series (other than any previously called for redemption) and (2) may apply as a credit Securities of a series which have been converted pursuant to Article Twelve or Securities of a series which have been acquired or redeemed either at the election of the Company pursuant to the terms of such Securities or through the application of permitted optional sinking fund payments pursuant to the terms of such Securities or otherwise, in each case in satisfaction of all or any part of any sinking fund payment with respect to the Securities of such series required to be made pursuant to the terms of such Securities as provided for by the terms of such series; provided that such Securities have not been previously so credited. Such Securities shall be received and credited for such purpose by the Trustee at the Redemption Price specified in such Securities for redemption through operation of the sinking fund and the amount of such sinking fund payment shall be reduced accordingly. Section 1403. Redemption of Securities for Sinking Fund. Not less than 45 days prior to each sinking fund payment date for any series of Securities, the Company will deliver to the Trustee an Officers' Certificate specifying the amount of the next ensuing sinking fund payment for that series pursuant to the terms of that series, the portion thereof, if any, which is to be satisfied by payment of cash and the portion thereof, if any, which is to be satisfied by delivering and crediting Securities of that series pursuant to Section 1402 and will also deliver to the Trustee any Securities to be so delivered. Not less than 30 nor more than 45 days before each such sinking fund payment date the Trustee shall select the Securities to be redeemed upon such sinking fund payment date in the manner specified in Section 1103 and cause notice of the redemption thereof to be given in the name of and at the expense of the Company in the manner provided in Section 1104. Such notice having been duly given, the redemption of such Securities shall be made upon the terms and in the manner stated in Sections 1106 and 1107. ARTICLE FIFTEEN SUBORDINATION OF SECURITIES Section 1501. Securities Subordinate to Senior Debt. The Company covenants and agrees, and each Holder of a Security, by its acceptance thereof, likewise covenants and agrees, that, to the extent and in the manner hereinafter set forth in this Article (subject to the provisions of Article Four and Article Thirteen), the payment of the principal of (and premium, if any) and interest on each and all of the Securities are hereby expressly made subordinate and subject in right of payment to the prior payment in full of all amounts then due and payable in respect of all Senior Debt. Section 1502. Payment Over of Proceeds Upon Dissolution, Etc. In the event of (a) any insolvency or bankruptcy case or proceeding, or any receivership, liquidation, arrangement, reorganization, debt restructuring or other similar case or proceeding in connection therewith, relative to the Company, or its creditors as such, or to its assets, or (b) any liquidation, dissolution or other winding up of the Company, whether voluntary or involuntary and whether or not involving insolvency or bankruptcy, or (c) any assignment for the benefit of creditors or any other marshalling of assets and liabilities of the Company, then and in any such event specified in (a), (b) or (c) above (each such event, if any, herein sometimes referred to as a "Proceeding") the holders of Senior Debt shall be entitled to receive payment in full of all amounts due or to become due on or in respect of all Senior Debt, or provision shall be made for such payment in cash or cash equivalents or otherwise in a manner satisfactory to the holders of Senior Debt, before the Holders of the Securities are entitled to receive any payment or distribution of any kind or character, whether in cash, property or securities (including any payment or distribution which may be payable or deliverable by reason of the payment of any other Debt of the Company subordinated to the payment of the Securities, such payment or distribution being hereinafter referred to as "Junior Subordinated Payment"), on account of principal of (or premium, if any) or interest on the Securities or on account of the purchase or other acquisition of Securities by the Company or any Subsidiary and to that end the holders of Senior Debt shall be entitled to receive, for application to the payment thereof, any payment or distribution of any kind or character, whether in cash, property or securities, including any Junior Subordinated Payment, which may be payable or deliverable in respect of the Securities in any such Proceeding. In the event that, notwithstanding the foregoing provisions of this Section, the Trustee or the Holder of any Security shall have received any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, including any Junior Subordinated Payment, before all Senior Debt is paid in full or payment thereof is provided for in cash or cash equivalents or otherwise in a manner satisfactory to the holders of Senior Debt, and if such fact shall, at or prior to the time of such payment or distribution, have been made known to the Trustee or, as the case may be, such Holder, then and in such event such payment or distribution shall be paid over or delivered forthwith to the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or other Person making payment or distribution of assets of the Company for application to the payment of all Senior Debt remaining unpaid, to the extent necessary to pay all Senior Debt in full, after giving effect to any concurrent payment or distribution to or for the holders of Senior Debt. Any taxes that have been withheld or deducted from any payment or distribution in respect of the Securities, or any taxes that ought to have been withheld or deducted from any such payment or distribution that have been remitted to the relevant taxing authority, shall not be considered to be an amount that the Trustee or the Holder of any Security receives for purposes of this Section. For purposes of this Article only, the words "any payment or distribution of any kind or character, whether in cash, property or securities" shall not be deemed to include shares of stock of the Company as reorganized or readjusted, or securities of the Company or any other corporation provided for by a plan of reorganization or readjustment which securities are subordinated in right of payment to all then outstanding Senior Debt to substantially the same extent as the Securities are so subordinated as provided in this Article. The consolidation of the Company with, or the merger of the Company into, another Person or the liquidation or dissolution of the Company following the sale of all or substantially all of its properties and assets as an entirety to another Person or the liquidation or dissolution of the Company following the sale of all or substantially all of its properties and assets as an entirety to another Person upon the terms and conditions set forth in Article Eight shall not be deemed a Proceeding for the purposes of this Section if the Person formed by such consolidation or into which the Company is merged or the Person which acquires by sale such properties and assets as an entirety, as the case may be, shall, as a part of such consolidation, merger, or sale comply with the conditions set forth in Article Eight. Section 1503. Prior Payment to Senior Debt Upon Acceleration of Securities. In the event that any Securities are declared due and payable before their Stated Maturity, then and in such event the holders of the Senior Debt outstanding at the time such Securities so become due and payable shall be entitled to receive payment in full of all amounts due on or in respect of such Senior Debt, or provision shall be made for such payment in cash or cash equivalents or otherwise in a manner satisfactory to the holders of Senior Debt, before the Holders of the Securities are entitled to receive any payment (including any payment which may be payable by reason of the payment of any other indebtedness of the Company being subordinated to the payment of the Securities) by the Company on account of the principal of (or premium, if any) or interest on the Securities or on account of the purchase or other acquisition of Securities by the Company or any Subsidiary; provided, however, that nothing in this Section shall prevent the satisfaction of any sinking fund payment in accordance with Article Fourteen by delivering and crediting pursuant to Section 1402 Securities which have been acquired (upon redemption or otherwise) prior to such declaration of acceleration or which have been converted pursuant to Article Twelve. In the event that, notwithstanding the foregoing, the Company shall make any payment to the Trustee or the Holder of any Security prohibited by the foregoing provisions of this Section, and if such fact shall, at or prior to the time of such payment, have been made known to the Trustee or, as the case may be, such Holder, then and in such event such payment shall be paid over and delivered forthwith to the Company. The provisions of this Section shall not apply to any payment with respect to which Section 1502 would be applicable. Section 1504. No Payment When Senior Debt in Default. (a) In the event and during the continuation of any default in the payment of principal of (or premium, if any) or interest or any other payment on any Senior Debt, or in the event that any event of default with respect to any Senior Debt shall have occurred and be continuing and shall have resulted in such Senior Debt becoming or being declared due and payable prior to the date on which it would otherwise have become due and payable, unless and until such event of default shall have been cured or waived or shall have ceased to exist and such acceleration shall have been rescinded or annulled, or (b) in the event any judicial proceeding shall be pending with respect to any such default in payment or such event of default, then no payment (including any payment which may be payable by reason of the payment of any other indebtedness of the Company being subordinated to the payment of the Securities) shall be made by the Company on account of principal of (or premium, if any) or interest on the Securities or on account of the purchase or other acquisition of Securities by the Company or any Subsidiary; provided, however, that nothing in this Section shall prevent the satisfaction of any sinking fund payment in accordance with Article Fourteen by delivering and crediting pursuant to Section 1402 Securities which have been acquired (upon redemption or otherwise) prior to such default in payment or event of default or which have been converted pursuant to Article Twelve. In the event that, notwithstanding the foregoing, the Company shall make any payment to the Trustee or the Holder of any Security prohibited by the foregoing provisions of this Section, and if such fact shall, at or prior to the time of such payment, have been made known to the Trustee or, as the case may be, such Holder, then and in such event such payment shall be paid over and delivered forthwith to the Company. The provisions of this Section shall not apply to any payment with respect to which Section 1502 would be applicable. Section 1505. Payment Permitted If No Default. Nothing contained in this Article or elsewhere in this Indenture or in any of the Securities shall prevent (a) the Company, at any time except during the pendency of any Proceeding referred to in Section 1502 or under the conditions described in Sections 1503 and 1504, from making payments at any time of principal of (and premium, if any) or interest on the Securities, or (b) the application by the Trustee of any money deposited with it hereunder to the payment of or on account of the principal of (and premium, if any) or interest on the Securities or the retention of such payment by the Holders, if, at the time of such application by the Trustee, it did not have knowledge that such payment would have been prohibited by the provisions of this Article. Section 1506. Subrogation to Rights of Holders of Senior Debt. Subject to the payment in full of all Senior Debt, or the provision for such payment in cash or cash equivalents or otherwise in a manner satisfactory to the holders of Senior Debt, the Holders of the Securities shall be subrogated to the extent of the payments or distributions made to the holders of such Senior Debt pursuant to the provisions of this Article (equally and ratably with the holders of all indebtedness of the Company which by its express terms is subordinated to indebtedness of the Company to substantially the same extent as the Securities are subordinated to the Senior Debt and is entitled to like rights of subrogation by reason of any payments or distributions made to holders of such Senior Debt) to the rights of the holders of such Senior Debt to receive payments or distributions of cash, property and securities applicable to the Senior Debt until the principal of (and premium, if any) and interest on the Securities shall be paid in full. If the Trustee or the Holders of the Securities are not for any reason entitled to be subrogated to the rights of holders of Senior Debt in respect of such payment or distribution, then the Trustee or the Holders of the Securities may require each holder of Senior Debt to whom any such payment or distribution is made as a condition to such payment or distribution to assign its Senior Debt to the extent of such payment or distribution and all rights with respect thereto to the Trustee on behalf of the Holders. Such assignment shall not be effective until such time as all Senior Debt has been paid in full or payment thereof provided for. For purposes of such subrogation or assignment, no payments or distributions to the holders of the Senior Debt of any cash, property or securities to which the Holders of the Securities or the Trustee would be entitled except for the provisions of this Article, and no payments over pursuant to the provisions of this Article to the holders of Senior Debt by Holders of the Securities or the Trustee, shall, as among the Company, its creditors other than holders of Senior Debt, and the Holders of the Securities, be deemed to be a payment or distribution by the Company to or on account of the Senior Debt. Section 1507. Provisions Solely to Define Relative Rights. The provisions of this Article are and are intended solely for the purpose of defining the relative rights of the Holders of the Securities on the one hand and the holders of Senior Debt on the other hand. Nothing contained in this Article or elsewhere in this Indenture or in the Securities is intended to or shall (a) impair, as among the Company, its creditors other than holders of Senior Debt, and the Holders of the Securities, the obligations of the Company, which are absolute and unconditional (and which, subject to the rights under this Article of the holders of Senior Debt are intended to rank equally with all other general unsecured obligations of the Company), to pay to the Holders of the Securities the principal of (and premium, if any) and interest on the Securities as and when the same shall become due and payable in accordance with their terms; or (b) affect the relative rights against the Company of the Holders of the Securities and creditors of the Company other than the holders of Senior Debt; or (c) prevent the Trustee or the Holder of any Security from exercising all remedies otherwise permitted by applicable law upon default under this Indenture including, without limitation, filing and voting claims in any Proceeding, subject to the rights, if any, under this Article of the holders of Senior Debt to receive cash, property or securities otherwise payable or deliverable to the Trustee or such Holder. Section 1508. Trustee to Effectuate Subordination. Each Holder of a Security by his or her acceptance thereof authorizes and directs the Trustee on his or her behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination provided in this Article and appoints the Trustee his or her attorney-in-fact for any and all such purposes. Section 1509. No Waiver of Subordination Provisions. No right of any present or future holder of any Senior Debt to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by (i) any amendment of or addition or supplement to any Senior Debt or any instrument or agreement relating thereto (unless otherwise expressly provided therein) or (ii) any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof that any such holder may have or be otherwise charged with. Without in any way limiting the generality of the foregoing paragraph, the holders of Senior Debt may, at any time and from time to time, without the consent of or notice to the Trustee or the Holders of the Securities, without incurring responsibility to the Holders of the Securities, and without impairing or releasing the subordination provided in this Article or the obligations hereunder of the Holders of the Securities to the holders of Senior Debt, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter or increase, Senior Debt, or otherwise amend or supplement in any manner Senior Debt or any instrument evidencing the same or any agreement under which Senior Debt is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Debt; (iii) release any Person liable in any manner for the collection of Senior Debt; and (iv) exercise or refrain from exercising any rights against the Company and any other Person. Section 1510. Notice to Trustee. The Company shall give prompt written notice to the Trustee of any fact known to the Company which would prohibit the making of any payment to or by the Trustee in respect of the Securities. Notwithstanding the provisions of this Article or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts which would prohibit the making of any payment to or by the Trustee in respect of the Securities, unless and until the Trustee shall have received written notice thereof from the Company or a holder of Senior Debt or from any trustee, agent or representative therefor; and, prior to the receipt of any such written notice, the Trustee, subject to the provisions of Section 601, shall be entitled in all respects to assume that no such facts exist; provided, however, that if the Trustee shall not have received the notice provided for in this Section at least two Business Days prior to the date upon which by the terms hereof any money may become payable for any purpose (including, without limitation, the payment of the principal of (and premium, if any) or interest on any Security), then, anything herein contained to the contrary notwithstanding, the Trustee shall have full power and authority to receive such money and to apply the same to the purpose for which such money was received and shall not be affected by any notice to the contrary which may be received by it within two Business Days prior to such date. Subject to the provisions of Section 601, the Trustee shall be entitled to rely on the delivery to it of a written notice by a Person representing himself or herself to be a holder of Senior Debt (or a trustee, agent or representative therefor) to establish that such notice has been given by a holder of Senior Debt (or a trustee, agent or representative therefor). In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any Person as a holder of Senior Debt to participate in any payment or distribution pursuant to this Article, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Debt held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article, and if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. Section 1511. Reliance on Judicial Order or Certificate of Liquidating Agent. Upon any payment or distribution of assets of the Company referred to in this Article, the Trustee, subject to the provisions of Section 601, and the Holders of the Securities shall be entitled to rely upon any order or decree entered by any court of competent jurisdiction in which such Proceeding is pending, or a certificate of the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit of creditors, agent or other Person making such payment or distribution, delivered to the Trustee or to the Holders of Securities, for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of the Senior Debt and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article. Section 1512. Trustee Not Fiduciary For Holders of Senior Debt. The Trustee, in its capacity as trustee under this Indenture, shall not be deemed to owe any fiduciary duty to the holders of Senior Debt and shall not be liable to any such holders if it shall in good faith mistakenly pay over or distribute to Holders of Securities or to the Company or to any other Person cash, property or securities to which any holders of Senior Debt shall be entitled by virtue of this Article or otherwise. Section 1513. Rights of Trustee as Holder of Senior Debt; Preservation of Trustee's Rights. The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article with respect to any Senior Debt which may at any time be held by it, to the same extent as any other holder of Senior Debt, and nothing in this Indenture shall deprive the Trustee of any of its rights as such holder. Nothing in this Article shall apply to claims of, or payments to, the Trustee under or pursuant to Section 607. Section 1514. Article Applicable to Paying Agents. In case at any time any Paying Agent other than the Trustee shall have been appointed by the Company and be then acting hereunder, the term "Trustee" as used in this Article shall in such case (unless the context otherwise requires) be construed as extending to and including such Paying Agent within its meaning as fully for all intents and purposes as if such Paying Agent were named in this Article in addition to or in place of the Trustee. Section 1515. Defeasance of This Article Fifteen. The subordination of the Securities provided by this Article Fifteen is expressly made subject to the provisions for defeasance or covenant defeasance in Article Thirteen and, anything herein to the contrary notwithstanding, upon the effectiveness of any such defeasance or covenant defeasance, the Securities then outstanding shall thereupon cease to be subordinated pursuant to this Article Fifteen. Section 1516. Certain Conversions Deemed Payment. For the purposes of this Article only, (1) the issuance and delivery of junior securities upon conversion of Securities in accordance with Article Twelve shall not be deemed to constitute a payment or distribution on account of the principal of (or premium, if any) or interest on Securities or on account of the purchase or other acquisition of Securities, and (2) the payment, issuance or delivery of cash, property or securities (other than junior securities) upon conversion of a Security shall be deemed to constitute payment on account of the principal of such security. For the purposes of this Section, the term "junior securities" means (a) shares of any stock of any class of the Company, (b) securities of the Company which are subordinated in right of payment to all Senior Debt which may be outstanding at the time of issuance or delivery of such securities to substantially the same extent as, or to a greater extent than, the Securities are so subordinated as provided in this Article and (c) any securities into which Securities become convertible pursuant to Section 1209 which are securities of a Person required to enter into a supplemental indenture pursuant to such Section (or Section 801) and are either (x) shares of any stock of any class of such Person, or (y) securities of such Person which are subordinated in right of payment to all Senior Debt which may be outstanding at the time of issuance or delivery of such securities to substantially the same extent as, or to a greater extent than, the Securities are so subordinated as provided in this Article. Nothing contained in this Article or elsewhere in this Indenture or in the Securities is intended to or shall impair, as among the Company, its creditors other than holders of Senior Debt and the Holders of the Securities, the right, which is absolute and unconditional, of the Holder of any Security to convert such Security in accordance with Article Twelve. This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. _____________ IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. USF&G CORPORATION By______________________________ Name: Title: Attest: _________________________________ CHEMICAL BANK, as Trustee By____________________________ Name: Title: Attest: ________________________________ STATE OF _________________) ) ss.: COUNTY OF ________________) On the _____ day of _________, 1994, before me personally came ____________________________, to me known, who, being by me duly sworn, did depose and say that (s)he is _____________________________ of USF&G CORPORATION, one of the corporations described in and which executed the foregoing instrument; that (s)he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation, and that (s)he signed her/his name thereto by like authority. __________________________________ STATE OF _________________) ) ss.: COUNTY OF _______________) On the ____ day of __________, 1994, before me personally came __________________________, to me known, who, being by me duly sworn, did depose and say that (s)he is ___________________________ of CHEMICAL BANK, one of the corporations described in and which executed the foregoing instrument; that (s)he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation, and that (s)he signed her/his name thereto by like authority. IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. USF&G CORPORATION By______________________________ Name: Title: Attest: _________________________________ CHEMICAL BANK, as Trustee By____________________________ Name: Title: Attest: ________________________________ STATE OF _________________) ) ss.: COUNTY OF ________________) On the _____ day of _________, 1994, before me personally came ____________________________, to me known, who, being by me duly sworn, did depose and say that (s)he is _____________________________ of USF&G CORPORATION, one of the corporations described in and which executed the foregoing instrument; that (s)he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation, and that (s)he signed her/his name thereto by like authority. ___________________________________ STATE OF _________________) ) ss.: COUNTY OF ________________) On the _____ day of _________, 1994, before me personally came ____________________________, to me known, who, being by me duly sworn, did depose and say that (s)he is _____________________________ of CHEMICAL BANK, one of the corporations described in and which executed the foregoing instrument; that (s)he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by authority of the Board of Directors of said corporation, and that (s)he signed her/his name thereto by like authority. __________________________________ EX-10.I 4 FORM OF STOCK OPTION AGREEMENT STOCK OPTION AGREEMENT UNDER THE STOCK OPTION PLAN OF ____ AGREEMENT made as of the ____ day of _____________, by and between USF&G Corporation (the "Corporation"), and ________________ (the "Option Holder"). WHEREAS, the Corporation has adopted the Stock Option Plan of ______ (the "Plan"); and WHEREAS, by action of the Compensation Committee of the Board of Directors of the Corporation (the "Committee"), the Option Holder has been selected to participate in, and designated as a Key Person under the Plan, and has this day been granted an Option thereunder; NOW, THEREFORE, THIS AGREEMENT WITNESSETH: That in consideration of the mutual promises and representations herein contained and of other good and valuable consideration, the Corporation and the Option Holder agree as follows: 1. The Corporation grants to the Option Holder the right and option to purchase _____________________________(_____) shares of the Common Stock of the Corporation at a price of ______________________ Dollars ($_____) per share, exercisable only as follows: up to 33 1/3% of the shares may be purchased at any time before expiration of the Option and after one year from the date hereof; up to 66 2/3% of the shares may be purchased at any time before expiration of the Option and after two years from the date hereof; and all of such shares may be purchased at any time before expiration of the Option and after three years from the date hereof; provided, however, that all such shares may be purchased at any time after the occurrence of a Fundamental Corporate Transaction as defined in section 6 and in the Plan. The Option will expire on the date ten (10) years and one day from the date hereof, subject to earlier termination as provided herein or in the Plan. 2. This Agreement is subject to restrictions and limitations set forth in the Plan, a copy of which is incorporated by reference and made a part hereof. Pursuant to the Plan, but without altering any of the provisions thereof: It is agreed that this Option shall only be exercisable while the Option Holder is employed by the Corporation or one of its subsidiaries, except that: (a) If the Option Holder retires under criteria established by the Compensation Committee or becomes permanently disabled, this Option may be exercised by him not later than one (1) year after the date of such retirement or onset of permanent disability, but only as to the vested shares eligible for purchase under Section 1 as of the retirement date or date of permanent disability; and (b) If the Option Holder shall die and on the date of his death was entitled to exercise this Option, this Option may be exercised not later than one (1) year after his death by his executor or administrator or other person at the time entitled by law to his rights under this Option, but only as to the vested shares eligible for purchase under Section 1 at the date of death, (c) The Committee, in its sole discretion, may permit the Option Holder to settle this Option in lieu of exercise if the participant becomes permanently disabled or as a death benefit in accordance with the terms and conditions of Article V of the Plan, and (d) The Committee, in its sole discretion, may permit payment of the option price to be by surrender of unrestricted shares of the Common Stock of the Corporation (at their then market value on the date of exercise), or by a combination of cash, check and such surrendered shares. 3. It is agreed that in no event shall this Option be exercisable by anyone after the expiration of ten (10) years and one day after the date it is granted. 4. This Option shall be exercisable for the whole amount then exercisable, at any time during the option period, or for any part of the amount then exercisable (but not as to less than ten (10) shares at any one time unless the exercise is to exhaust this Option) from time to time during such period. 5. When an Option Holder desires to exercise his option under the Plan, notice shall be given in writing to the Corporation (Attn.: Corporate Secretary) of the number of shares to be purchased and the date that the purchase is to be consummated. Except as otherwise provided hereby, payment of the purchase price is to be by check or money order and should accompany the written notice of exercise. 6. For purposes of this Section and Section 1, a "Fundamental Corporate Transaction" shall be and be deemed to occur on the date (i) of the first purchase of shares of the Common Stock of the Corporation pursuant to a tender offer or an exchange offer (other than one made by the Corporation or holding company for the Corporation) for all or any part of the Corporation's Common Stock, (ii) of approval of the stockholders of the Corporation of a merger, consolidation, sale, statutory or other share exchange, or disposition of all or substantially all of the Corporation's assets in which the Corporation (or holding company for the Corporation) will not survive as a publicly-owned corporation operating the business it operated prior to such transaction or (iii) on which any entity, person or group acquires beneficial ownership of shares of the Corporation's Common Stock (whether in one or a series of transactions), directly or indirectly, amounting to 30% or more of the outstanding shares of such class. A "holding company for the Corporation" means, in the foregoing, an entity that becomes a holding company for the Corporation without altering or planning to alter in any material respect the stockholders of the Corporation or the business of the Corporation and its subsidiaries as a whole, other than a case in which an acquisition of another company by the Corporation or the holding company is being accomplished concurrently. 7. This Option shall be non-transferable and non-assignable except that this Option may be transferred by testamentary instrument or by the laws of descent and distribution. 8. Upon exercise of this Option, Option Holder shall pay to the Corporation, or shall authorize the Corporation to withhold in accordance with applicable law from any compensation payable to him, any taxes required to be withheld by federal, state or local law as a result of the exercise of the Option. 9. This Agreement may be simultaneously executed in two counterparts, each of which when so executed shall be deemed to be an original; but such counterparts shall together constitute but one and the same instrument. 10. This Agreement is not a contract of employment, and shall not be construed to limit the right of the Corporation or a subsidiary, as applicable, to terminate the Option Holder's employment at any time, with or without cause. 11. The terms of this Agreement are also subject to any additional requirements or limitations as set forth in the Plan. IN WITNESS WHEREOF, the parties hereto have duly executed or caused this Agreement to be executed on the day and year first above written. USF&G CORPORATION By____________________________ Senior Vice President ____________________________ Option Holder EX-10.K 5 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT, dated as of November 10, 1993, between USF&G CORPORATION, a Maryland corporation (the "Corporation"), and NORMAN P. BLAKE, JR. (the "Executive"). W I T N E S S E T H: Pursuant to an Employment Agreement dated November 20, 1990 (the "Initial Employment Agreement"), the Executive is serving as the Corporation's Chief Executive Officer having chief executive responsibility with respect to the affairs of the Corporation and such other specific responsibilities and duties as may be assigned to him from time to time by the Board of Directors. The Corporation desires to assure the Corporation the continued benefits of the Executive's expertise and knowledge after the expiration of the employment period specified by the Initial Employment Agreement. The Executive, in turn, desires to continue full-time employment with the Corporation on the terms provided herein upon the expiration of the employment period specified by the Initial Employment Agreement. Accordingly, in consideration of the mutual covenants and representations contained herein, the parties hereto agree as follows: 1. Full-time Employment of Executive. 1.1. Duties and Status. (a) The Corporation hereby engages the Executive as a full-time executive employee for the period (the "Employment Period") specified in paragraph 4, and the Executive accepts such employment, on the terms and conditions set forth in this Agreement. During the Employment Period, the Executive shall exercise such authority and perform such executive duties as are commensurate with the duties of the Chief Executive Officer of the Corporation. (b) During the Employment Period, the Executive shall (i) devote his full time and efforts to the business of the Corporation and will not engage in consulting work or any trade or business for his own account or for or on behalf of any other person, firm or corporation which competes or conflicts or interferes with the performance of his duties hereunder in any way and (ii) accept such additional office or offices to which he may be elected by the Board of Directors of the Corporation, provided that the performance of the duties of such office or offices shall be consistent with the scope of the duties provided for in subparagraph (a) of this paragraph 1.1. The foregoing shall not preclude the Executive from devoting a reasonable amount of his time to civic and charitable affairs or to the supervision of his personal investments nor from serving on boards of directors in accordance with the Corporation's policies, provided such activities do not unreasonably interfere with the performance of the Executive's duties under this Agreement. (c) The Executive shall be required to perform the services and duties provided for in subparagraph (a) of this paragraph 1.1 only at the location of the principal executive offices of the Corporation in the Baltimore metropolitan area. The Executive shall be entitled to vacation, leave of absence, and leave for illness or temporary disability in accordance with the policies of the Corporation in effect, which shall not be less favorable than those in effect at the date of this Agreement; and any leave on account of illness or temporary disability which is short of total disability, as defined in the Corporation's long-term disability insurance plan ("Total Disability") and which has lasted for a continuous period of less than one hundred and eighty (180) consecutive days, shall not constitute a breach by the Executive of his obligations hereunder. 1.2. Compensation and General Benefits. As compensation for his services under this Agreement, the Executive shall be compensated as follows: (a) The Corporation shall pay the Executive an annual base salary of not less than (i) $850,000 per annum for the first twelve months of the Employment Period, (ii) $900,000 per annum for the next twelve months thereof, (iii) $950,000 per annum for the remainder of the Employment Period. Such base salary shall be payable in periodic equal installments which are no less frequent than the periodic installments in effect for salaries of senior executives of the Corporation immediately prior to the effective date of this Agreement. Such salary shall be subject to normal periodic review at least annually for increases based on the policies of the Corporation and contributions to the enterprise. (b) The Corporation shall also pay the Executive incentive bonuses of such amounts as are determined from time to time by the Board of Directors based on criteria to be established by the Board, provided, however, that all bonuses shall be determined using as the Executive's annual base salary the Executive's Salary of Record which, for purposes of the Agreement, shall mean the Executive's base salary stated in the Initial Employment Agreement for the twelve-month period ending November 26, 1993 (One Million, Forty-One Thousand, Two Hundred Eighty-Five Dollars ($1,041,285)), increased annually for each twelve-month period thereafter by a percentage determined by the Board based solely on the Executive's performance, but which percentage shall not be less than the average percentage increase in annual base salary for the four (4) executives most senior in rank of the Corporation other than the Executive, unless for any twelve-month period the Compensation Committee of the Board of Directors shall provide the Executive with a written statement of the specific reasons, based solely on the Executive's performance, for a lesser or no increase for such period. (c) The Executive shall be eligible to participate in such profit-sharing, stock option, bonus, incentive and performance award programs which provide opportunities to receive compensation which are the greater of the opportunities (i) available to the Executive on the date of this Agreement or (ii) then provided to executives with senior authority and duties (and in any event not less than those provided to executives of lower rank). All such programs shall provide benefits to the Executive using as Executive's annual base salary his Salary of Record. In considering annual awards, stock options and other incentive compensation, the stock options for a total of three hundred thousand (300,000) shares of Common Stock of the Corporation granted on November 10, 1993, shall be disregarded for all purposes. (d) In addition to and except for the matters governed by this Agreement, the Executive shall be entitled to receive employee benefits, including, without limitation, pension, disability, group life, sickness, accident and health insurance programs and split-dollar life insurance programs, and perquisites provided by the Corporation to executives which are the greater of the employee benefits and perquisites (i) comparable to those available to the Executive on the date of this Agreement or (ii) then provided to executives with senior authority or duties (and in any event not less than those provided to executives with lower rank). All such programs shall provide benefits to the Executive determined using as the Executive's base salary his Salary of Record. It is understood and recognized by the Corporation and the Executive that, with respect to pension benefits, it is not possible to include the Executive in the Corporation's qualified pension plan with full credit for service in his prior organization and accordingly, the Corporation and the Executive have entered into, and the Corporation agrees to continue, an unfunded supplemental retirement agreement and a First Amendment thereto (the "Executive's Supplemental Retirement Agreement") designed to provide benefits on an unfunded basis after three (3) years and four (4) months of service from the date of the Initial Employment Agreement of the greater of (i) benefits under the Corporation's qualified and comparable supplemental plans for senior executives, as if the Executive had then been employed by the Corporation for purposes of those plans for twenty-five (25) years or (ii) benefits of equivalent value to those under the existing arrangements of the Executive with his immediately preceding employer for twenty-five (25) years of service or deemed service, in each case based upon his actual compensation levels under his employment with the Corporation (excluding for that purpose the Signing Bonus and the Additional Bonus, but using his Salary of Record rather than his actual base salary for any twelve-month period for which the former is greater), and net of any retirement benefits received from any prior employer. References in this Agreement to pension benefits refer to that arrangement. (e) At least annually during the Employment Period, the Executive shall receive a written statement of all benefits and deferred compensation earned or accrued for the year and accrued and unpaid through the date of the statement. 2. Competition; Confidential Information. The Executive and the Corporation recognize that due to the nature of his association with the Corporation and of his engagements hereunder, and the relationship of the Executive to the Corporation hereunder, the Executive has had access to and has acquired, will have access to and will acquire, and will assist in developing, confidential and proprietary information relating to the business and operations of the Corporation and its affiliates, including, without limiting the generality of the foregoing, information with respect to their present and prospective products, systems, customers, agents, processes, and sales and marketing methods. The Executive acknowledges that such information has been and will continue to be of central importance to the business of the Corporation and its affiliates and that disclosure of it to or its use by others could cause substantial loss to the Corporation. The Executive and the Corporation also recognize that an important part of the Executive's duties will be to develop good will for the Corporation and its affiliates through his personal contact with customers, agents and others having business relationships with the Corporation and its affiliates, and that there is a danger that this good will, a proprietary asset of the Corporation and its affiliates, may follow the Executive if and when his relationship with the Corporation is terminated. The Executive accordingly agrees as follows: 2.1. Non-Competition. (a) During the Employment Period (notwithstanding any early termination by the Corporation under paragraph 4.3 hereof) or until December 31, 1998, in the event of a termination by the Corporation for cause under paragraph 4.2 hereof, the Executive will not, directly or indirectly, either individually or as owner, partner, agent, employee, consultant or otherwise, except for the account of and on behalf of the Corporation or its affiliates engage in any activity competitive with the business of the Corporation or its affiliates, nor will he, in competition with the Corporation or its affiliates, solicit or otherwise attempt to establish for himself or any other person, firm or entity, any business relationships with any person, firm or corporation which was, at any time during the Employment Period or the employment period under the Initial Employment Agreement, a customer of the Corporation or one of its affiliates. (b) The provisions of subparagraph (a) of this paragraph 2.1 may be extended, at the option of the Corporation (exercised by written notice within fifteen (15) days prior to the expiration of the Employment Period), for a period of either one (l) or two (2) years from the expiration of the Employment Period, if (i) the Corporation offers at any time not more than sixty (60) days nor less than thirty (30) days prior to the expiration of the Employment Period to continue the employment of the Executive under this Agreement for a period of either one (l) or two (2) years from the expiration of the Employment Period, as the case can be, (ii) the Executive declines to accept such continuation of employment and (iii) the Corporation pays the Executive, at the time of such election, a lump sum amount equal to the highest annual base salary provided by paragraph 1.2 of this Agreement during the Employment Period, multiplied by the number of years of such extension; provided, that the Executive shall not be bound by such election at any time if the Corporation is in violation of any of its obligations under this Agreement and thereafter. (c) Nothing in this paragraph 2 shall be construed to prevent the Executive from owning, as an investment, not more than 1% of a class of equity securities issued by any competitor of the Corporation or its affiliates and publicly traded and registered under Section 12 of the Securities Exchange Act of 1934. 2.2. Trade Secrets. The Executive will keep confidential any trade secrets or confidential or proprietary information of the Corporation and its affiliates which are now known to him or which hereafter may become known to him as a result of his employment or association with the Corporation and shall not at any time directly or indirectly disclose any such information to any person, firm or corporation, or use the same in any way other than in connection with the business of the Corporation or its affiliates during and at all times after the expiration of the Employment Period. For purposes of this Agreement, "trade secrets or confidential or proprietary information" means information unique to the Corporation or any of its affiliates which has a significant business purpose and is not known or generally available from sources outside the Corporation or any of its affiliates or typical of industry practice. 3. Corporation's Remedies for Breach. It is recognized that damages in the event of breach of paragraph 2 by the Executive would be difficult, if not impossible, to ascertain, and it is therefore agreed that the Corporation, in addition to and without limiting any other remedy or right it may have, shall have the right to an injunction or other equitable relief in any court of competent jurisdiction, enjoining any such breach, and the Executive hereby waives any and all defenses he may have on the ground of lack of jurisdiction or competence of the court to grant such an injunction or other equitable relief. The existence of this right shall not preclude any other rights and remedies at law or in equity which the Corporation may have. 4. Employment Period. 4.1. Duration. Subject to paragraph 7 hereof, the Employment Period shall commence as of the close of the business day on November 26, 1995, and shall continue until the earliest of (i) December 31, 1998; (ii) the Executive's death or Total Disability; or (iii) a termination by the Corporation for cause under Paragraph 4.2 hereof. 4.2. Termination For Cause. The Executive's employment under this Agreement may be terminated by the Board of Directors of the Corporation for cause. As used in this Agreement a termination for cause shall mean the Executive's termination for gross negligence, commission of a felony, incompetence, fraud or dishonesty involving the Corporation's assets, misconduct materially detrimental to business of the Corporation, or intentional failure to perform his duties hereunder or under the Initial Employment Agreement or any other material breach by the Executive of this Agreement (including Paragraph 2 hereof) or the Initial Employment Agreement (including paragraph 2 thereof). The Corporation shall notify the Executive in writing at least thirty days in advance of any proposed termination for cause indicating in detail the specific reasons for such termination and shall extend to the Executive the opportunity during such thirty days to cure the breach or misconduct if the same is capable of being cured. 4.3. Termination Without Cause. In the event the Executive's employment with the Corporation is terminated without cause during the Employment Period or during the employment period specified by the Initial Employment Agreement, the Executive will be entitled to receive the compensation and benefits described in paragraph 1.2(a), (c), and (d) of this Agreement for the unexpired remainder of the Employment Period. In such event, the Executive shall not be required to mitigate the amount of any payment or benefit to which he may be entitled under this Agreement by seeking other employment, nor shall any such amount be reduced by remuneration earned from other sources. 5. Legal Costs. The Executive shall be entitled to consult with counsel with respect to the Executive's rights hereunder, and the Corporation agrees to pay the reasonable fees and expenses of independent counsel for the Executive in advising him or in bringing any proceedings, or in defending any proceedings, involving the Executive's rights under this Agreement or in the negotiation of the terms hereof, such right to reimbursement to be contingent upon the presentment by the Executive of written billings for such reasonable fees and expenses. 6. Notices. Any notices, requests, demands and other communications provided for by this Agreement shall be sufficient if in writing and if sent by registered or certified mail to the Executive at the last address he has filed in writing with the Corporation or, in the case of the Corporation, at its principal executive offices. 7. Binding Agreement. This Agreement shall be binding upon the Executive and the Corporation on and after the date of this Agreement. This Agreement shall take effect as of the close of the business day on November 26, 1995, if the Executive is employed by the Corporation pursuant to the Initial Employment Agreement on such date, or his employment with the Corporation has been terminated before such date by the Corporation without cause pursuant to paragraph 4.3 of the Initial Employment Contract. The rights and obligations of the Corporation under this Agreement shall inure to the benefit of and shall be binding upon the Corporation and any successor of the Corporation as defined in the Maryland General Corporation Law as now in effect; provided, that this Agreement may not be assigned by the Corporation without the consent of the Executive, and in the case of a successor by transfer of all or substantially all of the assets of the Corporation, or any other successor in which the Corporation does not cease to exist by operation of the transaction in question as a matter of law, the Corporation shall not be relieved of its obligations hereunder. 8. Entire Agreement. This Agreement constitutes the entire understanding of the Executive and the Corporation with respect to the subject matter hereof and supersedes any and all prior understandings written or oral. This Agreement may not be changed, modified, or discharged orally, but only by an instrument in writing signed by the parties. The Executive's failure to insist upon strict compliance with any provision hereof shall not be deemed to be a waiver of such provision or any other provision hereof. This Agreement shall be governed by the laws of the State of Maryland and the invalidity or unenforceability of any provisions hereof shall in no way affect the validity or enforceability of any other provision. 9. Arbitration. Any disputes hereunder which cannot be resolved by negotiations between the Corporation and the Executive shall be submitted to, and determined by, arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and the parties agree to be bound by the final award of the arbitrator in any such proceeding. The arbitrator shall apply the laws of the State of Maryland. Arbitration may be held in Baltimore, Maryland or such other place as the parties hereto may mutually agree. Judgment upon the award by the arbitrator may be entered in any court having jurisdiction thereof. IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first above written. WITNESS: USF&G CORPORATION JOHN A. MACCOLL DAN L. HALE Dan L. Hale, Executive Vice President EXECUTIVE THERESA L. ABATO NORMAN P. BLAKE, JR. Norman P. Blake, Jr. EX-10.L 6 STOCK OPTION AGREEMENT STOCK OPTION AGREEMENT AGREEMENT made as of the 10th day of November 1993, by and between USF&G Corporation (the "Corporation") and Norman P. Blake, Jr. (the "Option Holder"). WHEREAS, the Corporation has adopted the Stock Incentive Plan of 1991 (such plan, as currently constituted and as hereinafter amended or restated, is referred to herein as the "Plan"); and WHEREAS, by action of the Compensation Committee of the Board of Directors of the Corporation (the "Committee"), the Option Holder has been selected to participate in, and designated as a Key Person under the Plan, and has this day been granted an Option thereunder on the terms and conditions set forth in this Agreement, subject only to shareholder approval of amendments to the Plan increasing the number of shares of Common Stock of the Corporation issuable to the Option Holder under the Plan; NOW, THEREFORE, THIS AGREEMENT WITNESSETH: That in consideration of the mutual promises and representations herein contained and of other good and valuable consideration, the Corporation and the Option Holder agree as follows: 1. The Corporation grants to the Option Holder the right and option under the Plan to purchase one hundred fifty thousand (150,000) shares of the Common Stock of the Corporation at a price of Thirteen Dollars ($13.00) per share, exercisable on and after December 31, 1998, provided the Option Holder is employed by the Corporation or one of its subsidiaries through December 31, 1998. This grant is effective November 10, 1998, subject to the conditions as set forth in Section 10 of this Agreement. 2. This Option shall become exercisable before December 31, 1998, only: (a) After the Option Holder dies, retires under criteria established by the Committee or is determined by the Committee to be permanently disabled; (b) After the Option Holder's employment with the Corporation is terminated by the Corporation other than for cause, as defined in the then applicable employment agreement between the Option Holder and the Corporation; and (c) After the occurrence of a Fundamental Corporate Transaction. For purposes of this Section a "Fundamental Corporate Transaction" shall be and be deemed to occur on the date (i) of the first purchase of shares of Common Stock of the Corporation pursuant to a tender offer or an exchange offer (other than one made by the Corporation or holding company for the Corporation) for all or any part of the Corporation's Common Stock, (ii) of approval of the stockholders of the Corporation of a merger, consolidation, sale, statutory or other share exchange, or disposition of all or substantially all of the Corporation's assets in which the Corporation (or holding company for the Corporation) will not survive as a publicly-owned corporation operating the business it operated prior to such transaction or (iii) on which any entity, person or group acquires beneficial ownership of shares of the Corporation's Common Stock (whether in one or a series of transactions), directly or indirectly, amounting to 30% or more of the outstanding shares of such class. A "holding company for the Corporation" means, in the foregoing, an entity that becomes a holding company for the Corporation without altering or planning to alter in any material respect the stockholders of the Corporation or the business of the Corporation and its subsidiaries as a whole, other than a case in which an acquisition of another company by the Corporation or the holding company is being accomplished concurrently. 3. The term of the Option is ten (10) years and one (1) day. Once the Option becomes exercisable, it shall remain exercisable throughout the term of the Option regardless of (i) whether or not the Option Holder remains in the employ of the Corporation or (ii) the activities of the Option Holder after he has terminated employment with the Corporation, provided, that the Option shall become nonexercisable and be cancelled only if the Option Holder violates Section 2 of the Employment Agreement dated November 20, 1993, or the Employment Agreement dated November 10, 1993, as determined under Section 9 of such Employment Agreements. The Option may be exercised after the Option Holder's death and during the term of the Option by the person to whom the Option passes or is transferred in accordance with Section 6 of this Agreement. In no event shall this Option be exercisable by anyone after the expiration of ten (10) years and one (1) day after the date it is granted. 4. At such time as this Option becomes exercisable, it shall be exercisable for the whole amount or for any part of the amount of shares of Common Stock subject to the Option, but not for less than ten (10) shares at any one time unless the exercise is to exhaust this Option. 5. When the Option Holder desires to exercise this Option, notice shall be given in writing to the Corporation (Attn: Corporate Secretary) of the number of shares to be purchased and the date that the purchase is to be consummated. Full payment of the option price shall accompany the notice. The Committee, in its sole discretion, may permit payment of the option price to be by surrender of unrestricted shares of the Common Stock of the Corporation (at their then market value on the date of exercise), or by a combination of cash, check and such surrendered shares. 6. This Option shall be non-transferable and non-assignable except that this Option may be transferred by testamentary instrument or by the laws of descent and distribution or pursuant to a qualified domestic relations order to the extent permitted under the Plan. 7. Upon exercise of this Option, Option Holder shall pay to the Corporation, or shall authorize the Corporation to withhold in accordance with applicable law from any compensation payable to him, any taxes required to be withheld by federal, state or local law as a result of the exercise of the Option. 8. This Agreement may be simultaneously executed in two counterparts, each of which when so executed shall be deemed to be an original, but such counterparts shall together constitute but one and the same instrument. 9. This Agreement is not a contract of employment or a modification of any written contract of employment, and shall not be construed to limit the right of the Corporation or a subsidiary, as applicable, to terminate the Option Holder's employment at any time, with or without cause, if and to the extent otherwise allowed by law or under any applicable contract of employment. 10. This Agreement is effective November 10, 1993, subject to the condition that the shareholders of the Corporation approve amendments to the Plan increasing the number of shares of Common Stock issuable to the Option Holder under the Plan. Notwithstanding anything to the contrary in this Agreement, this Option shall not become exercisable unless and until the shareholders of the Corporation approve such amendments to the Plan. The terms of this Agreement are subject to any additional requirements or limitations set forth in the Plan. All capitalized terms in this Agreement not otherwise defined herein shall have the meaning assigned by the Plan. IN WITNESS WHEREOF, the parties hereto have duly executed or caused this Agreement to be executed as of the day and year first specified above. USF&G CORPORATION DAN L. HALE Dan L. Hale, Executive Vice President OPTION HOLDER NORMAN P. BLAKE, JR. Norman P. Blake, Jr. EX-10.M 7 STOCK OPTION AGREEMENT STOCK OPTION AGREEMENT AGREEMENT made as of the 10th day of November 1993, by and between USF&G Corporation (the "Corporation") and Norman P. Blake, Jr. (the "Option Holder"). WHEREAS, the Corporation has adopted the Stock Incentive Plan of 1991 (such plan, as currently constituted and as hereinafter amended or restated, is referred to herein as the "Plan"); and WHEREAS, by action of the Compensation Committee of the Board of Directors of the Corporation (the "Committee"), the Option Holder has been selected to participate in, and designated as a Key Person under the Plan, and has this day been granted an Option thereunder on the terms and conditions set forth in this Agreement, subject only to shareholder approval of amendments to the Plan increasing the number of shares of Common Stock of the Corporation issuable to the Option Holder under the Plan; NOW, THEREFORE, THIS AGREEMENT WITNESSETH: That in consideration of the mutual promises and representations herein contained and of other good and valuable consideration, the Corporation and the Option Holder agree as follows: 1. The Corporation grants to the Option Holder the right and option under the Plan to purchase one hundred fifty thousand (150,000) shares of the Common Stock of the Corporation at a price of Sixteen Dollars and Twenty-Five Cents ($16.25) per share, exercisable on and after December 31, 1998, provided the Option Holder is employed by the Corporation or one of its subsidiaries through December 31, 1998. This grant is effective November 10, 1998, subject to the conditions as set forth in Section 10 of this Agreement. 2. This Option shall become exercisable before December 31, 1998, only: (a) After the Option Holder dies, retires under criteria established by the Committee or is determined by the Committee to be permanently disabled; (b) After the Option Holder's employment with the Corporation is terminated by the Corporation other than for cause, as defined in the then applicable employment agreement between the Option Holder and the Corporation; and (c) After the occurrence of a Fundamental Corporate Transaction. For purposes of this Section a "Fundamental Corporate Transaction" shall be and be deemed to occur on the date (i) of the first purchase of shares of Common Stock of the Corporation pursuant to a tender offer or an exchange offer (other than one made by the Corporation or holding company for the Corporation) for all or any part of the Corporation's Common Stock, (ii) of approval of the stockholders of the Corporation of a merger, consolidation, sale, statutory or other share exchange, or disposition of all or substantially all of the Corporation's assets in which the Corporation (or holding company for the Corporation) will not survive as a publicly-owned corporation operating the business it operated prior to such transaction or (iii) on which any entity, person or group acquires beneficial ownership of shares of the Corporation's Common Stock (whether in one or a series of transactions), directly or indirectly, amounting to 30% or more of the outstanding shares of such class. A "holding company for the Corporation" means, in the foregoing, an entity that becomes a holding company for the Corporation without altering or planning to alter in any material respect the stockholders of the Corporation or the business of the Corporation and its subsidiaries as a whole, other than a case in which an acquisition of another company by the Corporation or the holding company is being accomplished concurrently. 3. The term of the Option is ten (10) years and one (1) day. Once the Option becomes exercisable, it shall remain exercisable throughout the term of the Option regardless of (i) whether or not the Option Holder remains in the employ of the Corporation or (ii) the activities of the Option Holder after he has terminated employment with the Corporation, provided, that the Option shall become nonexercisable and be cancelled only if the Option Holder violates Section 2 of the Employment Agreement dated November 20, 1993, or the Employment Agreement dated November 10, 1993, as determined under Section 9 of such Employment Agreements.. The Option may be exercised after the Option Holder's death and during the term of the Option by the person to whom the Option passes or is transferred in accordance with Section 6 of this Agreement. In no event shall this Option be exercisable by anyone after the expiration of ten (10) years and one (1) day after the date it is granted. 4. At such time as this Option becomes exercisable, it shall be exercisable for the whole amount or for any part of the amount of shares of Common Stock subject to the Option, but not for less than ten (10) shares at any one time unless the exercise is to exhaust this Option. 5. When the Option Holder desires to exercise this Option, notice shall be given in writing to the Corporation (Attn: Corporate Secretary) of the number of shares to be purchased and the date that the purchase is to be consummated. Full payment of the option price shall accompany the notice. The Committee, in its sole discretion, may permit payment of the option price to be by surrender of unrestricted shares of the Common Stock of the Corporation (at their then market value on the date of exercise), or by a combination of cash, check and such surrendered shares. 6. This Option shall be non-transferable and non-assignable except that this Option may be transferred by testamentary instrument or by the laws of descent and distribution or pursuant to a qualified domestic relations order to the extent permitted under the Plan. 7. Upon exercise of this Option, Option Holder shall pay to the Corporation, or shall authorize the Corporation to withhold in accordance with applicable law from any compensation payable to him, any taxes required to be withheld by federal, state or local law as a result of the exercise of the Option. 8. This Agreement may be simultaneously executed in two counterparts, each of which when so executed shall be deemed to be an original, but such counterparts shall together constitute but one and the same instrument. 9. This Agreement is not a contract of employment or a modification of any written contract of employment, and shall not be construed to limit the right of the Corporation or a subsidiary, as applicable, to terminate the Option Holder's employment at any time, with or without cause, if and to the extent otherwise allowed by law or under any applicable contract of employment. 10. This Agreement is effective November 10, 1993, subject to the condition that the shareholders of the Corporation approve amendments to the Plan increasing the number of shares of Common Stock issuable to the Option Holder under the Plan. Notwithstanding anything to the contrary in this Agreement, this Option shall not become exercisable unless and until the shareholders of the Corporation approve such amendments to the Plan. The terms of this Agreement are subject to any additional requirements or limitations set forth in the Plan. All capitalized terms in this Agreement not otherwise defined herein shall have the meaning assigned by the Plan. IN WITNESS WHEREOF, the parties hereto have duly executed or caused this Agreement to be executed as of the day and year first specified above. USF&G CORPORATION DAN L. HALE Dan L. Hale, Executive Vice President OPTION HOLDER NORMAN P. BLAKE, JR. Norman P. Blake, Jr. EX-10.N 8 WAIVER WAIVER Pursuant to an Employment Agreement dated November 20, 1990 (the "Employment Agreement"), Norman P. Blake, Jr. (the "Executive") is serving as the Chief Executive Officer of USF&G Corporation (the "Corporation") based upon the terms and conditions set forth therein. In consideration of certain stock options granted by the Corporation to the Executive on November 10, 1993, the Executive and the Corporation hereby agree as follows: 1. The Executive hereby waives all rights to annual base salary under Section 1.2(a) of the Employment Agreement which exceeds (i) Seven Hundred and Fifty Thousand Dollars ($750,000) for the twelve-month period ending November 26, 1994, and (ii) Eight Hundred Thousand Dollars ($800,000) for the twelve-month period ending November 26, 1995. 2. Notwithstanding the foregoing waiver of base salary, all profit sharing, bonuses, insurance and other benefits and perquisites, stock options, incentive and other performance awards, supplemental retirement income and other deferred compensation provided under Section 1.2 of the Employment Agreement or otherwise provided by the Corporation during the remainder of the Employment Period (as defined in Section 4.1 of the Employment Agreement) shall continue to be determined using as the Executive's annual base salary the Executive's annual base salary under Section 1.2(a) of the Employment Agreement determined without regard to this Waiver (One Million, Forty-One Thousand, Two Hundred Eighty-Five Dollars ($1,041,285) for the twelve-month period ending November 26, 1993, increased annually for each twelve-month period thereafter during the Employment Period by a percentage based solely on the Executive's performance, which percentage shall not be less than the average percentage increase in annual base salary for the four (4) executives most senior in rank of the Corporation other than the Executive, unless for any twelve-month period the Compensation Committee of the Board of Directors provides the Executive with a written statement of the specific reasons, based solely on the Executive's performance, for a lesser or no annual increase for such period). In considering annual awards, stock options and other incentive compensation, the stock options to acquire three hundred thousand (300,000) shares of Common Stock of the Corporation granted to the Executive on November 10, 1993, as consideration for this Waiver shall be disregarded. 3. At least annually during the remainder of the Employment Period, the Executive shall receive from the Corporation a statement of all benefits and deferred compensation earned or accrued for the year and accrued and unpaid through the date of the statement. 4. This Waiver shall not constitute an amendment of any portion of the Employment Agreement. IN WITNESS WHEREOF, the parties have executed and delivered this Waiver as of the 10th day of November, 1993. WITNESS: USF&G CORPORATION JOHN A. MACCOLL DAN L. HALE Dan L. Hale, Executive Vice President WITNESS: EXECUTIVE THERESA L. ABATO NORMAN P. BLAKE, JR. Norman P. Blake, Jr. EX-10.O 9 FIRST AMENDMENT TO RETIREMENT AGREEMEMT FIRST AMENDMENT TO USF&G SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT THIS FIRST AMENDMENT TO USF&G SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT (this "First Amendment"), made by and between USF&G (the "Employer") and NORMAN P. BLAKE, JR. (the "Employee"). W I T N E S S E T H: In order to induce the Employee to continue in the service of the Employer after November 26, 1995, the Employer desires to amend the USF&G Supplemental Executive Retirement Agreement between the Employer and the Employee ("Agreement") to extend to the Employee certain additional unfunded retirement benefits. In consideration of the mutual covenants and promises contained herein and the Waiver dated November 10, 1993, the parties agree to the following changes to the Agreement effective as of the date hereof: FIRST CHANGE Section 1.1 of the Agreement is amended to read as follows: 1.1 Average Compensation - The average monthly rate of Employee's Compensation, equal to 1/36th of the total amount of his Compensation for the 36 consecutive Qualifying Months which produce the highest total. A Qualifying Month shall mean any month during Employee's employment with the Corporation which ends prior to his Normal Retirement Date or earlier termination of employment. If Employee's employment does not provide 36 consecutive Qualifying Months as aforesaid, Compensation for his actual number of consecutive Qualifying Months will be totaled and divided by the number of such Qualifying Months. Any month during which Employee was not actively employed for the entire period shall be disregarded for purposes of the foregoing, and the existence of such months shall be ignored in determining whether or not Qualifying Months are consecutive. Compensation shall mean the Employee's earnings paid by the Corporation as provided and administered under the Qualified Plan but (i) excluding, for purposes hereof, any Signing Bonus or Additional Bonus as defined in the Employment Agreement dated November 20, 1990, (ii) determined without regard to the limitations of section 401(a)(17) of the Internal Revenue Code or any successor provision and (iii) using as the Employee's annual base salary his Salary of Record, which, for purposes of this Agreement, shall be the Employee's base salary for the twelve-month period ending November 26, 1993 as set forth in the Employment Agreement dated November 20, 1990 (One Million, Forty-One Thousand, Two Hundred Eighty-Five Dollars ($1,041,285)), increased annually for each twelve-month period thereafter by a percentage specified by the Compensation Committee of the Board of Directors based solely on the Employee's performance, but which percentage shall not be less than average percentage increase in annual base salary for the four (4) executives most senior in rank of the Employer other than the Employee, unless for any twelve-month period the Compensation Committee of the Board of Directors shall provide the Employee with a written statement of the specific reasons, based solely on the Employee's performance, for a lesser or no annual increase for such period. SECOND CHANGE Section 1.17 of the Agreement is amended to read as follows: 1.17 Employment Agreement - Until the close of business on November 26, 1995, the Employment Agreement between the Employer and the Employee dated November 20, 1990 and thereafter the Employment Agreement between the Employer and the Employee dated November 10, 1993. THIRD CHANGE Section 15 of the Agreement is amended to read as follows: 15. Special Minimum Benefit. Any other provision of this Agreement to the contrary notwithstanding, if benefits become payable under this Agreement for any reason, those benefits will be at least equal in value to those which would have been payable under the arrangements of the Employee with his immediately preceding employer had the Employee's service with the preceding employer continued until the date his employment with the Employer terminated (or until March 31, 1994, if later), provided that (i) such benefits shall be based upon the Employee's actual compensation levels under his employment with the Employer (excluding for that purpose the Signing Bonus and the Additional Bonus, as defined in the Employment Agreement dated November 20, 1990, but using his Salary of Record (as defined in Section 1.1) rather than his actual base salary for any twelve-month period for which the former is greater), (ii) in calculating such benefits, any amendments to the preceding employer's aforesaid arrangements adopted after the Effective Date shall be disregarded and (iii) such benefits shall be reduced by any benefits hereinafter received under any defined benefit plan or arrangement of any prior employer. FOURTH CHANGE Section 5 of the Agreement is amended to read as follows: 5. Payment of Retirement Benefit. (a) Employee's retirement benefit shall be payable as of the first day of each month, commencing with the month following the Employee's termination of employment, or, in the case of a benefit payable pursuant to Section 4, the month in which his Normal Retirement Date occurs (referred to in this Section 5 as the "benefit commencement date"), and shall continue until the last monthly payment prior to Employee's death; provided that the Employee may, with the consent of the Pension Committee, elect to have the benefit to which he would otherwise be entitled under Section 2 or 3, as the case may be, paid in a lump sum on the benefit commencement date. The amount of the lump sum shall be the actuarial equivalent of the benefit payable under Section 2 or 3 of this Agreement, determined without regard to any possible increase in such benefit under Section 8, and based upon the interest rate which would be used by the Pension Benefit Guaranty Corporation on the benefit commencement date for purposes of valuing immediate annuities on a plan termination. To elect the lump sum option, the Employee shall give written notice to the Pension Committee not later than 30 days before his benefit commencement date. If the Employee has not elected to receive a lump sum payment but is nevertheless deemed for federal income tax purposes to be in constructive receipt of a lump sum, the Employee shall be immediately entitled to receive the remaining portion of his benefits in a lump sum. (b) If the Employee is a "covered employee" within the meaning of section 162(m)(3) of the Internal Revenue Code on the benefit commencement date, then no payments which are otherwise required under paragraph (a) of this Section 5 shall be made before the first day of the Employer's first fiscal year commencing after the benefit commencement date (hereinafter referred to as the "deferred commencement date"). On the deferred commencement date, benefit payments shall commence in the manner provided in paragraph (a) of this Section 5 and the Employee shall receive a lump sum amount equal to all payments which, but for this paragraph, would have been made under paragraph (a) prior to the deferred commencement date plus interest at 8% per annum, compounded quarterly, from the date on which such payments otherwise would have been made under paragraph (a) until the deferred commencement date. FIFTH CHANGE The provisions of Section 6 of the Agreement are amended to read as follows: 6. Optional Deferral Election. Notwithstanding the provisions of Section 5, Employee may, by written notice to the Employer given not later than 30 days before his Normal Retirement Date or other commencement of benefits under this Agreement, elect to defer commencement of the benefits payable pursuant to Section 2 or 3 until the first day of the month of January in the calendar year following the year in which employment termination occurs. If Employee makes the election described in the preceding sentence, his first payment shall include all amounts which would have been paid previously had the election not been made plus interest at eight percent (8%) per annum, compounded quarterly, from the date on which payments otherwise would have been made under Section 5 until the date on which the first payment is made hereunder. SIXTH CHANGE Section 16 of the Agreement is redesignated as Section 17 and the following is added as new Section 16: 16. Additional Deferred Compensation. In addition to any other benefits payable to the Employee under this Agreement, if the Employee's employment with the Employer terminates for any reason after December 31, 1998, or his employment is terminated before such date by the Employer other than for cause (as defined in the Employment Agreement), on account of death or disability or after the occurrence of a Fundamental Corporate Transaction (as hereinafter defined), the Employer shall pay the Deferred Compensation Amount determined under this Section 16 to the Employee (or, upon death, to the person designated by the Employee and, in the event there is no such designation, to the Employee's Beneficiary hereunder) in a single lump sum payment as soon as practicable after the end of the Employer's fiscal year in which such termination of employment occurs, provided, however, that the Deferred Compensation Amount determined under this Section 16 shall be paid no later than the date on which the Employee attains age 60 unless the Employee elects later payment before the beginning of the calendar year in which his 60th birthday occurs. For purposes of this Section 16, the Deferred Compensation Amount shall be equal to: (a) the sum of (i) the principal amount of One Million, Nine Hundred and Fifty Thousand Dollars ($1,950,000); and (ii) interest compounded quarterly on such principal amount and any previously accrued interest at one hundred twenty percent (120%) of the applicable Federal long-term rate (determined in accordance with Section 1274 of the Internal Revenue Code), beginning on the date on which the Employee exercises the option granted to him on November 10, 1993, to purchase 150,000 shares of the Corporation's Common Stock at $13.00 per share (the "Option"), and ending on the date on which the Deferred Compensation Amount is paid pursuant to this Section 16. In the event a portion, but not all, of the Option is exercised, interest will be credited only with respect to such portion of the principal amount which bears the same ratio to the total principal amount as the number of shares of Common Stock received upon partial exercise of the Option bears to the total number of shares subject to the Option (adjusted, as appropriate, for any stock dividends, split-ups, recapitalizations and the like affecting the number of shares of Common Stock subject to the Option); and (b) the sum of (i) the product of (I) the per-share cash dividend payable with respect to each share of the Corporation's Common Stock with respect to any dividend record date on or after November 10, 1993, and before the date on which the Deferred Compensation Amount is paid, and (II) the total number of shares of Common Stock for which the Option has not been exercised on such dividend record date (adjusted, as appropriate, for any stock dividends, split-ups, recapitalizations and the like affecting the number of shares of Common Stock subject to the Option) (such product referred to as "Dividend Equivalent Amounts") plus (ii) interest compounded quarterly on Dividend Equivalent Amounts at one hundred twenty percent (120%) of the applicable Federal long-term rate (determined in accordance with Section 1274 of the Code) from the dividend payment date corresponding with each such dividend record date until the date on which the Deferred Compensation Amount is paid pursuant to this Section 16. Notwithstanding the foregoing, if on the date the Deferred Compensation Amount is to be paid pursuant to this Section 16, (w) all or any portion of the Option has not been exercised, and (x) the thirty-day average of the average of the high and low sales prices of the Corporation's Common Stock quoted on the New York Stock Exchange composite listing or, if the Corporation's Common Stock is not listed on the New York Stock Exchange composite listing, the thirty-day average of the fair market value of the Corporation's Common Stock as determined pursuant to the plan pursuant to which the Option was granted (referred to as the "30-day Average") is less than the option exercise price of the Option (as adjusted for any stock dividends, split-ups, recapitalizations and the like affecting the number of shares of Common Stock subject to the Option) (referred to as the "Option Price"), then the Deferred Compensation Amount shall be reduced by the product of (y) the number of shares for which the Option has not been exercised on the date payment is to be made pursuant to this Section 16, and (z) the difference between the 30-day Average and the Option Price on such date. For purposes of this Section a "Fundamental Corporate Transaction" shall be and be deemed to occur on the date (i) of the first purchase of shares of Common Stock of the Employer pursuant to a tender offer or an exchange offer (other than one made by the Employer or holding company for the Employer) for all or any part of the Employer's Common Stock, (ii) of approval of the stockholders of the Employer of a merger, consolidation, sale, statutory or other share exchange, or disposition of all or substantially all of the Employer's assets in which the Employer (or holding company for the Employer) will not survive as a publicly-owned corporation operating the business it operated prior to such transaction or (iii) on which any entity, person or group acquires beneficial ownership of shares of the Employer's Common Stock (whether in one or a series of transactions), directly or indirectly, amounting to 30% or more of the outstanding shares of such class. A "holding company for the Employer" means, in the foregoing, an entity that becomes a holding company for the Employer without altering or planning to alter in any material respect the stockholders of the Employer or the business of the Employer and its subsidiaries as a whole, other than a case in which an acquisition of another company by the Employer or the holding company is being accomplished concurrently. IN WITNESS WHEREOF, the parties have executed this First Amendment as of the 10th day of November, 1993. WITNESS: USF&G CORPORATION JOHN A. MACCOLL DAN L. HALE (SEAL) Dan L. Hale, Executive Vice President WITNESS: EMPLOYEE THERESA L. ABATO NORMAN P. BLAKE, JR. (SEAL) Norman P. Blake, Jr. EX-10.P 10 EMPLOYMENT ARRANGEMENT November 19, 1992 Mr. Gary C. Dunton 5 Belgravia Terrace Farmington, CT 06032 Dear Gary: It was really a pleasure to have spent time with you over the past few weeks. It provides me great pleasure to offer you an opportunity to be a critical part of the new USF&G executive team. Your job, managing our Commercial Lines operations, is absolutely critical to our short and long term success. I know you are the right person to meet this challenge in providing the leadership we need to develop and implement our long term business strategy. The specific terms of your employment are outlined below: Position: Executive Vice President - Commercial Lines Salary: $26,250.00 per month, $315,000 on an annualized basis. Annual Bonus: Participation in our Management Incentive Plan at a targeted bonus rate of forty (40%) percent of earned salary. Guaranteed bonus of $75,000 for 1993 provided you are still on board as of 12/31/93. Long Term Bonus: Participation in our three (3) year rolling long term incentive plan, targeted at fifty (50%) percent of your salary. Options: 50,000 shares (representing sign-on and 1993 annual options). Options to be approved by the Compensation Committee of the Board of Directors and prices as of that date. Sign On Bonus: We will pay you a special bonus of $125,000 upon your employment with USF&G. You will also receive a $75,000 bonus payable upon your employment with USF&G to offset the forfeitures in your 1992 Aetna bonus. Annuity: Purchase annuity paying $20,000 annually at age 65 to be cancelled when person vests. Benefits: Full benefits package, covering medical, dental, life and disability. Participation in the USF&G 401K "matching" plan. Relocation: Comprehensive relocation benefits including home purchase and an eight (8%) percent of salary relocation bonus. Also eligible to receive a one-time bonus to cover any tax liability you may incur from the sale of your current home and the purchase of a new home. Perquisites: Company car allowance, split dollar life insurance policy, four weeks vacation, free parking, financial counseling, First Class air travel, membership at the Caves Valley Country Club and annual physical. Severance: If you are terminated during the first two (2) years of employment other than for performance reasons, as determined by me, you will receive a minimum of one (1) years salary as severance. I am very excited about having you on the USF&G executive team and working closely with you. I am sure it will be challenging and rewarding. If you have any questions on these specific items, please call me or Ed Gold as soon as possible. Sincerely, NORMAN P. BLAKE, JR. Accepted: _____________________ Date: 12/3/92 Gary C. Dunton EX-10.Q 11 SUPPLEMENTAL RETIREMENT PLAN USF&G SUPPLEMENTAL RETIREMENT PLAN (including amendments adopted through December 31, 1991) ARTICLE I Purpose 1.1 This Plan is established to provide supplemental pension benefits for certain employees of United States Fidelity and Guaranty Company, a Maryland corporation, and of certain of its affiliates. The Plan is intended to compensate individuals covered under the Retirement Pension Plan for U.S.A. Employees of the United States Fidelity and Guaranty Company to the extent that benefits under that plan are reduced by the limitations on benefits payable from tax qualified pension plans set forth in Section 415 of the Internal Revenue Code of 1986, as amended, or by the limitation on compensation which may be taken into account under that plan by virtue of Section 401(a)(17) of the Internal Revenue Code of 1986, as amended. ARTICLE II Definitions 2.1 "Basic Plan" means the Retirement Pension Plan for U.S.A. Employees of the United States Fidelity and Guaranty Company. 2.2 "Committee" means the Pension Committee under the Basic Plan. 2.3 "Eligible Employee" means any employee of an Employer who is a participant in the Basic Plan. 2.4 "Employer" means USF&G and any other employer which participates in the Basic Plan and which adopts the Plan by action of its Board of Directors. 2.5 "Plan" means this USF&G Supplemental Retirement Plan. 2.6 "USF&G" means United States Fidelity and Guaranty Company or any company which is a successor as a result of merger, consolidation, liquidation, transfer of assets, or other reorganization. ARTICLE III Retirement 3.1 Eligibility. An Eligible Employee who retires or otherwise terminates participation in the Basic Plan after completing ten (10) continuous years of service under the Basic Plan and attaining age fifty-five (55) shall be entitled to receive a supplemental pension benefit under this Plan from the Employer with which the Eligible Employee was employed at the time the Eligible Employee's participation in the Basic Plan terminated equal to the difference between (i) the benefit payable to the Eligible Employee under the Basic Plan and under any other retirement plan or retirement program of any Employer and (ii) the benefit which would have been payable to the Eligible Employee under the Basic Plan in the absence of the limits on benefits imposed by Section 415 of the Internal Revenue Code of 1986, as amended, and the limit on compensation which may be taken into account under the Basic Plan imposed by Section 401(a)(17) of the Internal Revenue Code of 1986, as amended. If benefits payable to an Eligible Employee under the Basic Plan or under any other retirement plan or retirement program of an Employer are increased after the Eligible Employee's participation in the Basic Plan terminates, whether due to cost of living increases in the Section 415 or 401(a)(17) limits or otherwise, then the benefits under this Plan shall be decreased accordingly. 3.2 Commencement and Form of Payment. An Eligible Employee's supplemental pension benefit under this Plan shall commence at the same time as the Eligible Employee's benefit under the Basic Plan, and shall be paid to the Eligible Employee in the same form as the Eligible Employee's benefit under the Basic Plan; provided, however, that an Eligible Employee may, with the consent of the Committee, which consent may be granted or withheld in the Committee's sole discretion, elect to have the benefit to which the Eligible Employee would otherwise be entitled under this Plan paid in a lump sum. In such case, the amount of the lump sum shall be the actuarial equivalent of the benefit payable under this Plan based upon the interest assumption for actuarial equivalence under the Basic Plan. To elect this option, the Eligible Employee shall give written notice to the Committee not later than 30 days before the Eligible Employee's participation in the Basic Plan terminates. ARTICLE IV Death Benefits 4.1 Qualification and Amount. If an Eligible Employee dies before beginning to receive benefits under this Plan, and if the surviving spouse of such Eligible Employee is entitled to a death benefit under the Basic Plan, then the surviving spouse of the Eligible Employee shall be entitled to receive a death benefit under this Plan from the Employer with which the Eligible Employee was employed at the time the Eligible Employee was last an Eligible Employee equal to the difference between (i) the benefit payable to such surviving spouse under the Basic Plan and under any other retirement plan or retirement program of any Employer and (ii) the benefit which such surviving spouse would have received from the Basic Plan in the absence of the limits on benefits imposed by Section 415 of the Internal Revenue Code of 1986, as amended, and the limits on compensation which may be taken into account under the Basic Plan imposed by Section 401(a)(17) of the Internal Revenue Code of 1986, as amended. If benefits payable to an Eligible Employee's surviving spouse under the Basic Plan or other retirement plan or retirement program of an Employer are increased after the Eligible Employee's death, whether due to cost of living increases in the Section 415 or Section 401(a)(17) limits or otherwise, then the benefits payable to the surviving spouse under this Plan shall be decreased accordingly. 4.2 Duration of Payment. The surviving spouse's benefit payable under Section 4.1 shall commence at the same time as the surviving spouse's benefit under the Basic Plan and shall continue until the surviving spouse's benefit under the Basic plan terminates. ARTICLE V Administration 5.1 The Committee. The Committee shall administer, construe and interpret this Plan. No member of the Committee shall be liable for any act done or determination made in good faith. No member of the Committee who is a participant in this Plan may vote on matters affecting the member's specific benefits under this Plan, but any such member shall otherwise be fully entitled to act in matters arising out of or affecting this Plan notwithstanding the member's participation herein. The Committee may, in its discretion, delegate its duties to any person, including an officer or employee of any Employer. 5.2 Duties. The construction and interpretation by the Committee of any provision of this Plan shall be final and conclusive. The Committee shall determine, subject to the provisions of this Plan, the Eligible Employees who shall participate in the Plan from time to time and the amount, if any, due an Eligible Employee (or the Eligible Employee's surviving spouse) under this Plan. 5.3 Claims Procedure. (a) Initial Claim. If an Eligible Employee or an Eligible Employee's spouse (hereinafter referred to as a "Claimant") is denied all or a portion of an expected benefit under this Plan for any reason, the Eligible Employee or the Eligible Employee's spouse may file a claim with the Committee. The Committee shall review the claim itself or appoint a person to review the claim. The Claimant shall be notified within 60 days after the Claimant's claim is filed whether the claim is allowed or denied, unless the Claimant receives written notice prior to the end of the sixty (60) day period stating that special circumstances require an extension of the time for decision. The notice of the decision shall be in writing, sent by mail to the Claimant's last known address, and, if a denial of the claim, must contain (i) the specific reasons for the denial, (ii) specific reference to pertinent provisions of the Plan on which the denial is based, and (iii) if applicable, a description of any additional information or material necessary to perfect the claim, an explanation of why such information or material is necessary, and an explanation of the claims review procedure. (b) Review Procedure. A Claimant is entitled to request a review of any denial of the Claimant's claim by the Committee. The request for review must be submitted to the Committee in writing within 60 days after notice of the denial is mailed. Absent a request for review within the 60-day period, the claim will be deemed to be conclusively denied. A review of any denial of a claim shall be conducted by the Committee or its designee in a manner which complies with applicable regulations of the Department of Labor. ARTICLE VI Miscellaneous Provisions 6.1 Limitation of Rights. Nothing contained in this Plan shall be construed to limit in any way the right of an Employer to terminate an Eligible Employee's employment at any time or to be evidence of any agreement or understanding, express or implied, that an Employer will employ an Eligible Employee in a particular position or at any particular rate of remuneration. 6.2 Life Insurance. The Employer in its discretion may apply for and procure, as owner and for its own benefit, insurance on the life of an Eligible Employee, in such amounts and in such forms as the Employer may choose. An Eligible Employee shall have no interest whatsoever in any such policy or policies, but at the request of the Employer the Eligible Employee shall submit to medical examinations and supply such information and execute such documents as may be required by the insurance company or companies to whom the Employer has applied for insurance. 6.3 Nonalienation of Benefits. No amounts payable hereunder may be assigned, pledged, mortgaged or hypothecated and, to the extent permitted by law, no such amounts shall be subject to legal process or attachment for the payment of any claims against any person entitled to receive the same. 6.4 Amendment or Termination of Plan. The Board of Directors of USF&G may amend this Plan from time to time in any respect, and may at any time terminate the Plan in its entirety or as it applies to any Employer; provided, however, that an Eligible Employee's entitlement to benefits under this Plan may not be terminated or reduced. This Plan shall terminate automatically if the Basic Plan terminates, in which event (i) no additional employees shall become participants in this Plan and (ii) benefits under this Plan shall be paid in the same manner and at the same time as benefits under the Basic Plan, regardless of whether Basic Plan benefits are paid at or before an Eligible Employee's retirement. 6.5 Unfunded Plan. This Plan is unfunded. The obligations of an Employer with respect to the benefits payable hereunder shall be paid out of the Employer's general assets and shall not be secured by any form of trust, escrow or otherwise. The rights of an Eligible Employee, or the Eligible Employee's surviving spouse, to benefits under the Plan shall be solely those of an unsecured creditor of the Employer. Any assets acquired by or held by the Employer in connection with the liabilities assumed by it pursuant to the Plan shall not be deemed to be held under any trust for the benefit of an Eligible Employee, or the Eligible Employee's spouse, or to be security for the performance of the obligations of the Employer but shall be, and remain, general, unpledged, and unrestricted assets of the Employer. No representation shall be made to any Eligible Employee which is contrary to this Section 6.5 or which in any way suggests that any assets which may be maintained by the Employer in respect of its obligations under this Plan will be used solely for that purpose. 6.6 Construction of Plan. This Plan shall be administered and construed so as to qualify as an "unfunded" plan providing benefits to a "select group of management or highly compensated employees," as those terms are used in the Employee Retirement Income Security Act of 1974. 6.7 Employer Obligations. Each Employer shall be obligated to pay benefits under this Plan to its Eligible Employees and no Employer shall be obligated to fulfill the obligations of any other Employer under this Plan. ARTICLE VII Effective Date 7.1 The foregoing Plan is effective January 1, 1991. It shall apply to persons in the employ of an Employer on and after that date. It shall not apply to former employees of any Employer whose employment terminated before that date. The rights of employees whose employment terminated before January 1, 1991 shall be determined under the terms of the Plan which applied when employment terminated. IN WITNESS WHEREOF, USF&G has caused this Plan to be executed on its behalf. UNITED STATES FIDELITY AND GUARANTY COMPANY By Date: EX-11 12 EXHIBIT 11 EPS COMPUTATION USF&G Corporation Exhibit 11 - Computation of Earnings Per Share
For the Years Ended December 31 (dollars in millions except per share data) 1993 1992 1991 Net Income Available to Common Stock Primary: Income (loss) from continuing operations before cumulative effect of adopting new accounting standards $ 127 $ 35 $ (144) Less preferred stock dividend requirements 48 48 37 Income (loss) from continuing operations before cumulative effect of adopting new accounting standards available to common stock 79 (13) (181) Loss from discontinued operations - (7) (32) Income from cumulative effect of adopting new accounting standards 38 - - Net income (loss) available to common stock $ 117 $ (20) $ (213) Fully diluted: Income (loss) from continuing operations before cumulative effect of adopting new accounting standards $ 127 $ 35 $ (144) Less preferred stock dividend requirements 16 48 37 Income (loss) from continuing operations before cumulative effect of adopting new accounting standards available to common stock 111 (13) (181) Loss from discontinued operations - (7) (32) Income from cumulative effect of adopting new accounting standards 38 - - Net income (loss) available to common stock $ 149 $ (20) $ (213) Weighted Average Shares Outstanding Primary common shares 84,780,283 84,355,431 84,169,091 Fully diluted: Common shares 84,780,283 84,355,431 84,169,091 Assumed conversion of preferred stock 26,611,211 - - Assumed exercise of stock options 1,301,361 - - Total fully diluted 112,692,855 84,355,431 84,169,091 Earnings Per Common Share Primary (A): Income (loss) from continuing operations before cumulative effect of adopting new accounting standards $ .93 $ (.16) $ (2.15) Loss from discontinued operations - (.08) (.38) Income from cumulative effect of adopting new accounting standards .45 - - Net income (loss) $ 1.38 $ (.24) $ (2.53) Fully diluted (B): Income (loss) from continuing operations before cumulative effect of adopting new accounting standards $ .98 $ (.16) $ (2.15) Loss from discontinued operations - (.08) (.38) Income from cumulative effect of adopting new accounting standards .34 - - Net income (loss) $ 1.32 $ (.24) $ (2.53) (A) Shares issuable under stock options (1,301,361 shares in 1993, 613,974 shares in 1992, and 3,252 shares in 1991) have not been used as common stock equivalents in the computation of primary earnings per common share presented on the face of the Consolidated Statement of Operations because the dilutive effect is not material. (B) Fully diluted earnings per common share amounts are calculated assuming the conversion of all securities whose contingent issuance would have a dilutive effect on earnings. The effect of assuming conversion of the preferred stock (30,959,211 shares in 1992 and 19,068,466 shares in 1991) is antidilutive and, therefore, the amounts presented in the Consolidated Statement of Operations for primary and fully diluted earnings per share are the same. Shares issuable under stock options (852,627 in 1992 and 3,252 in 1991) have not been used as common stock equivalents because the dilutive effect is not material.
EX-12 13 RATIO OF FIXED CHARGES Exhibit 12 - Computation of Ratio of Consolidated Earnings to Fixed Charges and Preferred Stock Dividends
For the Years Ended December 31 (dollars in millions) 1993 1992 1991 Fixed Charges Interest expense $ 41 $ 40 $ 46 Interest capitalized - 8 8 Portion of rents representative of interest 27 28 31 Total fixed charges 68 76 85 Preferred stock dividend requirements (A) 48 48 37 Combined Fixed Charges and Preferred Stock Dividends $116 $124 $ 122 Consolidated Earnings Available for Fixed Charges and Preferred Stock Dividends Income (loss) from continuing operations before income taxes and cumulative effect of adopting new accounting standards $ 99 $ 35 $(141) Adjustments: Fixed charges 68 76 85 Less interest capitalized during the period - (8) (8) Consolidated earnings available for fixed charges and preferred stock dividends $167 $103 $ (64) Ratio of Consolidated Earnings to Fixed Charges 2.5 1.4 (B) Ratio of Consolidated Earnings to Combined Fixed Charges and Preferred Stock Dividends 1.4 .8 (B) (A) Preferred stock dividend requirements of $48 million in 1993 and 1992 and $37 million in 1991 divided by 100% less the effective income tax rate of 0% in 1993, 1992, and 1991. (B) In 1991, earnings were inadequate to cover combined fixed charges and preferred stock dividends by $186 million, and inadequate to cover fixed charges by $149 million.
EX-13 14 ANNUAL REPORT (COVER) ANNUAL REPORT 1993 USF&G Corporation USF&G's new logo, an open door with light shining through it, represents the energy that is USF&G today and the clarity, openness, and customer orientation that we bring to the insurance process. It symbolizes our commitment to providing superior market-specific products and value-added services to our agents and our customers. As a totally revitalized and refocused insurance enterprise, it is appropriate for USF&G and its people to now be seen in a different "light." Our new identity reflects the exhilaration of having accomplished an arduous repositioning process. We are proud to celebrate the company we are today. USF&G Corporation, with assets of $14.3 billion, is composed of property/casualty and life insurance subsidiaries. The principal subsidiary is United States Fidelity and Guaranty Company, one of the nation's largest property/casualty insurers, founded in 1896. Life insurance products and annuities are written through Fidelity and Guaranty Life Insurance Company, founded in 1959. USF&G provides a wide variety of quality commercial, personal, fidelity/surety, life, and reinsurance products targeted to meet the diverse insurance needs of its customers. 1 Contents Financial Highlights 3 Chairman's Letter 5 Discussion of Operations 11 Interview with Management 25 Product Line Overview 28 Investments 30 Capitalization 32 Index to Financial Information 33 Directors and Committees of the Board 83 Executive Management Committee 84 Officers 85 Regional and Branch Offices 86 Shareholders' Information 88 2 Financial Highlights
For the Years Ended December 31 (dollars in millions except per share data) 1993 1992 1991 CONSOLIDATED RESULTS Revenues $ 3,249 $ 3,660 $ 4,172 Premiums earned 2,456 2,637 3,187 Net investment income 749 817 877 Realized gains on investments 6 148 38 Restructuring charges - (51) (60) Income (loss) from continuing operations before cumulative effect of adopting new accounting standards 127 35 (144) Loss from discontinued operations - (7) (32) Cumulative effect of adopting new accounting standards 38 - - Net income (loss) 165 28 (176) RESULTS PER COMMON SHARE Income (loss) from continuing operations before cumulative effect of adopting new accounting standards $ .93 $ (.16) $ (2.15) Loss from discontinued operations - (.08) (.38) Cumulative effect of adopting new accounting standards .45 - - Net income (loss) $ 1.38 $ (.24) $ (2.53) Dividends declared $ .20 $ .20 $ .20 At December 31 1993 1992 1991 CONSOLIDATED FINANCIAL POSITION Assets $ 14,335 $ 13,134 $ 14,486 Debt 618 616 677 Shareholders' equity 1,511 1,270 1,323 Debt-to-equity 41% 49% 51% Book value per share $ 11.66 $ 8.87 $ 9.53 Market price per share 143/4 123/8 71/4 Common shares outstanding 85,009,482 84,512,758 84,273,327
GRAPH Revenues (in billions) GRAPH Net Income (in millions except per share data) GRAPH Balance Sheet Leverage/Liquidity (dollars in billions) 3 PHOTO (caption) Chairman, President, and Chief Executive Officer Norman P. Blake, Jr. 4 Chairman's Letter The year 1993 constituted the culmination of the restructuring efforts to "fix the foundation" of USF&G since my arrival in November 1990. As illustrated in the chart below, the restructuring and rebuilding of our company involves a three-phase process. The earnings dynamic is depicted as we progress through each stage of development. We are sharply focused on winning in the insurance business and, accordingly, have divested unrelated businesses which constituted a diffusion of resources and a drag on earnings. A strong management team and a highly talented cadre of professionals have been assembled. Well defined market and product line operating strategies have been developed and are being implemented to best leverage our newly established competitive strengths. Our 1993 earnings performance is a reflection of our sharp business focus and new competitiveness. 1993 Performance We earned $165 million of net income in 1993, compared with $28 million in 1992. On a per common share basis after payment of preferred dividends, we earned $1.38 in 1993 compared with a loss of $.24 in 1992. The primary driver of this improvement was the growth in consolidated operating income. Earnings were further enhanced by a net benefit of $66 million as a result of the adoption of new accounting standards as well as related tax benefits. USF&G defines operating income as income from continuing operations before income taxes, realized gains, and the cumulative effect of adopting new accounting standards. Consolidated operating income in 1993 was $93 million, which compared quite favorably with a $113 million operating loss in 1992. The property/casualty company is the primary earnings driver of USF&G Corporation. It earned $182 million in operating income in 1993, representing a dramatic improvement over a loss of $3 million in 1992. The 1992 results were adversely affected by $80 million of net losses attributable to Hurricane Andrew as well as $46 million in restructuring charges. The fundamental factor responsible for the increase in property/casualty operating income was the substantial improvement in underwriting results. The 1993 statutory loss ratio was 75.4, which was 6.6 points lower than the 82.0 loss ratio in 1992. Even excluding the losses attributable to Hurricane Andrew, the loss ratio was lowered by 3.6 points from an adjusted 1992 loss ratio of 79.0. This improvement was achieved as a result of GRAPH (caption) USF&G is now entering the "Build with Vision" phase of its restructuring and rebuilding process. 5 effective product/market mix management, improved agency relationships, and better risk management (loss control engineering, underwriting, and claim administration). This achievement is even more significant considering we also maintained our strong loss reserve position. Principally as a result of improvement in our loss ratio, our combined ratio improved from 116.9 in 1992 to 109.1 in 1993. Other factors favorably influencing earnings growth have been the substantial lowering of structural costs as well as increased employee productivity. Since the outset of 1991, we have reduced the workforce by 48 percent and general and administrative expenses by 31 percent. Employee productivity, as measured by revenues per employee, has increased by 37 percent. We anticipate that the current level of employment will remain approximately the same for the foreseeable future. Going forward, emphasis will be given to changing the composition of our cost structure to achieve greater operating leverage. Efforts will continue to lower fixed costs while improving productivity through higher levels of automation. This will allow us to benefit from higher levels of business without a proportional increase in costs. Financial Strength The significant progress made in 1993 is also reflected in the strengthening of our consolidated balance sheet. Overall asset quality, financial leverage, and liquidity have substantially improved. Our $11.4 billion investment portfolio has been conservatively managed. Investment-grade fixed-income securities were 79 percent of total invested assets, compared with 76 percent in 1992, while more volatile assets such as equities, high-yield bonds, and real estate were maintained in the aggregate at 15 percent of total invested assets. Real estate reserves were maintained at $108 million, despite a 28 percent reduction in nonperforming real estate investments. Currently real estate reserves are 10 percent of the total portfolio, which represents a 43 percent coverage of nonperforming real estate investments. We believe that this is one of the strongest real estate reserve positions in the industry. Our property/casualty company has the highest level of statutory surplus in its history, which is well above risk-based capital standards established by the National Association of Insurance Commissioners ("NAIC"). USF&G Company's ratio of loss reserves to earned premium was raised from 2.2 in 1992 to 2.4 in GRAPH Operating Income (in millions) (caption) The increase in operating income is due to improved underwriting performance in the property/casualty company. GRAPH Property/Casualty Statutory Combined Ratio (caption) The improved ratios result from effective product/market mix management and improved underwriting and claim settlement practices. 6 1993. We have also substantially lowered the corporation's financial leverage as measured by the improvement in the debt-to-equity ratio from 49 percent in 1992 to 41 percent in 1993. Liquidity has significantly improved as well, and is reflected by the increase in the fixed charge coverage ratio from 0.8 in 1992 to 1.4 in 1993. Fixed charge coverage is the ratio of earnings to fixed charges and preferred stock dividends. Competitiveness In addition to the substantial improvement in earnings power and financial strength, USF&G's overall competitiveness has been enhanced. The skills and competencies of our organization and management have been significantly elevated. This was accomplished by intense internal training and recruiting. The number of training programs and participation has tripled since 1990. The infusion of external managerial talent into the organization is equally impressive. Since 1991, 60 percent of all officer-level employees are new to the company. Each new member of our management team has a proven track record and has the recognized expertise to be an effective knowledge leader and change agent. The organization structure has been transformed as well. Five regional operations have been established to facilitate the change process as well as to provide value-added coaching to improve the market competitiveness of each of our branch operations. Product line and market segment business units have been formed with dedicated, highly talented management teams to implement discrete business strategies. Each branch, region, product, and market segment business unit has profit and loss responsibility linked to compensation. In my opinion, our newly assembled management team is one of the strongest in the industry. We now have the skills and leadership capabilities to build a great company that achieves distinctiveness in the quality of its products and services. We have enriched our agency plant by focusing on and appointing high quality agents and terminating unprofitable ones. We have formed agency advisory councils in each of our branch and regional locations to enhance our relationships with our agency force and to ensure our responsiveness to meeting the needs of our customers. We have developed and implemented expert underwriting and claims management systems, as well as significantly upgraded our risk management capabilities. We have been GRAPH General & Administrative Expenses (in millions) (caption) A 31% decrease in general and administrative expenses since 1990 favorably influenced earnings. GRAPH Consolidated Employment & Productivity (in thousands) (caption) Employment levels decreased by 48% since 1990 contributing to a 37% improvement in productivity. 7 intensely involved in developing highly competitive, if not superior, products and services in all of our product areas. We are now a highly energized and committed company ready to "build with vision" and to focus on profitable growth in 1994 and beyond. New Identity Our new logo on the cover of this report announces our entry into a new era in the history of USF&G. It symbolizes the emergence of our new culture and commitment to core values which fuels the creative energies of our people to achieve greatness. Our former logo has served us well, representing past accomplishments with distinction and giving honor to those so instrumental in providing us a proud heritage from which to build. Yet, with the dramatic transformation of our company and the newness and diversity of our workforce, it is important to provide an identification that conveys the meaning of our culture and unites our organization to achieve a common purpose of becoming the best. Our new logo accomplishes this objective. There are two distinctive aspects of our new identity: the open door, and the light shining through the door. The open door has direct implications for all of our constituencies. To our employees, the open door suggests openness, opportunity, and a boundaryless organization. The only constraint to both individual and company growth and progress is our own potential and willingness to strive to achieve. It implies a commitment to diversity of employment and to providing a work environment and training opportunities conducive to personal growth and development. It implies that the basis for advancement in our high-performance culture is individual performance and adherence to our core values. To our agents, the open door means an accessibility and ease of doing business. It suggests directness and honesty in our business dealings. It signifies an invitation to our agents to participate with us as business partners and to provide our shared customers with the most competitive products and services available. To our customers, the open door conveys our responsiveness to their needs. It means we strive to better understand their needs and, by doing so, we design, develop, and deliver competitively superior products and services that are worthy of their confidence. It implies that we stand ready to serve them when they need us. GRAPH Investment Portfolio (dollars in billions) (caption) Improved asset quality is evidenced by an increase in investment-grade fixed-income securities. GRAPH Real Estate Portfolio (dollars in billions) (caption) Nonperforming real estate investments have decreased while reserve coverage has steadily improved. 8 To our shareholders, the open door demonstrates our direct accountability to the investor to be deserving of the confidence they have placed in us. Core Values The light shining through the door symbolizes the energy of our people. We are strongly committed to assimilating our core values into our culture. Employee performance appraisals incorporate an assessment of an individual's demonstration of core values and technical abilities. Employee recognition programs have been developed to identify exemplary employees who demonstrate these values. It is expected that the leaders of our company manifest these core values and serve as effective role models. Five core values constitute the foundation of our culture: o Customer First: putting the customer's interests at the forefront of our actions. o Integrity: treating people honestly, fairly, and respectfully. o Professionalism: having the commitment and dedication to being the best at what we do. o Innovation: thinking of ways of doing things better by doing them differently and having the courage to overcome the resistance to change. o Teamwork: trusting in one another and working together as a better way of achieving our common objectives. As a company, the people of USF&G are committed to these core values and creating a culture that both empowers and enables us to make a difference and, in so doing, gain a sense of ownership in what we do. We have a cadre of highly competent and committed employees striving to make our vision reality. I invite you to review the following sections of this report to gain a further understanding of the energies and capabilities of our people in their pursuit of building a company of excellence. I thank you on behalf of all the employees for the confidence you have placed in us. Please be assured of our continuing commitment to making USF&G worthy of your investment. NORMAN P. BLAKE, JR. Norman P. Blake, Jr. Chairman, President, and Chief Executive Officer March 4, 1994 9 PHOTO (caption) USF&G's commercial insurance business offers its products and services through a teamwork approach. Here Randall C. Brusewitz, CFO-Northern Wire Corporation, Merrill, Wisconsin (foreground right), meets with Peter R. Moncher, USF&G senior loss control consultant. Joining them are (left to right), Robert F. McIntyre, account executive-Frank Haack & Associates; Dewey Plamann, general manager-Northern Wire; William R. Haack, president-Frank Haack & Associates; and Mary Kraus, USF&G claim representative. 10 Commercial Lines PHOTO (caption) Commercial Lines Team Left to right, Glenn Anderson. Seated, Ben Griffin; Kim Rich. Standing, Peter Bothwell; Bob Mueller; Steve Lilienthal; and Bob Lamendola. The commercial insurance business is vital to the financial well being of American business. At USF&G, it accounts for over one-half of our total property/casualty ("P/C") premium revenue. Our vision for USF&G's commercial insurance operation is to become so superior at what we do-providing insurance products and related services-that knowledgeable independent agents and customers will actively seek USF&G. USF&G is becoming a premier commercial insurer by dedicating itself to being customer- focused and delivering superior products and services through a teamwork approach that truly benefits customers. This dedication is the foundation upon which we are building our long-term business strategy to achieve profitable growth. Customer focus means creating a formula for success that is uniquely meaningful for each of our targeted customer segments. Since our book of business encompasses three distinct customer/market segments (middle market commercial P/C, small business commercial P/C, and fidelity/surety), customer focus means organizing and approaching these markets as three distinct businesses. Our teamwork approach to these markets requires highly-talented teams of underwriting, loss control, claim, and marketing personnel working closely with our agents to attract, underwrite, service, and retain our accounts. This team concept also applies to the development of superior coverages, pricing, and service programs for our targeted customers. Customer focus and teamwork make all of our important constituents winners. Commercial insurance customers win because we research their needs and develop customer-tailored products and services to meet those needs. Our agents win as we provide them with more competitive products and marketing support. USF&G employees win by becoming more productive in serving target market customers as a result of intensified training programs. USF&G shareholders win as earnings grow because we are serving customer needs in a more focused and disciplined fashion. Middle Market Commercial USF&G's targeted middle market commercial P/C segment consists of medium to large businesses that generate annual premium ranging from $25,000 to $1 million or more. Nationwide, approximately one million businesses make up this $50 billion market. Its size and diversity offers USF&G tremendous opportunities to specialize and grow. Middle market premiums account for approximately 79 percent of our total commercial premium, excluding fidelity/surety, but less than 31 percent of our accounts. The most important element in this business is understanding the risks and pricing them individually. The game is won or lost based on loss containment from the company's perspective and on product differentiation and superior service levels from the customers' perspective. Our strategy is to become a superior underwriter and provider of targeted, value-added products and services for our middle market customers. 11 PHOTO (caption) USF&G's fidelity/surety operations have been among the leaders of the bonding industry since our founding in 1896. This road and bridge interchange project in Norton, Virginia, is bonded out of our Charleston, West Virginia, branch office. Meeting at the construction site to discuss the progress of the project are (left to right), Tony Stanchina, president-Friedlander Company; Frank Oliver, USF&G bond manager; and John Conkwright, VP operations-Vecellio and Grogan of Beckley, West Virginia. 12 During 1993, we made major progress in implementing our middle market strategy. The company created three business units to lead our efforts in penetrating the manufacturing, contracting, and service industries. In the field, 30 commercial lines middle market underwriting departments now focus exclusively on penetrating the middle market in their territories. We launched extensive sales efforts with close to 3,900 USF&G agents to stimulate new middle market production, led by our corporate-wide "Operation Play Ball" campaign. We made substantial investments in technical training and in new product development, including the introduction of our new "Five Star Restaurant Program," our "Precision Design Program for Manufacturers" and our soon-to-be-released "Blueprint Program for Contractors." The combination of these efforts enabled us to gain momentum in targeted middle market production in 1993 and laid a firm foundation for future success. Small Business Commercial USF&G's targeted small business commercial P/C market consists of over five million small businesses nationwide that generate average annual premiums of $5,000. While many companies are moving away from this market due to the lower premiums and high processing costs per transaction, USF&G is tackling this opportunity head on. Our strategy is designed to earn USF&G a leading role in this $30 billion market. Small commercial business represents about 21 percent of our commercial premium, excluding fidelity/surety, yet almost 69 percent of our accounts. The most important elements for success in this business are to: (1) lower per unit transaction costs for the agent and USF&G, (2) reduce the cost of complexity by offering standardized product packages, and (3) improve the quality of service in terms of timeliness and reliability. Five regional processing hubs, staffed with underwriting and administrative specialists, are now in operation, eliminating much of the burden of backroom processing previously placed on our branches. Further enhancements in work flow processing and quality of service are receiving the highest priority to facilitate an improvement in the ease of doing business with our agents. During 1993, our small business commercial market segment made substantial progress in increasing productivity and reducing both its operating costs and expense ratio. Fidelity/Surety Our fidelity/surety business provides bonding products and services to thousands of construction contractors, commercial businesses, financial institutions, and individual customers. Fidelity/surety continues to produce excellent financial results indicative of strong underwriting skills. Accomplishments in 1993 included strengthening our customer/market focus to help us grow, centralizing and upgrading our claim operations, and reducing expenses by incorporating more technology in processing business. Our main focus in 1993 was to set the base for continued profitable growth. We plan to capitalize upon those efforts in 1994. USF&G's commercial lines operation is energized and has assembled the best people in the business who are building some of the most competitive products and services. We are determined to win in our chosen target markets. 13 PHOTO (caption) With USF&G's ActionPlus, our customers are only a telephone call away from emergency roadside services. Loretta Karkoff of Naperville, Illinois (driver), tells Keith Rademacher, P.A.R. Insurance Services, and Kathleen Pagnano, USF&G Claim manager, how pleased she is with the service ActionPlus provided to her family. 14 Personal Lines PHOTO (caption) Personal Lines Team Left to right, Dick Potter, Paul DiFrancesco, Earnie Hines, and Eileen Auen. Personal lines insurance products, including auto, property, watercraft, and umbrella liability coverages, comprise a $112 billion industry. Since the early 1980s, personal insurance has continued its growth at an annual rate approaching nine percent. About $40 billion of the total personal lines market is sold through the independent agency system. Customers choose this channel to assure appropriate product counseling and review of their coverages, as well as the highest service levels. Given the size and growth potential of this industry segment and USF&G's superior agency franchise, the company is making significant strategic investments to increase its share of business in key markets. The strategy for increasing profitable penetration of existing-and new-agencies includes focused agency and consumer target marketing, dedicated local sales presence, expanded product and service portfolios, and enhanced technology in critical customer service applications. Focused Target Marketing To optimize USF&G's presence in markets which represent the highest profit potential, we work with our agency partners to target and attract key customer segments by providing the proper combination of coverage, service, and price. Dedicated Sales Presence To fully understand our markets and support our agents, USF&G has chosen to increase its local, dedicated sales presence by placing account specialists in key markets. Account specialists combine local presence and market knowledge with national product development and marketing capabilities. Expanded Products and Services As customers' needs change, so do the products and services USF&G offers. Our new Personal Excess Product protects our customers' assets in these very litigious times. USF&G's watercraft program has been redesigned to reflect the increased value and use of pleasure craft today, and our ActionPlus program puts our claim representatives a phone call away, 24 hours a day, 365 days a year. Enhanced Technology The integration of technology with business strategy is even more critical in today's information era. Whether through automated underwriting techniques or through agency interface which will link our business partners with our processing systems, USF&G is committed to creatively leveraging technology to find better solutions for agents and customers alike. Personal lines' 1993 financial results have demonstrated the success of our prior and current initiatives. The most critical element behind our strategy is the teamwork among the agency, branch, and home office. With this team now in place, USF&G intends to continue increasing its share of this dynamic industry. 15 PHOTO (caption) USF&G focuses clearly on its customers, making our 30 full-service branches our most important operations. At City Hall in Meridian, Mississippi, (left to right) the Honorable John Robert Smith, mayor, meets with Bill Allison, 44-year USF&G veteran and current consultant; Bruce Martin, Meyer & Rosenbaum, and Andy Everett, president of our new subsidiary, USF&G Insurance Company of Mississippi, to express appreciation for providing superior service in meeting the city's insurance needs. 16 Field Operations PHOTO (caption) Field Operations Team Left to right, Gary Dunton. Seated, Ken May, Southwest region; Paul Beil, Midwest region. Standing, Jim Lewis, Northeast region; Lee Buck, West region; and Andy Everett, USF&G of Mississippi. The function of USF&G's Field Operations Department is to bring the product line strategies to life. 1993 was a year of major change for USF&G and nowhere was it more evident than in our field offices. We are dedicated to having the industry's most professional people located near our customers and agents. Our 30 full-service branches are essentially local businesses where the quality of our employees is our most critical success factor. During the last two years, we upgraded our field personnel dramatically. Nearly 70 percent of all field managers are new to their positions and 30 percent of all underwriting technical employees are new to USF&G. We are now staffed with knowledgeable, experienced professionals who know their local markets. Our branch professionals are empowered to handle most business at the local level. Through technical and specialized underwriting, loss control, claim, and marketing training programs (some of the industry's most extensive), we are building a knowledge-based organization committed to customer satisfaction and profitability. We have organized our branch offices around discrete customer/market segments. Each branch has profit and loss responsibility and contains commercial, fidelity/surety, and personal lines teams. These teams are led by our branch vice presidents. Our branches are managed by five regional offices with strong management responsible for territorial strategy development, resource allocation, and plan execution. Being close to our markets gives us the flexibility to respond to market changes, the capacity for superior customer and agent service, and more complete and local underwriting knowledge. USF&G's product departments have begun to deliver state-of-the-art insurance programs to our field operations for rollout. As a result, our competitiveness in local markets is improving substantially. Most importantly, we have significantly strengthened what was already considered one of the best distribution networks in the industry-our independent agents. Through the efforts of our field marketing development managers, our average premium per current agency is up substantially over 1992. We have created a strong local, regional, and national agency council network that allows us to tap the expertise of our agents in developing market opportunities. We are an organization on a mission-partnership for profitable growth and partnership with our product departments and our agents to meet our customers' needs and to grow profitably. 17 PHOTO (caption) When fire destroyed a building at the Monroeville Industrial Park owned by Samdoz in Pittsburgh, USF&G provided immediate claim service to meet our customer's needs. Here (left to right), Charles Murray, USF&G general adjuster; Ken Moir, Kenco Agency; Domenic Dozzi, VP-Samdoz; and Jim Soeder, USF&G property claim specialist, examine blueprints at the scene of the fire. 18 Claim PHOTO (caption) Claim Team Left to right, Ken Cihiy. Seated, Tom Salinsky; Jack Hayes. Standing, Chuck Stapleton; and Tom Trezise. The claim function is responsible for delivering the value for which the customer paid. Claim service is frequently the only measurement of that value. In 1993, USF&G's Claim Department completed its restructuring, developed operating strategies, and committed to providing high standards of service to all of its constituents. The department defined three roles that add value to USF&G's insurance operations: (1) managing loss costs, (2) adding claim expertise to product development, and (3) utilizing high-quality claim service as a competitive advantage. The claim function has the primary financial responsibility for managing loss costs. We consider the entire cost of settling claims, that is, the actual loss payments as well as the cost of adjusting the losses. In some areas of the settlement process, we have dramatically repositioned our efforts. For example, instead of focusing on reducing legal costs associated with liability claims, we focused on controlling the loss payments themselves. This has necessitated hiring attorneys with superior legal expertise and extensive trial experience. As we anticipated, claim payments have been reduced and overall legal costs have decreased as well. We have also integrated the claim function into the continuum of product development. This process involved forging alliances with the home office product line operations and our field personnel. Throughout the complete life cycle of our products, our claim people are now involved in product development, helping to tailor coverages to suit customer needs, risk selection, and marketing to target customers. We have begun to utilize USF&G's claim services as a competitive advantage. The quality of the settlement process is recognized as a key determinant in both writing and retaining accounts. In 1993, we hired a vendor to assess the base level of our performance by surveying our agents and customers. Approximately 75 percent of our agents and customers were "very" or "extremely" satisfied with our claim service. To capitalize on opportunities to further improve, however, we plan to sample our customers on a regular basis and to build in a call-back mechanism to address specific issues. We believe that by externally evaluating the professionalism of our claim team, employees' knowledge of specific claim areas, and the quality of the settlement process, we can build the claim function around our customers' expectations-not our own yardstick. USF&G is clearly demonstrating through its energized, professional claim team that it is a customer-driven insurer, respectful of protecting company assets. 19 PHOTO (caption) By recognizing opportunity and reacting quickly, F&G Re has underwritten reinsurance in many diverse areas including satellite launches. Maura Dyer, underwriter-INTEC; Dwight Evans, SVP-F&G Re, and Doug Morrison, VP-F&G Re stand before a model of an Atlas rocket and listen as former astronaut Rick Hauck, president and CEO-INTEC, describes how the rocket is launched into space. 20 F&G Re PHOTO (caption) F&G Re Team Left to right, Paul Ingrey. Seated, Wayne Paglieri; John Berger. Standing, Dwight Evans; Roland Jackson; Alan Willemsen; and Dave Skurnick. The year 1993 marks the tenth year that F&G Re has underwritten reinsurance on behalf of USF&G in such diverse areas as satellites, offshore oil rigs, catastrophe, and financial reinsurance. Our objective has always been to recognize opportunity early and to react quickly. We have consistently achieved this objective because we operate in a marketplace that is global and relatively free of regulation, and because we are able to move in and out of markets rapidly. While our premium can fluctuate widely from one year to the next, we have always met our goal of earning an underwriting profit. In 1993, we had written premium of $403 million at a combined ratio of 91.9, producing an underwriting profit of $32 million. In our decade of operation, we have written reinsurance premiums of $3.4 billion at an average combined ratio of 94.6. Our combined ratio of 93.5 over the past 5 years is the best in the property/casualty reinsurance industry. F&G Re has truly arrived on the international scene. In 1992, our international business totaled $19 million. In 1993, our international business increased to $50 million. We also opened a liaison office in London last year to better access and service European business. We hope to see our international business double in 1994. We see increasing challenges as we move into our second decade. One of the basic laws of economics states that the perception of excess profits will attract capital. This has happened in the property catastrophe ("CAT") market. Over $4 billion of new capital has been raised for Bermuda-based CAT reinsurance companies. Because the property CAT market has been an important part of our premium and profit, this new competition will make this market more difficult for us in 1994 and 1995. We have been recognized as innovators in the financial reinsurance arena. Recent accounting changes, when coupled with the new Bermuda capacity on the traditional side are reducing the demand for these products. Our challenge in 1994 and 1995 is to identify the need for and to create the next generation of nontraditional products. In 1994, we will again strive to achieve well above-average results in our industry. It is impossible to predict where and when our next significant opportunities will occur. Our staff of 49 people acts as a highly trained team seeking situations of excess demand or inadequate supply. We will strive to be the first to recognize an opportunity and the first to pursue it. 21 PHOTO (caption) A key element of F&G Life's new product mix is the Tax-Sheltered Annuity (TSA) product that provides retirement income for school teachers and employees of other nonprofit organizations. At California State University, Long Beach, Dr. Carol Kellett, director of The Urban Family Initiative, expresses her satisfaction with the purchase of an F&G Life TSA. Shown with Carol (left to right) are Donald G. Schlesinger, CLU-representative of R.W. Durham & Company; Wally Durham, president-R.W. Durham & Company; and Doug Barone, assistant secretary-distribution manager, F&G Life. 22 PHOTO (caption) Life Insurance Team Left to right, Ihor Hron; Peter McGlinchy; Gene Gaines; and Harry Stout. F&G Life F&G Life's operations are guided by USF&G's core values of customer first, integrity, professionalism, innovation, and teamwork. F&G Life has several additional precepts which govern its specific operations. These precepts are: (1) positioning the company as a provider of life insurance products for independent distributors that have specific expertise in niche markets, (2) having a unique understanding and responsiveness to the markets we serve, (3) using technology to be a low-cost producer of products, (4) establishing F&G Life as an industry leading provider of service to its agents and policyholders, and (5) building a portfolio of products that will provide USF&G with consistent profitability. F&G Life is maturing after the initial turbulence of organizational change resulting from the implementation of its new strategic plan in 1992. All elements of our company were radically revised including our distribution channels, product offerings, pricing strategy, administration, and processing systems. As we follow our distribution-driven strategy, we will continue to focus on niche markets, identify the best distributors in these markets, and develop partnerships with them. Our sales efforts are divided among three major areas: tax-sheltered annuities ("TSAs"), structured settlements, and agency/brokerage business. TSAs are distributed through a strategic alliance with a nationally recognized broker. Structured settlements are marketed principally to USF&G insureds. The agency/ brokerage segment, through which traditional life insurance products and annuities are distributed, is managed and supported by F&G Life operations. USF&G's P/C independent agency system remains one of the primary foundation blocks in the agency/ brokerage segment. Going forward, emphasis is being given to balancing the growth of single premium deferred annuity ("SPDA") business with increasingly higher levels of more profitable TSA and structured settlement business. In addition, a variety of product and market development initiatives are underway to continue to broaden the scope of the business and to provide a basis of creating further avenues for growth. We are positioning to migrate to new distribution niches and channels such as financial institutions and externally generated structured settlement annuities. As we develop diversified annuity products to meet the needs of a growing base of annuity purchasers due to increased life expectancy, we will also focus on growing the mortality product lines within our distribution networks. With a much lower cost structure, a more profitable array of products, and a rebalanced distribution system, F&G Life will be positioned for improved profitability. 23 PHOTO (caption) Executive Management Committee. Front row (left to right), Norm Blake, chairman, president and CEO; Amy Marks, SVP-Human Resources; Dan Hale, EVP and CFO; Gary Dunton, EVP-Field Operations. Second row (left to right), Glenn Anderson, EVP-Commercial Lines; John MacColl, SVP-General Counsel; Paul Ingrey, president-F&G Re; Dick Potter, SVP-Personal Lines. Third row (left to right), Ken Cihiy, SVP-Claims; Andy Stern, SVP-Strategic Planning/ Corporate Marketing; John Sweeney, SVP-Investments; Tom Lewis, SVP-Information Services; Bob Lamendola, SVP-Fidelity/Surety. Top row, Ihor Hron, president-F&G Life. 24 Interview with Management PHOTO (caption) Finance Team Left to right, Dan Hale. Seated, John Sweeney and Frank Bossle. Standing, Tom Bradley; Rich Campagna; and Jim Stangroom. Has the restructuring of USF&G been completed? Yes, we have completed a series of critical initiatives that have essentially brought closure to this three-year process. We have (1) divested noninsurance operations, (2) strengthened the balance sheet, (3) improved investment portfolio quality, (4) lowered structural costs, (5) improved the profit characteristics of our underlying book of business through aggressive product/market mix management, (6) significantly upgraded management as well as the overall skill base of the organization, (7) upgraded information systems effectiveness, and (8) re-engineered our work flow processes. Recently, we have developed and are in the process of implementing well-defined product/market segment operating strategies to gain competitive differentiation. The people of USF&G have a new corporate culture and a commitment to core values as a unifying force bringing the organization together to support common objectives. What are your top priorities for 1994? Our goals for 1994 are built upon the strong foundation achieved through the repositioning initiatives mentioned above. In 1994, we will strive to: (1) continue to improve underwriting performance through enhanced risk management and reduction of exposure to catastrophes, (2) grow profitably through effective execution of our newly developed product/market strategies and programs by leveraging our greatly enhanced competitive capabilities, (3) restructure debt/capital to improve financial leverage and liquidity, (4) further upgrade systems capabilities to better support business strategies and to gain a competitive advantage, and (5) continue to build a high-performance culture through reinforcement of our core values and development of our human resources. How will you grow premium? The question should perhaps more appropriately be re-phrased to ask how we will grow premium profitably at this point in the insurance cycle. We believe that the key to profitable growth in this business lies in developing segmentation strategies that enable carriers to deliver additional value to agents and customers as a result of having a better understanding of their needs. Being closer to customers and having a more in-depth understanding of the coverages they need allows us to more appropriately underwrite risks. This is the only way to be sure we are adequately pricing to cover exposures. To focus appropriately on target middle market segments, we have organized around key manufacturers, contractors, and services sub-markets and have developed a number of tailored products and services designed to meet the unique coverage needs of these important sub-markets. For example, in the manufacturing segment, we have developed a program with proprietary pricing and coverages for plastics, fabricated metal, food processing, paper products, furniture, and apparel businesses. 25 A number of other new products are on the drawing board for introduction in 1994 and beyond. We understand that effective implementation of these programs separates the winners from the losers. Execution in the field requires additional specialized training and careful coordination. Several of our new tailored products have taken more than a year to develop and deliver to our highly skilled underwriting teams. Intense focus on local market expertise is as critical as our product initiatives. We have dramatically increased both resources and capabilities at the branch level to ensure that we provide the best field delivery of our products. The branch-specific marketing and sales strategies being implemented in 1994 were developed by USF&G personnel who are experts in their markets' needs and opportunities. Valuable relationships with our agents allow us to function like a local company with national "muscle." Continued focus, innovative product and service development, and effective field execution will enable USF&G to grow profitably in the years to come, regardless of the timing of cycle turns. When do you anticipate the cycle turning? It is beginning to look as though this turn in the cycle will be very different from those in the recent past. In 1993, rates hardened in the catastrophe reinsurance market, the property segment of personal lines, and in selected commercial lines. Price increases in the bulk of commercial lines products, however, have lagged appreciably. At best, the cycle is turning on a phased basis. Before we can expect to see a more significant hardening of prices, primary carriers will have to be convinced that they have insufficient capacity or surplus and that future net investment income will be inadequate to generate acceptable levels of profitability. Significant increases in industry surplus during 1993 may have prolonged the current phase of the cycle. We believe that additional pressure for increased rate adequacy should come from lower interest rates combined with the effect on equity and surplus due to the implementation of the NAIC's risk-based capital requirements, Statement of Financial Accounting Standards ("SFAS") No. 115, which requires marking-to-market a portion of fixed-income investments, and the recognition of potentially significant reserve needs by carriers with substantial environmental exposures. Could you please describe the vision underlying your new corporate logo? Our new logo embodies our core values: customer first, integrity, professionalism, innovation, and teamwork. These values drive our identity and solidify our sense of partnership with our agents and customers. The open door with the light radiating from behind it symbolizes the emergence of a new culture based on open and honest two-way communications, boundless opportunities, and the commitment to having our core values guide all our relationships with agents and insureds. Could you please explain your regionalization strategy? Our regionalization strategy was designed to bring greater focus to winning in the local market. It is the responsibility of a given region to assist in the development and adequate resourcing of branch-specific operating plans. Moreover, regions are staffed with highly skilled technical coaches who work closely with the branches in the successful execution of their marketing game plans. As we have discussed elsewhere, our branches are the most critical link to success in our markets. The regional structure allows each branch to be empowered and enabled to win in its market place-and to be accountable for its results. Does USF&G need additional capital in order to ensure financial flexibility in the coming year? Our P/C statutory surplus position at year-end 1993 is the highest it has ever been in the company's history, and we do not feel that we would need to raise capital in order to grow our lines of business in the event of a hardening insurance market. While we have taken great strides to strengthen the integrity of our balance sheet, we still plan to address both debt and capital restructuring plans for 1994 and beyond. In March 1994, we issued $245 million face amount of 15-year zero coupon convertible subordinated notes. Proceeds totaling $122 million will be used to retire existing higher-rate debt, resulting in annual interest savings of approximately $5 million and increased cash flow of approximately $11 million. What types of growth opportunities currently exist for USF&G in the reinsurance arena? F&G Re had a banner year in 1993 with premium volume up over 65 percent and an underwriting profit of over $30 million. Today's sophisticated reinsurance buyers are demanding higher quality, more technologically advanced and innovative carriers to service their needs, and that is what F&G Re has to offer. It is also no secret that property reinsurance rates are up, particularly in the catastrophe market, and opportunities exist for talented players to expand internationally under very profitable circumstances. 26 Could you please address your life insurance segment's prospects for growth and profitability? Over the course of 1992 and 1993, we strategically transformed F&G Life from essentially a provider of single premium deferred annuities into a wholesaler of high value-added products that is better able to capitalize on the changing demographics of the population. Our new product offerings, including tax-sheltered annuities, are designed to offer our customers greater flexibility while improving profit potential for F&G Life. We have also implemented aggressive cost controls and have diversified our sales through new distribution channels. In the structured settlements arena, we have improved our ability to cross-sell our services to both our internal P/C clients as well as external customers. All of these efforts are expected to increase sales and profitability. What impact will newly introduced accounting rules and regulations, coupled with NAIC risk based capital ("RBC") requirements, have on the balance sheets of many insurance companies? The new accounting rules impact four categories: (1) balance sheet valuations, (2) income taxes, (3) employee benefit plans, and (4) reinsurance. Accounting changes relating to each of these were adopted by USF&G in 1993. One of the most significant changes for USF&G and all insurance companies going forward is the requirement to mark-to-market fixed-income securities which are classified as available for sale. Insurers' reported shareholders' equity will become more volatile as the market values of their investment portfolios decrease as interest rates rise, and increase as interest rates fall. While there is general agreement on the necessity for improvement to the current system of minimum surplus requirements, it is probably too early to tell how RBC guidelines will play out. Perhaps they will accelerate the consolidation within the property/casualty industry among those companies with low capitalization levels. USF&G has adjusted capital well above NAIC risk-based capital standards and supports regulatory efforts to protect the solvency of the industry. How does USF&G's personal lines business plan to compete with the large direct writers? First of all, we believe that there continues to be a large segment of consumers who choose to purchase their personal insurance from independent agents because of the personalized service and the choice of multiple carriers. We also recognize that product pricing is critical. In 1993 and going forward, we are addressing both the pricing and the service issues with product development, increased efficiencies through enhanced technology, and the appropriate consumer marketing support for our products. Our efforts are directed at enabling independent agents to provide superior service at competitive prices. In view of the uncertainty concerning the industry's potential total environmental exposure, how comfortable are you with USF&G's reserve adequacy? Fortunately, USF&G has not historically insured types of businesses with significant environmental exposures. Generally, we have not provided liability coverage for large companies engaged in chemical, oil and gas, asbestos, or hazardous waste activities. Our typical exposure in this area relates to clean-up costs for accidental spills involving transportation vehicles. We have a dedicated environmental claim unit which is responsible for monitoring potential environmental liabilities, evaluating all incurred environmental losses, and establishing appropriate case reserves. In addition, these case reserves are supplemented by bulk reserves to provide further coverage. We are very comfortable that this adequately covers our exposure in this area. Moreover, independent external actuaries with nationally prominent firms evaluate the adequacy of our total reserves each year. At the end of 1993, they opined that our reserves not only continued to be adequate, but also that our reserve position had been strengthened over the past three years. Do you believe that new regulations regarding healthcare reform will negatively impact USF&G's ability to profitably write workers compensation business? The current state-based workers compensation systems would most likely be endangered by the provision in the healthcare plan calling for the medical portion of the workers compensation claims to be assumed by the new mechanism for healthcare delivery. This affects our ability, as an insurer, to manage the indemnity portion of the claims. However, we believe that our highly skilled management team, coupled with our customer-focused teams dedicated to writing essentially monoline business, will continue to initiate strategies allowing us to write new business in markets which have the most potential for adequate returns. 27 PRODUCT LINE OVERVIEW PROPERTY/CASUALTY INSURANCE Commercial Lines o 51% of P/C Premiums Written Middle Market Products - General, umbrella liability - Primary, excess, and highly protected risk (HPR) property - Inland marine, crime, boiler - Commercial auto - Workers compensation Target Markets Mid-to large-sized businesses: - Manufacturers, technology industries - Contractors - Transportation - Financial/educational institutions - Hospitality - Real estate holdings 1993 Accomplishments - Built national middle market organization - Implemented growth strategies for target markets - Launched "Five Star Restaurant Program" and "Precision Design Program for Manufacturers" 1994 Strategic Initiatives - Launch "Blueprint Program for Contractors" - Continue development of proprietary programs for target markets (financial institutions, technology industries, etc.) Small Business Products - Businessowners policies - Property and inland marine - General, umbrella liability - Commercial auto - Workers compensation Target Markets Small businesses: - Service - Retail - Wholesale - Contracting - Finance/insurance/real estate 1993 Accomplishments - Consolidated processing into five regional centers - Achieved significant expense reductions by streamlining underwriting and processing activities 1994 Strategic Initiatives - Increase sales support/service levels to agencies - Develop comprehensive small businessowners program GRAPH Combined Ratio (Total Commercial Lines segment) 28 Personal Lines Products o 27% of P/C Premiums Written - Auto - Property - Watercraft - Personal excess Target Markets Individuals/families insuring: - Homes - Condominiums - Automobiles - Personal articles 1993 Accomplishments - Introduced ActionPlus roadside program to all auto customers - Established preferred agent program to improve service - Implemented USF&G Plus competitive auto/homeowners product 1994 Strategic Initiatives - Enhance critical customer service/processing applications - Launch new personal excess and watercraft programs - Increase sales from key producers GRAPH Combined Ratio Fidelity/Surety o 5% of P/C Premiums Written Products - Surety bonds - Judicial, public official, miscellaneous bonds - Financial institution bonds - Mercantile fidelity bonds Target Markets - Contractors - Commercial and community financial institutions - Credit unions - Commercial businesses 1993 Accomplishments - Implemented agency/customer contact program - Launched fidelity product for credit unions 1994 Strategic Initiatives - Expand into other North American markets - Identify new markets and develop products to serve financial institutions GRAPH Combined Ratio F&G Re o 17% of P/C Premiums Written Products Treaty reinsurance: - Risk (traditional) - Financial Target Markets Broker market: - U.S. companies - Foreign companies 1993 Accomplishments - Increased written premium by 66% - Increased international premium by 165% - Achieved combined ratio of 91.9 - Opened U.K. liaison office and enhanced global presence 1994 Strategic Initiatives - Identify and respond to market opportunities with high service standards/emphasize development of new financial reinsurance products - Increase international business GRAPH Combined Ratio LIFE INSURANCE % of life sales listed below Products o Structured settlements (39%) o Tax-sheltered annuities (21%) o Single-premium deferred annuities (26%) o Other annuities (10%) o Term and universal life (4%) Target Markets - Individuals above age 55, retirees - Teachers (K through grade 12) - Structured settlement candidates - Individuals requiring income flow 1993 Accomplishments - Achieved balanced, controlled premium growth - Implemented new systems - Expanded products to meet distribution partners' needs - Enhanced profitability of new and existing product lines - Implemented conservation program for SPDA business 1994 Strategic Initiatives - Continue controlled, profitable new business growth - Expand products to better meet distributor needs - Identify new underserved markets - Maximize profitability of in-force business - Continue cost reduction initiatives GRAPH Strategic Surplus* to Assets (footnote) *Strategic surplus is the sum of statutory surplus and mandated Asset Valuation Reserve. 29 Investments Stimulated by the recognition that inflation was under control and with the help of an accommodating Federal Reserve interest rates fell during 1993 to levels not seen in decades. Short-term rates fell 300 basis points and 30-year Treasury bonds posted a 20-year low of 5.78 percent in October. This bull market in bonds produced lower reinvestment rates which contributed to the decline in our portfolio yield from 7.3 percent in 1992 to 6.7 percent in the fourth quarter of 1993. Consequently, net investment income declined from $817 million in 1992 to $749 million in 1993. However, our portfolio yield and net investment income would have declined even further without several portfolio re-positioning actions initiated during the latter part of 1992. A substantially upgraded asset-liability management process was developed and implemented which highlighted re-positioning opportunities that helped increase year-end 1993 unrealized gains on the fixed-income portfolio to $357 million from $114 million at December 31, 1992. Our new product line oriented asset-liability management process drives our investment strategy. To accommodate this asset-liability management process, we successfully converted to a state-of-the-art, computer-based investment accounting and portfolio management system. All assets are now segmented by line of business, allowing us to manage our investment strategy to meet individual product line liability payouts. Using sophisticated asset-liability computer models, capital markets are analyzed and optimal portfolios are derived to maximize the profitability of each line of business. The revised asset allocation mix, based on efficient frontier analysis for individual product line portfolio segmentation, indicated that we should substantially reduce exposure to mortgage-backed securities and increase our commitment to intermediate and longer-term investment-grade noncallable corporate bonds. As a result, mortgage-backed bonds were reduced from $3.8 billion, or 34 percent of invested assets, at year-end 1992 to $2.4 billion, or 22 percent of invested assets, at year-end 1993. By resisting the potentially higher, though more volatile, yield of mortgage-backed securities, we were rewarded with higher total return and a portfolio more oriented toward stable sources of investment income. In the future, we will use this new asset-liability management technology to deploy cash flow and manage portfolio turnover to navigate each portfolio toward its optimal liability-driven asset mix. GRAPH Asset Allocation (caption) As mortgage-backed securities declined to 22% of invested assets, investment-grade corporates increased to 55%. 30 Beginning in 1994, portfolio management will undergo dramatic changes at all insurance companies as a result of a new Statement of Financial Accounting Standard, SFAS No. 115. Historically, insurance companies have reported almost all of their fixed-income holdings at amortized cost. The justification for not marking the securities to market was that they would be held to maturity, therefore, any loss in value over the life of the bond would be temporary and there was no need to adjust the values on the balance sheet. SFAS No. 115 requires a significant deviation from this approach for GAAP accounting. Only securities where there is the positive intent to hold to maturity may be carried at amortized cost. The balance of the portfolio must be reported at fair market value. The major provisions of SFAS No. 115 are as follows: Effective January 1, 1994, all debt securities must be classified into one of the following categories. o Held to Maturity ("HTM") Securities may only be classified as HTM if the company has the positive intent and the ability to hold them to maturity. A security cannot be classified as HTM if it might be sold for traditional portfolio management reasons such as a need for corporate liquidity, asset-liability management, changes in the availability and terms of alternative instruments, changes in prepayment characteristics, or changes in foreign currency risk. For example, catastrophes might create a need for corporate liquidity, but under SFAS No. 115, securities in the HTM account should not be sold to generate those funds. An inappropriate level of activity in this account may result in a company losing its ability to classify some or all of its holdings as HTM. Sales are allowed for credit deterioration. o Trading Securities acquired with the intent for quick resale are held in a trading account. They are carried at fair market value, and unrealized gains and losses flow through the income statement. o Available for Sale ("AFS") All other securities are designated Available for Sale. The bonds are reported at fair market value, and hence, fluctuations will affect shareholders' equity. At the time of sale, the realized gain or loss is reflected in earnings. SFAS No. 115 presents a challenge to investment professionals to manage their portfolios within the constraints imposed by this standard. During the fourth quarter, we analyzed our fixed-income portfolio to determine the allocation between HTM and AFS. The 1993 AFS portfolio represents 43 percent of invested assets and 50 percent of fixed-income securities. The unrealized gain on the AFS portfolio was $222 million, which increased shareholders' equity by the same amount. Our investment processes have been modified to accommodate and monitor the effects of these accounting changes. Going forward, our asset-liability process will continue to be fine tuned in accordance with the strategic objective of maximizing investment income and total return. GRAPH Fixed-Income Securities (in billions) (caption) The level of securities available for sale will affect book value as associated unrealized gains (losses) will be carried in shareholders' equity. GRAPH Interest Rates (caption) Investment results have been impacted by the declining interest rate environment. 31 Capitalization USF&G's capitalization increased $243 million during 1993, principally through growth in shareholders' equity, and totaled $2.1 billion at year end. As a result, leverage, as measured by the debt-to-equity ratio, was reduced from 49 percent in 1992 to 41 percent in 1993. Total capitalization for the years ended December 31 was as follows:
(dollars in millions) 1993 1992 1991 Corporate debt $ 574 $ 574 $ 617 Real estate and other 44 42 60 Total debt 618 616 677 Preferred equity 520 520 520 Common equity 991 750 803 Shareholders' equity 1,511 1,270 1,323 Total capitalization $2,129 $1,886 $2,000 Debt-to-equity 41% 49% 51% Debt-to-total capitalization 29 33 34
Debt USF&G's corporate debt balance was unchanged during 1993. Real estate debt increased by $2 million during 1993 due to $5 million of additional debt from a change in percentage ownership of a real estate limited partnership, offset by a $3 million repayment of debt by the P/C segment. USF&G maintained a revolving credit facility totaling $700 million during 1993, and had $375 million in related borrowings outstanding at December 31, 1993. The current facility matures on March 20, 1995. Medium-term notes totaling $20 million mature on May 9 and 10, 1994. Outstanding Stock At December 31, 1993, USF&G had outstanding a total of $520 million in convertible preferred stock, issued in three series. It also had outstanding 85 million shares of common stock with a book value of $11.66 per share. Quarterly dividends of $.05 per share were paid on the common stock during 1993. Capital Strategy Subject to capital market conditions, USF&G plans to refinance up to approximately $600 million of debt over the next two years. In 1994 and early 1995, the $375 million balance of the $700 million credit facility will be funded with securities that better meet USF&G's capital requirements. Prior to the expiration of the existing credit facility, a reduced credit facility will be negotiated to meet the needs of USF&G as determined at that time. Where opportunities exist, current debt will be refinanced at lower rates over longer maturities. As part of this strategy, in March 1994, USF&G issued $245 million face amount of 15-year zero coupon convertible subordinated notes. Proceeds from this offering, totaling $122 million, will be used to retire existing, higher-rate debt, resulting in annual interest savings of approximately $5 million, and increased cash flow of approximately $11 million. Depending upon the market value of USF&G's common stock, management may also convert the $190 million of Preferred C Stock to common equity during 1994 through conversion or a cash redemption. The $130 million of Preferred B stock is redeemable at various dates beginning in 1994, subject to stipulations related to the market value of the common stock. Policyholders' Surplus Policyholders' surplus ("surplus"), defined as the excess of assets over liabilities based on statutory accounting principles, is an important measure of financial strength. At December 31, 1993, USF&G's P/C subsidiary reported surplus of $1.5 billion which includes the life insurance statutory surplus of $316 million. The National Association of Insurance Commissioners has developed new RBC standards. RBC is a formula-driven calculation of required levels of surplus, which considers the risks inherent in the nature and quality of assets held and types of business written. These standards will be applied at year-end 1994 for P/C companies and at year-end 1993 for life insurance companies. Based on company calculations, the surplus of both the P/C and life insurance subsidiaries exceeded levels at which any regulatory attention would be indicated. 32 USF&G Corporation Management's Responsibility for Financial Reporting Financial Statements Management is responsible for the financial statements and other information presented in this annual report. The financial statements are prepared in conformity with generally accepted accounting principles. Informed judgments and estimates are used to measure transactions not concluded by year-end. Internal Controls Management is also responsible for the system of internal control. The system of internal control encompasses the organizational structure, selection and training of personnel, communication and enforcement of policies and procedures, and an ongoing internal audit program. The internal controls are designed to provide reasonable assurance that financial records are reliable for preparing financial statements, that transactions are completed as authorized, and that assets are safeguarded. Management and USF&G's internal auditors regularly review these controls and assess their adequacy and effectiveness. Audit Committee The Board of Directors maintains an audit committee of directors who are not employees of USF&G. The committee meets regularly with management, internal auditors, and independent auditors to review internal control and financial reporting matters. Both the internal and independent auditors have full and free access to the audit committee. Independent Auditors USF&G engages Ernst & Young to conduct independent audits of the financial statements in accordance with generally accepted auditing standards. Their audits include reviews and tests of internal controls, transactions, and other information they consider necessary to express an opinion on the financial statements. NORMAN P. BLAKE, JR. DAN L. HALE Norman P. Blake, Jr. Dan L. Hale Chairman, President, and Executive Vice President Chief Executive Officer and Chief Financial Officer February 11, 1994 INDEX TO FINANCIAL INFORMATION Management's Responsibility for Financial Reporting 33 Management's Discussion and Analysis of Financial Condition and Results of Operations 34 Eleven-Year Summary of Selected Financial Data 56 Consolidated Statement of Operations 58 Consolidated Statement of Financial Position 59 Consolidated Statement of Cash Flows 60 Consolidated Statement of Shareholders' Equity 61 Notes to Consolidated Financial Statements 62 Report of Independent Auditors 82 33 USF&G Corporation Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's assessment of financial results and material changes in financial position for USF&G Corporation and its subsidiaries ("USF&G") and discusses the results of operations for the 1993 year. The analysis focuses on the performance of USF&G's business segments and its investment portfolio. (Note: A glossary of certain terms used in this discussion can be found at the end of this section. The terms are italicized the first time they appear in the text.) INDEX 1. Consolidated Results 34 2. Property/Casualty Insurance Operations 36 3. Life Insurance Operations 42 4. Parent and Noninsurance Operations 44 5. Investments 45 6. Financial Condition 50 7. Liquidity 50 8. Regulation 51 9. Income Taxes 53 10. Glossary of Terms 55 1. Consolidated Results 1.1. SUMMARY OF NET INCOME The table below shows the major components of net income (loss).
(in millions) 1993 1992 1991 Income (loss) from continuing operations before income taxes, realized gains, and cumulative effect of adopting new accounting standards $ 93 $(113) $(179) Realized gains on investments, net 6 148 38 Loss from discontinued operations - (7) (32) Income (loss) from cumulative effect of adopting new accounting standards: Income taxes 90 - - Postretirement benefits (52) - - Income tax (expense) benefit 28 - (3) Net income (loss) $165 $ 28 $(176)
The major factor contributing to the $137 million increase in net income from 1992 to 1993 was a $200 million improvement in property/casualty insurance UNDERWRITING RESULTS (refer to Section 2.2 in this Analysis). Net realized gains on investments declined by $142 million in 1993 compared with 1992 (refer to Section 5.2 in this Analysis) due to a high level of gains in 1992 realized primarily to enhance capital and surplus and to offset the effect of Hurricane Andrew (refer to Section 2.4 in this Analysis). Net income in 1993 also was favorably impacted by $38 million due to the net effect of the adoption of certain new accounting standards (refer to Section 1.2 of this Analysis). Income tax benefits of $28 million were recognized in 1993 primarily as a result of reducing the valuation allowance on net deferred tax assets (refer to Section 9 in this Analysis). The improvement in net income from 1991 to 1992 was also driven primarily by improved property/casualty insurance underwriting results, as well as the increase in realized gains in 1992. The table below shows the components of the changes in income from continuing operations before income taxes, realized gains, and the cumulative effect of adopting new accounting standards by major business segment.
(in millions) 1993 1992 1991 Property/Casualty insurance $182 $ (3) $ (84) Life insurance (6) (4) 5 Parent and noninsurance (83) (106) (109) Eliminations - - 9 Income (loss) from continuing operations before income taxes, realized gains, and cumulative effect of adopting new accounting standards $ 93 $(113) $(179)
The $185 million improvement in the property/casualty insurance segment from 1992 to 1993 occurred as a result of a $72 million reduction in CATASTROPHE LOSSES and an improvement of $128 million in underwriting results excluding catastrophes due primarily to product/market mix management and cost containment strategies (refer to Section 2.2 in this Analysis). These improvements were partially offset by a $42 million reduction in investment income. The life insurance segment's decline of $2 million from 1992 to 1993 primarily resulted from declining investment yields and related declining margins on interest-sensitive products (refer to Section 3.2 in this Analysis). The results for parent and noninsurance operations improved $23 million from 1992 to 1993 primarily due to savings resulting from the fourth quarter 1992 restructuring of the oil and gas investment (refer to Section 4 in this Analysis). Improvement in income from 1991 to 1992 was driven primarily by improved property/casualty results, especially in commercial lines. Income comparisons are also affected by restructuring charges of $51 million in 1992 and $60 million in 1991. There were no restructuring charges in 1993 (refer to Section 1.3 in this Analysis). 1.2. NEW ACCOUNTING STANDARDS Net income for 1993 included the effect of the implementation of two Statements of Financial Accounting Standards ("SFAS") which resulted in a net increase of $38 million. SFAS No. 109, "Accounting for Income Taxes," increased net income by $90 million as a result of the recogni- tion of net deferred tax assets (refer to Section 9 in this Analysis). This increase was partially offset by a $52 million charge to net income for SFAS No. 106, "Employer's Accounting for Postretirement Benefits Other Than Pensions," as a result of the accrual of a liability for the cost of healthcare, life insurance, and other retiree benefits. USF&G adopted two additional accounting standards which had no effect on net income. SFAS No. 113, "Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts," increased assets by $1.2 billion with a corresponding increase in liabilities at December 31, 1993, compared with December 31, 1992. 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. This standard also establishes the conditions required for a contract to be accounted for as reinsurance and prescribes income recognition and reporting standards for those contracts. SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," increased the book value of fixed maturities portfolio classified as "available for sale" and shareholders' equity by $222 million as a result of unrealized gains in this portfolio. SFAS No. 115 requires securities classified as available for sale to be reported at market value with unrealized gains and losses reported as a component of shareholders' equity. In addition, the adjustment to the book value of fixed maturities required by SFAS No. 115 resulted in a related $30 million decrease in shareholders' equity for life insurance deferred policy acquisition costs. 1.3. STATUS OF RESTRUCTURING In 1990, USF&G initiated a broad restructuring program. Restructuring initiatives began in the fourth quarter of 1990 with charges of $34 million. Net income reflects provisions of $60 million of restructuring charges in 1991 and $51 million in 1992. There were no restructuring charges in 1993. Since 1990, USF&G has implemented programs to reduce the cost structure of the organization by consolidating branch offices, establishing a regional structure, reducing staff levels, and eliminating certain advertising and promotional expenses. In addition, USF&G has implemented plans to dispose of nonstrategic businesses which resulted in losses from discontinued operations of $7 million, $32 million, and $136 million in 1992, 1991, and 1990, respectively. The implementation of these restructuring and cost containment initiatives and the disposition of discontinued operations have been substantially completed. General and administrative expenses (which do not include commissions, premium taxes and claim expenses) have declined by 31 percent from $635 million in 1990 to $437 million in 1993. Staffing levels have declined by 48 percent from approximately 12,500 employees at December 31, 1990, to approximately 6,500 employees at December 31, 1993. In 1991, USF&G continued to implement programs to reduce operating expenses. The additional $60 million of restructuring charges incurred in 1991 were both a revision to the original estimates and an expansion of the restructuring program during the year. The costs were related to additional staff reductions and branch consolidations and to the disposition of a subsidiary that developed and marketed computer software to insurance agencies. In 1992, the property/casualty segment began to implement a regionalization strategy to form separate strategic product and market business units in order to improve marketing and underwriting operations. The related establishment of regional offices and further staff reductions resulted in $46 million of additional restructuring charges. Implementation of these restructuring strategies is expected to be completed in 1994. Restructuring charges of $2 million were incurred in 1992, related to the restructuring of an oil and gas investment. The life insurance segment incurred restructuring costs of $3 million in 1992 to implement a plan to rebalance distribution channels and centralize processing activities. The life insurance and oil and gas investment restructuring actions were essentially completed in 1992. 2. Property/Casualty Insurance Operations Property/casualty insurance operations accounted for 85 percent of USF&G's revenues in 1993 and 67 percent of its assets at December 31, 1993. Financial results for this segment are as follows:
(in millions) 1993 1992 1991 Premiums earned $2,327 $2,533 $3,018 Losses and loss expenses incurred (1,758) (2,088) (2,545) Underwriting expenses (796) (872) (988) Net underwriting loss (227) (427) (515) Net investment income 433 475 498 Restructuring charges - (46) (52) Other revenues and expenses (24) (5) (15) Income (loss) before income taxes, realized gains, and the cumulative effect of adopting new accounting standards $ 182 $ (3) $ (84)
Income (loss) before income taxes, realized gains, and the cumulative effect of adopting new accounting standards significantly improved in 1993 primarily due to improved underwriting results (refer to Section 2.2 of this Analysis). Net investment income declined primarily due to the lower interest rate environment in 1993 (refer to Section 5.1 of this Analysis). Restructuring charges relating to staff reductions and other cost containment programs affected results in 1991 and 1992. The fluctuations in other revenues and expenses primarily reflect the decision to eliminate certain policyholders' dividends in 1992 and the reversal in that year of previously accrued but unpaid dividends. 2.1. PREMIUMS EARNED PREMIUMS EARNED totaled $2.3 billion in 1993, compared with $2.5 billion in 1992 and $3.0 billion in 1991. The table below shows the major components of premiums earned and PREMIUMS WRITTEN.
1993 1992 1991 Premiums Premiums Premiums Premiums Premiums Premiums (in millions) Earned Written Earned Written Earned Written Branch office voluntary production $1,825 $1,847 $2,172 $1,986 $2,625 $2,523 Voluntary pools and associations 45 46 41 44 50 51 Involuntary pools and associations 152 133 163 147 247 247 Assumed Reinsurance 305 403 157 243 96 211 Total $2,327 $2,429 $2,533 $2,420 $3,018 $3,032
Premiums earned declined 8 percent from 1992 to 1993 and 16 percent from 1991 to 1992 primarily as a result of planned management actions to reduce premium production in unprofitable markets and product lines. The decline in premiums earned of 16 percent from 1991 to 1992 was primarily due to the effects of USF&G's exiting personal lines markets in nine states since 1991, eliminating writing new voluntary workers compensation in 11 states, and reducing exposure to other unprofitable markets. Such actions, combined with adherence to strict underwriting standards, led to further declines in premium volume during 1993, but are designed to continue to improve underwriting results over time. The decrease in premiums has slowed as strategies are implemented to grow business in targeted areas. The significant increase in assumed reinsurance premiums in 1993 is due to the strong demand for reinsurance and the higher premium rates available as a result of the record high catastrophes in 1992 which led to a reinsurance capacity shortage in 1993. However, with the formation of several new reinsurance companies in 1993, capacity has been added to the reinsurance market, which is expected to generate competitive pressure in 1994. The table below shows premiums earned and the statutory LOSS RATIOS by lines of property/casualty insurance.
1993 1992 1991 Premiums Statutory Premiums Statutory Premiums Statutory (dollars in millions) Earned % Loss Ratio Earned % Loss Ratio Earned % Loss Ratio COMMERCIAL LINES Auto $ 399 17% 55.2 $ 442 18% 64.5 $ 531 18% 75.0 General Liability 351 15 80.9 388 15 99.2 487 16 91.1 Property 321 14 60.4 332 13 69.5 370 12 67.1 Workers Compensation 152 7 212.3 318 13 121.0 497 16 128.5 Total Commercial Lines 1,223 53 83.6 1,480 59 86.9 1,885 62 91.6 FIDELITY/SURETY Fidelity 18 1 56.1 19 1 24.6 21 1 45.2 Surety 100 4 49.5 92 3 33.5 96 3 41.6 Total Fidelity/Surety 118 5 50.5 111 4 32.0 117 4 42.3 PERSONAL LINES Auto 504 22 70.8 551 22 73.6 658 22 79.6 Homeowners 149 6 73.8 184 7 102.2 207 7 87.0 Property 28 1 66.0 50 2 67.9 55 2 58.4 Total Personal Lines 681 29 71.2 785 31 80.0 920 31 80.0 ASSUMED REINSURANCE Finite Risk 169 7 70.1 74 3 78.9 32 1 76.1 Traditional Risk 136 6 62.1 83 3 72.8 64 2 17.6 Total Assumed Reinsurance 305 13 67.3 157 6 76.9 96 3 59.1 Total $2,327 100% 75.4 $2,533 100% 82.0 $3,018 100% 84.1
The above table illustrates the changes in premium mix from 1991 to 1993. Management's focus on reducing exposure to less profitable lines of insurance has been a key factor in the improved underwriting results. The most dramatic example is the workers compensation line which has a cumulative three-year statutory loss ratio of 139.1 and represented 16 percent of total property/casualty premiums earned in 1991 but only 7 percent in 1993. 2.2. UNDERWRITING RESULTS Underwriting results generally represent premiums earned less incurred losses, loss adjustment expenses, and underwriting expenses. Property/casualty insurance companies typically have underwriting losses that are offset by investment income. Underwriting gains (losses) by major business category are as follows:
(in millions) 1993 1992 1991 Commercial $(223) $(343) $(455) Fidelity/surety (8) 6 11 Personal (28) (110) (97) Assumed reinsurance 32 20 26 Net underwriting losses $(227) $(427) $(515) Voluntary $(176) $(390) $(375) Involuntary (51) (37) (140) Net underwriting losses $(227) $(427) $(515)
Consolidated property/casualty GAAP and statutory underwriting ratios are as follows:
1993 1992 1991 GAAP UNDERWRITING RATIOS: Loss ratio* 75.6 82.4 84.3 Expense ratio* 34.2 34.4 32.7 Combined ratio 109.8 116.8 117.0 STATUTORY UNDERWRITING RATIOS: Loss ratio 75.4 82.0 84.1 Expense ratio 33.7 34.9 33.1 Combined ratio 109.1 116.9 117.2 *See Glossary of Terms
Underwriting results in 1993 improved by $200 million and $288 million over 1992 and 1991, respectively. The improvements over 1992 and 1991 resulted from lower incurred losses from catastrophes (refer to Section 2.4 of this Analysis), as well as management's actions to improve product/market mix, apply stricter underwriting standards, and improve claims practices. Excluding catastrophe losses from Hurricane Andrew, which occurred in 1992, the statutory loss ratio improved 3.6 points from 1992 to 1993 and 5.1 points from 1991 to 1992. Hurricane Andrew contributed approximately 3.0 points to the statutory loss ratio in 1992. Underwriting results in the voluntary business for 1993 improved $214 million over 1992 and $199 million over 1991. Underwriting losses from INVOLUNTARY BUSINESS in 1993 were $14 million more than 1992 but were $89 million less than 1991. The improved overall trend in 1993 and 1992 over 1991 reflects management's actions to reduce exposure to involuntary business in states with substantial involuntary market burdens. The increase in involuntary underwriting losses in 1993 over 1992 is primarily due to an assessment of loss reserves from involuntary workers compensation insurance pools. Underwriting results showed improvement despite continuing competitive pressures, the inflationary claims environment, and the adverse impact of involuntary markets. Competitive pressures continue to depress underwriting results, especially in the pricing of commercial lines products. Competitive pressures include the historic cyclicality of the property/casualty insurance industry pricing environment. These cycles are evidenced by extended periods of overcapacity that adversely affect premium rates, followed by periods of undercapacity resulting in rising rates. The industry has experienced an intense period of price competition since 1987, during which companies have been unable to charge rates sufficient to offset rising claim costs. Some industry analysts are beginning to point to factors such as high catastrophe losses, low interest rates, and reduced reinsurance capacity as indications that the underwriting cycle has started to improve. Other analysts believe that excess surplus capacity still exists in the industry and that pricing pressure will continue. USF&G is unable to predict whether or when the property/casualty insurance cycle will improve but is continuing to manage to long term objectives that include continued underwriting improvements without reliance on a significant cycle turn. Commercial Lines Commercial lines products include property, auto, inland marine, workers compensation, and general and umbrella liability coverage for businesses. The commercial lines business has two distinct market segments-middle market and small business. USF&G has further defined the middle market into three strategic business units: service businesses, contractors, and manufacturers to better service customers and become more cost efficient. The following table shows the components of underwriting results for commercial lines:
(in millions) 1993 1992 1991 Premiums written $ 1,239 $ 1,355 $1,780 Premiums earned $ 1,223 $ 1,480 $ 1,885 Losses (1,014) (1,299) (1,728) Expenses (432) (524) (612) Net underwriting losses $ (223) $ (343) $ (455) Voluntary $ (187) $ (316) $ (341) Involuntary (36) (27) (114) Net underwriting losses $ (223) $ (343) $ (455) GAAP and statutory underwriting ratios are as follows: 1993 1992 1991 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
Underwriting results in the commercial lines category improved $120 million over 1992 and $232 million over 1991. This improvement is primarily the result of the change in the mix of business, as well as the application of stricter underwriting standards and lower catastrophe losses. In commercial lines, the mix of the least profitable line of business, workers compensation, is decreasing, and the mix of the two most profitable lines of business, auto and property, is increasing. Workers compensation represented 12 percent of premiums earned in commercial lines in 1993, compared with 21 percent in 1992 and 26 percent in 1991, with a cumulative three year statutory loss ratio in this line of 139.1. Commercial auto, with a statutory loss ratio of 55.2 in 1993, increased from 28 percent of commercial lines premiums earned in 1991 to 33 percent in 1993. Commercial property, with a statutory loss ratio of 60.4 in 1993, increased from 20 percent of commercial lines premiums earned in 1991 to 26 percent in 1993. The involuntary business losses were $9 million more in 1993 than in 1992, but were $78 million less than 1991. The improved involuntary results in 1992 and 1993 compared with 1991 result primarily from management actions to reduce workers compensation premiums which led to reduced participation in the involuntary workers compensation pools. In addition, involuntary underwriting losses in 1991 were adversely affected by a $20 million involuntary pool assessment related to special reserve increases from the National Workers Compensation Reinsurance Pool ("NWCRP"). The statutory loss ratio improved 3.3 points in 1993 from 1992 and 8.0 points in 1993 from 1991. Contributing to this significant improvement over 1992 were losses incurred from Hurricane Andrew which were approximately 1.6 points of the commercial lines 1992 statutory loss ratio. Excluding Hurricane Andrew, USF&G is still experiencing an improved loss ratio trend, which management believes is evidence of the positive effects of the strategies implemented to improve underwriting results. Although premiums in the commercial lines business have declined since 1990, the 9 percent decline in premiums written in 1993 from 1992 was less than the 24 percent and 18 percent declines in 1992 and 1991, respectively. Excluding workers compensation, the declines in premiums written are 2 percent, 17 percent, and 14 percent in 1993, 1992, and 1991, respectively. State exits and other initiatives which began in 1990 to reduce exposure to unprofitable markets were essentially completed in 1993. During 1994, commercial lines initiatives will focus on penetrating target markets and implementing new products and services with the objective of premium growth. Fidelity/Surety The fidelity/surety segment provides contract bonds, financial institution bonds, judicial bonds, and fidelity/surety bonds to commercial businesses, banks, credit unions, and construction companies. The following table shows the components of underwriting results for fidelity/surety:
(in millions) 1993 1992 1991 Premiums written $120 $109 $116 Premiums earned $118 $111 $117 Losses (59) (36) (41) Expenses (67) (69) (65) Net underwriting gains (losses) $ (8) $ 6 $ 11 Voluntary $ (8) $ 6 $ 11 Involuntary - - - Net underwriting gains (losses) $ (8) $ 6 $ 11 GAAP and statutory underwriting ratios are as follows: 1993 1992 1991 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
Fidelity/surety experienced a decline in underwriting results in 1993 due to increased losses. Premiums earned increased approximately 6 percent over 1992 and were consistent with 1991. The increased premiums in 1993 from 1992 related to market expansion strategies. Losses, however, increased $23 million or 64 percent over 1992, primarily as a result of unfavorable loss development on a limited number of prior years' claims. Underwriting expenses have remained generally consistent. Personal Lines Personal lines products include auto, homeowners, watercraft and personal excess insurance for individuals and families. The following table shows the components of underwriting results for the personal lines category:
(in millions) 1993 1992 1991 Premiums written $ 653 $ 726 $ 925 Premiums earned $ 681 $ 785 $ 920 Losses (481) (635) (736) Expenses (228) (260) (281) Net underwriting losses $ (28) $(110) $ (97) Voluntary $ (13) $(100) $ (71) Involuntary (15) (10) (26) Net underwriting losses $ (28) $(110) $ (97) GAAP and statutory underwriting ratios are as follows: 1993 1992 1991 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
Management strategies to reduce exposure in unprofitable markets and lines of business improved the underwriting results of the personal lines segment. Strategies that have contributed to the improvement include reunderwriting the auto book of business, applying stricter underwriting standards and reducing exposure in high risk catastrophe areas. Despite premiums earned decreasing $104 million in 1993 compared with 1992 and $239 million compared with 1991, underwriting results improved $82 million in 1993 over 1992 and $69 million over 1991. The statutory loss ratio improved 8.8 points from 1992 to 1993 (a 3.0 point improvement excluding Hurricane Andrew in 1992) which management believes is evidence of the positive effects of strategies implemented to improve underwriting results. Underwriting losses from involuntary markets increased $5 million in 1993 compared with 1992, but have improved $11 million compared with 1991. The increase in 1993 losses is due to unfavorable development on prior years claims and costs associated with third party administrators managing the assigned risk involuntary business. The substantially improved involuntary underwriting results in 1993 and 1992 compared with 1991 was a result of USF&G's strategy, initiated in 1990, to withdraw from unprofitable markets in order to reduce adverse loss exposure. Although personal lines premiums have declined since 1990, the 10 percent decline in premiums written in 1993 was less than the 21 percent in 1992. The premium decreases primarily resulted from planned management actions to exit specific states and other unprofitable markets, and to reduce writings in high risk catastrophe areas. Net premium declines in 1993 also reflect the higher cost of ceded reinsurance. During 1994, personal lines initiatives are expected to result in growth in selected target markets; however, continued management of unprofitable markets and high ceded reinsurance costs is expected to offset premium growth in these selected markets. Assumed Reinsurance Reinsurance products are managed by F&G Re and marketed through national and international reinsurance brokers. The reinsurance segment has historically produced underwriting gains. The following table shows the components of underwriting results for assumed reinsurance lines:
(in millions) 1993 1992 1991 Premiums written $ 403 $ 243 $ 211 Premiums earned $ 305 $ 157 $ 96 Losses (204) (118) (40) Expenses (69) (19) (30) Net underwriting gains $ 32 $ 20 $ 26 Finite risk $ 9 $ 14 $ 7 Traditional risk 23 6 19 Net underwriting gains $ 32 $ 20 $ 26 GAAP and statutory underwriting ratios are as follows: 1993 1992 1991 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
During 1993, underwriting results in this category were affected by increased premiums due to the strong demand for reinsurance caused primarily by the shrinking capacity in the international property catastrophe market. New accounting requirements as a result of the issuance of SFAS No. 113 and EITF 93-6 are expected to cause a substantial reduction in the demand for finite risk reinsurance. 2.3. LOSSES INCURRED AND LOSS RESERVES Losses and loss adjustment expenses incurred totaled $1.8 billion in 1993, compared with $2.1 billion and $2.5 billion in 1992 and 1991, respectively. The reduction is due primarily to lower catastrophe losses, lower premium volume, and actions taken to better manage claims and claim costs and reduce exposures in undesirable markets. Reserves for unpaid losses and loss expenses totaled $6.3 billion at December 31, 1993, compared with $5.5 billion and $5.7 billion at the end of 1992 and 1991, respectively. The impact of adopting SFAS No. 113 increased reserves by $1.2 billion. This new accounting standard eliminated the previous practice of reporting assets and liabilities net of the effect of reinsurance. Excluding the effects of SFAS No. 113, reserves in 1993 declined 7 percent from 1992 and 10 percent from 1991. This compares to the 8 percent and 23 percent declines in premiums earned in 1993 compared with 1992 and 1991, respectively. Reserve levels have also been reduced as a result of reduced claim activity. The number of outstanding claims at December 31, 1993, declined by 12 percent compared with year-end 1992. The number of new claims reported (excluding catastrophe claims) declined 23 percent from 1991 to 1993. Catastrophes and individually large claims (claims in excess of $1 million), net of reinsurance, accounted for $245 million, $268 million, and $302 million of incurred losses in 1993, 1992, and 1991, respectively (refer to Section 2.4 of this Analysis). Net of reinsurance, individually large claims and related claims accounted for $177 million of incurred losses in 1993 and $128 million and $229 million in 1992 and 1991, respectively. USF&G seeks to limit its exposure to catastrophe and individually large claims through the purchase of reinsurance (refer to Section 2.5 of this Analysis). USF&G also categorizes environmental, product liability, other long term exposures such as asbestos and other types of exposures where multiple claims relate to a similar cause of loss (excluding catastrophes) as "common circumstance claims." Total common circumstance claims paid (including loss adjustment expenses) for the period 1985 through 1993 were $343 million. Case reserves (exclusive of bulk reserves) outstanding for such claims were $214 million, $171 million, and $127 million at December 31, 1993, 1992, and 1991, respectively. USF&G's most significant common circumstance claim exposures include negligent construction, environmental, and asbestos claims. The table below sets forth selected information for each of these three categories:
Total Claims Paid from 1985-1993 Case Reserves at (in millions) (includes LAE) December 31, 1993 Negligent construction $ 78 $ 74 Environmental 125 61 Asbestos 81 45
At December 31, 1993, USF&G had 1,200 active files relating to environmental matters, including 76 coverage disputes. The number of claims under each file may vary significantly. In 1993, approximately 35 percent of paid environmental claims related to matters under which a USF&G insured was a potentially responsible party ("PRP") under the Comprehensive Environmental Response, Compensation, and Liability Act, commonly referred to as "Superfund", but many of these PRPs were only peripherally involved. Management does not believe that USF&G has material exposure to environmental or asbestos matters in excess of reserves or relative to other large property/casualty insurers because USF&G's customer base generally does not include large manufacturing companies, which tend to incur most of the known environmental and product liability exposures. Many of USF&G's environmental claims relate to small industrial or transportation accidents which individually are unlikely to involve material exposures. In addition, USF&G has recently consolidated handling of common circumstance claims into a specialized unit designed to more effectively manage such claim exposures. The above discussion regarding common circumstance claims relates solely to USF&G's direct business and does not include exposures assumed through F&G Re or otherwise. Management does not believe that assumed business which includes common circumstance claims involves exposures materially in excess of established reserves. The level of loss reserves for both current and prior years' claims is continually monitored and adjusted for changing economic, social, judicial, and legislative conditions. Management believes that loss reserves are adequate, but establishing appropriate reserves, particularly with respect to environmental or other long term exposure claims which are the subject of evolving legislative and judicial theories of liability, is highly judgmental and an inherently uncertain process. 2.4. CATASTROPHE LOSSES Gross catastrophe losses totaled $81 million in 1993, compared with $292 million in 1992. These losses, net of losses ceded to reinsurers, were $68 million in 1993 compared with $140 million in 1992. Gross and net catastrophe losses totaled $73 million in 1991 as no losses were ceded. Catastrophe losses, net of reinsurance, represented 3 percent of premiums earned for the year ended December 31, 1993, compared with 6 percent and 2 percent for 1992 and 1991, respectively. Catastrophe losses in 1993 included $27 million from the East Coast blizzard in March. The 1992 losses, the highest in USF&G's history, were primarily from Hurricane Andrew in Florida and hailstorms and tornadoes in Kansas and Oklahoma. The industry as a whole experienced record catastrophe losses in 1992 of approximately $23 billion, over five times the level of industry losses in 1991 of $4 billion. The catastrophe losses in 1991, the third highest in USF&G's history, resulted from a series of storms and tornadoes in the South and Midwest, Hurricane Bob, and the California fires. 2.5. CEDED REINSURANCE USF&G reinsures portions of its policy risks with other insurance companies or underwriters. Reinsurance allows USF&G 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 pays (cedes) an amount to the reinsurer who agrees to reimburse USF&G for a specified portion of any claims paid on business under the reinsured contracts. Reinsurance gives USF&G 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's ceding reinsurance agreements are generally structured on a treaty basis whereby all risks meeting a certain criteria are automatically reinsured. Shrinking capacity in the reinsurance market and the high catastrophe losses in recent years have increased prices and reduced the availability of catastrophe reinsurance. Property catastrophe reinsurance costs were $30 million in 1993, compared with $26 million and $21 million in 1992 and 1991, respectively. USF&G's property catastrophe loss retention levels have increased from $23 million in 1992 to approximately $50 million in 1993 at greater cost. 2.6. CAPACITY A key measure of both strength and growth capacity for property/ casualty insurers is the ratio of premiums written to statutory POLICYHOLDERS' SURPLUS. At year-end 1993, USF&G's premium-to-surplus ratio was 1.4:1, slightly higher than the industry average of 1.3:1, and represents an improvement over 1992's ratio of 1.5:1. Insurance regulators generally accept a ceiling for this ratio of 3.0:1; therefore, at its current ratio, USF&G has the capacity to grow by writing new business. 3. Life Insurance Operations Life insurance operations represented 14 percent of USF&G's revenues in 1993 and 34 percent of its assets at December 31, 1993. F&G Life's financial results are as follows:
(in millions) 1993 1992 1991 Premiums $ 129 $ 104 $ 169 Net investment income 321 349 370 Policy benefits (395) (377) (437) Underwriting and operating expenses (61) (77) (94) Other revenues and expenses - - (1) Restructuring charges - (3) (2) Income (loss) before income taxes, realized gains, and the cumulative effect of adopting new accounting standards $ (6) $ (4) $ 5
Income (loss) comparisons were affected by increased sales and lower operating expenses offset by lower investment income in 1993. In 1992, F&G Life repositioned itself to become more competitive and service oriented. The repositioning resulted in a broadened product mix and a balanced distribution system. The revised market strategies, new distribution channels, and enhanced customer service are the major factors of the increase in sales in 1993 (refer to Section 3.2 in this Analysis). In addition, strategic repositioning and management actions to reduce costs contributed to a 29 percent decline in operating expenses in 1993 compared with 1992. 3.1. PRODUCTS F&G Life issues annuity and life insurance products. F&G Life's principal products are structured settlements, deferred annuities (including tax sheltered annuities), and other annuity products. Structured settlements are immediate annuities principally sold to the property/casualty company in settlement of insurance claims. Deferred annuity products accumulate cash values to which interest is credited. In 1993, deferred annuities were credited with interest rates that ranged between 9.0 and 4.5 percent, depending upon the year of issue and interest guarantee duration. The majority of deferred annuities in force were issued with initial interest guarantees from one to six years, with most written between 1988 and 1990 with a six year interest guarantee. The deferred annuities also include provisions for charges if the annuitant chooses to surrender the policy (see Section 3.3 of this Analysis). After the interest guarantee expires, the interest crediting rates can be adjusted annually on a policy's anniversary date. Deferred annuity products are sold through independent agents, insurance brokers, and national wholesale distributors. F&G Life's tax sheltered annuity products ("TSAs") are deferred annuities that provide retirement income. Tax sheltered annuities are sold through a national wholesale distribution network primarily to teachers. Other annuities sold by F&G Life primarily consist of single premium immediate annuities ("SPIAs"). SPIAs provide a fixed stream of payments over a fixed period of time or over an individual's lifetime. F&G Life also markets, primarily through independent agents, universal life ("UL") and term life insurance products. UL 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. 3.2. SALES The following table shows life insurance and annuity sales (premiums and deposits) by distribution system and product type:
(in millions) 1993 1992 1991 DISTRIBUTION SYSTEM 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 PRODUCT TYPE 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
Sales in 1993 were favorably affected by F&G Life's refocus on its marketing and customer service operations. F&G Life's restructuring replaced high fixed cost marketing programs with variable cost distribution channels. New products were designed to meet the needs of targeted customers and to increase sales opportunities. Since the implementation of the program in 1992, 1993 sales increased 62 percent when compared with 1992. In its effort to continue the improvement in sales, F&G Life intends to expand its existing distribution channels while developing other specialized marketing networks. F&G Life will develop new products, in concert with its distribution partners, to meet the needs of its targeted customers. However, given the expectation of continued low interest rates into 1994 and other market forces, there is no assurance that the 1993 improved sales trend will continue. As market interest rates declined in 1992 and 1993, F&G Life likewise lowered the rates offered on its annuity and universal life insurance policies to maintain adequate profit margins. F&G Life's 1992 sales declined by 50 percent from 1991 levels due to the effect of the low interest rate environment and the residual effects of USF&G's restructuring efforts and its credit ratings. Current and projected spreads between investment income and interest credited to policyholders have narrowed but remain positive. Total life insurance in force decreased to $12.1 billion in 1993, compared with $12.4 billion in 1992 and $13.4 billion in 1991. Since 1991, insurance in force has been affected by the decline in life insurance sales and an increase in universal life policy surrenders. 3.3. POLICY SURRENDERS Deferred annuities and universal life products are subject to surrender. Nearly all of F&G Life's surrenderable annuity policies allow for the refund of the cash value less a surrender charge. Surrender charges provide protection against premature policy surrender. Surrender activity has also been positively affected by the lower interest rate environment since most of the surrenderable annuities have guaranteed crediting rates higher than interest rates currently available. Deferred annuities, which represent 78 percent of surrenderable business, include surrender charges for periods ranging from 5 to 10 years. The majority of business in force was issued with surrender charges that declined from six percent to zero over six years. Policy surrenders totaled $211 million in 1993, compared with $192 million in 1992 and $586 million in 1991. Surrender activity was significantly reduced from the unusually high level experienced in 1991 when policyholders reacted to negative public perception of the life insurance industry in general, and the annuity business in particular, as well as the uncertainty at that time about USF&G's restructuring efforts. The total ACCOUNT VALUE of F&G Life's surrenderable annuities was $2.6 billion at December 31, 1993, and approximately $229 million was surrenderable at current account value (i.e., without surrender charges) on that date. The surrender charge period on $2.2 billion of F&G Life's single-premium deferred annuity products expires within the next four years. The surrender charge period on $751 million expires during 1994. Management has a conservation program in place to provide holders of policies maturing with renewal options in an effort to provide them with investment alternatives within F&G Life. F&G Life's investments have been structured to provide sufficient liquidity to fund withdrawals. Management believes that F&G Life, with a LIQUID ASSETS TO SURRENDER VALUE of surrenderable business of 126 percent at December 31, 1993, continues to maintain a high degree of liquidity and has the ability to meet surrender obligations for the foreseeable future. 3.4. DEFERRED POLICY ACQUISITION COSTS ("DPAC") Costs to acquire and issue life insurance policies are generally deferred and amortized in future periods. The recoverability of these amounts is regularly reviewed. In reviewing the assumptions used to amortize DPAC, management analyzes expected policy surrender experience, projected investment spreads, and other criteria. Policy acquisition costs unfavorably affected results as $8 million, $10 million, and $9 million of normally deferrable costs were expensed in 1993, 1992, and 1991, respectively, because sales levels were not sufficient to support the deferral of such costs. In 1992, $10 million of previously deferred costs were expensed as a result of management's evaluation and subsequent changes in the estimates and assumptions used to amortize these costs. Management considered policy surrenders that, although significantly reduced from 1991 levels, were still considered above "normal," the expectation of future investment yields, and the spread between investment yields and interest credited to policyholders. In 1991, the above normal levels of policy surrenders resulted in the expensing of $20 million of previously deferred costs, which were offset by income from surrender charges of $15 million. High surrender activity or changes in expected profit margins in future years could have similar negative effects on future results. 4. Parent and Noninsurance Operations Parent company interest and other unallocated expenses and net losses from noninsurance operations were as follows:
(in millions) 1993 1992 1991 PARENT COMPANY EXPENSES: Interest expense $(37) $ (35) $ (42) Unallocated expenses, net (35) (34) (20) NONINSURANCE LOSSES: Management consulting (2) (4) (2) Oil and gas - (18) (17) Other noninsurance investments (9) (13) (22) Restructuring charges - (2) (6) Loss from continuing operations before income taxes and realized gains $(83) $(106) $(109)
Interest expense in 1993 was generally consistent with 1992; however, compared with 1991, interest expense was lower due primarily to declines in outstanding debt and lower rates on short-term debt. As a result of a restructuring, there were no oil and gas operating losses in 1993. During 1992, USF&G incurred $2 million of restructuring charges related to its oil and gas operations. The result of this restructuring was to merge the operations with another oil and gas exploration and production company. In 1993, the successor company issued shares through an initial public offering, thereby reducing USF&G's percentage ownership. The improvement in other noninsurance investments from 1992 to 1993 primarily related to income from notes received from the sale of an investment management subsidiary in 1992. Restructuring charges in 1991 related to revisions to restructuring estimates originally established in the prior year and the expansion of the restructuring program during the year. 5. Investments The table below shows the distribution of USF&G's investment portfolio.
At December 31 1993 1992 1991 Total Investments (in millions) $11,377 $11,346 $12,167 Fixed maturities: Held to maturity 41% 64% 31% Available for sale 43 17 44 Total fixed maturities 84 81 75 Common and preferred stocks 1 1 4 Short-term investments 3 5 10 Mortgage loans and real estate 9 9 9 Other invested assets 3 4 2 Total 100% 100% 100%
USF&G's investment mix has been repositioned to increase the percentage of high quality fixed-income securities in the portfolio. Long-term fixed maturities comprise 84 percent of total investments at December 31, 1993, compared with 81 percent and 75 percent at December 31, 1992 and 1991, respectively. At December 31, 1990, fixed maturities comprised less than 65 percent of total investments. The general level of investment in fixed maturities is expected to be maintained through 1994. The increased proportion of fixed maturities available for sale at December 31, 1993, compared with prior periods reflects the implementation of SFAS No. 115. 5.1. NET INVESTMENT INCOME The following table shows the components of net investment income.
Years Ended December 31 (dollars in millions) 1993 1992 1991 Net investment income from: Fixed maturities $721 $739 $711 Equity securities 14 12 29 Options - 37 65 Short-term investments 9 27 73 Real estate and mortgage loans 41 50 35 Other, less expenses (36) (48) (36) Total $749 $817 $877 Average yield 6.7% 7.3% 7.8%
Investment results were significantly affected by declining interest rates in 1993. The interest rate environment had a two-pronged effect on net investment income, which decreased 8 percent and 15 percent when compared with 1992 and 1991, respectively. The reduction in interest rates triggered prepayments on mortgage-backed securities and refinancing of debt by long-term borrowers. During 1993, maturities and other repayments of USF&G's fixed maturity investments totaled $1.3 billion and proceeds from fixed maturities sales totaled $1.7 billion. Proceeds from these sales and repayments of fixed maturities were reinvested at substantially lower rates. For 1993, net investment income from fixed maturities decreased by 2.4 percent when compared with 1992 and increased by 1.4 percent when compared with 1991. Average yields on fixed maturities were 7.7 percent, 8.6 percent, and 9.2 percent for the years ended December 31, 1993, 1992, and 1991, respectively. While interest rate changes have contributed to declines in average yields since 1991, another significant factor was the elimination of option income. Prior to 1993, options were written on a segment of USF&G's fixed maturity portfolio. In 1993, USF&G elected to eliminate its debt option writing program and thereby forfeit option income in order to avoid exposing its fixed maturities to the possibility of being called. Excluding option income the average yield on invested assets was 7.2 percent in 1991 and 7.0 percent in 1992 compared with 6.7 percent in 1993. The reduction in net investment income from short-term investments since 1991 reflects both the effect of lower interest rates and the reduced level of assets allocated to short-term investments. The sale of income-producing properties combined with losses on equity partnerships were the primary factors in the decline from 1992 to 1993 in real estate and mortgage loan investment income. Management does not anticipate a significant increase in interest rates during 1994. Therefore, it is likely that net investment income will decline further in 1994 as prepayments and maturities continue and proceeds are reinvested at continued low rates. 5.2. REALIZED GAINS (LOSSES) The components of net realized gains (losses) include the following:
Years Ended December 31 (in millions) 1993 1992 1991 Net gains (losses) from sales: Fixed maturities $ 79 $179 $157 Equities and options 5 52 (2) Real estate and mortgage loans 6 (3) (3) Other - 11 (44) Total net gains 90 239 108 Provisions for impairment: Fixed maturities (10) (20) (15) Equities (8) - (18) Real estate (51) (43) (29) Other (15) (28) - Total provisions (84) (91) (62) Losses due to portfolio restructuring - - (8) Net realized gains $ 6 $148 $ 38
To more effectively match the duration of its investments with its life insurance liabilities, USF&G repositioned a portion of its fixed maturity investments in 1993. The related sales of fixed maturities were the primary reason for net gains of $90 million in 1993. Investment sales to offset declines in capital and statutory surplus caused by catastrophe losses and other sales as part of USF&G's portfolio repositioning resulted in net gains of $239 million and $108 million in 1992 and 1991, respectively. In 1992, USF&G realized $52 million of gains on equities and reallocated the proceeds to relatively less volatile fixed maturities. To reflect impairments in the value of certain of its investments, USF&G made provisions for impairment of $84 million in 1993 compared with $91 million in 1992 and $62 million in 1991. Real estate provisions in 1993 primarily related to specific properties either sold in 1993 or expected to be sold in the near term. These properties were written down to net realizable value with corresponding increases to real estate reserves. Similar real estate provisions were taken in 1992 and 1991 to reflect both changes in circumstances related to specific properties and general real estate market deterioration. The recognition of other than temporary impairments on two equity holdings which were subsequently sold during 1993 and one investment where USF&G holds a minority interest were key elements in net realized losses of $3 million on equities and $15 million on other invested assets in 1993. 5.3. UNREALIZED GAINS (LOSSES) The components of the changes in unrealized gains (losses) were as follows:
Years Ended December 31 (in millions) 1993 1992 1991 Equity securities $ 23 $(39) $ 47 Fixed maturities available for sale 222 - - Deferred policy acquisition cost adjustment (30) - - Other 8 29 (10) Total $223 $(10) $ 37
USF&G's adoption of SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," favorably impacted shareholders' equity as market value changes in fixed maturities available for sale were reflected in unrealized gains on investments in 1993. Unrealized gains on fixed maturities classified as "available for sale" were $222 million at December 31, 1993. Prior to adoption of SFAS No. 115, appreciation on fixed maturities was not included as a component of shareholders' equity. This was partially offset by a DPAC adjustment reflecting assumptions about the effect of potential asset sales on future DPAC amortization should the unrealized gains on assets matched to certain life insurance liabilities be realized and the proceeds reinvested at lower rates. Under this scenario margins on annuity products could potentially be reduced, leading to an acceleration of DPAC amortization. Appreciation in the equity portfolio and several stock funds as well as the partial sale of a foreign equity holding which had an unrealized loss at December 31, 1992, also contributed to the favorable change in unrealized gains. A reduction in unrealized gains of $10 million occurred in 1992 largely due to the realization of gains on the sale of equities offset by the elimination of unrealized losses on written options. A general appreciation in the equity markets resulted in a $47 million increase in unrealized gains on equity securities in 1991. 5.4. FIXED MATURITY INVESTMENTS The tables below detail the composition of the fixed maturity portfolio.
At December 31 (dollars in millions) 1993 1992 1991 U. S. Government bonds $ 308 $ 554 $2,613 Corporate investment-grade bonds 4,866 3,103 1,806 Mortgage-backed securities 2,403 3,824 3,174 Asset-backed securities 1,149 995 793 High-yield bonds* 562 522 433 Tax-exempt bonds 48 71 173 Other 6 136 121 Total fixed maturities at amortized cost $9,342 $9,205 $9,113 Total market value of fixed maturities $9,699 $9,319 $9,486 Net unrealized gains $ 357 $ 114 $ 373 Percent market-to-amortized cost 104% 101% 104% * See Glossary of Terms
At December 31 1993 1992 1991 Amortized Market Amortized Market Amortized Market (in millions) Cost Value Cost Value Cost Value Fixed maturities: Held to maturity $4,661 $4,796 $7,218 $7,290 $3,749 $3,880 Available for sale 4,681 4,903 1,987 2,029 5,364 5,606 Total $9,342 $9,699 $9,205 $9,319 $9,113 $9,486
In compliance with SFAS No. 115, USF&G classified 50 percent of its fixed maturity portfolio as "available for sale." Management believes that this level of securities available for sale is adequate for USF&G to meet its operating liquidity needs and provides the flexibility necessary to respond to changes in the investment markets. Securities classified as "available for sale" are carried at market value with unrealized gains and losses included in shareholders' equity. At December 31, 1993, unrealized gains were $222 million. Securities classified as "held to maturity", which are carried at amortized cost, had unrealized gains of $135 million at December 31, 1993. Prior to the adoption of SFAS No. 115, gains on fixed maturities were not recognized in USF&G's financial statements until the gains were realized at the time of sale. Such unrealized gains on fixed maturities available for sale were $42 million and $242 million at December 31, 1992 and 1991, respectively. Unrealized gains on securities classified as "held to maturity" were $72 million and $131 million at December 31, 1992 and 1991, respectively. Declining interest rates, which resulted in rising bond prices, were responsible for the three percentage point increase from 1992 to 1993 in the fixed maturity portfolio's overall market-to-amortized cost ratio. The effect on fixed maturities of falling interest rates was most evident in the decline in holdings of mortgage-backed securities during 1993. Investments in mortgage-backed securities declined 37 percent and 24 percent when compared with holdings at December 31, 1992 and 1991, respectively, due primarily to the reallocation of principal prepayments to corporate investment grade bonds. Declining interest rates in 1993 led to the prepayment of a significant portion of USF&G's mortgage-backed portfolio. Proceeds from these prepayments, combined with other sales proceeds, were invested in corporate investment grade securities to maintain a balance of sufficient credit quality and overall portfolio yield. While subject to the prepayment risk experienced during 1993, credit risk related to mortgage-backed securities is believed to be minimal as 99 percent of such securities at December 31, 1993, have AAA ratings or are collateralized by obligations of the U. S. Government or its agencies. Debt obligations of the U. S. Government and its agencies and other investment-grade bonds comprised 94 percent of the portfolio at December 31, 1993, compared with 93 percent at both December 31, 1992 and 1991. The table below shows the credit quality of the long-term fixed maturity portfolio as of December 31, 1993.
Percent Market- Amortized Market to-Amortized (dollars in millions) Cost Percent Value Cost U. S. Government and U. S. Government Agencies $2,351 25% $2,453 104% AAA 1,808 19 1,866 103 AA 1,305 14 1,342 103 A 2,296 25 2,390 104 BBB 1,020 11 1,055 103 Below BBB 562 6 593 106 Total $9,342 100% $9,699 104%
USF&G's holdings in high-yield bonds comprised six percent of the total fixed maturity portfolio at December 31, 1993, compared with five percent of the portfolio at December 31, 1992 and 1991. The high-yield bond market-to-amortized cost ratio has improved three percentage points and seven percentage points compared with December 31, 1992 and 1991, respectively. Of the total high-yield bond portfolio, 69 percent is held by the life insurance segment, representing 9 percent of the life segment's total investments. The table below illustrates the credit quality of the high-yield bond portfolio at December 31, 1993.
Percent Market- Amortized Market to-Amortized (dollars in millions) Cost Percent Value Cost BB $352 63% $369 105% B 209 37 218 104 CCC and lower 10 2 6 60 Valuation allowance (9) (2) - - Total $562 100% $593 106%
The information on credit quality in the preceding two tables is based upon the higher of the rating assigned to each issue of fixed-income bonds by either Standard & Poor's or Moody's. Where neither Standard & Poor's nor Moody's has assigned a rating to a particular fixed maturity issue, classification is based on 1) ratings available from other recognized rating services; 2) ratings assigned by the NAIC; or 3) an internal assessment of the characteristics of the individual security if no other rating is available. At December 31, 1993, USF&G's five largest investments in high-yield bonds totaled $86 million in book value and had a market value of $90 million. None of these investments individually exceeded $28 million. USF&G's largest single high-yield bond exposure represented 5 percent of the high-yield portfolio and 0.3 percent of the total fixed maturity portfolio. 5.5. REAL ESTATE The table below shows the components of USF&G's real estate portfolio.
At December 31 (in millions) 1993 1992 1991 Mortgage loans $ 302 $ 186 $ 291 Equity real estate 793 926 864 Reserves (108) (108) (88) Total $ 987 $1,004 $1,067
The increased allocation to mortgage loans in 1993 reflects a strategy of maintaining a generally consistent level of real estate assets while allocating more funds to traditional mortgage loans and reducing real estate equity-type investments. USF&G's real estate investment strategy emphasizes diversification by geographic region, property type, and stage of development. The diversification of USF&G's mortgage loan and real estate portfolio is as follows:
At December 31 1993 1992 1991 GEOGRAPHIC REGION Pacific/Mountain 33% 33% 31% Southeast 22 22 23 Mid-Atlantic 19 17 17 Midwest 18 19 20 Southwest 5 6 6 Northeast 3 3 3 TYPE OF PROPERTY Office 37% 33% 34% Land 27 28 25 Apartments 19 16 18 Industrial 9 11 11 Retail/other 6 10 8 Timberland/Agriculture 2 2 4 DEVELOPMENT STAGE Operating property 73% 72% 75% Land development 16 17 14 Land packaging 11 11 11
Real estate investments are generally appraised at least once every three years. Appraisals are obtained more frequently under certain circumstances such as when there are significant changes in property performance or market conditions. All of these appraisals are performed by professionally certified appraisers. USF&G's five largest real estate investments had a book value of $322 million at December 31, 1993. The largest single investment was $89 million, or eight percent of the total real estate portfolio. Mortgage loans and real estate investments not performing in accordance with contractual terms, or performing significantly below expectation, are categorized as nonperforming. NONPERFORMING REAL ESTATE investments totaled $249 million at December 31, 1993, which represented declines of 28 percent and 37 percent, respectively, when compared with December 31, 1992 and 1991. The reduction in nonperforming real estate was driven by operating improvements in properties warranting reclassification to performing real estate, the sale of certain nonperforming real estate properties, and write-downs on specific properties. The book value of the components of nonperforming real estate were as follows:
Book Value At December 31 (dollars in millions) 1993 1992 1991 Loans not current as to interest or principal $ - $ - $ 72 Restructured loans and investments 4 4 21 Real estate held as in-substance foreclosure 14 15 4 Real estate acquired through foreclosure or deed-in-lieu of foreclosure 121 190 157 Land investments 57 71 60 Nonperforming equity investments 53 66 79 Total nonperforming real estate $249 $346 $393 Real estate reserves $108 $108 $ 88 Reserves/nonperforming real estate 43% 31% 22%
Valuation allowances are established for impairments of mortgage loans and real estate equity values based on periodic evaluations of the operating performance of the properties and their exposure to declines in value. The allowance totaled $108 million, or 10 percent of the entire real estate portfolio, at both December 31, 1993 and 1992. In 1991, the allowance was $88 million, which represented 8 percent of the total real estate portfolio. In light of USF&G's current plans with respect to the portfolio, management believes the allowance at December 31, 1993, adequately reflects the current condition of the portfolio. Should deterioration occur in the general real estate market or with respect to individual properties in the future, additional reserves may be required. Prospectively, efforts will continue to reduce risk and increase yields in the real estate portfolio by selling equity real estate when it is advantageous to do so and reinvesting the proceeds in medium-term mortgage loans. 6. Financial Condition 6.1. ASSETS USF&G's assets totaled $14.3 billion at December 31, 1993, compared with $13.1 billion and $14.5 billion at the end of 1992 and 1991, respectively. The $1.2 billion increase in 1993 is primarily due to the implementation of SFAS No. 113, "Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts" (refer to Section 1.2 in this Analysis). 6.2. DEBT USF&G's debt totaled $618 million at December 31, 1993, compared with $616 million and $677 million at December 31, 1992 and 1991, respectively. The increase in debt from 1992 to 1993 is attributable to $5 million of additional debt resulting from a change in percentage ownership of a real estate limited partnership, offset by a $3 million repayment of industrial revenue bonds by the property/casualty segment. Real estate debt is project related and generally depends on the project's cash flow to provide debt service. As a result of entering into currency swap agreements, there was no effect on net income from translation of non-U.S. dollar denominated debt. 6.3. SHAREHOLDERS' EQUITY USF&G's shareholders' equity totaled $1.51 billion at December 31, 1993, $1.27 billion at December 31, 1992, and $1.32 billion at December 31, 1991. The increase in 1993 was the result of an increase in unrealized gains on investments primarily related to the implementation of SFAS No. 115 (refer to Section 1.2 in this Analysis) which, as a result of recording fixed maturity investments available for sale at market value, increased shareholders' equity by $222 million. This was offset by a $30 million adjustment in unrealized losses related to DPAC (refer to Section 5.3 in this Analysis). Additionally, net income of $165 million and an increase of $6 million in paid-in capital due to the exercise of stock options and the granting of stock awards pursuant to the 1993 Stock Plan for Non-Employee Directors increased shareholders' equity. These increases in equity were reduced by an $85 million minimum pension liability which was recorded due to the declining interest rate environment in 1993 and a related decrease in the discount rate assumed to estimate the present value of pension benefit obligations. Dividends to shareholders reduced equity by $66 million. Common stock dividends declared in 1993, 1992, and 1991 totaled $17 million per year. Annual preferred stock dividends declared in 1993 and 1992 totaled $48 million per year, compared with $37 million in 1991. 6.4. CAPITAL STRATEGY Subject to capital market conditions, over the next two years USF&G plans to refinance up to approximately $600 million of debt. In anticipation of the expiration in 1995 of the short-term bank credit facility, it is expected that the $375 million balance outstanding at December 31, 1993 will be refinanced with longer term debt and that a reduced short-term facility will be renegotiated. Where opportunities exist, other outstanding debt may be refinanced at lower interest rates. In addition, depending upon the market value of its common stock, USF&G plans to call for redemption the Series C Preferred Stock and a portion of the Series B Preferred Stock under circumstances which will result in shares of those series of preferred stock being converted to common stock. 7. Liquidity Liquidity is a measure of an entity's ability to secure enough cash to meet its contractual obligations and operating needs. USF&G requires cash primarily to pay policyholders' claims and benefits, debt and dividend obligations, and operating expenses. USF&G's sources of cash include cash flow from operations, credit facilities, and sales of marketable securities and other assets. Management believes that internal and external sources of cash will continue to exceed USF&G's short and long-term needs. In January 1994, USF&G filed a shelf registration statement with the Securities and Exchange Commission. As of its effective date in February 1994, USF&G had $647 million in aggregate unissued debt, preferred stock and common stock (and warrants to purchase debt and equity securities) registered. These securities may be issued from time to time, depending on market conditions. This shelf amount was reduced by $126 million in proceeds received from the March 1994 issuance of zero coupon convertible subordinated notes. 7.1. CASH FLOW FROM OPERATIONS USF&G had cash flow from continuing operations of $87 million in 1993 and $99 million in 1992, compared with negative cash flow from continuing operations of $4 million in 1991. The primary factors contributing to the decrease in cash flow for 1993 in comparison with 1992 were a decline in premiums and investment income in the property/casualty segment, offset by a reduction in loss payments and operating expenses. 7.2. CREDIT FACILITIES USF&G maintains a $700 million committed credit facility with a group of foreign and domestic banks. Borrowings outstanding under the credit facility totaled $375 million at December 31, 1993, 1992, and 1991. This credit facility expires in 1995. The credit agreement contains restrictive covenants, defined in the agreement, pertaining to indebtedness and tangible net worth levels. USF&G was in compliance with these covenants at December 31, 1993, 1992, and 1991. 7.3. MARKETABLE SECURITIES USF&G's fixed maturity, equity, and short-term investment portfolios are liquid and represent substantial sources of cash. Fixed maturities are classified as "held to maturity" if USF&G has both the ability and intent to hold the securities until maturity or near maturity. Fixed maturities that may be sold prior to maturity are classified as "available for sale." The market value of fixed maturities held to maturity was $4.8 billion at December 31, 1993, which represents 103 percent of amortized cost. Fixed maturities available for sale had a market value of $4.9 billion at December 31, 1993, which represents 105 percent of amortized cost. At year-end, equity securities, which are reported at market value in the balance sheet, totaled $135 million. Short-term investments totaled $322 million. 7.4. LIQUIDITY RESTRICTIONS There are certain restrictions on the payment of dividends by insurance subsidiaries that may limit USF&G's ability to receive funds from its insurance subsidiaries. The Maryland Insurance Code requires the Maryland Insurance Commissioner's prior approval for any dividend payments during a twelve-month period from a Maryland subsidiary, such as USF&G Company, to its holding company which exceed 10 percent of policyholders' surplus as of the prior calendar year end. In addition, notice of any other dividend must be given to the Maryland Insurance Commissioner prior to payment, and the Commissioner has the right to prevent payment of such dividend if it is determined that such payment could impair the insurer's surplus or financial condition. USF&G Company's policyholders' surplus at December 31, 1993, totaled $1.5 billion. USF&G's insurance subsidiaries' admitted assets for statutory purposes included a total of approximately $245 million in receivables from the parent and affiliated companies. Dividends of approximately $154 million are currently available for payment to USF&G from USF&G Company during 1994 without prior regulatory approval. Dividends paid to USF&G totaled $125 million in 1993 and 1992, compared with $127 million in 1991. 8. Regulation 8.1. GENERAL USF&G's insurance subsidiaries are subject to extensive regulatory oversight in the jurisdictions where they do business. This regulatory structure, which generally operates through state insurance departments, involves the licensing of insurance companies and agents, limitations on the nature and amount of certain investments, restrictions on the amount of single insured risks, approval of policy forms and rates, limitations on dividends, limitations on the ability to withdraw from certain lines of business such as personal lines and workers compensation, and other matters. Recently, there has been increased scrutiny of the insurance regulatory framework. A number of state legislatures have considered or enacted legislation that alters and, in many cases, increases state authority to regulate insurance companies. Proposals to adopt a federal regulatory framework have also been discussed recently. It is not possible to predict the future impact of increasing state or potential federal regulation on USF&G's operations. 8.2. 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's financial position. 8.3. 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 the "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 was a servicing carrier for the Maine residual market in 1988, 1989, 1990, and 1991. USF&G withdrew from the Maine voluntary market and as a servicing carrier effective December 31, 1991. USF&G 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, the National Council of Compensation Insurance ("NCCI") and several 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 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, 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, 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 believes that it has meritorious defenses and has determined to defend the actions vigorously. 8.4. INVOLUNTARY MARKET PLANS Most states require insurers to provide coverage for less desirable risks through participation in mandatory programs. USF&G's participation in assigned risk pools and similar plans, mandated now or in the future, creates and is expected to create downward pressure on earnings. 8.5. WITHDRAWAL FROM BUSINESS LINES Some states have adopted legislation or regulations restricting or otherwise limiting an insurer's ability to withdraw from certain lines of business. Such restrictions are most often found in personal lines and workers compensation insurance. Such restrictions limit USF&G's ability to manage its exposure to unprofitable lines and adversely affects earnings to the extent USF&G is required to continue writing unprofitable business. 8.6. GUARANTY FUNDS Insurance guaranty fund laws have been adopted in most states to protect policyholders in case of an insurer's insolvency. Insurers doing business in those states can be assessed for certain obligations of insolvent companies to policyholders and claimants. These assessments, under certain circumstances, can be credited against future premium taxes. Net of such tax credits, USF&G incurred $15 million of guaranty fund expense in 1993 and $13 million in 1992. Financial difficulties of certain insurance companies over the past several years could result in additional assessments that would have a negative impact on future earnings. State laws limit the amount of annual assessments which are based on percentages (generally two percent) of assessable annual premiums in the year of insolvency. The amount of these assessments cannot be reasonably estimated and is not expected to have a material adverse effect on USF&G's financial position. 8.7. NAIC PROPOSALS The National Association of Insurance Commissioners ("NAIC") has proposed several model laws and regulations which are in varying stages of discussion. The NAIC has adopted model regulations which establish minimum capitalization requirements based on a "risk-based capital" formula. One version of this model regulation is applicable for life insurers with respect to their financial position as of December 31, 1993. A second version was adopted by the NAIC in December 1993 for implementation by property/casualty insurers in 1995 with respect to their financial position as of December 31, 1994. The statutory "risk adjusted" capital of USF&G Company and F&G Life as of December 31, 1993, were such that no regulatory action would be required (assuming that the NAIC model regulation applied to property/casualty insurers in 1993). The NAIC has also proposed a Model Investment Law which prescribes the investments that are permissible for property/casualty and life insurers to hold. Adoption of this model law is targeted for September 1994, at the earliest. It is not expected that the final adoption of these regulations by the NAIC will result in any material adverse effect on USF&G's liquidity or financial position. 8.8. NATIONAL HEALTH CARE President Clinton has presented a proposal to enact a comprehensive national health care system. One component of this proposal would merge the medical payment system for workers compensation and the medical payments component of automobile insurance into a single health care system. Although some form of the Administration's national health care proposal may be enacted, it is unclear whether any such legislation will address workers compensation or personal automobile insurance. Several alternatives currently being discussed would not have a significant impact on the workers compensation system, while others could have a significant effect. The likelihood of passage of any particular form of legislation cannot be predicted at this time. It is too early to predict the impact of any such legislation on USF&G. 8.9. SUPERFUND The Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), more commonly known as Superfund, is currently scheduled to be reauthorized in 1994. Insurance companies, other businesses, environmental groups and municipalities are advocating a variety of reform proposals to revise the cleanup and liability provisions of CERCLA. No reliable prediction can be made as to the ultimate outcome of the legislative deliberations regarding the reauthorization of CERCLA or the effect any revisions could have on USF&G. 8.10. INSURANCE REGULATORY INFORMATION SYSTEM The NAIC's Insurance Regulatory Information System ("IRIS") ratios are intended to assist state insurance departments in their review of the financial condition of insurance companies operating within their respective states. IRIS specifies eleven industry ratios and establishes a "usual range" for each ratio. Significant departure from a number of ratios may lead to inquiries from state insurance regulators. As of December 31, 1993, USF&G was within the "usual range" for all IRIS ratios. 9. Income Taxes Effective January 1, 1993, USF&G changed its method of accounting for income taxes as required by SFAS No. 109, "Accounting for Income Taxes." This standard requires recognition of future tax benefits attributable to net operating loss carry-forwards ("NOLs") and to deductible temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance is required if it is more likely than not that some or all of the deferred tax asset may not be realized. A $90 million tax benefit was recorded in income as a cumulative effect of adopting this new accounting standard. As a result of the enactment of the Omnibus Budget Reconciliation Act of 1993 which increased the corporate tax rate to 35 percent, an additional $3 million deferred tax benefit was recognized. At December 31, 1993, USF&G has recorded a $119 million net deferred tax asset, representing that in the opinion of management it is more likely than not that there will be sufficient future taxable income to result in the realization of this benefit. Total deferred tax assets attributable to deductible temporary differences and NOLs totaled $944 million and total deferred tax liabilities totaled $343 million. Significant temporary differences include deferred policy acquisition costs, loss reserve discounting, and unrealized gains and losses. USF&G recorded a valuation allowance of $482 million to offset the gross deferred tax assets. Management believes there will be sufficient taxable income to absorb all existing NOLs; but, in light of the guidance in the standard, believes it is appropriate to establish an allowance. USF&G will evaluate the realizability of the deferred tax asset periodically and assess the need for a change in the valuation allowance. A valuation allowance is established based on an evaluation of positive and negative evidence as to the likelihood of realizing some or all of the deferred tax asset. The primary negative evidence that existed was the cumulative losses resulting from 1991. The positive evidence included 1) the forecast of future taxable income sufficient to recover some tax benefit within three to five years; 2) a tax planning strategy identified to generate future income, if necessary; 3) the return to profitability in 1992 and 1993; 4) the sources of the losses in 1991, which are not likely to recur given the restructuring actions taken; and 5) a history of substantial NOLs in prior years being fully utilized. Management's determination that it is more likely than not that a $119 million deferred tax benefit will be realized is based on the identification of two primary sources of taxable income: 1) forecasted future taxable income generated and 2) a prudent and feasible tax strategy to generate taxable income to prevent NOLs from expiring, if necessary. Based on USF&G's history of prior earnings, particularly for the core insurance business, and its expectations in the future as a result of restructuring actions taken to reduce costs and achieve long-term profitability, management believes ordinary income of the Corporation will be sufficient to realize at least $103 million of tax benefit. Management has evaluated forecasted future income within three to five years and judgmentally discounted the later years due to the greater uncertainty of forecasting these later years. Management has identified a specific tax strategy that would result in the realization of $16 million of deferred tax assets. Realization of the deferred tax asset is dependent, in whole or in part, on USF&G's ability to generate future taxable income from ordinary and recurring operations. Based on USF&G's evaluation, approximately $340 million of future taxable income would need to be generated over the tax carry-forward period to realize the $119 million deferred tax asset. USF&G has NOLs of $634 million ($222 million tax-effected at a 35 percent corporate rate), which expire as follows: $38 million in 2001, $191 million in 2005, and $405 million in 2006. The NOLs available for future utilization were generated primarily by the noninsurance businesses of USF&G and nonrecurring charges related to the business restructuring program. A majority of these noninsurance businesses that caused a significant drain on prior earnings have been sold, divested, or liquidated by USF&G. Management believes the results of the restructuring actions, including the disposal of noninsurance businesses, will allow USF&G to resume its previous history of earnings. Future levels of net income and taxable income from the core insurance operations are dependent on several factors including general economic or specific insurance industry conditions and competitive pressures that may lead to unplanned premium declines or adversely impact voluntary and involuntary loss experience. Other factors that could impact future net income include catastrophe losses, a continued reduction in interest rates, or a further decline in the real estate market. Because of the risk factors indicated as well as other factors beyond the control of management, no assurance can be given that sufficient taxable income will be generated to utilize the NOLs or otherwise realize the deferred tax assets. However, management has considered these factors in reaching its conclusion that it is more likely than not that there will be sufficient future taxable income to result in the realization of the recorded $119 million deferred tax asset. USF&G's tax returns have not been reviewed by the Internal Revenue Service ("IRS") since 1989 and the availability of the NOLs could be challenged by the IRS upon review of returns through 1992. Management believes, however, that IRS challenges that would limit the recoverability of $119 million in tax benefits are unlikely, and adjustments to the tax liability, if any, for years through 1993 will not have a material adverse effect on USF&G's financial position. 10. Glossary of Terms Account value: Deferred annuity cash value available to policyholders before the assessment of surrender charges. Catastrophe losses: Property/casualty insurance claim losses resulting from a sudden calamitous event, such as a severe storm, are categorized as "catastrophes" when they meet certain severity and other criteria determined by a national organization. EITF: Emerging Issues Task Force of the Financial Accounting Standards Board. Expense ratio: The ratio of underwriting expenses to net premiums written, if determined in accordance with statutory accounting practices ("SAP"), or the ratio of underwriting expenses (adjusted by deferred policy acquisition costs) to earned premiums, if determined in accordance with GAAP. GAAP: Generally Accepted Accounting Principles. High-yield bonds: Fixed maturity investments with a credit rating below the equivalent of Standard & Poor's "BBB." In addition, nonrated fixed maturities that, in the judgment of USF&G, have credit characteristics similar to those of a fixed maturity rated below BBB are considered high-yield bonds. Involuntary business: Property/casualty insurance companies are required by state laws to participate in a number of assigned risk pools, automobile reinsurance facilities, and similar mandatory plans ("involuntary market plans"). These plans generally require coverage of less desirable risks, principally for workers compensation and automobile liability, that do not meet the companies' normal underwriting standards. As mandated by legislative authorities, insurers generally participate in such plans based upon their shares of the total writings of certain classes of insurance. Liquid assets to surrender value: Liquid assets (publicly traded bonds, stocks, cash, and short-term investments) divided by surrenderable policy liabilities, net of surrender charges. A measure of an insurance company's ability to meet liquidity needs in case of annuity surrenders. Loss ratio: The ratio of incurred losses and loss adjustment expenses to earned premiums, determined in accordance with SAP or GAAP, as applicable. The difference between SAP and GAAP relates to salvage recoverable accruals for GAAP purposes and deposit accounting for GAAP related to financial reinsurance. Nonperforming real estate: Mortgage loans and real estate investments that are not performing in accordance with their contractual terms or that are performing at an economic level significantly below expectations. Included in the table of nonperforming real estate are the following terms: Deed-in-lieu of foreclosure: Real estate to which title has been obtained in satisfaction of a mortgage loan receivable in order to prevent foreclosure proceedings. In-substance foreclosure: Collateral for a mortgage loan is in-substance foreclosed when the borrower has little or no equity in the collateral, does not have the ability to repay the loan, and has effectively abandoned control of the collateral to USF&G. Land investments: Land investments that are held for future development where, based on current market conditions, returns are projected to be significantly below original expectations. Loans not current as to interest and principal: Loans on which the borrower has failed to meet mortgage obligations. Nonperforming equity investments: Equity investments with cash and GAAP return on book value less than five percent, but excluding land investments. Restructured loans and investments: Loans and investments whose terms have been restructured as to interest rates, participation, and/or maturity date such that returns are projected to be significantly below original expectations. Policyholders' surplus: The net assets of an insurer as reported to regulatory agencies based on accounting practices prescribed or permitted by the National Association of Insurance Commissioners and the state of domicile. Premiums earned: The portion of premiums written applicable to the expired period of policies, after the assumption and cession of reinsurance. Premiums written: Premiums retained by an insurer, after the assumption and cession of reinsurance. Underwriting results: Property/casualty pretax operating results excluding investment results, policyholders' dividends, and noninsurance activities; generally, premiums earned less losses and loss expenses incurred and "underwriting" expenses incurred. USF&G Corporation Eleven-Year Summary of Selected Financial Data
(dollars in millions except per share data) 1993 1992 1991 1990 CONSOLIDATED RESULTS Premiums earned $ 2,456 $ 2,637 $ 3,187 $ 3,516 Revenues 3,249 3,660 4,172 4,171 Income (loss) from continuing operations before cumulative effect of adopting new accounting standards 127 35 (144) (433) Income (loss) from discontinued operations - (7) (32) (136) Cumulative effect of adopting new accounting standards 38 - - - Net income (loss) 165 28 (176) (569) PER SHARE RESULTS Income (loss) from continuing operations before cumulative effect of adopting new accounting standards $ .93 $ (.16) $ (2.15) $ (5.37) Income (loss) from discontinued operations - (.08) (.38) (1.62) Cumulative effect of adopting new accounting standards .45 - - - Net income (loss) 1.38 (.24) (2.53) (6.99) Book value 11.66 8.87 9.53 11.97 INVESTMENT RESULTS Net investment income $ 749 $ 817 $ 877 $ 929 Realized gains (losses) 6 148 38 (354) Change in unrealized gains (losses) 223 (10) 37 (30) FINANCIAL POSITION Assets $ 14,335 $ 13,134 $ 14,486 $ 13,902 Investments 11,377 11,346 12,167 11,221 Corporate debt 574 574 617 659 Real estate and other debt 44 42 60 120 Shareholders' equity 1,511 1,270 1,323 1,205 COMMON STOCK Market high $ 19 5/8 $ 15 $ 12 1/2 $ 30 3/8 Market low 11 1/8 7 1/8 5 5/8 7 Market close 14 3/4 12 3/8 7 1/4 7 1/2 Cash dividends declared .20 .20 .20 2.44 Common shares outstanding 85,009,482 84,512,758 84,273,327 83,958,222 PROPERTY/CASUALTY INSURANCE Premiums earned $ 2,327 $ 2,533 $ 3,018 $ 3,330 Net income (loss) 281 193 (40) (192) Statutory premiums written 2,429 2,420 3,032 3,631 Statutory loss ratio 75.4 82.0 84.1 81.9 Statutory expense ratio 33.7 34.9 33.1 32.9 Statutory combined ratio 109.1 116.9 117.2 114.8 LIFE INSURANCE Sales $ 168 $ 104 $ 209 $ 994 Premium income 129 104 169 186 Net income (loss) 10 (5) 31 (16) NONINSURANCE OPERATIONS Revenues $ 5 $ 17 $ 38 $ 22 Net loss (126) (160) (167) (361)
1989 1988 1987 1986 1985 1984 1983 CONSOLIDATED RESULTS Premiums earned $ 3,697 $ 3,791 $ 3,880 $ 3,619 $ 3,029 $ 2,273 $ 1,971 Revenues 4,636 4,548 4,491 4,310 3,587 2,628 2,561 Income (loss) from continuing operations before cumulative effect of adopting new accounting standards 148 251 263 277 (109) (64) 270 Income (loss) from discontinued operations (31) (20) 2 (2) 1 - - Cumulative effect of adopting new accounting standards - - - - - - - Net income (loss) 119 247 279 296 (108) (64) 270 PER SHARE RESULTS Income (loss) from continuing operations before cumulative effect of adopting new accounting standards $ 1.58 $ 2.91 $ 3.41 $ 4.14 $ (1.83) $ (1.18) $ 4.76 Income (loss) from discontinued operations (.37) (.25) .03 (.03) .02 - - Cumulative effect of adopting new accounting standards - - - - - - - Net income (loss) 1.24 2.85 3.63 4.43 (1.81) (1.18) 4.76 Book value 21.60 22.57 19.53 20.19 18.91 19.08 22.61 INVESTMENT RESULTS Net investment income $ 911 $ 795 $ 699 $ 619 $ 392 $ 369 $ 360 Realized gains (losses) (36) (92) (133) 53 150 (23) 225 Change in unrealized gains (losses) 32 185 (282) (105) 118 (10) (228) FINANCIAL POSITION Assets $ 13,551 $ 12,326 $ 10,158 $ 8,934 $ 7,672 $ 6,099 $ 5,279 Investments 10,894 9,775 7,892 6,824 5,688 4,142 3,871 Corporate debt 543 448 407 348 197 146 67 Real estate and other debt 87 41 22 3 3 3 3 Shareholders' equity 2,007 2,054 1,724 1,576 1,214 1,045 1,223 COMMON STOCK Market high $ 34 $ 34 3/8 $ 48 3/4 $ 46 3/4 $ 41 1/2 $ 30 7/8 $ 30 Market low 28 1/4 28 1/2 26 1/4 36 1/4 25 5/8 17 5/8 19 3/4 Market close 29 28 1/2 28 3/8 39 3/4 39 27 1/2 27 5/8 Cash dividends declared 2.80 2.64 2.48 2.32 2.20 2.08 1.92 Common shares outstanding 83,664,506 82,155,209 78,027,916 68,153,799 64,206,487 54,758,184 54,109,221 PROPERTY/CASUALTY INSURANCE Premiums earned $ 3,532 $ 3,613 $ 3,746 $ 3,539 $ 2,962 $ 2,215 $ 1,913 Net income (loss) 200 318 331 310 (116) (69) 259 Statutory premiums written 3,698 3,892 3,845 3,696 3,151 2,318 1,989 Statutory loss ratio 76.5 73.1 73.2 79.1 90.7 90.5 83.1 Statutory expense ratio 32.8 31.1 30.1 29.1 30.0 31.4 32.2 Statutory combined ratio 109.3 104.2 103.3 108.2 120.7 121.9 115.3 LIFE INSURANCE Sales $ 898 $ 1,045 $ 255 $ 63 $ 103 $ 69 $ 17 Premium income 165 178 133 79 67 58 59 Net income (loss) 31 14 37 20 27 18 12 NONINSURANCE OPERATIONS Revenues $ 84 $ 114 $ 112 $ 8 $ 41 $ 33 $ 11 Net loss (112) (85) (88) (86) (23) (13) -
USF&G Corporation Consolidated Statement of Operations
For the Years Ended December 31 (dollars in millions except per share data) 1993 1992 1991 REVENUES Premiums earned $ 2,456 $ 2,637 $ 3,187 Net investment income 749 817 877 Other 38 58 70 Revenues before realized gains 3,243 3,512 4,134 Realized gains on investments 6 148 38 Total revenues 3,249 3,660 4,172 EXPENSES Losses, loss expenses, and policy benefits 2,153 2,465 2,982 Underwriting, acquisition, and operating expenses 956 1,069 1,225 Interest expense 41 40 46 Restructuring charges - 51 60 Total expenses 3,150 3,625 4,313 Pretax income (loss) from continuing operations before cumulative effect of adopting new accounting standards 99 35 (141) Provision for income taxes (benefit) (28) - 3 Income (loss) from continuing operations before cumulative effect of adopting new accounting standards 127 35 (144) Loss from discontinued operations - (7) (32) Income (loss) from cumulative effect of adopting new accounting standards: Income taxes (Note 9) 90 - - Postretirement benefits (Note 8) (52) - - Net income (loss) $ 165 $ 28 $ (176) Preferred stock dividend requirements 48 48 37 Net income (loss) available to common stock $ 117 $ (20) $ (213) PRIMARY EARNINGS PER COMMON SHARE Income (loss) from continuing operations before cumulative effect of adopting new accounting standards $ .93 $ (.16) $ (2.15) Loss from discontinued operations - (.08) (.38) Income from cumulative effect of adopting new accounting standards .45 - - Net income (loss) $ 1.38 $ (.24) $ (2.53) FULLY DILUTED EARNINGS PER COMMON SHARE Income (loss) from continuing operations before cumulative effect of adopting new accounting standards $ .98 $ (.16) $ (2.15) Loss from discontinued operations - (.08) (.38) Income from cumulative effect of adopting new accounting standards .34 - - Net income (loss) $ 1.32 $ (.24) $ (2.53) Weighted average common shares outstanding: Primary 84,780,283 84,355,431 84,169,091 Fully Diluted 112,692,855 84,355,431 84,169,091 See Notes to Consolidated Financial Statements.
USF&G Corporation Consolidated Statement of Financial Position
At December 31 (dollars in millions except share data) 1993 1992 1991 ASSETS Investments: Fixed maturities: Held to maturity, at amortized cost (market, 1993, $4,796; 1992, $7,290; 1991, $3,880) $ 4,661 $ 7,218 $ 3,749 Available for sale, at market* (cost, 1993, $4,681; market, 1992, $2,029; 1991, $5,606) 4,903 1,987 5,364 Common stocks, at market (cost, 1993, $98; 1992, $179; 1991, $480) 87 142 487 Preferred stocks, at market (cost, 1993, $48; 1992, $24; 1991, $34) 48 29 34 Short-term investments 322 518 1,170 Mortgage loans 302 186 283 Real estate 685 818 784 Other invested assets 369 448 225 Other investments held for sale - - 71 Total investments 11,377 11,346 12,167 Cash 17 25 87 Accounts, notes, and other receivables 656 725 897 Reinsurance receivables 573 - - Servicing carrier receivables 719 - - Deferred policy acquisition costs 435 466 534 Other assets 571 588 692 Net assets (liabilities) of discontinued operations (13) (16) 109 Total assets $14,335 $13,134 $14,486 LIABILITIES Unpaid losses, loss expenses, and policy benefits $10,302 $ 9,436 $ 9,477 Unearned premiums 917 770 981 Corporate debt 574 574 617 Real estate and other debt 44 42 60 Other liabilities 987 1,042 2,028 Total liabilities 12,824 11,864 13,163 SHAREHOLDERS' EQUITY Preferred stock, par value $50.00 (12,000,000 shares authorized; shares issued, 1993, 9,099,910; 1992 and 1991, 9,100,000) 455 455 455 Common stock, par value $2.50 (240,000,000 shares authorized; shares issued, 1993, 85,009,482; 1992, 84,512,758; 1991, 84,273,327) 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 $14,335 $13,134 $14,486 * 1992 and 1991 amounts are at amortized cost (Note 1.2). See Notes to Consolidated Financial Statements.
USF&G Corporation Consolidated Statement of Cash Flows
For the Years Ended December 31 (dollars in millions) 1993 1992 1991 OPERATING ACTIVITIES Net income (loss) $ 165 $ 28 $ (176) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Loss from discontinued operations - 7 32 Cumulative effect of adopting new accounting standards (38) - - Realized gains on investments (6) (148) (38) Change in insurance liabilities 36 37 237 Change in deferred policy acquisition costs 31 68 36 Change in receivables 60 149 (147) Change in other liabilities (56) (74) (2) Change in other assets (129) (17) 56 Other items, net 24 49 (2) Net cash provided from (used in) continuing operations 87 99 (4) Net cash used in discontinued operations - (2) (10) Net cash provided from (used in) operating activities 87 97 (14) INVESTING ACTIVITIES Net sales and maturities of short-term investments 197 61 640 Purchases of fixed maturities held to maturity (1,912) (6,945) - Sales of fixed maturities held to maturity 462 1,116 - Maturities/repayments of fixed maturities held to maturity 941 323 - Purchases of fixed maturities available for sale (1,203) (458) (13,368) Sales of fixed maturities available for sale 1,252 4,796 11,919 Repayments of fixed maturities available for sale 308 772 480 Purchases of equities and other investments (255) (438) (481) Sales, maturities, or repayments of equities and other investments 398 842 1,206 Sales of subsidiaries - 17 38 Purchases of property and equipment (28) (12) (7) Disposals of property and equipment 4 7 27 Net investing activities of discontinued operations - 2 60 Net cash provided from investing activities 164 83 514 FINANCING ACTIVITIES Deposits for universal life and investment contracts 168 164 247 Withdrawals of universal life and investment contracts (364) (289) (689) Net short-term borrowings (repayments) - (1) (60) Repayments of long-term borrowings (3) (53) (38) Repurchases of securities pursuant to put options - - (124) Issuances of common stock 6 3 2 Issuances of preferred stock - - 310 Cash dividends paid to shareholders (66) (66) (62) Net financing activities of discontinued operations - - (50) Net cash used in financing activities (259) (242) (464) Increase (decrease) in cash (8) (62) 36 Cash at beginning of year 25 87 51 Cash at end of year $ 17 $ 25 $ 87 See Notes to Consolidated Financial Statements.
USF&G Corporation Consolidated Statement of Shareholder's Equity
For the Years Ended December 31 (dollars in millions except per share data) 1993 1992 1991 PREFERRED STOCK Balance at beginning of year $ 455 $ 455 $ 200 Par value of shares issued: Series B - - 65 Series C - - 190 Balance at end of year 455 455 455 COMMON STOCK Balance at beginning of year 211 211 210 Par value of shares issued 1 - 1 Balance at end of year 212 211 211 PAID-IN CAPITAL Balance at beginning of year 957 955 898 Excess of proceeds over par value of shares issued 6 2 57 Balance at end of year 963 957 955 NET UNREALIZED GAINS (LOSSES) ON INVESTMENTS Balance at beginning of year (31) (21) (58) Change in unrealized gains (losses) 223 (10) 37 Balance at end of year 192 (31) (21) NET UNREALIZED GAINS (LOSSES) ON FOREIGN CURRENCY Balance at beginning of year 2 10 12 Change in unrealized gains (losses) (4) (8) (2) Balance at end of year (2) 2 10 MINIMUM PENSION LIABILITY Balance at beginning of year - - - Change in unfunded accumulated benefits (85) - - Balance at end of year (85) - - RETAINED EARNINGS (DEFICIT) Balance at beginning of year (324) (287) (57) Net income (loss) 165 28 (176) Common stock dividends declared (per share, 1993, 1992, and 1991, $.20) (17) (17) (17) Preferred stock dividends declared (per share, 1993 and 1992, Series A, $4.10, Series B, $10.25, Series C, $5.00; 1991, Series A, $4.10, Series B, $5.75, Series C, $3.05) (48) (48) (37) Balance at end of year (224) (324) (287) Total shareholders' equity $1,511 $1,270 $1,323 See Notes to Consolidated Financial Statements.
USF&G Corporation Notes to Consolidated Financial Statements Note 1 Summary of Significant Accounting Policies 1.1. BASIS OF PRESENTATION The consolidated financial statements are prepared in accordance with generally accepted accounting principles ("GAAP"). These statements include the accounts of USF&G Corporation and its subsidiaries ("USF&G"). Intercompany transactions are eliminated in consolidation. Certain prior year amounts are reclassified to conform to the 1993 presentation. Reporting practices for insurance subsidiaries prescribed or permitted by state regulatory authorities (statutory accounting) differ from GAAP. Statutory amounts for USF&G's insurance operations are as follows:
Years Ended December 31 (in millions) 1993 1992 1991 Statutory Net Income (Loss): Property/casualty insurance $ 199 $ 216 $ (163) Reinsurance affiliates 1 1 - Life insurance 5 23 77 At December 31 1993 1992 1991 Statutory Surplus: Property/casualty insurance* $1,541 $1,467 $1,404 Reinsurance affiliates 147 152 146 Life insurance 316 310 283 *This amount includes the surplus of the life insurance subsidiary.
1.2. INVESTMENTS Fixed Maturities: USF&G classifies fixed maturities as "held to maturity" if it has both the positive intent and ability to hold the securities until maturity or near enough to maturity such that interest rate risk is substantially eliminated as a pricing factor. Fixed maturities held to maturity are carried at amortized cost. Changes in the market values of these investments are generally not recognized in the financial statements. Valuation allowances are provided for impairments in estimated net realizable value based on periodic evaluation. Specific write-downs are taken when an impairment is deemed other than temporary. Fixed maturities not classified as either "held to maturity" or "trading securities" are classified as "available for sale." These securities are held for an indefinite period of time and may be sold in response to changes in interest rates and the yield curve, prepayment risk, liquidity needs, or other factors. Effective December 31, 1993, upon the initial adoption of a new accounting standard, SFAS No. 115 "Accounting for Certain Investments in Debt and Equity Securities," available for sale fixed maturities are carried at fair value, with unrealized gains and losses recorded as a separate component of shareholders' equity. Also effective December 31, 1993, with the adoption of SFAS No. 115 unrealized gains or losses on fixed maturities available for sale are offset by an adjustment to life insurance deferred policy acquisition costs which is made on a proforma basis as if the unrealized gains on those assets which match certain life insurance liabilities were realized. At December 31, 1992 and 1991, before adoption of SFAS No. 115, fixed maturities available for sale were carried at the lower of aggregate amortized cost or fair value. Fair value exceeded amortized cost at December 31, 1992 and 1991; therefore, there were no unrealized losses reported in shareholders' equity. Equity Securities and Options: Investments in common and preferred stocks are carried at market value with the resulting unrealized gains or losses reported directly in shareholders' equity. In 1992 and 1991 premiums received on options written were recorded as liabilities. The premiums paid on options purchased were recorded as assets. Outstanding option positions were carried at market value, and the resulting unrealized gains or losses were reported directly in shareholders' equity. There were no outstanding options at December 31, 1993. Securities Lending: USF&G participates in a securities lending program where certain securities from its portfolio are loaned to other institutions for short periods of time. A fee is paid to USF&G by the borrower. Collateral that exceeds the market value of the loaned securities is invested by the lending agent to represent USF&G's interest. USF&G's interest in securities lending is reported in other invested assets at December 31, 1993 and 1992, and in short-term investments at December 31, 1991. USF&G's invested assets and other liabilities include $141 million, $206 million, and $594 million at December 31, 1993, 1992, and 1991, respectively, related to its interest in the securities lending program. Mortgage Loans and Real Estate: Mortgage loans are carried at unpaid principal balances. Real estate investments are reported at cost adjusted for equity participation. Real estate acquired through an in-substance foreclosure or deed-in-lieu of foreclosure is initially recorded at estimated market value. Valuation allowances are provided for impairments in estimated net realizable value based on periodic evaluations. Specific write-downs are taken when an impairment is deemed other than temporary. Other Investments Held for Sale: In 1991, investments were designated as "held for sale" based on USF&G's intent to dispose of them within a year. These investments included high-risk investments such as real estate, high-yield bonds, and equity securities and were carried at the lower of cost or estimated net realizable value. Such investments were sold during 1992. Interest and Dividend Income: Interest on fixed-maturity investments is recorded as income when earned and is adjusted for any amortization of purchase premium or discount. Dividends on equity securities are recorded as income on ex-dividend dates. Option Income: In 1992 and 1991, investment income on covered call options was recorded when the option positions were closed. There was no option income in 1993. The amount of investment income recorded for a covered call option was the time value component of the premium received. The remainder (the "intrinsic value") of the premium on the in-the-money options was recorded as a realized gain when option positions were closed. Premiums paid for closing purchase transactions on covered call options reduced investment income if the option was out-of-the-money when the transaction was closed. If the option was in-the-money, the time value portion of the premium paid reduced investment income, and the intrinsic value portion was recorded as a realized loss. Realized Gains or Losses: Realized gains and losses on the sale of investments are determined based on specific cost. Realized losses are recorded when an investment's net realizable value is below cost, and the decline is considered other than temporary. Realized gains and losses also result from changes in investment valuation allowances. 1.3. RECOGNITION OF PREMIUM REVENUES Property/Casualty Insurance: Property/casualty insurance premiums are earned principally on a pro rata basis over the lives of the policies. Unearned premiums represent the portion of premiums written applicable to the unexpired terms of policies in force. Unearned premiums also include estimated and unbilled premium adjustments. Life Insurance: Premiums on life policies with fixed and guaranteed premiums and benefits and premiums on annuities with significant life contingencies are recognized when due. Universal life policies and annuity contracts are issued on both a single-premium and recurring-premium basis. Revenues for these contracts consist of policy charges assessed against benefit account balances during the period for the cost of insurance, policy administration, and surrenders. 1.4. UNPAID LOSSES, LOSS EXPENSES, AND POLICY BENEFITS Property/Casualty Insurance: The liability for unpaid property/casualty insurance losses and loss adjustment expenses is based on an evaluation of reported losses and on estimates of incurred but unreported losses. The reserve liabilities are determined using adjusters' individual case estimates and statistical projections. The liability was reported net of estimated salvage and subrogation recoverables of $139 million, $138 million, and $162 million at December 31, 1993, 1992, and 1991, respectively. Adjustments to the liability based on subsequent developments or other changes in the estimate are reflected in results of operations in the period in which such adjustments become known. Certain liabilities for unpaid losses and loss adjustment expenses related to workers compensation coverage are discounted to present value. The carrying amount of such workers compensation liabilities, net of reinsurance and net of discount, was $1,752 million, $1,798 million, and $1,854 million at December 31, 1993, 1992, and 1991, respectively. Interest rates used to discount these liabilities generally ranged from 3 percent to 5 percent. Life Insurance: Ordinary life insurance reserves are computed under the net level premium method using assumptions for future investment yields, mortality, and withdrawal rates. These assumptions reflect USF&G'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 deferred 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 immediate annuities with guaranteed payments are computed on the prospective deposit method, which produces reserves equal to the present value of future benefit payments. 1.5. DEFERRED POLICY ACQUISITION COSTS Acquisition costs, consisting of commissions, brokerage, and other expenses incurred at policy issuance, are generally deferred. Anticipated losses, loss expenses, policy benefits, and remaining costs of servicing the policies are considered in determining the amount of costs to be deferred. Anticipated investment income is considered in determining whether a premium deficiency exists related to short-duration contracts. Amortization of deferred policy acquisition costs totaled $673 million, $738 million, and $886 million, for the years ended December 31, 1993, 1992, and 1991, respectively. Property/Casualty Insurance: Property/casualty acquisition costs are amortized over the period that related premiums are earned. Life Insurance: Life insurance acquisition costs are amortized based on assumptions consistent with those used for computing policy benefit reserves. Acquisition costs on ordinary life business are amortized over their assumed premium paying periods. Universal life and investment annuity acquisition costs are amortized in proportion to the present value of their estimated gross profits over the products' assumed durations, which are regularly evaluated and adjusted as appropriate. 1.6. PROPERTY AND EQUIPMENT Property and equipment is carried at cost less accumulated depreciation. At December 31, 1993, 1992, and 1991, $194 million, $200 million, and $226 million, respectively, of property and equipment was included in other assets. Depreciation is computed on the straight-line basis over the estimated useful lives of the assets. For the years ended December 31, 1993, 1992, and 1991, depreciation expense of $21 million, $25 million, and $24 million, respectively, is included in underwriting, acquisition, and operating expenses. 1.7. FOREIGN CURRENCY TRANSLATION The functional currency for USF&G's foreign operations is the applicable local currency. Foreign currency balance sheet accounts are translated to U.S. dollars using exchange rates in effect at the balance sheet date. Revenue and expense accounts are translated using the average exchange rates prevailing during the year. The unrealized gains or losses, net of applicable deferred income taxes, resulting from translation are included in shareholders' equity. Foreign currency gains and losses on transactions denominated in a currency other than the entity's functional currency are generally recorded in operations. Such gains and losses may be reduced or effectively eliminated by certain financial instruments used by USF&G to reduce its foreign exchange exposure. 1.8. EARNINGS PER COMMON SHARE Primary earnings per common share are computed by subtracting dividends on preferred stock from consolidated income and then dividing by the weighted-average common shares outstanding during the period. The effect of common stock equivalents is excluded from the calculations because their effect is not material. Fully diluted earnings per common share assume the conversion of all securities whose contingent issuance would have a dilutive effect on earnings. 1.9. RESTRUCTURING CHARGES AND DISCONTINUED OPERATIONS Restructuring initiatives began in the fourth quarter of 1990. Net income reflects provisions of $60 million of restructuring charges in 1991 and $51 million in 1992. There were no restructuring charges in 1993. Since 1990, USF&G has implemented programs to reduce the cost structure of the organization by consolidating branch offices, establishing a regional structure, and reducing staff. In addition, USF&G has implemented plans to dispose of nonstrategic businesses which resulted in losses from discontinued operations of $7 million and $32 million in 1992 and 1991, respectively. Revenues of the discontinued operations totaled $5 million, $42 million, and $114 million for the years ended December 31, 1993, 1992, and 1991, respectively. The net assets of discontinued operations are carried at estimated net realizable value. Other financial data for the discontinued operations are summarized below.
Years Ended December 31 (in millions) 1993 1992 1991 Results of operations $ - $ - $ (6) Provision for income taxes - - (1) - - (7) Loss on disposal of subsidiaries - (7) (25) Net loss from discontinued operations $ - $ (7) $(32) At December 31 1993 1992 1991 ASSETS Investments $ - $ - $ 11 Accounts and notes receivable 1 2 21 Acquisition-related goodwill 4 5 92 Property and equipment - 1 8 Other assets 1 2 35 Total assets $ 6 $ 10 $167 LIABILITIES Accrued loss on disposal $ - $ 7 $ 25 Other liabilities 19 19 33 Total liabilities 19 26 58 Net assets (liabilities) $(13) $(16) $109
Note 2 Investments 2.1. COMPONENTS OF NET INVESTMENT INCOME
Years Ended December 31 (in millions) 1993 1992 1991 Interest on fixed maturities $721 $739 $711 Equity security dividends 14 12 29 Option income - 37 65 Short-term interest 9 27 73 Real estate and mortgage loans 41 50 35 Other, and expenses (36) (48) (36) Net investment income $749 $817 $877
2.2. NET REALIZED GAINS (LOSSES)
Years Ended December 31 (in millions) 1993 1992 1991 GAINS (LOSSES) ON SALES: Fixed maturities $ 79 $179 $157 Equity securities 5 53 18 Options - (1) (20) Real estate 6 (3) (3) Other - 11 (44) Net gains on sales 90 239 108 PROVISIONS FOR IMPAIRMENT: Fixed maturities (10) (20) (15) Equity securities (8) - (18) Real estate (51) (43) (29) Other (15) (28) - Total provisions for impairment (84) (91) (62) Losses due to portfolio restructuring - - (8) Net realized gains $ 6 $148 $ 38
2.3. ALLOWANCES FOR IMPAIRMENT IN VALUE Valuation allowances for impairment in value of investments, recorded in the Consolidated Statement of Financial Position as a reduction of the respective asset category, are as follows:
At December 31 (in millions) 1993 1992 1991 Fixed maturities $ 20 $ 12 $ - Real estate and mortgage loans 108 108 88 Other 3 5 -
2.4. GROSS UNREALIZED GAINS AND LOSSES
At December 31 (in millions) 1993 1992 1991 UNREALIZED GAINS: Fixed maturities $224 $ - $ - Equity securities 14 16 51 Options and other 10 3 9 Gross unrealized gains 248 19 60 UNREALIZED LOSSES: Fixed maturities (2) - - Deferred policy acquisition cost adjustment (30) - - Equity securities (23) (48) (44) Options and other (1) (2) (37) Gross unrealized losses (56) (50) (81) Unrealized gains (losses), net $192 $(31) $(21)
2.5. CHANGE IN UNREALIZED GAINS (LOSSES)
Years Ended December 31 (in millions) 1993 1992 1991 Fixed maturities $222 $ - $ - Deferred policy acquisition cost adjustment (30) - - Equity securities 23 (39) 47 Options and other 8 29 (10) Net change $223 $(10) $ 37
2.6. ESTIMATED MARKET VALUES OF FIXED MATURITY INVESTMENTS The increase (decrease) in the difference between cost and market value of fixed maturity investments for the years ended December 31, 1993, 1992, and 1991, was $243 million, $(259) million, and $441 million, respectively. The cost and market value of total fixed maturities are as follows:
At December 31 1993 1992 1991 Gross Unrecognized/ Gross Gross Unrealized Market Unrecognized Market Unrecognized Market (in millions) Cost Gains Losses Value Cost Gains Losses Value Cost Gains Losses Value Fixed maturities held to maturity $4,661 $191 $(56) $4,796 $7,218 $171 $ (99) $7,290 $ 3,749 $173 $(42) $3,880 Fixed maturities available for sale 4,681 224 (2) 4,903 1,987 49 (7) 2,029 5,364 261 (19) 5,606 Total $9,342 $415 $(58) $9,699 $9,205 $220 $(106) $9,319 $ 9,113 $434 $(61) $9,486
The cost and market value of fixed maturities held to maturity are as follows:
At December 31 1993 1992 1991 Gross Gross Gross Unrecognized Market Unrecognized Market Unrecognized Market (in millions) Cost Gains Losses Value Cost Gains Losses Value Cost Gains Losses Value U.S. Government bonds $ 4 $ - $ (1) $ 3 $ 348 $ 3 $ - $ 351 $ 561 $ 18 $ - $ 579 Mortgage/asset-backed securities 1,669 70 (19) 1,720 3,535 88 (47) 3,576 1,893 104 (16) 1,981 Corporate bonds 2,463 79 (30) 2,512 2,660 48 (40) 2,668 849 29 (15) 863 High-yield bonds 505 37 (6) 536 511 24 (12) 523 298 7 (6) 299 Tax-exempt bonds 14 3 - 17 55 4 - 59 70 6 (3) 73 Other 6 2 - 8 109 4 - 113 78 9 (2) 85 Total $4,661 $191 $(56) $4,796 $7,218 $171 $ (99) $7,290 $3,749 $173 $(42) $3,880 The cost and market value of fixed maturities available for sale are as follows:
At December 31 1993 1992 1991 Gross Gross Gross Unrealized Market Unrecognized Market Unrecognized Market (in millions) Cost Gains Losses Value Cost Gains Losses Value Cost Gains Losses Value U.S. Government bonds $ 304 $ 20 $ - $ 324 $ 206 $ 3 $ - $ 209 $2,052 $ 59 $ - $2,111 Mortgage/asset-backed securities 1,883 73 - 1,956 1,284 39 (4) 1,319 2,074 116 - 2,190 Corporate bonds 2,403 126 - 2,529 443 7 (1) 449 957 76 (7) 1,026 High-yield bonds 57 2 (2) 57 11 - (1) 10 135 5 (12) 128 Tax-exempt bonds 34 3 - 37 16 - (1) 15 103 4 - 107 Other - - - - 27 - - 27 43 1 - 44 Total $4,681 $224 $ (2) $4,903 $1,987 $ 49 $ (7) $2,029 $5,364 $261 $(19) $5,606
2.7. STATED DUE DATES OF FIXED MATURITIES The table below shows the stated due dates of fixed maturities classified as "held to maturity."
At December 31, 1993 Market (in millions) Cost Value In 1994 $ 48 $ 48 1995 through 1998 185 192 1999 through 2003 1,684 1,756 After 2003 1,075 1,080 Subtotal 2,992 3,076 Mortgage/asset-backed securities 1,669 1,720 Fixed maturities held to maturity $4,661 $4,796
The table below shows the stated due dates of fixed maturities available for sale.
At December 31, 1993 Market (in millions) Cost Value In 1994 $ 40 $ 40 1995 through 1998 1,334 1,378 1999 through 2003 850 913 After 2003 574 616 Subtotal 2,798 2,947 Mortgage/asset-backed securities 1,883 1,956 Fixed maturities available for sale $4,681 $4,903
Expected maturities may differ from stated due dates as borrowers may have the right to call or prepay obligations. During 1993, USF&G received proceeds from sales or repayments of fixed maturities of $3.0 billion. The table below illustrates the source of 1993 proceeds.
Gross Gross (in millions) Cost Proceeds Gains Losses PROCEEDS FROM SALES OF FIXED MATURITIES: Held to maturity $ 454 $ 462 $ 20 $(12) Available for sale 1,181 1,252 73 (2) Subtotal 1,635 1,714 93 (14) PROCEEDS FROM REPAYMENTS: Held to maturity 946 941 9 (14) Available for sale 313 308 1 (6) Subtotal 1,259 1,249 10 (20) Total proceeds $2,894 $2,963 $103 $(34)
Proceeds from sales of fixed maturities classified as "held to maturity" occurred primarily due to repositioning a portion of the portfolio in anticipation of the adoption of SFAS No. 115. In 1992, proceeds from fixed maturities held to maturity totaled $119 million with gross gains of $6 million and gross losses of $36 million. Proceeds from sales of fixed maturities available for sale were $6 billion in 1992 with gross gains of $355 million and gross losses of $166 million. During 1991, before fixed maturities were classified as "available for sale," proceeds from sales totaled $12 billion with gross gains of $225 million and gross losses of $137 million. 2.8. INVESTMENT COMMITMENTS USF&G has outstanding commitments to provide permanent financing for various real estate development projects. The funded amounts of these commitments are collateralized by the real estate projects. At December 31, 1993, unfunded commitments totaled approximately $12 million, and approximately $8 million of this is expected to be funded in 1994. USF&G has a potential commitment to purchase $14 million of preferred shares in an investment unless the investment procures an alternative source of financing prior to March 31, 1994. USF&G has a potential commitment to fund $13 million under the terms of a participatory note investment if certain collateralization tests are not met. 2.9. NONINCOME-PRODUCING INVESTMENTS Fixed maturities and other invested assets held at December 31, 1993, for which no income was recorded during 1993, totaled $4 million and $1 million, respectively. In addition, nonperforming real estate, defined as mortgage loans and real estate investments that are not performing in accordance with their contractual terms or are performing significantly below expectations, totaled $249 million at December 31, 1993. Note 3 Debt and Credit Arrangements 3.1. DEBT OUTSTANDING
At December 31 (in millions) 1993 1992 1991 CORPORATE: Short-term $395 $375 $388 Long-term: 9.98% and 10.1% Universal Medium-Term notes due 1994 - 20 20 8 7/8% Notes due 1996 99 99 99 5 1/2% Swiss Franc Bonds due 1996 80 80 86 5.35% Swiss Franc Loan due 1993 - - 24 Subtotal 574 574 617 REAL ESTATE AND OTHER: Short-term 12 3 12 Long-term: 8% Secured note due 1995 11 11 - 9 3/8% Secured note due 1994 - 11 11 12 3/4% Secured note due through 1995 - - 11 9.96% Secured notes due through 1999 14 15 21 Other 7 2 5 Subtotal 44 42 60 Total $618 $616 $677
3.2. SHORT-TERM DEBT For general corporate purposes, USF&G maintains a committed, standby credit facility with a group of foreign and domestic banks totaling $700 million. The facility was entered into during 1990 and expires in 1995. USF&G pays fixed facility fees and commitment fees for the unused portion of the facility based on its long-term debt credit ratings. Borrowings at December 31, 1993, 1992, and 1991, totaled $375 million. Interest rates are based on current market rates. USF&G was in compliance with the covenants contained in these agreements at December 31, 1993, 1992, and 1991. The two most restrictive covenants, as defined in the agreements, require USF&G to maintain a tangible net worth of at least $1 billion and an indebtedness-to-capital ratio below 70 percent. 3.3. SHELF REGISTRATIONS In January 1994, USF&G filed a shelf registration statement with the Securities and Exchange Commission. As of the time this registration statement went effective in February 1994, USF&G had available $647 million of unissued debt, preferred stock, common stock, and warrants to purchase debt and stock. These securities may be sold from time to time with various terms appropriate to the securities issued to be determined at the time of issuance. 3.4. REDEEMABLE DEBT Beginning in 1993, the 8 7/8% Notes are redeemable at par, plus accrued interest. In 1994 and thereafter, the 5 1/2% Swiss Franc Bonds are redeemable at par, plus accrued interest. 3.5. CURRENCY SWAPS USF&G entered into currency swap agreements to hedge its foreign currency exposure on the 33 million 5.35% Swiss Franc Loan and the 120 million 5 1/2% Swiss Franc Bonds. These agreements were in place through the maturity of the related debt issues. USF&G is subject to the risks that the counterparties will fail to perform and that the value of the currency swaps will fluctuate. However, these risks are mitigated by the credit quality of the counterparties and the foreign exchange gains or losses on the related debt. USF&G is exposed to credit losses for periodic settlement of amounts due, which are not material at December 31, 1993. In December 1992, USF&G repaid the 33 million Swiss Franc Loan and cancelled the related currency swap; however, a currency swap agreement is still in effect on the 5 1/2% Swiss Franc Bonds. As a result of the currency swaps, debt-related foreign currency translation had no effect on net income. 3.6. INTEREST RATE SWAPS USF&G entered into interest rate swaps to exchange variable commercial paper rates for fixed borrowing costs. Three interest rate swaps expired during 1993. The remaining interest rate swap has a fixed rate of 9.405 percent through 2000 on notional principal of $25 million. This agreement involves, to varying degrees, interest rate and credit risk in excess of amounts recognized in the balance sheet. The notional amount indicates USF&G's involvement but not future cash requirements. The maximum credit risk related to the remaining agreement is the amount related to periodic settlements, which is not material at December 31, 1993. USF&G controls the credit risk through monitoring procedures and investigation of counterparties to the transaction. 3.7. INTEREST Interest paid in the years ended December 31, 1993, 1992, and 1991, was $41 million, $49 million, and $52 million, respectively. Interest incurred and capitalized in the years ended December 31, 1992 and 1991, was $8 million. There was no interest incurred and capitalized in 1993. 3.8. MATURITIES OF LONG-TERM DEBT
Real Estate and (in millions) Corporate Other 1994* $ 20 $11 1995 - 11 1996 179 - 1997 - - 1998 - - *This amount is included with short-term debt in the debt outstanding table.
Note 4 Fair Value of Financial Instruments The fair value information presented is based on quoted market prices where available. In cases where quoted market prices are not available, fair values are based on internal estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, such as applicable discount rate and estimated future cash flows. Therefore, the derived fair value estimates cannot be substantiated by comparison to independent markets and in many cases, could not be realized in immediate settlement of the instrument. Fair value disclosure requirements exclude certain financial instruments and all nonfinancial instruments. The fair value of many insurance-related liabilities do not require disclosure. However, in its strategy of asset/liability matching, USF&G takes into consideration the future cash requirements of its insurance-related liabilities. Had a presentation of these liabilities been made, due to their long-term nature, the fair value of insurance-related liabilities would have been significantly less than their carrying value. Cash and Short-Term Investments: The carrying amounts reported in the Consolidated Statement of Financial Position for these instruments approximate their fair values. Fixed-Maturity Investments: Fair values for publicly-traded fixed-maturity investments are based on quoted market prices. For privately placed fixed maturities, estimated fair values, obtained from independent pricing services, are derived by discounting expected future cash flows using a current market rate applicable to the yield, credit quality, and maturity of the investment. At December 31, 1993, the amortized cost, carrying amounts, and fair values of fixed-maturity investments were as follows:
Amortized Carrying Fair (in millions) Cost Amount Value Publicly traded $9,181 $9,401 $9,536 Private placements 161 163 163 Total fixed-maturity investments $9,342 $9,564 $9,699
The preceding table includes fixed maturities available for sale with a market and carrying value of $4,903 million and amortized cost of $4,681 million. Such investments are reported in the Consolidated Statement of Financial Position at market value. Equity Investments: The carrying values of equity securities as reported in the Consolidated Statement of Financial Position are based on quoted market prices and reflect their fair values. Mortgage Loans and Policy Loans: The fair values for mortgage loans and policy loans are estimated using discounted cash flow analyses, using interest rates currently being offered for similar loans to borrowers with similar credit ratings. Loans with similar characteristics are aggregated for purposes of the calculations. At December 31, 1993, the carrying amounts and fair values of investments in mortgage loans and policy loans were as follows:
Carrying Fair (in millions) Amount Value Mortgage loans $302 $304 Policy loans 55 59
Other Assets and Other Liabilities: Other invested assets considered financial instruments include equity interests in minority ownership investments, interests in limited partnerships and related notes receivable. It is not practicable to estimate a fair market value due to the closely-held nature of these investments. Other assets and liabilities considered financial instruments include agents' balances receivable, prepaid and accrued expenses, and other receivables generally of a short-term nature. It is assumed the carrying value approximates fair market value. Short and Long-Term Debt: The carrying amount of USF&G's short-term borrowings approximates its fair value. The fair value of long-term debt is estimated using discounted cash flow analyses, based on USF&G's current incremental borrowing rates for similar types of borrowing arrangements. The carrying amounts and estimated fair value of debt instruments at December 31, 1993, were as follows:
Carrying Fair (in millions) Amount Value Corporate: Short-term $395 $395 Long-term 179 179 Real estate 44 46 Other - - Total $618 $620
Investment Contracts: Fair values for USF&G's single premium deferred annuities, other deferred annuities, single premium immediate annuities and supplementary contracts are primarily derived by estimating the cost to extinguish its liabilities under an assumption reinsurance transaction. The estimated statutory profits the assuming company would realize from the transaction are discounted at a typical internal rate of return objective. If such a transaction were to occur, GAAP would require the unamortized balance of deferred acquisition costs associated with these liabilities be immediately expensed. The amount of the related unamortized deferred acquisition costs was approximately $99 million at December 31, 1993. The fair values of the remaining liabilities under investment contracts are estimated using discounted cash flow calculations, based on interest rates currently being offered for like contracts with similar maturities. The carrying amounts and estimated fair values of USF&G's liabilities for investment contracts at December 31, 1993, are as follows:
Carrying Fair (in millions) Amount Value Single premium deferred annuities $2,138 $2,104 Other deferred annuities 292 276 Single premium immediate annuities and supplementary contracts 150 150 Funding agreements 1 1 Group annuities 167 167 Total $2,748 $2,698
Off-Balance Sheet Financial Instruments: The fair values of USF&G's unfunded real estate commitments and its financial commitment on investments are estimated using discounted cash flow analyses, based on USF&G's current incremental borrowing rate for similar types of borrowing arrangements. The estimate of the fair value of USF&G's interest rate swaps were obtained from the counterparties to the agreements and were derived by discounting the expected future cash flows using the basis point differential between the current and contracted interest rates. The estimated fair values of USF&G's off-balance sheet financial instruments at December 31, 1993, are as follows:
Fair (in millions) Value Unfunded real estate commitments $(11) Commitment on investments (27) Interest rate swaps (5)
Note 5 Leases USF&G occupies office facilities under lease agreements that expire at various dates through 2009. In addition, data processing, office, and transportation equipment is leased under agreements that expire at various dates through 1998. USF&G's principal office lease involves a 40-story office building that was sold in 1984 and subsequently leased back. This lease provides for renewal options and rent increases every five years and a repurchase option at the end of the lease. The deferred gain arising from this sale is being amortized over the noncancelable lease term of 25 years. The unamortized amount of the deferred gain of $30 million, $31 million, and $33 million at December 31, 1993, 1992, and 1991, respectively, is included in other liabilities. For the years ended December 31, 1993, 1992, and 1991, amortization of $2 million is netted with underwriting, acquisition, and operating expenses. Most leases contain renewal options that may provide for rent increases based on prevailing market conditions. Some leases also may contain purchase options based on fair market values or contractual values, if greater. All leases are accounted for as operating leases. Rent expense for the years ended December 31, 1993, 1992, and 1991, was $54 million, $58 million, and $63 million, respectively. The table opposite shows the future net minimum payments under noncancelable leases at December 31, 1993.
Home Other Office Office (in millions) Building Space Equipment Total 1994 $ 14 $17 $11 $ 42 1995 16 14 7 37 1996 16 12 5 33 1997 17 10 1 28 1998 17 8 - 25 After 1998 269 10 - 279 Total $349 $71 $24 $444
Note 6 Shareholders' Equity 6.1. CLASSES OF STOCK USF&G is authorized to issue 12 million shares of $50 par value preferred stock and 240 million shares of $2.50 par value common stock. 6.2. PREFERRED STOCK USF&G has 4 million shares of $4.10 Series A Convertible Exchangeable Preferred Stock, 1.3 million shares of $10.25 Series B Cumulative Convertible Preferred Stock, and 3.8 million shares of $5.00 Series C Cumulative Convertible Preferred Stock issued and outstanding at December 31, 1993, 1992, and 1991. Each share of the Series A and Series C preferred stock entitles the holder to an annual cumulative dividend of $4.10 and $5.00, respectively, and a liquidation preference of $50 plus accrued and unpaid dividends. Each share of Series B preferred stock entitles the holder to an annual cumulative dividend of $10.25 and a liquidation preference of $100 plus accrued and unpaid dividends. At December 31, 1993, at the option of the holder, subject to adjustment under certain conditions, each share of Series A, B, and C preferred stock is convertible to 1.179, 8.316, and 4.158 shares, respectively, of USF&G's common stock. The Series A stock is exchangeable in whole at USF&G's option on any dividend payment date for the corporation's 8.2 percent Convertible Subordinated Debentures due in 2011 at a rate of $50 principal amount per share. Series B and Series C stock are not exchangeable. The Series A shares are redeemable for cash, in whole or in part, at USF&G's option at $51.23 per share, plus accrued and unpaid dividends to the redemption date. The redemption price declines to $50 per share in 1996. Series B shares are redeemable for cash, in whole or in part, at USF&G's option commencing in 1994 at $100 per share and accrued and unpaid dividends plus a premium of $10.25 per share that declines ratably to zero per share in 2001. No redemption may be made prior to 1997 unless the closing price of the common stock exceeds 150 percent of the Series B conversion price and subject to certain other conditions. In addition, if a change in control event should occur, then at the election of each holder of Series B Preferred Stock, USF&G will issue and sell additional nonredeemable equity securities and apply the net proceeds thereof to redeem these Series B shares, but only if and to the extent any such proceeds are raised. Series C shares are redeemable for cash, in whole or in part, at USF&G's option commencing in 1994 at $53.50 per share, plus accrued and unpaid dividends to the redemption date. The redemption price declines to $50 per share in 2001. Holders of the preferred stock are not entitled to vote, except that they may vote separately with respect to certain matters including the authorizations of any additional classes of capital stock that would rank senior to the preferred stock. In the event that two quarterly dividends for Series B and C preferred stock or six quarterly dividends for Series A stock are unpaid, USF&G's Board of Directors will be increased by two, and holders of preferred stock may elect two directors until all such dividends in arrears have been paid. 6.3. DIVIDEND RESTRICTIONS Payment of dividends to USF&G Corporation by its subsidiary is subject to certain restrictions. The Maryland Insurance code requires the Maryland Insurance Commissioner's prior approval for any dividend payments during a twelve month period from a Maryland subsidiary, such as USF&G Company, to its holding company which exceeds 10 percent of policyholders' surplus. At December 31, 1993, $154 million of dividends is currently available for payment to USF&G Corporation from its insurance subsidiary during 1994 without restriction. During 1993, $147 million in dividends was available for payment to USF&G Corporation from its insurance subsidiary without restriction, of which $125 million of dividends was paid. 6.4. CHANGES IN COMMON STOCK SHARES
Years Ended December 31 1993 1992 1991 Common Stock: Balance, January 1 84,512,758 84,273,327 83,958,222 Shares issued 496,724 239,431 315,105 Balance, December 31 85,009,482 84,512,758 84,273,327
6.5. SHAREHOLDER RIGHTS PLAN USF&G has a shareholder rights plan ("the plan") to deter coercive or unfair takeover tactics and to prevent a potential purchaser from gaining control of USF&G without offering a fair price to all of the corporation's shareholders. Under the plan, each outstanding share of USF&G's common stock has one preferred share purchase right (a "right") expiring in 1997. Each right entitles the registered holder to purchase 1/100 of a share of a new class of junior preferred stock for $140. The rights cannot be exercised unless certain events occur that might lead to a concentration in ownership of common shares. At that time, the rights may be exercised for common stock having a value of twice the exercise price. Under certain conditions, the rights also become exercisable into shares of common stock of a purchaser having a value of twice the exercise price. USF&G will generally be entitled to redeem the rights, at $.05 per right, any time before the tenth day after a 20 percent position is acquired. Note 7 Stock Ownership Plans 7.1. STOCK OPTIONS AND STOCK PURCHASE PLANS Stock Options: Stock options have been granted to full-time officers and key employees under four incentive plans: Long-Term Incentive Plan, Stock Option Plan of 1987, Stock Option Plan of 1990, and Stock Incentive Plan of 1991. In addition, the Employee Stock Option Plan of 1992 granted eligible employees, other than officers and key employees participating in other stock incentive plans, options to purchase 50 or 100 shares of stock. Options granted under the plans are based on market quotations at the time of grant. Activity under the stock option plans is as follows:
Years Ended December 31 1993 1992 1991 Outstanding, January 1 4,473,572 2,816,748 1,820,942 Granted 1,143,282 2,590,295 1,646,152 Exercised (338,940) (26,868) - Surrendered or cancelled (1,115,690) (906,603) (650,346) Outstanding, December 31 4,162,224 4,473,572 2,816,748 Expiration dates 1/94-12/2003 1/93-12/2002 4/92-12/2001 Exercise and surrender prices $6.25-30.82 $6.25-30.82 $6.25-34.00 Shares reserved and available for grant 2,985,959 3,026,179 1,042,046
Stock Purchase Plans: Shares have been offered to employees under the Employees' Stock Purchase Plans of 1985 and 1990. None were offered in 1991, 1992, or 1993. The purchase price is 85 percent of the market value of USF&G's common stock on the grant date or the end of the two-year purchase period, whichever is less. Activity under the stock purchase plans is as follows:
Years Ended December 31 1993 1992 1991 Outstanding, January 1 - 133,379 585,869 Granted - - - Shares purchased - (98,882) (125,407) Cancelled - (34,497) (327,083) Outstanding, December 31 - - 133,379 Expiration dates - N/A 8/92 Purchase prices - $ 11.16 $5.68-23.23 Shares reserved - N/A 500,000
Accounting Methods: Proceeds from the shares sold under the stock option and stock purchase plans are credited to common stock and paid-in capital. USF&G makes no charges to income for the plans. The number of shares under the plans are adjusted for any future stock dividends, stock splits, or similar changes. 7.2. DIRECTORS STOCK PLAN Directors Stock Plan: The Corporation adopted the 1993 Stock Plan for Non-Employee Directors (the "Directors Stock Plan") on May 12, 1993. Only the Corporation's outside directors are eligible to participate and participation is mandatory. The Directors Stock Plan has two components: (i) annual retainer awards, and (ii) retirement awards. The Directors Stock Plan authorizes the issuance of up to 300,000 shares of the Corporation's common stock, par value $2.50 per share. Activity under the Directors Stock Plan is as follows:
December 31, 1993 Annual Retirement Retainer Award Award Outstanding, January 1 - - Stock Units Awarded 123,958 11,927 Stock Issued (17,300) (5,000) Outstanding, December 31 106,658 6,927
Accounting Method: USF&G records an accounting expense equal to the market value at grant date of the vested stock or stock units awarded under the Directors Stock Plan. In 1993, $2 million of compensation expense was recognized relating to this plan. The future accounting expense related to these plans is expected to be minimal. Note 8 Retirement Benefits 8.1. RETIREMENT PLANS USF&G has various noncontributory retirement plans covering most regular full-time employees of the corporation and its affiliates. An employee's pension benefit is based on salary, years of service, and Social Security benefits. USF&G makes contributions to the pension plans based on amounts required to be funded under provisions of the Employee Retirement Income Security Act of 1974. The plans' funded status and amounts recognized in the consolidated financial statements are as follows:
At December 31 (dollars in millions) 1993 1992 1991 ACTUARIAL PRESENT VALUE OF: Accumulated benefit obligation $338 $263 $252 Vested benefits 322 249 241 Plan assets at fair value $297 $265 $237 Projected benefit obligation 351 278 262 Funded status (54) (13) (25) Unrecognized net loss 123 55 62 Unrecognized prior service cost (benefit) (25) (28) (31) Unrecognized net asset at January 1 - - (19) Adjustment for minimum pension liability (85) - - Net prepaid (accrued) pension cost $(41) $ 14 $(13) ACTUARIAL ASSUMPTIONS: Weighted-average discount rate 7.5% 8.75% 8.75% Average rate of increase in future compensation levels 5 6 6 Expected long-term rate of return on assets 8.5 9.5 9.5
As a result of the lower interest rate environment, USF&G decreased the discount rate assumption which caused the accumulated benefit obligation to increase. In accordance with SFAS No. 87, USF&G recorded a minimum pension liability for the underfunded amount, representing the accumulated benefit obligation in excess of the fair value of the plans' assets, plus the amount of prepaid pension costs. The minimum pension liability is reported as a separate reduction to shareholders' equity. The assets held by the plans consist primarily of fixed-income and equity securities. USF&G classifies prepaid pension cost with other assets and accrued pension cost with other liabilities in the Consolidated Statement of Financial Position. The components of net pension expense are as follows:
Years Ended December 31 (in millions) 1993 1992 1991 Service cost $ 4 $ 5 $ 9 Interest cost 25 23 25 Actual return on plan assets (19) (15) (27) Net amortization and deferral - (10) 5 Net periodic pension expense $ 10 $ 3 $ 12
8.2. POSTRETIREMENT BENEFITS USF&G sponsors a defined dollar postretirement health care plan (medical and dental) and noncontributory life insurance plan covering most regular full-time employees of the corporation and its affiliates. USF&G's contributions and costs are determined based on the annual salary and the type of coverage elected by covered employees. USF&G's contributions to the plan are a percentage of plan costs based on age and service of employees at retirement. Additionally, the plan costs are capped at projected 1995 cost levels, and retiree contributions are increased for the total medical costs over the projected levels. Effective January 1, 1993, USF&G adopted Statement of Financial Accounting Standards ("SFAS") No. 106, "Employers" Accounting for Postretirement Benefits Other Than Pensions." This statement requires USF&G to accrue a liability for the cost of health care, life insurance, and other retiree benefits when the employees' services are rendered. As permitted under the new rule, the transition obligation of $52 million at January 1, 1993, was recognized as an immediate charge to net income by including the cumulative effect of this accounting change. The effect of adopting the statement increased 1993 net periodic postretirement benefit cost by approximately $1 million to an annual expense of $5 million. USF&G continues to fund the health care and life insurance benefit costs principally on a pay-as-you-go basis. The plans' combined funded status and amounts recognized in the consolidated financial statements at December 31, 1993, are as follows:
(in millions) Accumulated postretirement benefit obligation: Retirees $(46) Fully eligible active plan participants (4) Other active plan participants (8) (58) Plan assets at fair value - Funded status (58) Unrecognized net loss 6 Unrecognized transition obligation - Accrued postretirement benefit cost $(52)
USF&G classifies accrued postretirement benefit cost with other liabilities in the Consolidated Statement of Financial Position. The components of the net periodic postretirement benefit cost for the 1993 year are as follows:
(in millions) Service cost $1 Interest cost 4 Net periodic postretirement benefit cost $5
The weighted-average annual assumed rate of increase in per capita cost of covered benefits (i.e., medical trend rate) for the plans is 10.5 percent for 1994 (13 percent assumed for 1993) and is assumed to decrease to 5.5 percent in 2002 for participants age 65 or younger, and 8.0 percent for 1994 (8.75 percent for 1993), decreasing to 5.5 percent for participants over age 65 and remain at that level thereafter. Increasing the assumed medical trend rate by one percentage point in each year would increase the accumulated postretirement benefit obligation by approximately $4 million and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year by approximately $0.3 million. The weighted-average discount rate used in determining the accumulated postretirement benefit obligation is 7.5 percent at December 31, 1993. The pay-as-you-go expenditures for postretirement benefits were $5 million in 1993, $4 million in 1992, and $3 million in 1991. The effect of the accounting change discussed above is summarized as follows:
(in millions) 1993 Cumulative effect of accounting change on January 1, 1993 $52 Plus postretirement benefit expense 5 Less postretirement cash expenditures (5) Accrued postretirement benefit cost at December 31, 1993 $52
As part of USF&G's business restructuring program, special early retirement benefits were offered to eligible employees during 1991. Included in restructuring charges for 1991 was $3 million of pension expense related to these special benefits. There were no similar expenses in 1993 or 1992. Note 9 Federal Income Taxes USF&G and its subsidiaries file a consolidated federal income tax return. The provision for income taxes gives effect to permanent differences between income before income taxes and taxable income. Deferred federal income taxes are provided on temporary differences and net operating loss carry-forwards (1993) and timing differences (1992 and 1991) between financial and taxable income. Effective January 1, 1993, USF&G changed its method of accounting for income taxes as required by SFAS No. 109, "Accounting for Income Taxes." Under the standard, a deferred tax liability is recognized for taxable temporary differences and a deferred tax asset is recognized for deductible temporary differences and net operating loss carry-forwards ("NOLs") that will offset future taxable income. A valuation allowance is required if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax asset will not be realized. As permitted under the new standard, prior years' financial statements have not been restated. SFAS No. 109 requires that deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The cumulative effect of adopting SFAS No. 109 as of January 1, 1993, was to increase net income by $90 million. As a result of the Omnibus Budget Reconciliation Act of 1993 which increased the corporate rate to 35 percent, an additional $3 million deferred tax benefit was recognized. At December 31, 1993, the deferred tax asset of $119 million recorded by USF&G is supported by a combination of forecasted taxable income and a tax strategy that USF&G would implement to prevent NOLs from expiring. A valuation allowance of $482 million has been recognized to offset the gross deferred tax assets. USF&G had NOLs of $634 million ($222 million tax-effected at a 35 percent corporate rate) for income tax purposes that expire in the years 2000 through 2006. 9.1. SIGNIFICANT COMPONENTS OF DEFERRED TAX ASSETS AND LIABILITIES
(in millions) December 31, 1993 Deferred tax liabilities: Deferred policy acquisition costs $(140) Bonds (69) Minimum pension liability (30) Other invested assets (44) Other (60) Total deferred tax liabilities (343) Deferred tax assets: Loss reserves 304 Unearned premium revenue 45 Foreign reinsurance 49 Real estate 30 Future policy benefits 50 Net unrealized gains and losses 88 Other liabilities 113 Other 43 Net operating loss carry-forwards 222 Total deferred tax assets 944 Valuation allowance for deferred tax assets 482 Deferred tax assets, net of valuation allowance 462 Net deferred tax assets $ 119
During the year, the net change in the valuation allowance was $56 million to reflect the change in the realizability of the deferred tax asset. In addition, the valuation allowance increased $15 million due to the tax rate change enacted in 1993. 9.2. COMPONENTS OF PROVISION FOR INCOME TAXES
Years Ended December 31 Liability Method Deferred Method (in millions) 1993 1992 1991 Current tax (benefit) $ 7 $ 6 $ 4 Deferred tax (benefit) 24 (6) (1) Adjustment for enacted change in tax rates (3) - - Adjustment of the beginning of the year valuation allowance (56) - - Provision for income taxes $(28) $ - $ 3 Income taxes paid $ 3 $ 9 $ 1
9.3. TAX EFFECTS OF TIMING DIFFERENCES BETWEEN FINANCIAL AND TAXABLE INCOME
Years Ended December 31 (in millions) 1992 1991 TAX EFFECT (BENEFIT): Deferred policy acquisition costs $(15) $ (7) Unbilled premium adjustments (4) (2) Adjustment of life policy benefit reserves (1) (5) Adjustment of property/casualty loss reserves 3 (11) Adjustment of property/casualty unearned premium reserves (4) (5) Deferred realized gains and losses (2) 7 Unrecognized benefit of net losses 19 18 Other, net (2) 4 Provision for deferred income tax (benefit) $ (6) $ (1)
9.4. TAX EFFECTS OF PERMANENT DIFFERENCES BETWEEN FINANCIAL AND TAXABLE INCOME
Years Ended December 31 Liability Method Deferred Method (in millions) 1993 1992 1991 Tax at federal rates $ 35 $12 $(48) TAX EFFECT (BENEFIT): Adjustment of the beginning of the year valuation allowance (56) - - Effect of change in tax rates (3) - - State and foreign taxes - - 1 Dividend received deduction - (3) (2) Tax-exempt interest income (2) (3) (7) Proration adjustment on non-taxable investment income - 1 1 Adjustment of property/casualty salvage and subrogation accruals (fresh start) - - (3) Adjustment of property/casualty loss reserves (fresh start) - (9) (12) Alternative minimum tax - - 10 Unrecognized benefit of net loss - 2 63 Other (2) - - Provision for income taxes $(28) $ - $ 3
9.5. NET OPERATING LOSS CARRY-FORWARDS At December 31, 1993, USF&G had NOLs remaining for tax return purposes expiring in years 2000 through 2006. The amount and timing of recognizing the benefit of these NOLs depends on future income and limitations imposed by recent tax acts. The approximate amounts of USF&G's NOLs on a regular tax basis and an alternative minimum tax ("AMT") basis at December 31, 1993, were as follows:
(in millions) Tax Return Regular tax basis $634 AMT basis 389
Note 10 Reinsurance During 1993, USF&G adopted SFAS No. 113, "Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts." This standard requires the effects of reinsurance activity to be reported on a gross basis. Reinsurance receivables and prepaid reinsurance premiums are reported separately as assets, instead of the previous practice of reporting such receivables net of the related loss and unearned premium liabilities. The standard also establishes the conditions required for a contract to be accounted for as reinsurance and prescribes income recognition and reporting standards for those contracts. The initial adoption of this standard had no effect on net income, but increased assets and liabilities by approximately $1.2 billion at December 31, 1993. USF&G reinsures portions of its policy risks with other insurance companies or underwriters. USF&G assumes policy risks from other insurance companies and through participation in pools and associations. Reinsurance gives USF&G the ability to write larger risks and control its exposure to losses from catastrophes or other events that cause unfavorable underwriting results. USF&G's ceding reinsurance agreements are generally structured on a treaty basis whereby all risks meeting a certain criteria are automatically reinsured. Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured policy. Reinsurance contracts do not relieve USF&G from its obligation to policyholders. Failure of reinsurers to honor their obligation could result in losses to USF&G. USF&G evaluates the financial condition of its reinsurers and monitors concentrations of credit risks arising from similar economic characteristics of the reinsurers to minimize its exposure to significant losses from reinsurer insolvencies. At December 31, 1993, reinsurance receivables totaled $573 million. Of this amount, approximately $150 million was associated with the Workers Compensation Reinsurance Bureau ("WCRB"), a single voluntary reinsurance association of primary workers compensation insurers formed for the purpose of providing excess of loss reinsurance to its members. USF&G is a member of this pool. Each member is required to hold collateral, for the benefit of all member companies, in the form of investment-grade securities equaling 115 percent of the member's share of outstanding receivables of the WCRB. This collateral requirement mitigates the risk of WCRB becoming insolvent. Risk of loss is minimal for the remainder of receivables due to similar pool arrangements with collateral requirements, other contracts where funds are withheld, or letters of credit maintained. Credit risk is also diversified among numerous reinsurers. Additionally, USF&G is active in the involuntary market as a servicing carrier whereby USF&G processes business for a pool but takes no direct underwriting risk because it is directly reimbursed for the cost of processing policies and settling any related claims. Reinsurance receivables of $719 million associated with this business are separately disclosed in the Consolidated Statement of Financial Position.
1993 1992 Premiums Losses Unpaid Unearned Premiums Losses Unpaid Unearned (in millions) Written Earned Incurred Losses Premiums Written Earned Incurred Losses Premiums Property/Casualty: Direct $2,345 $2,338 $1,472 $ 5,078 $ 813 $2,472 $2,692 $2,182 $ 5,593 $ 805 Assumed 593 506 83 1,251 104 259 376 385 1,555 98 Gross 2,938 2,844 1,555 6,329 917 2,731 3,068 2,567 7,148 903 Ceded (509) (517) 203 (1,053) (124) (311) (535) (479) (1,608) (133) Net 2,429 2,327 1,758 5,276 793 2,420 2,533 2,088 5,540 770 Life N/A 129 395 3,973 - N/A 104 377 3,896 - Total $2,429 $2,456 $2,153 $ 9,249 $ 793 $2,420 $2,637 $2,465 $ 9,436 $ 770 1991 Property/Casualty: Direct $3,021 $3,127 $2,752 $ 5,607 $1,025 Assumed 573 423 412 1,667 313 Gross 3,594 3,550 3,164 7,274 1,338 Ceded (562) (532) (619) (1,570) (357) Net 3,032 3,018 2,545 5,704 981 Life N/A 169 437 3,773 - Total $3,032 $3,187 $2,982 $ 9,477 $ 981
The ceded unpaid losses and assumed unpaid losses for 1993 were reduced $464 million and $267 million, respectively, from 1992 due to a commutation involving the WCRB. At year end 1993, WCRB members commuted the lowest layer of reinsurance for accident years 1980 to 1992. As a result, USF&G was required to take back all reserves previously ceded into the layer and return reserves previously assumed. Included in assumed unpaid losses in the above table are $110 million, $123 million and $279 million related to loss portfolio transfer agreements at December 31, 1993, 1992, and 1991, respectively. USF&G has not entered into any such agreements to cede its unpaid losses. Note 11 Financial Guarantees 11.1. INSURANCE GUARANTEES USF&G has underwritten and reinsured financial guarantee bonds for principal and interest payments or installment notes when due. The obligations guaranteed were issued by limited partnerships, municipalities, and commercial enterprises. Assessment is made of the likelihood of loss in connection with these guarantees, and at December 31, 1993, 1992, and 1991, the reserve for such losses was not material. The risk of loss under these guarantees is diminished through reinsurance agreements and collateral. As of December 31, 1993, USF&G was contingently liable for par value amounts totaling less than approximately $600 million on financial guarantee exposures ceded through reinsurance agreements with a monoline insurance company in which USF&G formally had a minority ownership interest. In addition, USF&G has other financial guarantee obligations where the par value guaranteed totaled $12 million at December 31, 1993, with maturities ranging from 1994 to 2007. 11.2. CORPORATE GUARANTEES USF&G has also guaranteed the obligations of certain limited partnerships where it has an equity interest. The risk of loss under these guarantees is diminished by collateral in the underlying projects. The guarantees totaled $82 million at December 31, 1993, with maturities ranging from 1994 to 1999. In addition, USF&G has line of credit commitments outstanding totaling $61 million and purchase commitments outstanding of $16 million. Note 12 Legal Contingencies 12.1. GENERAL USF&G'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. Additional information regarding contingencies that may arise from insurance regulatory matters may be found in the Regulation section of Management's Discussion and Analysis of Financial Condition and Results of Operations. In the opinion of management the litigation described herein is not expected to have a material adverse effect on USF&G'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. 12.2. SHAREHOLDER CLASS ACTION SUITS Twelve class action complaints were filed by certain shareholders of USF&G in 1990 and 1991. USF&G moved to dismiss all twelve complaints. The complaints refer to USF&G's public announcement on November 7, 1990, concerning a reduction in its dividend and related matters. 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 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 certainty, management believes the lawsuits are without merit and the outcome is unlikely to have a material adverse effect on USF&G's financial position. 12.3. 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 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's financial position. 12.4. 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 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 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 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's financial position. Note 13 Information on Business Segments USF&G's principal business segments are property/casualty insurance and life insurance. 13.1. OPERATIONS The insurance business is geographically diversified throughout the United States. Noninsurance operations are located in the United States, Europe, and other foreign countries. Foreign operations, in total, are not material. Summarized financial information for the business segments is as follows:
Years Ended December 31 Income (loss) from Continuing Revenues Operations Before Income Taxes (in millions) 1993 1992 1991 1993 1992** 1991** PROPERTY/CASUALTY INSURANCE Commercial $1,223 $1,480 $1,885 $(223) $(343) $(455) Personal 681 785 920 (28) (110) (97) Reinsurance 305 157 96 32 20 26 Fidelity/surety 118 111 117 (8) 6 11 Property/casualty categories 2,327 2,533 3,018 (227) (427) (515) Net investment income* 433 475 498 433 475 498 Realized gains on investments* 31 199 44 31 199 44 Other - 1 3 (24) (51) (67) Total property/casualty 2,791 3,208 3,563 213 196 (40) LIFE INSURANCE Premium income 129 104 169 Net investment income 321 349 370 Realized gains (losses) on investments 20 (1) 31 Other 1 2 2 Total life 471 454 572 14 (5) 36 NONINSURANCE OPERATIONS and eliminations (13) (2) 37 (128) (156) (137) Consolidated $3,249 $3,660 $4,172 $ 99 $ 35 $(141) *Net investment income and realized gains on investments are not allocated to property/casualty categories. **Income (loss) from continuing operations before income taxes for 1992 and 1991 includes restructuring charges by segment as follows: Property/casualty, $46 million and $52 million; Life, $3 million and $2 million; and Noninsurance operations, $2 million and $6 million, respectively.
13.2. ASSETS The assets of the insurance operations are primarily investments. Foreign assets are not material. Assets of the business segments are as follows:
At December 31 (in millions) 1993 1992 1991 Property/casualty insurance $ 9,565 $ 8,253 $ 9,353 Life insurance 4,848 4,856 5,012 Noninsurance operations and eliminations (78) 25 121 Consolidated $14,335 $13,134 $14,486
Note 14 Interim Financial Data (Unaudited)
Quarter (in millions except per share data) First Second Third Fourth SUMMARY QUARTERLY RESULTS: Revenues 1993 $ 875 $ 820 $ 755 $ 799 1992 941 906 1,011 802 1991 1,084 1,061 991 1,036 Income (loss) from continuing operations 1993 23 25 20 59 before cumulative effect of adopting 1992 4 7 11 13 new accounting standards 1991 (51) (56) (21) (16) Loss from discontinued operations 1993 - - - - 1992 - (1) (6) - 1991 (4) - (4) (24) Income (loss) from cumulative effect 1993 38 - - - of adopting new accounting standards 1992 - - - - 1991 - - - - Net income (loss) 1993 61 25 20 59 1992 4 6 5 13 1991 (55) (56) (25) (40) PRIMARY EARNINGS PER COMMON SHARE:* Income (loss) from continuing operations 1993 $ .13 $ .15 $ .10 $ .55 before cumulative effect of adopting 1992 (.09) (.06) (.02) .01 new accounting standards 1991 (.65) (.77) (.38) (.34) Loss from discontinued operations 1993 - - - - 1992 - (.01) (.07) - 1991 (.05) - (.06) (.28) Income (loss) from cumulative effect of 1993 .45 - - - adopting new accounting standards 1992 - - - - 1991 - - - - Net income (loss) 1993 .58 .15 .10 .55 1992 (.09) (.07) (.09) .01 1991 (.70) (.77) (.44) (.62) FULLY DILUTED EARNINGS PER COMMON SHARE:* Income (loss) from continuing operations 1993 $ .17 $ .15 $ .10 $ .49 before cumulative effect of adopting 1992 (.09) (.06) (.02) .01 new accounting standards 1991 (.65) (.77) (.38) (.34) Loss from discontinued operations 1993 - - - - 1992 - (.01) (.07) - 1991 (.05) - (.06) (.28) Income (loss) from cumulative effect of 1993 .34 - - - adopting new accounting standards 1992 - - - - 1991 - - - - Net income (loss) 1993 .51 .15 .10 .49 1992 (.09) (.07) (.09) .01 1991 (.70) (.77) (.44) (.62) *The sum of quarterly income (loss) per share amounts may not equal the full year's amount due to stock issuances during presented periods.
In the first quarter of 1993, USF&G adopted two new accounting standards, which resulted in a net benefit of $38 million. SFAS No. 109, "Accounting for Income Taxes," increased net income by $90 million. This was partially offset by a $52 million charge to net income for SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." The third quarter 1992 results reflect $142 million in realized gains on investments, $80 million of catastrophe losses as a result of Hurricane Andrew, and $51 million of restructuring charges. The fourth quarter 1991 loss from discontinued operations reflects the decision to divest the investment management operations. USF&G Corporation Report of Independent Auditors Board of Directors USF&G Corporation We have audited the accompanying consolidated statement of financial position of USF&G Corporation as of December 31, 1993, 1992, and 1991, and the related consolidated statements of operations, shareholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of USF&G Corporation at December 31, 1993, 1992, and 1991 and the consolidated results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. In 1993, as a result of adopting new accounting standards and as discussed in Notes 1, 2, 8, and 9 to the consolidated financial statements, the Corporation changed its methods of accounting for certain investments in debt and equity securities, postretirement benefits other than pensions, and income taxes. ERNST & YOUNG Baltimore, Maryland February 11, 1994 USF&G Corporation Directors and Committees of the Board DIRECTORS H. Furlong Baldwin (62) Chairman of the Board and Chief Executive Officer Mercantile Bankshares Corporation 1981* Michael J. Birck (56) President and Chief Executive Officer Tellabs, Inc. 1993* Norman P. Blake, Jr. (52) Chairman of the Board, President, and Chief Executive Officer USF&G Corporation 1990* George L. Bunting, Jr. (53) President and Chief Executive Officer Bunting Management Group 1981* Robert E. Davis (62) Managing Director Axess Corporation 1990* Dr. Rhoda M. Dorsey (66) President Goucher College 1981* Dale F. Frey (61) Chairman of the Board and President General Electric Investment Corporation 1991* Robert E. Gregory, Jr. (51) Chairman of the Board and Chief Executive Officer The Gitano Group, Inc. 1988* Robert J. Hurst (48) Partner Goldman, Sachs & Co. 1988* Dr. Wilbur G. Lewellen (56) Herman C. Krannert Distinguished Professor of Management Graduate School of Management Purdue University 1992* Henry A. Rosenberg, Jr. (64) Chairman of the Board and Chief Executive Officer Crown Central Petroleum Corporation 1981* Larry P. Scriggins (57) Partner Piper & Marbury 1981* Anne Marie Whittemore (47) Partner McGuire Woods Battle & Boothe 1993* George S. Wills (57) President Wills & Associates, Inc. 1981* * Date indicates year of original election. COMMITTEES OF THE BOARD EXECUTIVE COMMITTEE Norman P. Blake, Jr. Chairman H. Furlong Baldwin George L. Bunting, Jr. Dale F. Frey Robert E. Gregory, Jr. Robert J. Hurst FINANCE COMMITTEE H. Furlong Baldwin Chairman Dale F. Frey Wilbur G. Lewellen Larry P. Scriggins Anne Marie Whittemore George S. Wills AUDIT COMMITTEE Robert E. Gregory, Jr. Chairman Robert E. Davis Rhoda M. Dorsey Dale F. Frey Henry A. Rosenberg, Jr. COMPENSATION COMMITTEE George L. Bunting, Jr. Chairman Michael J. Birck Robert E. Davis Robert E. Gregory, Jr. Wilbur G. Lewellen Henry A. Rosenberg, Jr. NOMINATING COMMITTEE Robert J. Hurst Chairman H. Furlong Baldwin George L. Bunting, Jr. Robert E. Davis Rhoda M. Dorsey Larry P. Scriggins USF&G Corporation Officers EXECUTIVE MANAGEMENT COMMITTEE NORMAN P. BLAKE, JR. (52) Chairman, president, and chief executive officer since 1990 Previously chairman and chief executive officer, Heller International; executive vice president-Financing Operations, General Electric Credit Corporation B.S.; M.A.-Purdue University GLENN W. ANDERSON (41) Executive vice president-Commercial Lines since 1994 Previously senior vice president-USF&G Commercial Lines; vice president-Strategic Target Marketing, Fireman's Fund B.A.-Stanford University GARY C. DUNTON (38) Executive vice president-Field Operations since 1994 Previously executive vice president-USF&G Commercial Lines; vice president-Standard Commercial Accounts, Aetna Life & Casualty B.S.-Northeastern University; M.B.A.-Harvard University DAN L. HALE (49) Executive vice president-chief financial officer since 1993 Previously executive vice president-USF&G Diversified Insurance and Investment Operations; president, Chase Manhattan Leasing Company B.A.-Yale University KENNETH E. CIHIY (47) Senior vice president-Claim since 1993 Previously resident vice president, Aetna Life & Casualty B.S.-Wilkes University ROBERT J. LAMENDOLA (49) Senior vice president-Fidelity/Surety since 1992 Previously managing director, Marsh & McLennan, Inc. B.A.-State University College at Buffalo, New York THOMAS K. LEWIS (41) Senior vice president and chief information officer since 1993 Previously vice president-general manager for Europe, Middle East, and Africa, Seer Technologies, Inc. B.S.; M.S.-University of New Haven JOHN A. MACCOLL (45) Senior vice president-general counsel since 1990 Previously partner, Piper & Marbury B.A.-Princeton University; LL.B.-Georgetown University AMY P. MARKS (37) Senior vice president-Human Resources since 1992 Previously senior vice president-USF&G Strategic Planning and Business Development; senior engagement manager, McKinsey & Company B.A.; M.B.A.-University of Chicago RICHARD J. POTTER (48) Senior vice president-Personal Lines since 1991 Previously senior vice president-USF&G Strategic Planning; president, Credit Life Insurance Company B.A.-Brown University; M.B.A.-University of Chicago ANDREW A. STERN (36) Senior vice president-Strategic Planning/Corporate Marketing since 1993 Previously partner and vice president, Booz Allen & Hamilton, Inc. B.S.S.C.-Massachusetts Institute of Technology; M.B.A.-University of Chicago JOHN C. SWEENEY (49) Senior vice president-chief investment officer since 1992 Previously principal and practice director, Towers Perrin Asset Consulting Services B.S.-St. Joseph's University; M.S.-The College of William & Mary IHOR W. HRON (51) President-F&G Life since 1991 Previously senior vice president-F&G Life; national director-Brokerage Operations, Connecticut General Life Insurance Company B.S.-Rutgers University PAUL B. INGREY (54) President-F&G Re, Inc. since 1983 Previously senior vice president, Prudential Reinsurance Company B.S.-Colgate University; M.B.A.-College of Insurance OFFICERS USF&G INSURANCE President Norman P. Blake, Jr. CLAIM Senior Vice President Kenneth E. Cihiy Vice President G. Jay Erbe, Jr. John F. Hayes II Richard A. Hughes, Jr. Thomas W. Salinsky Charles M. Stapleton Thomas M. Trezise COMMERCIAL LINES Executive Vice President Glenn W. Anderson Senior Vice President Ben L. Griffin Stephen W. Lilienthal Robert W. Mueller Kim B. Rich Vice President Peter T. Bothwell Alan K. Crater Jeff J. Gans Ronald L. Goldberg David Kaiser Steven A. LaShier Paul C. Martin Kevin M. Nish Kenneth R. Solomon FIDELITY-SURETY Senior Vice President Robert J. Lamendola Vice President Michael P. Hammond John A. Huss David G. Olson Brent E. Snelgrove Gary A. Wilson FIELD OPERATIONS Executive Vice President Gary C. Dunton Regional Vice President Paul H. Beil R. Lee Buck James R. Lewis Kenneth F. May Vice President Richard G. Lambert Gregory J. Richardson FINANCE Executive Vice President Dan L. Hale Vice President Francis X. Bossle Thomas A. Bradley Kerrie A. Burch-DeLuca Richard P. Campagna Duane M. Danielsen Diane Olmstead Gary R. Preysner Jon B. Savage Richard H. Snader James E. Stangroom Charles R. Werhane Paul Yates HUMAN RESOURCES Senior Vice President Amy P. Marks Vice President Jerome Adams Edward W. Gold Kathryn A. Henry Richard A. Roedel INFORMATION SERVICES Senior Vice President Thomas K. Lewis, Jr. Vice President James Hughes William L. Oakley Janet T. Turoff INVESTMENTS Senior Vice President John C. Sweeney Vice President Salvatore Correnti Geoffrey C. Getman Simon A. Mikhailovich LEGAL Senior Vice President/ General Counsel John A. MacColl Vice President John A. Andryszak John D. Corse Vance C. Gudmundsen J. Kendall Huber John M. Lummis Rosemary Quinn Personal Lines Senior Vice President Richard J. Potter Vice President Eileen O'Shea Auen Paul F. DiFrancesco Earnest E. Hines STRATEGIC PLANNING/ CORPORATE MARKETING Senior Vice President Andrew A. Stern Vice President Scott A. Williams SUBSIDIARY COMPANIES F&G LIFE President Ihor W. Hron Senior Vice President Gene F. Gaines Harry N. Stout Vice President Gary L. Burke Michael A. Loffa Peter J. McGlinchy Robert C. Read Bruce H. Saul F&G RE President Paul B. Ingrey Executive Vice President John R. Berger Senior Vice President Dwight R. Evans Roland W. Jackson Timothy J. Olson Wayne C. Paglieri David S. Skurnick Alan M. Willemsen Vice President Paul J. Brauner Peter A. Dodge Donald C. Kelly Edward F. Konikowski Michael J. O'Brien, Jr. Charles B. Penruddocke John F. Rathgeber John H. Reimer Rolf Schmidt Arthur S. Underwood Vice President/Counsel Andrew Nosal USF&G Corporation Regional and Branch Offices REGIONAL OFFICES NORTHEAST REGION James R. Lewis 5801 Smith Avenue Baltimore, Maryland 21209 (410) 578-2301 SOUTHEAST REGION Kenneth F. May 9000 Central Park West Suite 700 Atlanta, Georgia 30328 (404) 390-5500 MISSISSIPPI REGION Anthony D. Everett USF&G Building 143 LeFleur's Square Jackson, Mississippi 39211 (601) 982-5555 MIDWEST REGION Paul H. Beil 135 N. Pennsylvania Street Suite 800 Indianapolis, Indiana 46204 (317) 267-2850 WESTERN REGION R. Lee Buck 1700 Lincoln Street Suite 1750 Denver, Colorado 80203 (303) 832-8680 BRANCH OFFICES CALIFORNIA Nancy D. Stewart 2290 North First Street Suite 100 San Jose, California 95131 (408) 435-0650 COLORADO Anita Devan 370 Seventeenth Street Suite 2800 Denver, Colorado 80202 (303) 893-1166 CONNECTICUT Terence J. Welsh 175 Capital Boulevard Rocky Hill, Connecticut 06067 (203) 563-8011 FLORIDA M. Lee Patkus 600 N. Westshore Boulevard Suite 400 Tampa, Florida 33609 (813) 289-4589 GEORGIA Robert R. Southard 9000 Central Park West Suite 600 Atlanta, Georgia 30328 (404) 390-5500 ILLINOIS Hernando Madronero Corporetum Office Campus 850 Warrenville Road-2nd Floor Lisle, Illinois 60532 (708) 968-4500 INDIANA Terry A. Toohey 135 N. Pennsylvania Street Suite 1000 Indianapolis, Indiana 46204 (317) 267-2700 IOWA John G. Liska 4200 Corporate Drive West Des Moines, Iowa 50266 (515) 223-5700 KENTUCKY R. Paul Feemster USF&G Building 9911 Shelbyville Road Suite 200 Louisville, Kentucky 40223 (502) 429-7000 MARYLAND Gary L. Roth DPC Expansion-1st Floor 5801 Smith Avenue Baltimore, Maryland 21209 (410) 578-2000 MICHIGAN Derrick D. Iseler 1900 West Big Beaver Road Troy, Michigan 48084 (810) 643-6433 MISSISSIPPI Anthony D. Everett 143 LeFleur's Square Jackson, Mississippi 39211 (601) 982-5555 MISSOURI Jonathan R. Jeschke 7500 College Boulevard Suite 300 Overland Park, Kansas 66210 (913) 661-9700 L. Bud Roberts 910 North Eleventh Street St. Louis, Missouri 63101 (314) 241-9190 MONTANA Glen E. Dye 1625 Eleventh Avenue Helena, Montana 59601 (406) 442-2270 NEW YORK William R. Cossari 2500 Westchester Avenue Purchase, New York 10577 (914) 251-2300 Michael J. Onofrio 5786 Widewaters Parkway DeWitt, New York 13214 (315) 449-5100 NORTH CAROLINA Louis R. Snage, Jr. 7415 Pineville-Matthews Road Suite 300 Charlotte, North Carolina 28226-3267 (704) 544-0400 OHIO Joseph J. Brossard 4936 Blazer Parkway P.O. Box 7188 Dublin, Ohio 43017-0788 (614) 793-1500 OKLAHOMA Larry W. Fitch 3500 Northwest 56th Street Oklahoma City, Oklahoma 73112 (405) 946-6640 OREGON Thomas G. Iverson Five Centerpointe Drive, 3rd Floor Lake Oswego, Oregon 97035 (503) 684-0880 PENNSYLVANIA John A. Umberger 930 Harvest Drive Suite 400 P.O. Box 3007 Blue Bell, Pennsylvania 19422 (215) 540-2700 Leonard H. Allen 3211 North Front Street Harrisburg, Pennsylvania 17110 (717) 234-7941 Richard W. Ramell One Mellon Bank Center 500 Grant Street Pittsburgh, Pennsylvania 15219 (412) 261-2550 TENNESSEE Stephen A. Nafe 100 Westwood Place Suite 200 Brentwood, Tennessee 37027 (615) 370-8400 UTAH Melvin R. Workman 1100 East 6600 South Salt Lake City, Utah 84121 (801) 269-5656 VIRGINIA John H. Jennings, Jr. 2819 Parham Road Richmond, Virginia 23294 (804) 747-0300 WASHINGTON Suite 300-North Tower 100 West Harrison Plaza Seattle, Washington 93119 (206) 285-3636 WEST VIRGINIA Charles W. Kincaid, Jr. 1409 Greenbrier Street Charleston, West Virginia 25311 (304) 344-1692 WISCONSIN Robert D. Prunty 2525 North Mayfair Road Milwaukee, Wisconsin 53226 (414) 476-3600 USF&G Corporation Shareholders' Information Corporate Headquarters/Home Office 100 Light Street Baltimore, Maryland 21202 (410) 547-3000 Annual Meeting The Annual Meeting of Shareholders will be held Wednesday, May 4, 1994, at 9:00 a.m. at the Sheraton Inner Harbor Hotel, 300 South Charles Street, Baltimore, Maryland. Reports Filed with the Securities and Exchange Commission A copy of USF&G Corporation's Annual Report on Form 10-K or Quarterly Report on Form 10-Q, as filed with the Securities and Exchange Commission, may be obtained without charge upon request to John F. Hoffen, Jr., corporate secretary at the corporate headquarters. Stock Exchange Listing Common Stock: USF&G Corporation's Common Stock (ticker: FG) is listed on the New York Stock Exchange. The common stock appears in the NYSE Composite Listing as USFG. The common stock is also listed on the Pacific Stock Exchange, the London Stock Exchange, and the Stock Exchanges of Basle, Geneva, and Zurich, Switzerland. Preferred Stock: USF&G Corporation's $4.10 Series A Convertible Exchangeable Preferred Stock (ticker: FGpA) and USF&G Corporation's $5.00 Series C Cumulative Convertible Preferred Stock (ticker: FGpC) are listed on the New York Stock Exchange. The preferred stock appears in the NYSE Composite Listing as USFGpf. The preferred stock is also listed on the Pacific Stock Exchange. Transfer Agent/Registrar First Chicago Trust Company of New York is transfer agent, registrar, and dividend disbursing agent for USF&G Corporation's common and preferred stock. Inquiries regarding stock transfer requirements, dividend payments, the Dividend Reinvestment and Stock Purchase Plan, or address changes should be addressed to: First Chicago Trust Company of New York P.O. Box 2500 Jersey City, NJ 07303-2500 Attention: Shareholders' Relations Department (201) 324-0498 Stock and Dividend Information The following tabulation presents 1993 and 1992 data on the sale prices of USF&G Corporation's common stock on the New York Stock Exchange Composite Listing by quarter, and the dividends paid per share of common stock. At February 25, 1994, there were 37,263 shareholders of record and the closing price was $14.25.
Sale Price High Low Dividends Paid 1993 First quarter $17 5/8 $11 1/8 $.05 Second quarter 19 5/8 15 3/4 .05 Third quarter 19 5/8 13 7/8 .05 Fourth quarter 15 1/4 12 3/8 .05 1992 First quarter $10 1/4 $ 7 1/8 $.05 Second quarter 14 1/4 8 .05 Third quarter 15 10 .05 Fourth quarter 14 1/8 9 7/8 .05
Dividend Reinvestment and Stock Purchase Plan The plan provides shareholders with a convenient way to invest cash dividends and to make optional cash investments in additional shares of USF&G Corporation's common stock without payment of any charges for brokerage commissions or fees. First Chicago Trust Company of New York administers the plan and additional information may be obtained from them by written request. For Additional Information Investors and analysts requesting additional information about USF&G may contact: Jennifer Macke Investor Relations Department (410) 547-3939 Independent Auditors Ernst & Young One North Charles Street Baltimore, Maryland 21201 APPENDIX TO ELECTRONIC FORMAT DOCUMENT (*List of graphic and image material in 1993 Annual Report) *Page 3 GRAPH Revenues (in billions) 1990 $4.171 1991 4.172 1992 3.660 1993 3.249 GRAPH Net Income (in millions except per share data) Net Income EPS(Earnings Per Share) 1990 $(569) $ (6.99) 1991 (176) (2.53) 1992 28 (0.24) 1993 165 1.38 GRAPH Balance Sheet Leverage/Liquidity (dollars in billions) Fixed charge Equity Debt-to-equity ratio coverage ratio 1990 $1.205 65 (3.3) 1991 1.323 51 (.5) 1992 1.270 49 .8 1993 1.511 41 1.4 *Page 4 PHOTO desribed in respective page of Annual Report *Page 5 GRAPH ---------------------------------------------------------------------- | Fix the --> Build with --> Leverage | | Foundation Vision Leadership | |---------------------------------------------------------------------| Profit | Mission | Culture/Core Values | | (x axis)| Strategy | Market/Customer | | | Leadership | Orientation | Extend from | | Competitive Resources | Competitive | positions of | | | Differentiation | leadership | | Economic Structure | | | --------------------------------------------------------------------- (y axis) 1990 1993 1996 (caption) USF&G is now entering the "Build with Vision" phase of its restructuring and rebuilding process. (A discussion of the illustration of USF&G's restructuring and rebuilding can be found in the first paragraph of the Chairman's Letter on page 5 of the Annual Report.) *Page 6 GRAPH Operating Income (in millions) 1990 $ (77) 1991 (179) 1992 (113) 1993 93 (caption) The increase in operating income is due to improved underwriting performance in the property/casualty company. GRAPH Property/Casualty Statutory Combined Ratio Statutory Loss Expense combined ratio ratio ratio 1990 81.9 32.9 114.8 1991 84.1 33.1 117.2 1992 82.0 34.9 116.9 1993 75.4 33.7 109.1 (caption) The improved ratios result from effective product/market mix management and improved underwriting and claim settlement practices. *Page 7 GRAPH General & Administrative Expenses (in millions) 1990 $635 1991 532 1992 465 1993 437 (caption) A 31% decrease in general and administrative expenses since 1990 favorably influenced earnings. GRAPH Consolidated Employment & Productivity (in thousands) Number of Revenue per employees employee 1990 12.5 $364 1991 9.1 455 1992 7.4 473 1993 6.5 499 (caption) Employment levels decreased by 48% since 1990 contributing to a 37% improvement in productivity. *Page 8 GRAPH Investment Portfolio (dollars in billions) Investment- Market- grade fixed- Other to- income invested amortized securities assets cost ratio 1990 $4.844 $6.377 99 1991 3.487 8.680 104 1992 2.663 8.683 101 1993 2.375 9.002 104 (caption) Improved asset quality is evidenced by an increase in investment-grade fixed income securities. GRAPH Real Estate Portfolio (dollars in billions) Total % Reserves to Real Non- nonperforming Estate Performing real estate 1990 $1.081 331 21 1991 1.155 393 22 1992 1.112 346 31 1993 1.095 249 43 (caption) Nonperforming real estate investments have decreased while reserve coverage has steadily improved. *Page 10 PHOTO desribed in respective page of Annual Report *Page 11 PHOTO desribed in respective page of Annual Report *Page 12 PHOTO desribed in respective page of Annual Report *Page 14 PHOTO desribed in respective page of Annual Report *Page 15 PHOTO desribed in respective page of Annual Report *Page 16 PHOTO desribed in respective page of Annual Report *Page 17 PHOTO desribed in respective page of Annual Report *Page 18 PHOTO desribed in respective page of Annual Report *Page 19 PHOTO desribed in respective page of Annual Report *Page 20 PHOTO desribed in respective page of Annual Report *Page 21 PHOTO desribed in respective page of Annual Report *Page 22 PHOTO desribed in respective page of Annual Report *Page 23 PHOTO desribed in respective page of Annual Report *Page 24 PHOTO desribed in respective page of Annual Report *Page 25 PHOTO desribed in respective page of Annual Report *Page 28 GRAPH Combined Ratio+ Expense Statutory Loss Combined Ratio 1991 33.4 91.6 125.0 1992 36.3 86.9 123.2 1993 34.7 83.6 118.3 (footnote)+Total Commercial Lines segment *Page 29 GRAPH Personal Lines Combined Ratio Expense Statutory Loss Combined Ratio 1991 30.4 80.0 110.4 1992 33.2 80.0 113.2 1993 33.9 71.2 105.1 GRAPH Fidelity/Surety Combined Ratio Expense Statutory Loss Combined Ratio 1991 56.3 42.3 98.6 1992 64.0 32.0 96.0 1993 56.4 50.5 106.9 GRAPH F&G Re Combined Ratio Expense Statutory Loss Combined Ratio 1991 29.9 59.1 89.0 1992 17.0 76.9 93.9 1993 24.6 67.3 91.9 GRAPH Life Insurance Strategic Surplus+ to Assets 1991 7.8 1992 9.6 1993 9.8 (footnote)+Strategic surplus is the sum of statutory surplus and mandated Asset Valuation Reserve. *Page 30 GRAPH Asset Allocation (pie chart) 1992 1993 Equities & other invested assets 4% 3% Real estate 9 9 High-yield 5 5 Short term 5 3 Governments 5 3 Tax-exempt 1 - Mortgage-backed 35 22 Investment-grade corporates 38 55 (caption) As mortgage-backed securities declined to 22% of invested assets, investment-grade corporates increased to 55%. *Page 31 GRAPH Fixed-Income Securities (in billions) Held Available Unrealized to maturity for sale gains (losses) 1990 $6.982 $ -- $(.068) 1991 3.749 5.364 .373 1992 7.218 1.987 .114 1993 4.661 4.681 .357 (caption) The level of securities available for sale will affect book value as associated unrealized gains (losses) will be carried in shareholders' equity. GRAPH Interest Rates 30 Year Treasuries 3 Month Treasuries 1990 8.3% 6.8% 1991 7.4 4.1 1992 7.4 3.3 1993 6.4 3.1 (caption) Investment results have been impacted by the declining interest rate environment. EX-21 15 SUBSIDIARIES OF REGISTRANT USF&G Corporation Exhibit 21 - Subsidiaries of the Registrant Name of Subsidiary State of Incorporation United States Fidelity and Guaranty Company Maryland Fidelity & Guaranty Life Insurance Company Maryland The names of other subsidiaries have been omitted because, when considered in the aggregate as a single subsidiary, they would not constitute a significant subsidiary as defined by Regulation S-X. EX-23 16 CONSENT OF AUDITORS USF&G Corporation Exhibit 23 - Consent of Independent Auditors USF&G Corporation We consent to the incorporation by reference in this Annual Report (Form 10-K) of USF&G Corporation of our report dated February 11, 1994, included in the 1993 Annual Report to Shareholders of USF&G Corporation. Our audits also included the financial statement schedules of USF&G Corporation listed in item 14(a). These schedules are the responsibility of the Corporations's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. We also consent to the incorporation by reference into Registration Statements Number 33-20449, 33-9405, 33-33271, 33-21132, 33-50825 and 33-51859 on Form S-3, and Number 2-61626, 2-72026, 2-98232, 33-16111, 33-35095, 33-38113, 33-43132, 33-45664, 33-45665 and 33-61965 on Form S-8 of USF&G Corporation, of our report dated February 11, 1994, with respect to the consolidated financial statements incorporated herein by reference, and our report included in the preceding paragraph with respect to the financial statement schedules included in this Annual Report (Form 10-K) of USF&G Corporation. Baltimore, Maryland March 30, 1994 EX-28 17 INSURANCE INFORMATION Page # 62 Form 2 CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND ITS AFFILIATED FIRE AND CASUALTY INSURERS SCHEDULE P - ANALYSIS OF LOSSES AND LOSS EXPENSES Notes to Schedule P (1) The Parts of Schedule P: Part 1 - detailed information on losses and loss expenses. Part 2 - history of incurred losses and allocated expenses. Part 3 - history of loss and allocated expense payments. Part 4 - history of bulk and incurred-but-not reported reserves. Schedule P Interrogatories (2) Lines of business A through M and R are groupings of the lines of business used on Page 14, the state page. (3) Reinsurance A, B, C, and D (lines N to Q) are: Reinsurance A = nonproportional property (1988 and subsequent) Reinsurance B = nonproportional liability (1988 and subsequent) Reinsurance C = financial lines (1988 and subsequent) Reinsurance D = old Schedule O line 30 (1987 and prior) (4) The Instructions to Schedule P contain directions necessary for filling out Schedule P.
SCHEDULE P - PART 1 - SUMMARY (000 omitted) ----------------------------------------------------------------------------------------------------------------------------------- | | Premiums Earned | Loss and Loss Expense Payments | 1 |-----------------------------------------|-------------------------------------------------------------------------- | Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9 | in Which | | | | | Expense Payments | |Premiums Were | | | |-----------------------------|-----------------------------| Salvage | Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and | Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation | Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- | | | | | | | | | | 1. Prior ...| X X X X | X X X X | X X X X | 88,456 | 11,846 | 15,230 | 396 | 5,562 | 2. 1984.....| 2,345,677 | 164,417 | 2,181,260 | 1,910,090 | 59,288 | 164,316 | 12,931 | 103,505 | 3. 1985.....| 3,142,333 | 416,447 | 2,725,886 | 2,564,659 | 433,930 | 197,503 | 18,834 | 106,298 | 4. 1986.....| 3,844,761 | 469,224 | 3,375,537 | 2,276,633 | 304,671 | 182,836 | 12,496 | 95,805 | 5. 1987.....| 4,131,013 | 563,250 | 3,567,763 | 2,268,058 | 393,898 | 167,696 | 16,642 | 84,270 | 6. 1988.....| 4,332,667 | 758,689 | 3,573,978 | 2,302,872 | 477,278 | 160,459 | 14,390 | 84,677 | 7. 1989.....| 4,327,680 | 986,791 | 3,340,889 | 2,490,945 | 609,626 | 148,300 | 13,391 | 77,975 | 8. 1990.....| 4,261,322 | 927,403 | 3,333,919 | 2,197,900 | 547,619 | 139,781 | 14,060 | 87,585 | 9. 1991.....| 3,682,715 | 699,588 | 2,983,127 | 1,669,604 | 323,157 | 88,196 | 6,976 | 53,249 |10. 1992.....| 3,156,709 | 696,137 | 2,460,572 | 1,424,277 | 457,679 | 41,524 | 9,981 | 33,957 |11. 1993.....| 2,959,792 | 883,225 | 2,076,567 | 629,787 | 152,727 | 13,129 | 700 | 13,629 |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- |12. Totals ..| X X X X | X X X X | X X X X | 19,823,281 | 3,771,719 | 1,318,970 | 120,796 | 746,514 ----------------------------------------------------------------------------------------------------------------------------------- Note: For "prior," report amounts paid or received in current year only. Report cumulative amounts paid or received for specific years. Report loss payments net of salvage and subrogation received. ----------------------------------------------------------- | Loss and Loss Expense Payments | | | 1 ------------------------------| 12 | | Years | 10 | 11 | | | in Which | | | Number of | |Premiums Were | Unallocated | Total | Claims | | Earned and | Loss | Net Paid | Reported - | | Losses Were | Expense | (5 - 6 + 7 | Direct and | | Incurred | Payments | - 8 + 10) | Assumed | |--------------|--------------|--------------|--------------| | | | | | | 1. Prior ...| 4,404 | 95,847 | X X X X | | 2. 1984.....| 107,137 | 2,109,325 | X X X X | | 3. 1985.....| 111,555 | 2,420,953 | X X X X | | 4. 1986.....| 119,033 | 2,261,337 | X X X X | | 5. 1987.....| 113,586 | 2,138,801 | X X X X | | 6. 1988.....| 118,254 | 2,089,917 | X X X X | | 7. 1989.....| 125,838 | 2,142,066 | X X X X | | 8. 1990.....| 132,232 | 1,908,233 | X X X X | | 9. 1991.....| 132,993 | 1,560,660 | X X X X | |10. 1992.....| 111,262 | 1,109,403 | X X X X | |11. 1993.....| 61,074 | 550,563 | X X X X | |--------------|--------------|--------------|--------------| |12. Totals ..| 1,137,368 | 18,387,104 | X X X X | ----------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- | | Losses Unpaid | Allocated Loss Expenses Unpaid | |--------------------------------------------------------|----------------------------------------------------------- | | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR | |---------------------------|----------------------------|-----------------------------|----------------------------- | | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20 | | Direct | | Direct | | Direct | | Direct | | | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- | | | | | | | | | | 1. Prior ...| 476,516 | 170,978 | 187,774 | 697 | 0 | 0 | 100,931 | 4,968 | 2. 1984.....| 76,590 | 5,910 | 174,924 | 125,492 | 0 | 0 | 17,898 | 287 | 3. 1985.....| 94,424 | 31,568 | 76,573 | 3,306 | 0 | 0 | 24,406 | 275 | 4. 1986.....| 86,983 | 12,870 | 81,320 | 2,839 | 0 | 0 | 30,954 | 806 | 5. 1987.....| 109,950 | 20,047 | 105,374 | 3,872 | 0 | 0 | 41,697 | 1,080 | 6. 1988.....| 249,660 | 107,302 | 109,314 | 3,042 | 0 | 0 | 52,123 | 1,292 | 7. 1989.....| 314,904 | 128,605 | 162,082 | 6,636 | 0 | 0 | 70,631 | 2,353 | 8. 1990.....| 392,205 | 156,307 | 215,620 | 19,064 | 0 | 0 | 101,089 | 4,281 | 9. 1991.....| 357,926 | 75,132 | 303,381 | 63,962 | 0 | 0 | 118,988 | 5,285 |10. 1992.....| 462,572 | 140,152 | 374,963 | 87,424 | 0 | 0 | 124,149 | 6,030 |11. 1993.....| 529,030 | 166,991 | 610,231 | 184,223 | 0 | 0 | 141,378 | 11,948 |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- |12. Totals ..| 3,150,759 | 1,015,862 | 2,401,556 | 500,557 | 0 | 0 | 824,245 | 38,605 ----------------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------- | | | | | | | | 21 | 22 | 23 | 24 | | | | | | Number of | | | Salvage | Unallocated | Total | Claims | | | and | Loss | Net Losses |Outstanding -| | | Subrogation | Expenses | and Expenses | Direct | | | Anticipated | Unpaid | Unpaid | and Assumed | |--------------|--------------|--------------|--------------|-------------| | | | | | | | 1. Prior ...| (8,534)| 16,604 | 605,181 | X X X X | | 2. 1984.....| (8,841)| 4,572 | 142,295 | X X X X | | 3. 1985.....| (5,445)| 5,737 | 165,993 | X X X X | | 4. 1986.....| (6,080)| 6,352 | 189,094 | X X X X | | 5. 1987.....| (7,877)| 7,796 | 239,818 | X X X X | | 6. 1988.....| (11,014)| 10,741 | 310,201 | X X X X | | 7. 1989.....| (14,021)| 14,821 | 424,844 | X X X X | | 8. 1990.....| (16,718)| 20,994 | 550,256 | X X X X | | 9. 1991.....| (18,167)| 26,030 | 661,946 | X X X X | |10. 1992.....| (18,175)| 34,124 | 762,202 | X X X X | |11. 1993.....| (23,781)| 49,471 | 966,948 | X X X X | |--------------|--------------|--------------|--------------|-------------| |12. Totals ..| (138,653)| 197,241 | 5,018,777 | X X X X | ------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- | | Total Losses and | Loss and Loss Expense Percentage | Discount for Time | | Loss Expenses Incurred | (Incurred/Premiums Earned) | Value of Money | |-----------------------------------------|--------------------------------------------|----------------------------- | | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32 | | Direct | | | Direct | | | | Loss | | and Assumed | Ceded | Net * | and Assumed | Ceded | Net | Loss | Expense |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- | | | | | | | | | | 1. Prior ...| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 861 | 3,502 | 2. 1984.....| 2,455,528 | 203,908 | 2,251,620 | 104.7 | 124.0 | 103.2 | 866 | 1,377 | 3. 1985.....| 3,074,857 | 487,912 | 2,586,945 | 97.9 | 117.2 | 94.9 | 1,564 | 1,714 | 4. 1986.....| 2,784,112 | 333,682 | 2,450,430 | 72.4 | 71.1 | 72.6 | 2,199 | 1,738 | 5. 1987.....| 2,814,158 | 435,539 | 2,378,619 | 68.1 | 77.3 | 66.7 | 2,692 | 2,016 | 6. 1988.....| 3,003,423 | 603,304 | 2,400,118 | 69.3 | 79.5 | 67.2 | 3,834 | 2,399 | 7. 1989.....| 3,327,520 | 760,611 | 2,566,910 | 76.9 | 77.1 | 76.8 | 5,295 | 3,022 | 8. 1990.....| 3,199,821 | 741,332 | 2,458,489 | 75.1 | 79.9 | 73.7 | 5,987 | 3,154 | 9. 1991.....| 2,697,117 | 474,511 | 2,222,606 | 73.2 | 67.8 | 74.5 | 5,056 | 3,072 |10. 1992.....| 2,572,872 | 701,267 | 1,871,605 | 81.5 | 100.7 | 76.1 | 4,282 | 3,131 |11. 1993.....| 2,034,100 | 516,589 | 1,517,511 | 68.7 | 58.5 | 73.1 | 0 | 0 |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- |12. Totals ..| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 32,636 | 25,125 ----------------------------------------------------------------------------------------------------------------------------------- *Net = (25 - 26) = (11 + 23) ----------------------------------------------------------- | | | Net Balance Sheet Reserves | | | 33 | After Discount | | |Inter-Company |-----------------------------| | | Pooling | 34 | 35 | | |Participation | Losses |Loss Expenses | | | Percentage | Unpaid | Unpaid | |--------------|--------------|--------------|--------------| | | | | | | 1. Prior ...| X X X X | 491,754 | 109,064 | | 2. 1984.....| 0.0 | 119,246 | 20,806 | | 3. 1985.....| 0.0 | 134,560 | 28,155 | | 4. 1986.....| 0.0 | 150,395 | 34,762 | | 5. 1987.....| 0.0 | 188,713 | 46,397 | | 6. 1988.....| 0.0 | 244,795 | 59,173 | | 7. 1989.....| 0.0 | 336,450 | 80,077 | | 8. 1990.....| 0.0 | 426,467 | 114,648 | | 9. 1991.....| 0.0 | 517,156 | 136,661 | |10. 1992.....| 0.0 | 605,677 | 149,112 | |11. 1993.....| 0.0 | 788,048 | 178,901 | |--------------|--------------|--------------|--------------| |12. Totals ..| X X X X | 4,003,260 | 957,756 | -----------------------------------------------------------
Page 63 Form 2 CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND ITS AFFILIATED FIRE AND CASUALTY INSURERS
SCHEDULE P - PART 2 - SUMMARY ------------------------------------------------------------------------------------------------------------------------ | 1 | Incurred Losses and Allocated Expenses Reported At Year End (000 omitted) | Years in Which |---------------------------------------------------------------------------------------------------- | Losses Were | 2 | 3 | 4 | 5 | 6 | 7 | 8 | | Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | |-------------------|---------------|-------------|-------------|-------------|-------------|-------------|-------------| | | | | | | | | | | | | | | | | | | | 1. Prior ......| 1,545,889 * | 1,710,404 | 1,768,641 | 1,867,332 | 1,991,169 | 2,095,578 | 2,166,262 | | 2. 1984........| 1,762,739 | 1,888,468 | 1,935,699 | 1,971,381 | 2,018,840 | 2,047,837 | 2,061,716 | | 3. 1985........| X X X X | 2,128,948 | 2,229,789 | 2,253,074 | 2,325,580 | 2,380,464 | 2,415,002 | | 4. 1986........| X X X X | X X X X | 2,380,670 | 2,320,255 | 2,295,049 | 2,246,813 | 2,266,851 | | 5. 1987........| X X X X | X X X X | X X X X | 2,415,688 | 2,281,257 | 2,198,839 | 2,228,024 | | 6. 1988........| X X X X | X X X X | X X X X | X X X X | 2,305,379 | 2,245,300 | 2,322,481 | | 7. 1989........| X X X X | X X X X | X X X X | X X X X | X X X X | 2,462,371 | 2,411,021 | | 8. 1990........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 2,385,841 | | 9. 1991........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 10. 1992........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 11. 1993........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | |------------------------------------------------------------------------------------------------------------------------ | 12. Totals ......................................................................................................... ------------------------------------------------------------------------------------------------------------------------ *Reported reserves only. Subsequent development relates only to subsequent payments and reserves. **Current year less first or second prior year, showing (redundant) or adverse. ---------------------------------------------------------------------------------------- | 1 | Development** | | Years in Which ------------------------------------------|---------------------------| | Losses Were | 9 | 10 | 11 | 12 | 13 | | Incurred | 1991 | 1992 | 1993 | One Year | Two Year | |--------------------|------------|-------------|-------------|-------------|-------------| | | | | | | | | | | | | | | | 1. Prior ...... | 2,290,507 | 2,365,601 | 2,511,406 | 145,805 | 220,899 | | 2. 1984........ | 2,084,627 | 2,103,491 | 2,139,911 | 36,420 | 55,284 | | 3. 1985........ | 2,434,176 | 2,441,724 | 2,469,653 | 27,929 | 35,477 | | 4. 1986........ | 2,283,007 | 2,303,983 | 2,325,045 | 21,062 | 42,038 | | 5. 1987........ | 2,204,680 | 2,229,385 | 2,257,237 | 27,852 | 52,557 | | 6. 1988........ | 2,218,077 | 2,255,781 | 2,271,123 | 15,342 | 53,046 | | 7. 1989........ | 2,439,506 | 2,402,185 | 2,426,250 | 24,065 | (13,256)| | 8. 1990........ | 2,370,039 | 2,340,530 | 2,305,263 | (35,267)| (64,776)| | 9. 1991........ | 2,249,276 | 2,174,594 | 2,063,583 | (111,011)| (185,693)| | 10. 1992........ | X X X X | 1,831,554 | 1,726,219 | (105,335)| X X X X | | 11. 1993........ | X X X X | X X X X | 1,406,965 | X X X X | X X X X | |------------------------------------------------------------ |-------------|-------------| | 12. Totals ............................................. | 46,862 | 195,576 | ---------------------------------------------------------------------------------------- SCHEDULE P - PART 3 - SUMMARY ------------------------------------------------------------------------------------------------------------------------ | | | 1 | Cumulative Paid Losses and Allocated Expenses At Year End (000 omitted) | Years in Which |---------------------------------------------------------------------------------------------------- | Losses Were | 2 | 3 | 4 | 5 | 6 | 7 | 8 | | Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | | | | | | | | | | |-------------------|---------------|-------------|-------------|-------------|-------------|-------------|-------------| | | | | | | | | | | 1. Prior ......| 000 | 497,504 | 865,653 | 1,150,128 | 1,347,860 | 1,509,841 | 1,647,861 | | 2. 1984........| 744,388 | 1,241,764 | 1,484,362 | 1,649,653 | 1,760,746 | 1,847,814 | 1,925,147 | | 3. 1985........| X X X X | 877,117 | 1,477,411 | 1,772,308 | 1,966,184 | 2,105,231 | 2,197,999 | | 4. 1986........| X X X X | X X X X | 823,675 | 1,342,052 | 1,633,087 | 1,829,361 | 1,964,805 | | 5. 1987........| X X X X | X X X X | X X X X | 623,238 | 1,087,547 | 1,349,137 | 1,725,565 | | 6. 1988........| X X X X | X X X X | X X X X | X X X X | 729,935 | 1,260,773 | 1,543,332 | | 7. 1989........| X X X X | X X X X | X X X X | X X X X | X X X X | 770,924 | 1,361,936 | | 8. 1990........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 751,137 | | 9. 1991........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 10. 1992........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 11. 1993........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | ------------------------------------------------------------------------------------------------------------------------ Note: Net of salvage and subrogation received. ---------------------------------------------------------------------------------------- | | 12 | 13 | | 1 | Number of | Number of | | Years in Which ------------------------------------------| Claims | Claims | | Losses Were | 9 | 10 | 11 | Closed With | Closed | | Incurred | 1991 | 1992 | 1993 | Loss |Without Loss | | | | | | Payment | Payment | |-------------------|-------------|-------------|-------------|-------------|-------------| | | | | | | | | 1. Prior ......| 1,746,029 | 1,831,386 | 1,922,829 | X X X X | X X X X | | 2. 1984........| 1,963,982 | 1,987,803 | 2,002,188 | X X X X | X X X X | | 3. 1985........| 2,252,315 | 2,279,081 | 2,309,398 | X X X X | X X X X | | 4. 1986........| 2,053,589 | 2,110,387 | 2,142,303 | X X X X | X X X X | | 5. 1987........| 1,892,354 | 1,971,535 | 2,025,215 | X X X X | X X X X | | 6. 1988........| 1,756,160 | 1,896,074 | 1,971,662 | X X X X | X X X X | | 7. 1989........| 1,687,467 | 1,885,933 | 2,016,227 | X X X X | X X X X | | 8. 1990........| 1,301,579 | 1,578,159 | 1,776,001 | X X X X | X X X X | | 9. 1991........| 726,068 | 1,175,879 | 1,427,667 | X X X X | X X X X | | 10. 1992........| X X X X | 612,444 | 998,141 | X X X X | X X X X | | 11. 1993........| X X X X | X X X X | 489,488 | X X X X | X X X X | ---------------------------------------------------------------------------------------- SCHEDULE P - PART 4 - SUMMARY ---------------------------------------------------------------------------------------------------------- | 1 |Bulk and Incurred But Not Reported Reserves on Losses and Allocated Expenses at Year-End (000 omitted) | Years in Which | ------------------------------------------------------------------------------------ | Losses | 2 | 3 | 4 | 5 | 6 | 7 | | Were Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | |--------------------|--------------|-------------|-------------|-------------|-------------|-------------| | | | | | | | | | 1. Prior .....| 529,378 | 388,421 | 220,904 | 136,995 | 113,706 | 107,174 | | 2. 1984.......| 510,719 | 285,217 | 171,810 | 96,193 | 69,065 | 57,767 | | 3. 1985.......| X X X X | 703,475 | 351,758 | 179,756 | 121,181 | 94,278 | | 4. 1986.......| X X X X | X X X X | 1,020,474 | 594,826 | 364,055 | 197,289 | | 5. 1987.......| X X X X | X X X X | X X X X | 1,127,701 | 627,775 | 371,146 | | 6. 1988.......| X X X X | X X X X | X X X X | X X X X | 1,020,671 | 570,817 | | 7. 1989.......| X X X X | X X X X | X X X X | X X X X | X X X X | 1,075,501 | | 8. 1990.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 9. 1991.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 10. 1992.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 11. 1993.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | ---------------------------------------------------------------------------------------------------------- ------------- ------------------------------------------------------- | 1 | | Years in Which -------------------------------------------------------| | Losses | 8 | 9 | 10 | 11 | | Were Incurred | 1990 | 1991 | 1992 | 1993 | |--------------------| -------------|-------------|-------------|-------------| | | | | | | | 1. Prior .....| 105,992 | 162,922 | 192,500 | 283,039 | | 2. 1984.......| 49,337 | 40,565 | 49,530 | 67,043 | | 3. 1985.......| 83,588 | 78,376 | 83,806 | 97,400 | | 4. 1986.......| 140,031 | 100,097 | 94,655 | 108,629 | | 5. 1987.......| 278,832 | 142,554 | 139,982 | 142,119 | | 6. 1988.......| 454,541 | 213,819 | 187,986 | 157,103 | | 7. 1989.......| 601,064 | 412,463 | 271,885 | 223,724 | | 8. 1990.......| 1,026,590 | 626,343 | 438,738 | 293,364 | | 9. 1991.......| X X X X | 919,318 | 612,846 | 353,122 | | 10. 1992.......| X X X X | X X X X | 722,765 | 405,658 | | 11. 1993.......| X X X X | X X X X | X X X X | 555,438 | -------------------- -------------------------------------------------------
Page: Page 72 Form 2 CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND ITS AFFILIATED FIRE AND CASUALTY INSURERS
SCHEDULE P - PART 1H - SECTION 1 - OTHER LIABILITY - OCCURRENCE (000 omitted) ----------------------------------------------------------------------------------------------------------------------------------- | 1 | Premiums Earned | Loss and Loss Expense Payments | |-----------------------------------------|-------------------------------------------------------------------------- | Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9 | in Which | | | | | Expense Payments | |Premiums Were | | | |-----------------------------|-----------------------------| Salvage | Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and | Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation | Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- | | | | | | | | | | | | | | | | | | | 1. Prior ...| X X X X | X X X X | X X X X | 27,210 | 45 | 10,331 | 127 | 109 | 2. 1984.....| 175,304 | 7,816 | 167,488 | 144,967 | 7,724 | 41,526 | 502 | 3,740 | 3. 1985.....| 269,235 | 21,900 | 247,335 | 179,941 | 18,268 | 45,268 | 814 | 5,094 | 4. 1986.....| 435,955 | 15,114 | 420,841 | 164,102 | 8,714 | 40,392 | 689 | 4,895 | 5. 1987.....| 624,510 | 133,069 | 491,441 | 235,127 | 80,878 | 37,919 | 1,646 | 3,989 | 6. 1988.....| 526,043 | 132,411 | 393,632 | 152,710 | 63,572 | 26,752 | 1,111 | 3,645 | 7. 1989.....| 290,819 | 66,258 | 224,561 | 94,542 | 44,321 | 15,915 | 617 | 2,519 | 8. 1990.....| 261,224 | 55,253 | 205,971 | 96,804 | 42,268 | 12,925 | 1,515 | 622 | 9. 1991.....| 177,601 | 27,428 | 150,173 | 28,936 | 7,271 | 6,142 | 300 | 430 |10. 1992.....| 116,299 | 14,033 | 102,266 | 7,965 | 657 | 1,263 | 98 | 156 |11. 1993.....| 99,208 | 13,121 | 86,087 | 3,011 | 199 | 338 | 28 | 71 |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- |12. Totals ..| X X X X | X X X X | X X X X | 1,135,315 | 273,917 | 238,771 | 7,447 | 25,270 ----------------------------------------------------------------------------------------------------------------------------------- Note: For "prior," report amounts paid or received in current year only. Report cumulative amounts paid or received for specific years. Report loss payments net of salvage and subrogation received. ------------------------------------------------------------ | 1 | | | ------------------------------| | | Years | 10 | 11 | 12 | | in Which | | | Number of | |Premiums Were | Unallocated | Total | Claims | | Earned and | Loss | Net Paid | Reported - | | Losses Were | Expense | (5 - 6 + 7 | Direct and | | Incurred | Payments | - 8 + 10) | Assumed | |-------------- |--------------|--------------|--------------| | | | | | | | | | | | 1. Prior ... | 443 | 37,812 | X X X X | | 2. 1984..... | 10,947 | 189,214 | 39,465 | | 3. 1985..... | 12,132 | 218,259 | 39,885 | | 4. 1986..... | 11,781 | 206,872 | 32,170 | | 5. 1987..... | 11,439 | 201,961 | 28,421 | | 6. 1988..... | 8,166 | 122,945 | 21,382 | | 7. 1989..... | 5,564 | 71,083 | 14,750 | | 8. 1990..... | 5,657 | 71,603 | 15,617 | | 9. 1991..... | 4,475 | 31,982 | 10,963 | |10. 1992..... | 3,648 | 12,121 | 6,102 | |11. 1993..... | 1,671 | 4,793 | 3,433 | |-------------- |--------------|--------------|--------------| |12. Totals .. | 75,923 | 1,168,645 | X X X X | ------------------------------------------------------------ |--------------|-------------------------------------------------------------------------------------------------------------------- | | Losses Unpaid | Allocated Loss Expenses Unpaid | |--------------------------------------------------------|----------------------------------------------------------- | | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR | |---------------------------|----------------------------|-----------------------------|----------------------------- | | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20 | | Direct | | Direct | | Direct | | Direct | | | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- | | | | | | | | | | | | | | | | | | | 1. Prior ...| 56,583 | 18,137 | 60,438 | 508 | 0 | 0 | 50,932 | 4,417 | 2. 1984.....| 5,982 | 253 | 18,846 | 307 | 0 | 0 | 8,442 | 105 | 3. 1985.....| 8,244 | 2,417 | 18,923 | 309 | 0 | 0 | 12,833 | 116 | 4. 1986.....| 9,482 | 586 | 20,043 | 239 | 0 | 0 | 16,096 | 77 | 5. 1987.....| 12,273 | 347 | 24,209 | 278 | 0 | 0 | 18,269 | 119 | 6. 1988.....| 15,315 | 313 | 20,869 | 370 | 0 | 0 | 16,538 | 156 | 7. 1989.....| 17,262 | 504 | 26,624 | 614 | 0 | 0 | 15,251 | 253 | 8. 1990.....| 15,597 | 922 | 38,466 | 2,106 | 0 | 0 | 19,472 | 824 | 9. 1991.....| 20,567 | 3,287 | 42,053 | 4,411 | 0 | 0 | 20,219 | 2,668 |10. 1992.....| 13,934 | 1,475 | 37,349 | 3,192 | 0 | 0 | 14,882 | 2,306 |11. 1993.....| 7,103 | 479 | 39,360 | 3,827 | 0 | 0 | 14,199 | 1,808 |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- |12. Totals ..| 182,342 | 28,720 | 347,180 | 16,161 | 0 | 0 | 207,133 | 12,849 ----------------------------------------------------------------------------------------------------------------------------------- |-------------- --------------------------------------------------------------- | | | | | | | 21 | 22 | 23 | 24 | | | | | | | Salvage | Unallocated | Total | Number of Claims | | and | Loss | Net Losses | Outstanding- | | Subrogation | Expenses | and Expenses | Direct and | | Anticipated | Unpaid | Unpaid | Assumed |-------------- |--------------|--------------|-------------------------------- | | | | | | | | | | | 1. Prior ... | (949)| 4,649 | 149,540 | 581 | 2. 1984..... | (442)| 1,175 | 33,780 | 132 | 3. 1985..... | (600)| 1,859 | 39,017 | 163 | 4. 1986..... | (686)| 1,997 | 46,716 | 220 | 5. 1987..... | (779)| 2,666 | 56,673 | 243 | 6. 1988..... | (740)| 2,135 | 54,018 | 265 | 7. 1989..... | (561)| 2,721 | 60,487 | 387 | 8. 1990..... | (539)| 2,810 | 72,493 | 581 | 9. 1991..... | (394)| 3,499 | 75,972 | 674 |10. 1992..... | (311)| 2,713 | 61,905 | 613 |11. 1993..... | (273)| 2,693 | 57,241 | 794 |-------------- |--------------|--------------|--------------|--------------- |12. Totals .. | (6,274)| 28,917 | 707,842 | 4,653 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- | | Total Losses and | Loss and Loss Expense Percentage | Discount for Time | | Loss Expenses Incurred | (Incurred/Premiums Earned) | Value of Money | |-----------------------------------------|--------------------------------------------|----------------------------- | | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32 | | | | | | | | | | | Direct | | | Direct | | | | Loss | | and Assumed | Ceded | Net * | and Assumed | Ceded | Net | Loss | Expense |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- | | | | | | | | | | | | | | | | | | | 1. Prior ...| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 | 2. 1984.....| 231,885 | 8,891 | 222,994 | 132.3 | 113.8 | 133.1 | 0 | 0 | 3. 1985.....| 279,200 | 21,924 | 257,276 | 103.7 | 100.1 | 104.0 | 0 | 0 | 4. 1986.....| 263,893 | 10,305 | 253,588 | 60.5 | 68.2 | 60.3 | 0 | 0 | 5. 1987.....| 341,902 | 83,268 | 258,634 | 54.7 | 62.6 | 52.6 | 0 | 0 | 6. 1988.....| 242,485 | 65,522 | 176,963 | 46.1 | 49.5 | 45.0 | 0 | 0 | 7. 1989.....| 177,879 | 46,309 | 131,570 | 61.2 | 69.9 | 58.6 | 0 | 0 | 8. 1990.....| 191,731 | 47,635 | 144,096 | 73.4 | 86.2 | 70.0 | 0 | 0 | 9. 1991.....| 125,891 | 17,937 | 107,954 | 70.9 | 65.4 | 71.9 | 0 | 0 |10. 1992.....| 81,754 | 7,728 | 74,026 | 70.3 | 55.1 | 72.4 | 0 | 0 |11. 1993.....| 68,375 | 6,341 | 62,034 | 68.9 | 48.3 | 72.1 | 0 | 0 |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- |12. Totals ..| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 ----------------------------------------------------------------------------------------------------------------------------------- *Net = (25 - 26) = (11 + 23) ----------------------------------------------------------- - | | | Net Balance Sheet Reserves|| | | 33 | After Discount || | | |-----------------------------|| | |Inter-Company | 34 | 35 || | | Pooling | | Loss || | |Participation | Losses | Expenses || | | Percentage | Unpaid | Unpaid || |--------------|--------------|--------------|--------------|| | | | | || | | | | || | 1. Prior ...| X X X X | 98,376 | 51,164 || | 2. 1984.....| 0.0 | 24,268 | 9,512 || | 3. 1985.....| 0.0 | 24,441 | 14,576 || | 4. 1986.....| 0.0 | 28,700 | 18,016 || | 5. 1987.....| 0.0 | 35,857 | 20,816 || | 6. 1988.....| 0.0 | 35,501 | 18,517 || | 7. 1989.....| 0.0 | 42,768 | 17,719 || | 8. 1990.....| 0.0 | 51,035 | 21,458 || | 9. 1991.....| 0.0 | 54,922 | 21,050 || |10. 1992.....| 0.0 | 46,616 | 15,289 || |11. 1993.....| 0.0 | 42,157 | 15,084 || |--------------|--------------|--------------|--------------|| |12. Totals ..| X X X X | 484,641 | 223,201 || ----------------------------------------------------------- -
Page: Page 64 Form 2 CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND ITS AFFILIATED FIRE AND CASUALTY INSURERS
SCHEDULE P - PART 1A - HOMEOWNERS/FARMOWNERS (000 omitted) ----------------------------------------------------------------------------------------------------------------------------------- | 1 | Premiums Earned | Loss and Loss Expense Payments | |-----------------------------------------|-------------------------------------------------------------------------- | Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9 | in Which | | | | | Expense Payments | |Premiums Were | | | |-----------------------------|-----------------------------| Salvage | Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and | Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation | Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- | | | | | | | | | | | | | | | | | | | 1. Prior ...| X X X X | X X X X | X X X X | 242 | 7 | 33 | 0 | 3 | 2. 1984.....| 197,142 | 8,077 | 189,065 | 132,126 | 4,910 | 3,215 | 93 | 1,864 | 3. 1985.....| 227,650 | 16,606 | 211,044 | 181,514 | 22,379 | 4,548 | (97)| 1,584 | 4. 1986.....| 246,295 | 15,410 | 230,885 | 139,606 | 4,909 | 3,920 | (103)| 2,171 | 5. 1987.....| 244,766 | 5,446 | 239,320 | 121,125 | 443 | 3,688 | 62 | 1,496 | 6. 1988.....| 228,322 | 4,738 | 223,584 | 120,323 | 11 | 3,817 | 66 | 2,345 | 7. 1989.....| 221,373 | 4,005 | 217,368 | 153,990 | 8,744 | 4,134 | 274 | 2,114 | 8. 1990.....| 221,970 | 6,038 | 215,932 | 131,131 | (49)| 4,653 | 51 | 1,531 | 9. 1991.....| 223,033 | 5,060 | 217,973 | 154,331 | 320 | 3,307 | 104 | 1,546 |10. 1992.....| 205,577 | 9,150 | 196,427 | 239,504 | 71,457 | 2,129 | 2,699 | 872 |11. 1993.....| 174,684 | 19,202 | 155,482 | 77,702 | 3,973 | 592 | 20 | 185 |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- |12. Totals ..| X X X X | X X X X | X X X X | 1,451,594 | 117,104 | 34,036 | 3,169 | 15,711 ----------------------------------------------------------------------------------------------------------------------------------- Note: For "prior," report amounts paid or received in current year only. Report cumulative amounts paid or received for specific years. Report loss payments net of salvage and subrogation received. ------------------------------------------------------------ | 1 | | | | |------------------------------| | | Years | 10 | 11 | 12 | | in Which | | | Number of | |Premiums Were | Unallocated | Total | Claims | | Earned and | Loss | Net Paid | Reported - | | Losses Were | Expense | (5 - 6 + 7 | Direct and | | Incurred | Payments | - 8 + 10) | Assumed | |--------------| --------------|--------------|--------------| | | | | | | | | | | | 1. Prior ...| 7 | 275 | X X X X | | 2. 1984.....| 10,646 | 140,984 | 70,014 | | 3. 1985.....| 11,817 | 175,597 | 84,679 | | 4. 1986.....| 15,282 | 154,002 | 67,406 | | 5. 1987.....| 13,880 | 138,188 | 62,510 | | 6. 1988.....| 12,635 | 136,698 | 59,141 | | 7. 1989.....| 15,916 | 165,022 | 75,010 | | 8. 1990.....| 16,734 | 152,516 | 66,704 | | 9. 1991.....| 18,149 | 175,363 | 74,221 | |10. 1992.....| 18,407 | 185,884 | 64,711 | |11. 1993.....| 13,669 | 87,970 | 51,745 | |--------------| --------------|--------------|--------------| |12. Totals ..| 147,142 | 1,512,499 | X X X X | ------------------------------------------------------------ ----------------------------------------------------------------------------------------------------------------------------------- | | Losses Unpaid | Allocated Loss Expenses Unpaid | |--------------------------------------------------------|----------------------------------------------------------- | | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR | |---------------------------|----------------------------|-----------------------------|----------------------------- | | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20 | | Direct | | Direct | | Direct | | Direct | | | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- | | | | | | | | | | | | | | | | | | | 1. Prior ...| 79 | 12 | (3)| 0 | 0 | 0 | 11 | 0 | 2. 1984.....| 53 | 0 | 34 | 0 | 0 | 0 | 14 | 0 | 3. 1985.....| 498 | 0 | 81 | 1 | 0 | 0 | 79 | 0 | 4. 1986.....| 814 | 0 | 427 | 1 | 0 | 0 | 90 | 0 | 5. 1987.....| 1,275 | 0 | 1,135 | 1 | 0 | 0 | 73 | 0 | 6. 1988.....| 968 | 0 | 602 | 3 | 0 | 0 | 118 | 0 | 7. 1989.....| 1,927 | 1 | 675 | 57 | 0 | 0 | 301 | 0 | 8. 1990.....| 3,188 | 0 | 523 | 3 | 0 | 0 | 564 | 0 | 9. 1991.....| 5,571 | 8 | 1,204 | 1 | 0 | 0 | 1,030 | 1 |10. 1992.....| 10,378 | 752 | 2,089 | 4 | 0 | 0 | 2,103 | 122 |11. 1993.....| 25,888 | 2,586 | 9,103 | 1,110 | 0 | 0 | 5,759 | 549 |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- |12. Totals ..| 50,639 | 3,359 | 15,870 | 1,181 | 0 | 0 | 10,142 | 672 ----------------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------ | | | | | | | 21 | 22 | 23 | 24 | | | | | | | Salvage | Unallocated | Total | Number of | | and | Loss | Net Losses | Claims | | Subrogation | Expenses | and Expenses | Outstanding- | | Anticipated | Unpaid | Unpaid | Direct and Assumed |--------------|--------------|--------------|--------------|----------------- | | | | | | | | | | | 1. Prior ...| (3)| 4 | 79 | 10 | 2. 1984.....| (3)| 6 | 107 | 7 | 3. 1985.....| (13)| 26 | 683 | 5 | 4. 1986.....| (35)| 32 | 1,362 | 12 | 5. 1987.....| (63)| 28 | 2,510 | 17 | 6. 1988.....| (197)| 44 | 1,729 | 27 | 7. 1989.....| (341)| 107 | 2,952 | 73 | 8. 1990.....| (515)| 204 | 4,476 | 138 | 9. 1991.....| (679)| 375 | 8,170 | 273 |10. 1992.....| (947)| 765 | 14,457 | 671 |11. 1993.....| (1,108)| 2,262 | 38,767 | 4,769 |--------------|--------------|--------------|--------------|------------- |12. Totals ..| (3,904)| 3,853 | 75,292 | 6,002 ------------------------------------------------------------------------ ----------------------------------------------------------------------------------------------------------------------------------- | | Total Losses and | Loss and Loss Expense Percentage | Discount for Time | | Loss Expenses Incurred | (Incurred/Premiums Earned) | Value of Money | |-----------------------------------------|--------------------------------------------|----------------------------- | | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32 | | | | | | | | | | | Direct | | | Direct | | | | Loss | | and Assumed | Ceded | Net * | and Assumed | Ceded | Net | Loss | Expense |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- | | | | | | | | | | | | | | | | | | | 1. Prior ...| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 | 2. 1984.....| 146,094 | 5,003 | 141,091 | 74.1 | 61.9 | 74.6 | 0 | 0 | 3. 1985.....| 198,563 | 22,283 | 176,280 | 87.2 | 134.2 | 83.5 | 0 | 0 | 4. 1986.....| 160,171 | 4,807 | 155,364 | 65.0 | 31.2 | 67.3 | 0 | 0 | 5. 1987.....| 141,204 | 506 | 140,698 | 57.7 | 9.3 | 58.8 | 0 | 0 | 6. 1988.....| 138,507 | 80 | 138,427 | 60.7 | 1.7 | 61.9 | 0 | 0 | 7. 1989.....| 177,050 | 9,076 | 167,974 | 80.0 | 226.6 | 77.3 | 0 | 0 | 8. 1990.....| 156,997 | 5 | 156,992 | 70.7 | 0.1 | 72.7 | 0 | 0 | 9. 1991.....| 183,967 | 434 | 183,533 | 82.5 | 8.6 | 84.2 | 0 | 0 |10. 1992.....| 275,375 | 75,034 | 200,341 | 134.0 | 820.0 | 102.0 | 0 | 0 |11. 1993.....| 134,975 | 8,238 | 126,737 | 77.3 | 42.9 | 81.5 | 0 | 0 |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- |12. Totals ..| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 ----------------------------------------------------------------------------------------------------------------------------------- *Net = (25 - 26) = (11 + 23) ----------------------------------------------------------- - | | | Net Balance Sheet Reserves|| | | 33 | After Discount || | | |-----------------------------|| | |Inter-Company | 34 | 35 || | | Pooling | | Loss || | |Participation | Losses | Expenses || | | Percentage | Unpaid | Unpaid || |--------------|--------------|--------------|--------------|| | | | | || | | | | || | 1. Prior ...| X X X X | 64 | 15 || | 2. 1984.....| 0.0 | 87 | 20 || | 3. 1985.....| 0.0 | 578 | 105 || | 4. 1986.....| 0.0 | 1,240 | 122 || | 5. 1987.....| 0.0 | 2,409 | 101 || | 6. 1988.....| 0.0 | 1,567 | 162 || | 7. 1989.....| 0.0 | 2,544 | 408 || | 8. 1990.....| 0.0 | 3,708 | 768 || | 9. 1991.....| 0.0 | 6,766 | 1,404 || |10. 1992.....| 0.0 | 11,711 | 2,746 || |11. 1993.....| 0.0 | 31,295 | 7,472 || |--------------|--------------|--------------|--------------|| |12. Totals ..| X X X X | 61,969 | 13,323 || ----------------------------------------------------------- -
Page: Page 65 Form 2 CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND ITS AFFILIATED FIRE AND CASUALTY INSURERS
SCHEDULE P - PART 1B - PRIVATE PASSENGER AUTO LIABILITY/MEDICAL (000 omitted) ----------------------------------------------------------------------------------------------------------------------------------- | 1 | Premiums Earned | Loss and Loss Expense Payments | |-----------------------------------------|-------------------------------------------------------------------------- | Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9 | in Which | | | | | Expense Payments | |Premiums Were | | | |-----------------------------|-----------------------------| Salvage | Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and | Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation | Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- | | | | | | | | | | 1. Prior ...| X X X X | X X X X | X X X X | 2,277 | 164 | 213 | 5 | 34 | 2. 1984.....| 326,959 | 15,563 | 311,396 | 310,886 | 22,057 | 14,851 | 509 | 4,911 | 3. 1985.....| 362,303 | 27,468 | 334,835 | 338,950 | 25,688 | 17,384 | 577 | 5,238 | 4. 1986.....| 375,875 | 28,452 | 347,423 | 330,062 | 28,022 | 17,105 | 902 | 5,558 | 5. 1987.....| 384,704 | 37,207 | 347,497 | 326,444 | 38,003 | 15,093 | 1,120 | 4,875 | 6. 1988.....| 398,017 | 55,787 | 342,230 | 325,457 | 47,927 | 15,854 | 1,524 | 4,992 | 7. 1989.....| 416,775 | 61,260 | 355,515 | 335,141 | 49,736 | 15,078 | 1,799 | 4,793 | 8. 1990.....| 440,104 | 57,837 | 382,267 | 307,900 | 42,902 | 14,195 | 1,464 | 4,959 | 9. 1991.....| 450,711 | 26,970 | 423,741 | 268,969 | 14,884 | 13,787 | 543 | 4,916 |10. 1992.....| 366,643 | 8,381 | 358,262 | 153,045 | 2,936 | 6,640 | 53 | 2,934 |11. 1993.....| 337,348 | 5,911 | 331,437 | 70,451 | 1,013 | 2,588 | 5 | 875 |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- |12. Totals ..| X X X X | X X X X | X X X X | 2,769,582 | 273,332 | 132,788 | 8,501 | 44,085 ----------------------------------------------------------------------------------------------------------------------------------- Note: For "prior," report amounts paid or received in current year only. Report cumulative amounts paid or received for specific years. Report loss payments net of salvage and subrogation received. --------------------------------------------------------- | 1 | | | ------------------------------| | | Years | 10 | 11 | 12 | | in Which | | | Number of| |Premiums Were | Unallocated | Total | Claims | | Earned and | Loss | Net Paid | Reported -| | Losses Were | Expense | (5 - 6 + 7 | Direct and| | Incurred | Payments | - 8 + 10) | Assumed | |--------------|--------------|--------------|-----------| | | | | | | | | | | | 1. Prior ...| 58 | 2,379 | X X X X | | 2. 1984.....| 16,631 | 319,802 | 155,413 | | 3. 1985.....| 16,828 | 346,897 | 158,046 | | 4. 1986.....| 17,453 | 335,696 | 147,533 | | 5. 1987.....| 15,608 | 318,022 | 133,514 | | 6. 1988.....| 12,937 | 304,797 | 126,115 | | 7. 1989.....| 14,562 | 313,246 | 122,987 | | 8. 1990.....| 17,796 | 295,525 | 114,546 | | 9. 1991.....| 22,185 | 289,514 | 102,718 | |10. 1992.....| 24,407 | 181,103 | 79,504 | |11. 1993.....| 15,408 | 87,429 | 57,551 | |--------------|--------------|--------------|-----------| |12. Totals ..| 173,873 | 2,794,410 | X X X X | --------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- | | Losses Unpaid | Allocated Loss Expenses Unpaid | |--------------------------------------------------------|----------------------------------------------------------- | | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR | |---------------------------|----------------------------|-----------------------------|----------------------------- | | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20 | | Direct | | Direct | | Direct | | Direct | | | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- | | | | | | | | | | | | | | | | | | | 1. Prior ...| 19,686 | 8,453 | 5,528 | 12 | 0 | 0 | 954 | 2 | 2. 1984.....| 8,725 | 2,037 | 156 | 11 | 0 | 0 | 285 | 38 | 3. 1985.....| 2,148 | 1,394 | 3,805 | 35 | 0 | 0 | 248 | 4 | 4. 1986.....| 1,974 | 412 | 3,813 | 45 | 0 | 0 | 401 | 7 | 5. 1987.....| 2,791 | 130 | 4,311 | 67 | 0 | 0 | 631 | 18 | 6. 1988.....| 4,848 | 355 | 7,474 | 154 | 0 | 0 | 1,186 | 46 | 7. 1989.....| 12,323 | 1,447 | 3,693 | 315 | 0 | 0 | 2,273 | 191 | 8. 1990.....| 25,313 | 2,012 | 8,355 | 530 | 0 | 0 | 4,352 | 265 | 9. 1991.....| 44,228 | 1,469 | 20,518 | 544 | 0 | 0 | 8,709 | 221 |10. 1992.....| 60,621 | 645 | 38,005 | 332 | 0 | 0 | 10,773 | 102 |11. 1993.....| 85,368 | 818 | 70,121 | 695 | 0 | 0 | 10,006 | 146 |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- |12. Totals ..| 268,025 | 19,172 | 165,779 | 2,740 | 0 | 0 | 39,818 | 1,040 ----------------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------- | | | | | | | 21 | 22 | 23 | 24 | | | | | Number of | | Salvage | Unallocated | Total | Claims | | and | Loss | Net Losses | Outstanding- | | Subrogation | Expenses | and Expenses | Direct and | | Anticipated | Unpaid | Unpaid | Assumed |--------------|--------------|--------------|--------------|---------------- | | | | | | | | | | | 1. Prior ...| (114)| 332 | 18,033 | 152 | 2. 1984.....| (81)| 252 | 7,332 | 61 | 3. 1985.....| (89)| 160 | 4,928 | 63 | 4. 1986.....| (135)| 205 | 5,929 | 63 | 5. 1987.....| (175)| 259 | 7,777 | 101 | 6. 1988.....| (246)| 443 | 13,396 | 217 | 7. 1989.....| (419)| 746 | 17,082 | 524 | 8. 1990.....| (715)| 1,561 | 36,774 | 1,112 | 9. 1991.....| (1,777)| 3,007 | 74,228 | 2,574 |10. 1992.....| (2,211)| 4,697 | 113,017 | 4,428 |11. 1993.....| (2,371)| 8,032 | 171,868 | 13,804 |--------------|--------------|--------------|--------------|---------------- |12. Totals ..| (8,333)| 19,694 | 470,364 | 23,099 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- | | Total Losses and | Loss and Loss Expense Percentage | Discount for Time | | Loss Expenses Incurred | (Incurred/Premiums Earned) | Value of Money | |-----------------------------------------|--------------------------------------------|----------------------------- | | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32 | | | | | | | | | | | Direct | | | Direct | | | | Loss | | and Assumed | Ceded | Net * | and Assumed | Ceded | Net | Loss | Expense |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- | | | | | | | | | | | | | | | | | | | 1. Prior ...| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 | 2. 1984.....| 351,786 | 24,652 | 327,134 | 107.6 | 158.4 | 105.1 | 0 | 0 | 3. 1985.....| 379,523 | 27,698 | 351,825 | 104.8 | 100.8 | 105.1 | 0 | 0 | 4. 1986.....| 371,013 | 29,388 | 341,625 | 98.7 | 103.3 | 98.3 | 0 | 0 | 5. 1987.....| 365,137 | 39,338 | 325,799 | 94.9 | 105.7 | 93.8 | 0 | 0 | 6. 1988.....| 368,199 | 50,006 | 318,193 | 92.5 | 89.6 | 93.0 | 0 | 0 | 7. 1989.....| 383,816 | 53,488 | 330,328 | 92.1 | 87.3 | 92.9 | 0 | 0 | 8. 1990.....| 379,472 | 47,173 | 332,299 | 86.2 | 81.6 | 86.9 | 0 | 0 | 9. 1991.....| 381,403 | 17,661 | 363,742 | 84.6 | 65.5 | 85.8 | 0 | 0 |10. 1992.....| 298,188 | 4,068 | 294,120 | 81.3 | 48.5 | 82.1 | 0 | 0 |11. 1993.....| 261,974 | 2,677 | 259,297 | 77.7 | 45.3 | 78.2 | 0 | 0 |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- |12. Totals ..| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 ----------------------------------------------------------------------------------------------------------------------------------- *Net = (25 - 26) = (11 + 23) ------------------------------------------------------------ | | | Net Balance Sheet Reserves|| | | 33 | After Discount || | | |-----------------------------|| | |Inter-Company | 34 | 35 || | | Pooling | | Loss || | |Participation | Losses | Expenses || | | Percentage | Unpaid | Unpaid || |--------------|--------------|--------------|--------------|| | | | | || | | | | || | 1. Prior ...| X X X X | 16,749 | 1,284 || | 2. 1984.....| 0.0 | 6,833 | 499 || | 3. 1985.....| 0.0 | 4,524 | 404 || | 4. 1986.....| 0.0 | 5,330 | 599 || | 5. 1987.....| 0.0 | 6,905 | 872 || | 6. 1988.....| 0.0 | 11,813 | 1,583 || | 7. 1989.....| 0.0 | 14,254 | 2,828 || | 8. 1990.....| 0.0 | 31,126 | 5,648 || | 9. 1991.....| 0.0 | 62,733 | 11,495 || |10. 1992.....| 0.0 | 97,649 | 15,368 || |11. 1993.....| 0.0 | 153,976 | 17,892 || |--------------|--------------|--------------|--------------|| |12. Totals ..| X X X X | 411,892 | 58,472 || ------------------------------------------------------------
Page: Page 66 Form 2 CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND ITS AFFILIATED FIRE AND CASUALTY INSURERS
SCHEDULE P - PART 1C - COMMERCIAL AUTO/TRUCK LIABILITY/MEDICAL (000 omitted) ----------------------------------------------------------------------------------------------------------------------------------- | 1 | Premiums Earned | Loss and Loss Expense Payments | |-----------------------------------------|-------------------------------------------------------------------------- | Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9 | in Which | | | | | Expense Payments | |Premiums Were | | | |-----------------------------|-----------------------------| Salvage | Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and | Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation | Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- | | | | | | | | | | | | | | | | | | > | 1. Prior ...| X X X X | X X X X | X X X X | 799 | 0 | 531 | 1 | 78 | 2. 1984.....| 214,370 | 4,216 | 210,154 | 255,161 | 9,156 | 17,293 | 238 | 3,236 | 3. 1985.....| 347,749 | 43,409 | 304,340 | 352,474 | 46,101 | 24,141 | 279 | 4,079 | 4. 1986.....| 451,376 | 29,279 | 422,097 | 304,080 | 21,600 | 22,656 | 349 | 3,885 | 5. 1987.....| 504,537 | 27,137 | 477,400 | 295,736 | 26,176 | 24,873 | 1,640 | 3,008 | 6. 1988.....| 461,136 | 39,794 | 421,342 | 282,427 | 33,526 | 22,333 | 2,247 | 4,157 | 7. 1989.....| 424,657 | 43,290 | 381,367 | 266,392 | 35,515 | 19,860 | 2,665 | 2,672 | 8. 1990.....| 419,676 | 42,803 | 376,873 | 227,132 | 31,061 | 16,975 | 1,840 | 3,084 | 9. 1991.....| 384,380 | 39,874 | 344,506 | 154,932 | 14,814 | 10,979 | 867 | 2,074 |10. 1992.....| 319,764 | 39,044 | 280,720 | 78,996 | 10,498 | 4,837 | 479 | 1,460 |11. 1993.....| 259,903 | 30,644 | 229,259 | 28,309 | 4,340 | 1,616 | 84 | 640 |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- |12. Totals ..| X X X X | X X X X | X X X X | 2,246,438 | 232,787 | 166,094 | 10,689 | 28,373 ----------------------------------------------------------------------------------------------------------------------------------- Note: For "prior," report amounts paid or received in current year only. Report cumulative amounts paid or received for specific years. Report loss payments net of salvage and subrogation received. ------------------------------------------------------------ | 1 | || | ------------------------------| || | Years | 10 | 11 | 12 || | in Which | | | Number of || |Premiums Were | Unallocated | Total | Claims || | Earned and | Loss | Net Paid | Reported - || | Losses Were | Expense | (5 - 6 + 7 | Direct and || | Incurred | Payments | - 8 + 10) | Assumed || |--------------|--------------|--------------|--------------|| | | | | || | | | | || | 1. Prior ...| 49 | 1,378 | X X X X || | 2. 1984.....| 13,504 | 276,564 | 85,950 || | 3. 1985.....| 15,906 | 346,141 | 92,808 || | 4. 1986.....| 13,339 | 318,126 | 79,778 || | 5. 1987.....| 12,675 | 305,468 | 73,845 || | 6. 1988.....| 13,175 | 282,162 | 66,825 || | 7. 1989.....| 12,471 | 260,543 | 61,408 || | 8. 1990.....| 12,967 | 224,173 | 56,417 || | 9. 1991.....| 12,078 | 162,308 | 46,525 || |10. 1992.....| 12,289 | 85,145 | 39,753 || |11. 1993.....| 8,009 | 33,510 | 29,398 || |--------------|--------------|--------------|--------------|| |12. Totals ..| 126,462 | 2,295,518 | X X X X || ------------------------------------------------------------ ----------------------------------------------------------------------------------------------------------------------------------- | | Losses Unpaid | Allocated Loss Expenses Unpaid | |--------------------------------------------------------|----------------------------------------------------------- | | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR | |---------------------------|----------------------------|-----------------------------|----------------------------- | | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20 | | Direct | | Direct | | Direct | | Direct | | | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- | | | | | | | | | | | | | | | | | | | 1. Prior ...| 3,578 | 0 | 456 | 6 | 0 | 0 | 1,552 | 1 | 2. 1984.....| 262 | 0 | 1,405 | 3 | 0 | 0 | 463 | 0 | 3. 1985.....| 6,363 | 6,442 | 2,338 | 16 | 0 | 0 | 638 | 2 | 4. 1986.....| 2,622 | 741 | 2,377 | 25 | 0 | 0 | 900 | 11 | 5. 1987.....| 5,462 | 192 | 5,745 | 52 | 0 | 0 | 1,683 | 31 | 6. 1988.....| 12,656 | 2,215 | 3,328 | 123 | 0 | 0 | 2,384 | 310 | 7. 1989.....| 17,268 | 2,457 | 8,162 | 268 | 0 | 0 | 3,617 | 355 | 8. 1990.....| 34,957 | 5,277 | 13,890 | 533 | 0 | 0 | 6,060 | 743 | 9. 1991.....| 45,701 | 4,815 | 30,237 | 1,117 | 0 | 0 | 8,716 | 728 |10. 1992.....| 68,740 | 7,615 | 43,115 | 1,999 | 0 | 0 | 11,554 | 1,153 |11. 1993.....| 55,693 | 6,260 | 75,295 | 3,989 | 0 | 0 | 10,604 | 1,135 |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- |12. Totals ..| 253,302 | 36,014 | 186,348 | 8,131 | 0 | 0 | 48,171 | 4,469 ----------------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------- | | | | | | | 21 | 22 | 23 | 24 | | | | | Number of | | Salvage | Unallocated | Total | Claims | | and | Loss | Net Losses | Outstanding- | | Subrogation | Expenses | and Expenses | Direct and | | Anticipated | Unpaid | Unpaid | Assumed |--------------|--------------|--------------|--------------|-------------- | | | | | | | | | | | 1. Prior ...| (10)| 48 | 5,627 | 48 | 2. 1984.....| (9)| 72 | 2,199 | 17 | 3. 1985.....| (58)| 108 | 2,987 | 33 | 4. 1986.....| (74)| 146 | 5,268 | 58 | 5. 1987.....| (201)| 318 | 12,933 | 119 | 6. 1988.....| (236)| 579 | 16,299 | 244 | 7. 1989.....| (223)| 875 | 26,842 | 464 | 8. 1990.....| (435)| 1,837 | 50,191 | 854 | 9. 1991.....| (429)| 2,782 | 80,776 | 1,466 |10. 1992.....| (623)| 4,617 | 117,259 | 2,749 |11. 1993.....| (640)| 5,449 | 135,657 | 6,361 |--------------|--------------|--------------|--------------|-------------- |12. Totals ..| (2,938)| 16,831 | 456,038 | 12,413 -------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- | | Total Losses and | Loss and Loss Expense Percentage | Discount for Time | | Loss Expenses Incurred | (Incurred/Premiums Earned) | Value of Money | |-----------------------------------------|--------------------------------------------|----------------------------- | | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32 | | | | | | | | | | | Direct | | | Direct | | | | Loss | | and Assumed | Ceded | Net * | and Assumed | Ceded | Net | Loss | Expense |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- | | | | | | | | | | | | | | | | | | | 1. Prior ...| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 | 2. 1984.....| 288,160 | 9,397 | 278,763 | 134.4 | 222.9 | 132.6 | 0 | 0 | 3. 1985.....| 401,968 | 52,840 | 349,128 | 115.6 | 121.7 | 114.7 | 0 | 0 | 4. 1986.....| 346,120 | 22,726 | 323,394 | 76.7 | 77.6 | 76.6 | 0 | 0 | 5. 1987.....| 346,492 | 28,091 | 318,401 | 68.7 | 103.5 | 66.7 | 0 | 0 | 6. 1988.....| 336,882 | 38,421 | 298,461 | 73.1 | 96.5 | 70.8 | 0 | 0 | 7. 1989.....| 328,645 | 41,260 | 287,385 | 77.4 | 95.3 | 75.4 | 0 | 0 | 8. 1990.....| 313,818 | 39,454 | 274,364 | 74.8 | 92.2 | 72.8 | 0 | 0 | 9. 1991.....| 265,425 | 22,341 | 243,084 | 69.1 | 56.0 | 70.6 | 0 | 0 |10. 1992.....| 224,148 | 21,744 | 202,404 | 70.1 | 55.7 | 72.1 | 0 | 0 |11. 1993.....| 184,975 | 15,808 | 169,167 | 71.2 | 51.6 | 73.8 | 0 | 0 |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- |12. Totals ..| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 ----------------------------------------------------------------------------------------------------------------------------------- *Net = (25 - 26) = (11 + 23) ------------------------------------------------------------ | | | Net Balance Sheet Reserves|| | | 33 | After Discount || | | |-----------------------------|| | |Inter-Company | 34 | 35 || | | Pooling | | Loss || | |Participation | Losses | Expenses || | | Percentage | Unpaid | Unpaid || |--------------|--------------|--------------|--------------|| | | | | || | | | | || | 1. Prior ...| X X X X | 4,028 | 1,599 || | 2. 1984.....| 0.0 | 1,664 | 535 || | 3. 1985.....| 0.0 | 2,243 | 744 || | 4. 1986.....| 0.0 | 4,233 | 1,035 || | 5. 1987.....| 0.0 | 10,963 | 1,970 || | 6. 1988.....| 0.0 | 13,646 | 2,653 || | 7. 1989.....| 0.0 | 22,705 | 4,137 || | 8. 1990.....| 0.0 | 43,037 | 7,154 || | 9. 1991.....| 0.0 | 70,006 | 10,770 || |10. 1992.....| 0.0 | 102,241 | 15,018 || |11. 1993.....| 0.0 | 120,739 | 14,918 || |--------------|--------------|--------------|--------------|| |12. Totals ..| X X X X | 395,505 | 60,533 || ------------------------------------------------------------
Page: Page 67 Form 2 CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND ITS AFFILIATED FIRE AND CASUALTY INSURERS
SCHEDULE P - PART 1D - WORKERS' COMPENSATION (000 omitted) ----------------------------------------------------------------------------------------------------------------------------------- | 1 | Premiums Earned | Loss and Loss Expense Payments | |-----------------------------------------|-------------------------------------------------------------------------- | Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9 | in Which | | | | | Expense Payments | |Premiums Were | | | |-----------------------------|-----------------------------| Salvage | Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and | Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation | Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- | | | | | | | | | | | | | | | | | | > | 1. Prior ...| X X X X | X X X X | X X X X | 49,759 | 10,685 | 1,818 | 41 | 3,804 | 2. 1984.....| 429,806 | 18,589 | 411,217 | 444,821 | 29,284 | 20,798 | 299 | 16,784 | 3. 1985.....| 598,607 | 100,934 | 497,673 | 590,256 | 104,708 | 26,008 | 608 | 18,107 | 4. 1986.....| 618,623 | 67,684 | 550,939 | 520,643 | 72,493 | 22,986 | 317 | 14,039 | 5. 1987.....| 622,801 | 81,301 | 541,500 | 553,116 | 120,391 | 21,498 | 323 | 10,914 | 6. 1988.....| 747,889 | 111,269 | 636,620 | 576,318 | 119,281 | 24,322 | 244 | 11,050 | 7. 1989.....| 791,969 | 158,717 | 633,252 | 624,360 | 137,963 | 25,802 | 296 | 9,864 | 8. 1990.....| 883,078 | 188,951 | 694,127 | 554,296 | 157,213 | 23,764 | 379 | 6,896 | 9. 1991.....| 754,958 | 251,311 | 503,647 | 403,713 | 150,033 | 17,456 | 345 | 3,792 |10. 1992.....| 625,431 | 305,456 | 319,975 | 250,049 | 121,230 | 8,803 | 137 | 1,127 |11. 1993.....| 457,088 | 306,269 | 150,819 | 75,161 | 47,133 | 2,032 | 56 | 102 |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- |12. Totals ..| X X X X | X X X X | X X X X | 4,642,492 | 1,070,414 | 195,287 | 3,045 | 96,479 ----------------------------------------------------------------------------------------------------------------------------------- Note: For "prior," report amounts paid or received in current year only. Report cumulative amounts paid or received for specific years. Report loss payments net of salvage and subrogation received. ------------------------------------------------------------ | 1 | || | ------------------------------| || | Years | 10 | 11 | 12 || | in Which | | | Number of || |Premiums Were | Unallocated | Total | Claims || | Earned and | Loss | Net Paid | Reported - || | Losses Were | Expense | (5 - 6 + 7 | Direct and || | Incurred | Payments | - 8 + 10) | Assumed || |--------------|--------------|--------------|--------------|| | | | | || | | | | || | 1. Prior ...| 2,959 | 43,810 | X X X X || | 2. 1984.....| 10,773 | 446,809 | 47,297 || | 3. 1985.....| 10,978 | 521,926 | 51,591 || | 4. 1986.....| 10,145 | 480,964 | 47,190 || | 5. 1987.....| 8,656 | 462,556 | 43,816 || | 6. 1988.....| 11,882 | 492,997 | 47,022 || | 7. 1989.....| 11,267 | 523,170 | 49,486 || | 8. 1990.....| 10,566 | 431,034 | 46,186 || | 9. 1991.....| 10,523 | 281,314 | 40,361 || |10. 1992.....| (13,181)| 124,304 | 31,288 || |11. 1993.....| (23,844)| 6,160 | 18,601 || |--------------|--------------|--------------|--------------|| |12. Totals ..| 50,724 | 3,815,044 | X X X X || ------------------------------------------------------------ ----------------------------------------------------------------------------------------------------------------------------------- | | Losses Unpaid | Allocated Loss Expenses Unpaid | |--------------------------------------------------------|----------------------------------------------------------- | | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR | |---------------------------|----------------------------|-----------------------------|----------------------------- | | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20 | | Direct | | Direct | | Direct | | Direct | | | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- | | | | | | | | | | | | | | | | | | | 1. Prior ...| 363,641 | 137,291 | 113,590 | 3,478 | 0 | 0 | 17,368 | 6 | 2. 1984.....| 55,256 | 2,660 | 28,378 | 1,975 | 0 | 0 | 4,670 | 0 | 3. 1985.....| 70,719 | 19,716 | 48,209 | 3,050 | 0 | 0 | 6,095 | 1 | 4. 1986.....| 59,951 | 10,018 | 49,060 | 2,672 | 0 | 0 | 6,352 | 0 | 5. 1987.....| 69,942 | 18,008 | 57,143 | 3,432 | 0 | 0 | 7,453 | 0 | 6. 1988.....| 98,189 | 18,171 | 53,332 | 2,296 | 0 | 0 | 9,759 | 2 | 7. 1989.....| 124,979 | 28,600 | 82,591 | 4,663 | 0 | 0 | 13,483 | 12 | 8. 1990.....| 135,403 | 37,614 | 99,162 | 15,141 | 0 | 0 | 15,073 | 2 | 9. 1991.....| 147,712 | 49,378 | 109,310 | 40,526 | 0 | 0 | 15,298 | 24 |10. 1992.....| 178,655 | 84,500 | 122,096 | 71,326 | 0 | 0 | 16,194 | 22 |11. 1993.....| 164,264 | 107,098 | 192,674 | 140,294 | 0 | 0 | 15,868 | 714 |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- |12. Totals ..| 1,468,711 | 513,054 | 955,545 | 288,853 | 0 | 0 | 127,613 | 783 ----------------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------- | | | | | | | 21 | 22 | 23 | 24 | | | | | Number of | | Salvage | Unallocated | Total | Claims | | and | Loss | Net Losses | Outstanding- | | Subrogation | Expenses | and Expenses | Direct and | | Anticipated | Unpaid | Unpaid | Assumed |--------------|--------------|--------------|--------------|-------------- | | | | | | | | | | | 1. Prior ...| (6,715)| 7,517 | 361,341 | 3,215 | 2. 1984.....| (2,753)| 2,339 | 86,008 | 451 | 3. 1985.....| (3,733)| 3,017 | 105,273 | 539 | 4. 1986.....| (4,039)| 3,110 | 105,783 | 625 | 5. 1987.....| (4,942)| 3,433 | 116,531 | 688 | 6. 1988.....| (6,436)| 4,288 | 145,099 | 1,035 | 7. 1989.....| (8,026)| 5,638 | 193,416 | 1,504 | 8. 1990.....| (8,009)| 6,348 | 203,229 | 2,174 | 9. 1991.....| (6,952)| 6,700 | 189,092 | 3,258 |10. 1992.....| (4,323)| 8,337 | 169,434 | 4,879 |11. 1993.....| (1,929)| 9,940 | 134,640 | 8,770 |--------------|--------------|--------------|--------------|-------------- |12. Totals ..| (57,857)| 60,667 | 1,809,846 | 27,138 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- | | Total Losses and | Loss and Loss Expense Percentage | Discount for Time | | Loss Expenses Incurred | (Incurred/Premiums Earned) | Value of Money | |-----------------------------------------|--------------------------------------------|----------------------------- | | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32 | | | | | | | | | | | Direct | | | Direct | | | | Loss | | and Assumed | Ceded | Net * | and Assumed | Ceded | Net | Loss | Expense |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- | | | | | | | | | | | | | | | | | | | 1. Prior ...| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 861 | 3,502 | 2. 1984.....| 567,035 | 34,218 | 532,817 | 131.9 | 184.1 | 129.6 | 866 | 1,377 | 3. 1985.....| 755,282 | 128,083 | 627,199 | 126.2 | 126.9 | 126.0 | 1,564 | 1,714 | 4. 1986.....| 672,247 | 85,500 | 586,747 | 108.7 | 126.3 | 106.5 | 2,199 | 1,738 | 5. 1987.....| 721,241 | 142,154 | 579,087 | 115.8 | 174.8 | 106.9 | 2,692 | 2,016 | 6. 1988.....| 778,090 | 139,994 | 638,096 | 104.0 | 125.8 | 100.2 | 3,834 | 2,399 | 7. 1989.....| 888,120 | 171,534 | 716,586 | 112.1 | 108.1 | 113.2 | 5,295 | 3,022 | 8. 1990.....| 844,612 | 210,349 | 634,263 | 95.6 | 111.3 | 91.4 | 5,987 | 3,154 | 9. 1991.....| 710,712 | 240,306 | 470,406 | 94.1 | 95.6 | 93.4 | 5,056 | 3,072 |10. 1992.....| 570,953 | 277,215 | 293,738 | 91.3 | 90.8 | 91.8 | 4,282 | 3,131 |11. 1993.....| 436,095 | 295,295 | 140,800 | 95.4 | 96.4 | 93.4 | 0 | 0 |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- |12. Totals ..| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 32,636 | 25,125 ----------------------------------------------------------------------------------------------------------------------------------- *Net = (25 - 26) = (11 + 23) ------------------------------------------------------------ | | | Net Balance Sheet Reserves|| | | 33 | After Discount || | | |-----------------------------|| | |Inter-Company | 34 | 35 || | | Pooling | | Loss || | |Participation | Losses | Expenses || | | Percentage | Unpaid | Unpaid || |--------------|--------------|--------------|--------------|| | | | | || | | | | || | 1. Prior ...| X X X X | 335,601 | 21,377 || | 2. 1984.....| 0.0 | 78,133 | 5,632 || | 3. 1985.....| 0.0 | 94,598 | 7,397 || | 4. 1986.....| 0.0 | 94,122 | 7,724 || | 5. 1987.....| 0.0 | 102,953 | 8,870 || | 6. 1988.....| 0.0 | 127,220 | 11,646 || | 7. 1989.....| 0.0 | 169,012 | 16,087 || | 8. 1990.....| 0.0 | 175,823 | 18,265 || | 9. 1991.....| 0.0 | 162,062 | 18,902 || |10. 1992.....| 0.0 | 140,643 | 21,378 || |11. 1993.....| 0.0 | 109,546 | 25,094 || |--------------|--------------|--------------|--------------|| |12. Totals ..| X X X X | 1,589,713 | 162,372 || ------------------------------------------------------------
Page: Page 68 Form 2 CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND ITS AFFILIATED FIRE AND CASUALTY INSURERS
SCHEDULE P - PART 1E - COMMERCIAL MULTIPLE PERIL (000 omitted) ----------------------------------------------------------------------------------------------------------------------------------- | 1 | Premiums Earned | Loss and Loss Expense Payments | |-----------------------------------------|-------------------------------------------------------------------------- | Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9 | in Which | | | | | Expense Payments | |Premiums Were | | | |-----------------------------|-----------------------------| Salvage | Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and | Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation | Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- | | | | | | | | | | | | | | | | | | | 1. Prior ...| X X X X | X X X X | X X X X | 2,271 | 2 | 1,156 | 0 | 80 | 2. 1984.....| 197,454 | 15,627 | 181,827 | 149,490 | 8,200 | 20,975 | 985 | 5,865 | 3. 1985.....| 286,242 | 28,453 | 257,789 | 177,925 | 10,391 | 28,078 | 536 | 7,798 | 4. 1986.....| 387,822 | 37,262 | 350,560 | 155,169 | 11,052 | 31,519 | 352 | 5,784 | 5. 1987.....| 387,310 | 18,374 | 368,936 | 154,311 | 592 | 23,652 | 102 | 4,968 | 6. 1988.....| 650,932 | 26,143 | 624,789 | 232,448 | 6,281 | 37,165 | 127 | 10,657 | 7. 1989.....| 738,672 | 18,418 | 720,254 | 307,207 | 20,974 | 40,186 | 365 | 9,845 | 8. 1990.....| 731,950 | 13,795 | 718,155 | 265,678 | 4,236 | 41,577 | 113 | 7,976 | 9. 1991.....| 674,236 | 4,649 | 669,587 | 216,196 | 8,179 | 21,322 | 215 | 5,011 |10. 1992.....| 608,782 | 4,166 | 604,616 | 217,049 | 42,935 | 9,449 | 3,358 | 3,804 |11. 1993.....| 601,391 | 5,797 | 595,594 | 115,107 | 6,221 | 2,115 | 119 | 1,715 |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- |12. Totals ..| X X X X | X X X X | X X X X | 1,992,851 | 119,063 | 257,194 | 6,272 | 63,503 ----------------------------------------------------------------------------------------------------------------------------------- Note: For "prior," report amounts paid or received in current year only. Report cumulative amounts paid or received for specific years. Report loss payments net of salvage and subrogation received. ------------------------------------------------------------ | 1 | || | ------------------------------| || | Years | 10 | 11 | 12 || | in Which | | | Number of || |Premiums Were | Unallocated | Total | Claims || | Earned and | Loss | Net Paid | Reported - || | Losses Were | Expense | (5 - 6 + 7 | Direct and || | Incurred | Payments | - 8 + 10) | Assumed || |--------------|--------------|--------------|--------------|| | | | | || | | | | || | 1. Prior ...| 82 | 3,507 | X X X X || | 2. 1984.....| 7,619 | 168,899 | 41,778 || | 3. 1985.....| 10,607 | 205,683 | 45,176 || | 4. 1986.....| 11,216 | 186,500 | 37,027 || | 5. 1987.....| 13,087 | 190,356 | 33,810 || | 6. 1988.....| 27,663 | 290,868 | 59,225 || | 7. 1989.....| 34,684 | 360,738 | 78,933 || | 8. 1990.....| 34,558 | 337,464 | 77,951 || | 9. 1991.....| 30,004 | 259,128 | 73,538 || |10. 1992.....| 32,339 | 212,544 | 66,776 || |11. 1993.....| 26,180 | 137,062 | 62,686 || |--------------|--------------|--------------|--------------|| |12. Totals ..| 228,039 | 2,352,749 | X X X X || ------------------------------------------------------------ ----------------------------------------------------------------------------------------------------------------------------------- | | Losses Unpaid | Allocated Loss Expenses Unpaid | |--------------------------------------------------------|----------------------------------------------------------- | | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR | |---------------------------|----------------------------|-----------------------------|----------------------------- | | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20 | | Direct | | Direct | | Direct | | Direct | | | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- | | | | | | | | | | | | | | | | | | | 1. Prior ...| 4,755 | 20 | 1,150 | 6 | 0 | 0 | 4,842 | 3 | 2. 1984.....| 1,421 | 0 | 1,114 | 8 | 0 | 0 | 1,315 | 4 | 3. 1985.....| 2,801 | 0 | 1,048 | 17 | 0 | 0 | 2,286 | 9 | 4. 1986.....| 4,603 | 0 | 1,514 | 14 | 0 | 0 | 3,130 | 8 | 5. 1987.....| 5,512 | 0 | 1,886 | 6 | 0 | 0 | 8,677 | 3 | 6. 1988.....| 20,298 | 0 | 11,743 | 11 | 0 | 0 | 17,730 | 6 | 7. 1989.....| 31,331 | 0 | 26,906 | 29 | 0 | 0 | 30,727 | 7 | 8. 1990.....| 51,637 | 135 | 44,859 | 58 | 0 | 0 | 46,936 | 45 | 9. 1991.....| 61,049 | 166 | 66,020 | 10 | 0 | 0 | 57,228 | 19 |10. 1992.....| 58,314 | 1,628 | 87,692 | 22 | 0 | 0 | 58,994 | 230 |11. 1993.....| 89,479 | 4,745 | 121,618 | 185 | 0 | 0 | 60,344 | 408 |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- |12. Totals ..| 331,200 | 6,694 | 365,550 | 366 | 0 | 0 | 292,209 | 742 ----------------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------ | | 21 | 22 | 23 | 24 | | | | | Number of S | | Salvage | Unallocated | Total | Claims | | and | Loss | Net Losses | Outstanding- | | Subrogation | Expenses | and Expenses | Direct and | | Anticipated | Unpaid | Unpaid | Assumed |--------------|--------------|--------------|--------------|-------------- | | | | | | | | | | | 1. Prior ...| (138)| 223 | 10,941 | 205 | 2. 1984.....| (103)| 169 | 4,007 | 56 | 3. 1985.....| (159)| 138 | 6,247 | 76 | 4. 1986.....| (187)| 208 | 9,433 | 135 | 5. 1987.....| (757)| 385 | 16,451 | 181 | 6. 1988.....| (1,709)| 2,626 | 52,380 | 459 | 7. 1989.....| (2,747)| 4,311 | 93,239 | 943 | 8. 1990.....| (3,159)| 7,298 | 150,492 | 1,771 | 9. 1991.....| (3,514)| 8,779 | 192,881 | 2,536 |10. 1992.....| (4,292)| 11,523 | 214,643 | 3,790 |11. 1993.....| (5,664)| 17,185 | 283,288 | 12,402 |--------------|--------------|--------------|--------------|-------------- |12. Totals ..| (22,429)| 52,845 | 1,034,002 | 22,554 -------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- | | Total Losses and | Loss and Loss Expense Percentage | Discount for Time | | Loss Expenses Incurred | (Incurred/Premiums Earned) | Value of Money | |-----------------------------------------|--------------------------------------------|----------------------------- | | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32 | | | | | | | | | | | Direct | | | Direct | | | | Loss | | and Assumed | Ceded | Net * | and Assumed | Ceded | Net | Loss | Expense |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- | | | | | | | | | | | | | | | | | | | 1. Prior ...| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 | 2. 1984.....| 182,103 | 9,197 | 172,906 | 92.2 | 58.9 | 95.1 | 0 | 0 | 3. 1985.....| 222,883 | 10,953 | 211,930 | 77.9 | 38.5 | 82.2 | 0 | 0 | 4. 1986.....| 207,359 | 11,426 | 195,933 | 53.5 | 30.7 | 55.9 | 0 | 0 | 5. 1987.....| 207,510 | 703 | 206,807 | 53.6 | 3.8 | 56.1 | 0 | 0 | 6. 1988.....| 349,673 | 6,425 | 343,248 | 53.7 | 24.6 | 54.9 | 0 | 0 | 7. 1989.....| 475,352 | 21,375 | 453,977 | 64.4 | 116.1 | 63.0 | 0 | 0 | 8. 1990.....| 492,543 | 4,587 | 487,956 | 67.3 | 33.3 | 67.9 | 0 | 0 | 9. 1991.....| 460,598 | 8,589 | 452,009 | 68.3 | 184.7 | 67.5 | 0 | 0 |10. 1992.....| 475,360 | 48,173 | 427,187 | 78.1 | 1,156.3 | 70.7 | 0 | 0 |11. 1993.....| 432,028 | 11,678 | 420,350 | 71.8 | 201.4 | 70.6 | 0 | 0 |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- |12. Totals ..| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 ----------------------------------------------------------------------------------------------------------------------------------- *Net = (25 - 26) = (11 + 23) ------------------------------------------------------------ | | | Net Balance Sheet Reserves|| | | 33 | After Discount || | | |-----------------------------|| | |Inter-Company | 34 | 35 || | | Pooling | | Loss || | |Participation | Losses | Expenses || | | Percentage | Unpaid | Unpaid || |--------------|--------------|--------------|--------------|| | | | | || | | | | || | 1. Prior ...| X X X X | 5,879 | 5,062 || | 2. 1984.....| 0.0 | 2,527 | 1,480 || | 3. 1985.....| 0.0 | 3,832 | 2,415 || | 4. 1986.....| 0.0 | 6,103 | 3,330 || | 5. 1987.....| 0.0 | 7,392 | 9,059 || | 6. 1988.....| 0.0 | 32,030 | 20,350 || | 7. 1989.....| 0.0 | 58,208 | 35,031 || | 8. 1990.....| 0.0 | 96,303 | 54,189 || | 9. 1991.....| 0.0 | 126,893 | 65,988 || |10. 1992.....| 0.0 | 144,356 | 70,287 || |11. 1993.....| 0.0 | 206,167 | 77,121 || |--------------|--------------|--------------|--------------|| |12. Totals ..| X X X X | 689,690 | 344,312 || ------------------------------------------------------------
Page: Page 69 Form 2 CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND ITS AFFILIATED FIRE AND CASUALTY INSURERS
SCHEDULE P - PART 1F - SECTION 1 - MEDICAL MALPRACTICE - OCCURRENCE (000 omitted) ----------------------------------------------------------------------------------------------------------------------------------- | 1 | Premiums Earned | Loss and Loss Expense Payments | |-----------------------------------------|-------------------------------------------------------------------------- | Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9 | in Which | | | | | Expense Payments | |Premiums Were | | | |-----------------------------|-----------------------------| Salvage | Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and | Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation | Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- | | | | | | | | | | | | | | | | | | | 1. Prior ...| X X X X | X X X X | X X X X | 656 | 0 | 754 | 0 | 521 | 2. 1984.....| 7,858 | 48 | 7,810 | 5,637 | 0 | 3,669 | 0 | 5,442 | 3. 1985.....| 6,544 | 97 | 6,447 | 3,398 | 500 | 1,639 | 0 | 1,145 | 4. 1986.....| 97 | 38 | 59 | 1 | 0 | 3 | 0 | 8 | 5. 1987.....| 660 | 0 | 660 | 9 | 0 | 8 | 0 | 0 | 6. 1988.....| 548 | 0 | 548 | 18 | 0 | 24 | 0 | 0 | 7. 1989.....| 88 | 0 | 88 | 15 | 0 | 9 | 0 | 0 | 8. 1990.....| 84 | 0 | 84 | 325 | 0 | 33 | 0 | 0 | 9. 1991.....| 56 | 0 | 56 | 23 | 0 | 12 | 0 | 0 |10. 1992.....| 60 | 0 | 60 | 0 | 0 | 0 | 0 | 0 |11. 1993.....| 1 | 0 | 1 | 0 | 0 | 0 | 0 | 0 |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- |12. Totals ..| X X X X | X X X X | X X X X | 10,082 | 500 | 6,151 | 0 | 7,116 ----------------------------------------------------------------------------------------------------------------------------------- Note: For "prior," report amounts paid or received in current year only. Report cumulative amounts paid or received for specific years. Report loss payments net of salvage and subrogation received. ------------------------------------------------------------ | 1 | || | ------------------------------| || | Years | 10 | 11 | 12 || | in Which | | | Number of || |Premiums Were | Unallocated | Total | Claims || | Earned and | Loss | Net Paid | Reported - || | Losses Were | Expense | (5 - 6 + 7 | Direct and || | Incurred | Payments | - 8 + 10) | Assumed || |--------------|--------------|--------------|--------------|| | | | | || | | | | || | 1. Prior ...| 52 | 1,462 | X X X X || | 2. 1984.....| 895 | 10,201 | 723 || | 3. 1985.....| 599 | 5,136 | 310 || | 4. 1986.....| 6 | 10 | 2 || | 5. 1987.....| 78 | 95 | 5 || | 6. 1988.....| 15 | 57 | 4 || | 7. 1989.....| 8 | 32 | 4 || | 8. 1990.....| 10 | 368 | 4 || | 9. 1991.....| 10 | 45 | 1 || |10. 1992.....| 8 | 8 | 0 || |11. 1993.....| 0 | 0 | 1 || |--------------|--------------|--------------|--------------|| |12. Totals ..| 1,681 | 17,414 | X X X X || ------------------------------------------------------------ ----------------------------------------------------------------------------------------------------------------------------------- | | Losses Unpaid | Allocated Loss Expenses Unpaid | |--------------------------------------------------------|----------------------------------------------------------- | | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR | |---------------------------|----------------------------|-----------------------------|----------------------------- | | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20 | | Direct | | Direct | | Direct | | Direct | | | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- | | | | | | | | | | | | | | | | | | | 1. Prior ...| 4,897 | 0 | 2,359 | 0 | 0 | 0 | 2,490 | 0 | 2. 1984.....| 630 | 0 | 478 | 0 | 0 | 0 | 388 | 0 | 3. 1985.....| 101 | 0 | 358 | 0 | 0 | 0 | 161 | 0 | 4. 1986.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 5. 1987.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 6. 1988.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 7. 1989.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 8. 1990.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 9. 1991.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |10. 1992.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |11. 1993.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- |12. Totals ..| 5,628 | 0 | 3,195 | 0 | 0 | 0 | 3,039 | 0 ----------------------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------- | | | | | | | 21 | 22 | 23 | 24 | | | | | | Number of | | | Salvage | Unallocated | Total | Claims | | | and | Loss | Net Losses |Outstanding - | | | Subrogation | Expenses | and Expenses | Direct and | | | Anticipated | Unpaid | Unpaid | Assumed | |--------------|--------------|--------------|--------------|--------------| | | | | | | | | | | | | | 1. Prior ...| 0 | 658 | 10,404 | 46 | | 2. 1984.....| 0 | 110 | 1,606 | 14 | | 3. 1985.....| 0 | 57 | 677 | 7 | | 4. 1986.....| 0 | 0 | 0 | 0 | | 5. 1987.....| 0 | 0 | 0 | 0 | | 6. 1988.....| 0 | 0 | 0 | 0 | | 7. 1989.....| 0 | 0 | 0 | 0 | | 8. 1990.....| 0 | 0 | 0 | 0 | | 9. 1991.....| 0 | 0 | 0 | 0 | |10. 1992.....| 0 | 0 | 0 | 0 | |11. 1993.....| 0 | 0 | 0 | 0 | |--------------|--------------|--------------|--------------|--------------| |12. Totals ..| 0 | 825 | 12,687 | 67 | ---------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- | | Total Losses and | Loss and Loss Expense Percentage | Discount for Time | | Loss Expenses Incurred | (Incurred/Premiums Earned) | Value of Money | |-----------------------------------------|--------------------------------------------|----------------------------- | | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32 | | | | | | | | | | | Direct | | | Direct | | | | Loss | | and Assumed | Ceded | Net * | and Assumed | Ceded | Net | Loss | Expense |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- | | | | | | | | | | | | | | | | | | | 1. Prior ...| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 | 2. 1984.....| 11,807 | 0 | 11,807 | 150.3 | 0.0 | 151.2 | 0 | 0 | 3. 1985.....| 6,313 | 500 | 5,813 | 96.5 | 515.5 | 90.2 | 0 | 0 | 4. 1986.....| 10 | 0 | 10 | 10.3 | 0.0 | 16.9 | 0 | 0 | 5. 1987.....| 95 | 0 | 95 | 14.4 | 0.0 | 14.4 | 0 | 0 | 6. 1988.....| 57 | 0 | 57 | 10.4 | 0.0 | 10.4 | 0 | 0 | 7. 1989.....| 32 | 0 | 32 | 36.4 | 0.0 | 36.4 | 0 | 0 | 8. 1990.....| 368 | 0 | 368 | 438.1 | 0.0 | 438.1 | 0 | 0 | 9. 1991.....| 45 | 0 | 45 | 80.4 | 0.0 | 80.4 | 0 | 0 |10. 1992.....| 8 | 0 | 8 | 13.3 | 0.0 | 13.3 | 0 | 0 |11. 1993.....| 0 | 0 | 0 | 0.0 | 0.0 | 0.0 | 0 | 0 |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- |12. Totals ..| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 ----------------------------------------------------------------------------------------------------------------------------------- *Net = (25 - 26) = (11 + 23) ------------------------------------------------------------ | | | Net Balance Sheet Reserves|| | | 33 | After Discount || | | |-----------------------------|| | |Inter-Company | 34 | 35 || | | Pooling | | Loss || | |Participation | Losses | Expenses || | | Percentage | Unpaid | Unpaid || |--------------|--------------|--------------|--------------|| | | | | || | | | | || | 1. Prior ...| X X X X | 7,256 | 3,148 || | 2. 1984.....| 0.0 | 1,108 | 498 || | 3. 1985.....| 0.0 | 459 | 218 || | 4. 1986.....| 0.0 | 0 | 0 || | 5. 1987.....| 0.0 | 0 | 0 || | 6. 1988.....| 0.0 | 0 | 0 || | 7. 1989.....| 0.0 | 0 | 0 || | 8. 1990.....| 0.0 | 0 | 0 || | 9. 1991.....| 0.0 | 0 | 0 || |10. 1992.....| 0.0 | 0 | 0 || |11. 1993.....| 0.0 | 0 | 0 || |--------------|--------------|--------------|--------------|| |12. Totals ..| X X X X | 8,823 | 3,864 || ------------------------------------------------------------
Page 70 Form 2 CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND ITS AFFILIATED FIRE AND CASUALTY INSURERS
SCHEDULE P - PART 1F - SECTION 2 - MEDICAL MALPRACTICE - CLAIMS-MADE (000 omitted) ----------------------------------------------------------------------------------------------------------------------------------- | 1 | Premiums Earned | Loss and Loss Expense Payments | |-----------------------------------------|-------------------------------------------------------------------------- | Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9 | in Which | | | | | Expense Payments | |Premiums Were | | | |-----------------------------|-----------------------------| Salvage | Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and | Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation | Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- | | | | | | | | | | | | | | | | | | | 1. Prior ...| X X X X | X X X X | X X X X | 0 | 0 | 0 | 0 | 0 | 2. 1984.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 3. 1985.....| 0 | 0 | 0 | 801 | 0 | 144 | 0 | (93) | 4. 1986.....| 0 | 0 | 0 | 7 | 0 | 25 | 0 | 0 | 5. 1987.....| 117 | 0 | 117 | 19 | 0 | 5 | 0 | 0 | 6. 1988.....| 219 | 0 | 219 | 99 | 0 | 42 | 0 | 0 | 7. 1989.....| 228 | 0 | 228 | 203 | 0 | 52 | 0 | 0 | 8. 1990.....| 256 | 0 | 256 | 230 | 0 | 36 | 0 | 0 | 9. 1991.....| 299 | 0 | 299 | 1 | 0 | 9 | 0 | 0 |10. 1992.....| 255 | 0 | 255 | 0 | 0 | 3 | 0 | 0 |11. 1993.....| 66 | 0 | 66 | 0 | 0 | 0 | 0 | 0 |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- |12. Totals ..| X X X X | X X X X | X X X X | 1,360 | 0 | 316 | 0 | (93) ----------------------------------------------------------------------------------------------------------------------------------- Note: For "prior," report amounts paid or received in current year only. Report cumulative amounts paid or received for specific years. Report loss payments net of salvage and subrogation received. ------------------------------------------------------------ | 1 | || | ------------------------------| || | Years | 10 | 11 | 12 || | in Which | | | Number of || |Premiums Were | Unallocated | Total | Claims || | Earned and | Loss | Net Paid | Reported - || | Losses Were | Expense | (5 - 6 + 7 | Direct and || | Incurred | Payments | - 8 + 10) | Assumed || |--------------|--------------|--------------|--------------|| | | | | || | | | | || | 1. Prior ...| 0 | 0 | X X X X || | 2. 1984.....| 0 | 0 | 0 || | 3. 1985.....| 0 | 945 | 0 || | 4. 1986.....| 0 | 32 | 0 || | 5. 1987.....| 0 | 24 | 0 || | 6. 1988.....| 0 | 141 | 0 || | 7. 1989.....| 0 | 255 | 0 || | 8. 1990.....| 0 | 266 | 0 || | 9. 1991.....| 0 | 10 | 0 || |10. 1992.....| 0 | 3 | 0 || |11. 1993.....| 0 | 0 | 0 || |--------------|--------------|--------------|--------------|| |12. Totals ..| 0 | 1,676 | X X X X || ------------------------------------------------------------ ----------------------------------------------------------------------------------------------------------------------------------- | | Losses Unpaid | Allocated Loss Expenses Unpaid | |--------------------------------------------------------|----------------------------------------------------------- | | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR | |---------------------------|----------------------------|-----------------------------|----------------------------- | | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20 | | Direct | | Direct | | Direct | | Direct | | | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- | | | | | | | | | | | | | | | | | | | 1. Prior ...| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 2. 1984.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 3. 1985.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 4. 1986.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 5. 1987.....| 0 | 0 | 24 | 0 | 0 | 0 | 0 | 0 | 6. 1988.....| 154 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 7. 1989.....| 169 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 8. 1990.....| 38 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 9. 1991.....| 118 | 0 | 97 | 0 | 0 | 0 | 0 | 0 |10. 1992.....| 53 | 0 | 135 | 0 | 0 | 0 | 0 | 0 |11. 1993.....| 0 | 0 | 40 | 0 | 0 | 0 | 0 | 0 |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- |12. Totals ..| 532 | 0 | 296 | 0 | 0 | 0 | 0 | 0 ----------------------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------- | | | | | | | | 21 | 22 | 23 | 24 | | | | | | Number of | | | Salvage | Unallocated | Total | Claims | | | and | Loss | Net Losses |Outstanding - | | | Subrogation | Expenses | and Expenses | Direct and | | | Anticipated | Unpaid | Unpaid | Assumed | |--------------|--------------|--------------|--------------|--------------| | | | | | | | | | | | | | 1. Prior ...| 0 | 0 | 0 | 0 | | 2. 1984.....| 0 | 0 | 0 | 0 | | 3. 1985.....| 0 | 0 | 0 | 0 | | 4. 1986.....| 0 | 0 | 0 | 0 | | 5. 1987.....| 0 | 0 | 24 | 0 | | 6. 1988.....| 0 | 0 | 154 | 0 | | 7. 1989.....| 0 | 0 | 169 | 0 | | 8. 1990.....| 0 | 0 | 38 | 0 | | 9. 1991.....| 0 | 0 | 215 | 0 | |10. 1992.....| 0 | 0 | 188 | 0 | |11. 1993.....| 0 | 0 | 40 | 0 | |--------------|--------------|--------------|--------------|--------------| |12. Totals ..| 0 | 0 | 828 | 0 | ---------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- | | Total Losses and | Loss and Loss Expense Percentage | Discount for Time | | Loss Expenses Incurred | (Incurred/Premiums Earned) | Value of Money | |-----------------------------------------|--------------------------------------------|----------------------------- | | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32 | | | | | | | | | | | Direct | | | Direct | | | | Loss | | and Assumed | Ceded | Net * | and Assumed | Ceded | Net | Loss | Expense |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- | | | | | | | | | | | | | | | | | | | 1. Prior ...| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 | 2. 1984.....| 0 | 0 | 0 | 0.0 | 0.0 | 0.0 | 0 | 0 | 3. 1985.....| 945 | 0 | 945 | 0.0 | 0.0 | 0.0 | 0 | 0 | 4. 1986.....| 32 | 0 | 32 | 0.0 | 0.0 | 0.0 | 0 | 0 | 5. 1987.....| 48 | 0 | 48 | 41.0 | 0.0 | 41.0 | 0 | 0 | 6. 1988.....| 295 | 0 | 295 | 134.7 | 0.0 | 134.7 | 0 | 0 | 7. 1989.....| 424 | 0 | 424 | 186.0 | 0.0 | 186.0 | 0 | 0 | 8. 1990.....| 304 | 0 | 304 | 118.8 | 0.0 | 118.8 | 0 | 0 | 9. 1991.....| 225 | 0 | 225 | 75.3 | 0.0 | 75.3 | 0 | 0 |10. 1992.....| 191 | 0 | 191 | 74.9 | 0.0 | 74.9 | 0 | 0 |11. 1993.....| 40 | 0 | 40 | 60.6 | 0.0 | 60.6 | 0 | 0 |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- |12. Totals ..| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 ----------------------------------------------------------------------------------------------------------------------------------- *Net = (25 - 26) = (11 + 23) ------------------------------------------------------------ | | | Net Balance Sheet Reserves|| | | 33 | After Discount || | | |-----------------------------|| | |Inter-Company | 34 | 35 || | | Pooling | | Loss || | |Participation | Losses | Expenses || | | Percentage | Unpaid | Unpaid || |--------------|--------------|--------------|--------------|| | | | | || | | | | || | 1. Prior ...| X X X X | 0 | 0 || | 2. 1984.....| 0.0 | 0 | 0 || | 3. 1985.....| 0.0 | 0 | 0 || | 4. 1986.....| 0.0 | 0 | 0 || | 5. 1987.....| 0.0 | 24 | 0 || | 6. 1988.....| 0.0 | 154 | 0 || | 7. 1989.....| 0.0 | 169 | 0 || | 8. 1990.....| 0.0 | 38 | 0 || | 9. 1991.....| 0.0 | 215 | 0 || |10. 1992.....| 0.0 | 188 | 0 || |11. 1993.....| 0.0 | 40 | 0 || |--------------|--------------|--------------|--------------|| |12. Totals ..| X X X X | 828 | 0 || ------------------------------------------------------------
Page: Page 71 Form 2 CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND ITS AFFILIATED FIRE AND CASUALTY INSURERS
SCHEDULE P - PART 1G - SPECIAL LIABILITY (OCEAN MARINE, AIRCRAFT (ALL PERILS), BOILER AND MACHINERY) (000 omitted) ----------------------------------------------------------------------------------------------------------------------------------- | 1 | Premiums Earned | Loss and Loss Expense Payments | |-----------------------------------------|-------------------------------------------------------------------------- | Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9 | in Which | | | | | Expense Payments | |Premiums Were | | | |-----------------------------|-----------------------------| Salvage | Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and | Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation | Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- | | | | | | | | | | | | | | | | | | | 1. Prior ...| X X X X | X X X X | X X X X | 1,505 | 1,233 | 168 | 131 | 5 | 2. 1984.....| 39,674 | 20,980 | 18,694 | 30,725 | 16,632 | 2,483 | 1,664 | 633 | 3. 1985.....| 51,313 | 26,552 | 24,761 | 46,088 | 28,329 | 3,652 | 2,343 | 960 | 4. 1986.....| 105,321 | 55,944 | 49,377 | 58,692 | 31,346 | 4,388 | 2,548 | 402 | 5. 1987.....| 123,309 | 70,752 | 52,557 | 66,728 | 39,939 | 6,044 | 4,006 | 1,068 | 6. 1988.....| 103,314 | 60,212 | 43,102 | 60,116 | 38,451 | 5,184 | 3,624 | 242 | 7. 1989.....| 69,557 | 42,614 | 26,943 | 50,727 | 29,681 | 3,933 | 2,434 | 720 | 8. 1990.....| 63,446 | 36,143 | 27,303 | 44,547 | 27,107 | 3,673 | 2,447 | 138 | 9. 1991.....| 42,601 | 31,190 | 11,411 | 47,830 | 31,370 | 3,039 | 2,135 | 200 |10. 1992.....| 41,704 | 26,431 | 15,273 | 19,960 | 12,068 | 1,124 | 567 | 14 |11. 1993.....| 49,333 | 34,173 | 15,160 | 11,061 | 6,088 | 618 | 253 | 1 |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- |12. Totals ..| X X X X | X X X X | X X X X | 437,979 | 262,244 | 34,306 | 22,152 | 4,383 ----------------------------------------------------------------------------------------------------------------------------------- Note: For "prior," report amounts paid or received in current year only. Report cumulative amounts paid or received for specific years. Report loss payments net of salvage and subrogation received. ------------------------------------------------------------ | 1 | || | ------------------------------| || | Years | 10 | 11 | 12 || | in Which | | | Number of || |Premiums Were | Unallocated | Total | Claims || | Earned and | Loss | Net Paid | Reported - || | Losses Were | Expense | (5 - 6 + 7 | Direct and || | Incurred | Payments | - 8 + 10) | Assumed || |--------------|--------------|--------------|--------------|| | | | | || | | | | || | 1. Prior ...| 0 | 309 | X X X X || | 2. 1984.....| 269 | 15,181 | X X X X || | 3. 1985.....| 261 | 19,329 | X X X X || | 4. 1986.....| 102 | 29,288 | X X X X || | 5. 1987.....| 88 | 28,915 | X X X X || | 6. 1988.....| 72 | 23,297 | X X X X || | 7. 1989.....| 72 | 22,617 | X X X X || | 8. 1990.....| 87 | 18,753 | X X X X || | 9. 1991.....| 77 | 17,441 | X X X X || |10. 1992.....| 94 | 8,543 | X X X X || |11. 1993.....| 211 | 5,549 | X X X X || |--------------|--------------|--------------|--------------|| |12. Totals ..| 1,333 | 189,222 | X X X X || ------------------------------------------------------------ ----------------------------------------------------------------------------------------------------------------------------------- | | Losses Unpaid | Allocated Loss Expenses Unpaid | |--------------------------------------------------------|----------------------------------------------------------- | | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR | |---------------------------|----------------------------|-----------------------------|----------------------------- | | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20 | | Direct | | Direct | | Direct | | Direct | | | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- | | | | | | | | | | | | | | | | | | | 1. Prior ...| 5,523 | 5,048 | 161 | 161 | 0 | 0 | 424 | 420 | 2. 1984.....| 644 | 434 | 3 | 3 | 0 | 0 | 22 | 14 | 3. 1985.....| 452 | 345 | 3 | 3 | 0 | 0 | 8 | 8 | 4. 1986.....| 1,086 | 607 | 225 | 10 | 0 | 0 | 29 | 29 | 5. 1987.....| 2,081 | 675 | 789 | 27 | 0 | 0 | 173 | 71 | 6. 1988.....| 3,106 | 1,519 | 809 | 52 | 0 | 0 | 158 | 142 | 7. 1989.....| 4,754 | 2,998 | 599 | 162 | 0 | 0 | 439 | 423 | 8. 1990.....| 8,731 | 6,748 | 458 | 323 | 0 | 0 | 869 | 815 | 9. 1991.....| 4,998 | 3,369 | 446 | 188 | 0 | 0 | 424 | 364 |10. 1992.....| 8,635 | 6,219 | 794 | 300 | 0 | 0 | 503 | 449 |11. 1993.....| 11,829 | 7,547 | 2,514 | 787 | 0 | 0 | 5,350 | 3,445 |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- |12. Totals ..| 51,839 | 35,509 | 6,801 | 2,016 | 0 | 0 | 8,399 | 6,180 ----------------------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------- | | | | | | | 21 | 22 | 23 | 24 || | | | | | Number of || | | Salvage | Unallocated | Total | Claims || | | and | Loss | Net Losses |Outstanding - || | | Subrogation | Expenses | and Expenses | Direct and || | | Anticipated | Unpaid | Unpaid | Assumed || |--------------|--------------|--------------|--------------|--------------|| | | | | | || | | | | | || | 1. Prior ...| 0 | 0 | 479 | 0 || | 2. 1984.....| 0 | 0 | 218 | 0 || | 3. 1985.....| 0 | 0 | 107 | 0 || | 4. 1986.....| 0 | 0 | 694 | 0 || | 5. 1987.....| 0 | 12 | 2,282 | 3 || | 6. 1988.....| 0 | 2 | 2,362 | 1 || | 7. 1989.....| 0 | 2 | 2,211 | 1 || | 8. 1990.....| 0 | 6 | 2,178 | 9 || | 9. 1991.....| 0 | 9 | 1,956 | 5 || |10. 1992.....| 0 | 10 | 2,974 | 6 || |11. 1993.....| 0 | 36 | 7,950 | 35 || |--------------|--------------|--------------|--------------|--------------|| |12. Totals ..| 0 | 77 | 23,411 | 60 || ---------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- | | Total Losses and | Loss and Loss Expense Percentage | Discount for Time | | Loss Expenses Incurred | (Incurred/Premiums Earned) | Value of Money | |-----------------------------------------|--------------------------------------------|----------------------------- | | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32 | | | | | | | | | | | Direct | | | Direct | | | | Loss | | and Assumed | Ceded | Net * | and Assumed | Ceded | Net | Loss | Expense |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- | | | | | | | | | | | | | | | | | | | 1. Prior ...| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 | 2. 1984.....| 34,146 | 18,747 | 15,399 | 86.1 | 89.4 | 82.4 | 0 | 0 | 3. 1985.....| 50,464 | 31,028 | 19,436 | 98.3 | 116.9 | 78.5 | 0 | 0 | 4. 1986.....| 64,522 | 34,540 | 29,982 | 61.3 | 61.7 | 60.7 | 0 | 0 | 5. 1987.....| 75,915 | 44,718 | 31,197 | 61.6 | 63.2 | 59.4 | 0 | 0 | 6. 1988.....| 69,447 | 43,788 | 25,659 | 67.2 | 72.7 | 59.5 | 0 | 0 | 7. 1989.....| 60,526 | 35,698 | 24,828 | 87.0 | 83.8 | 92.2 | 0 | 0 | 8. 1990.....| 58,371 | 37,440 | 20,931 | 92.0 | 103.6 | 76.7 | 0 | 0 | 9. 1991.....| 56,823 | 37,426 | 19,397 | 133.4 | 120.0 | 170.0 | 0 | 0 |10. 1992.....| 31,120 | 19,603 | 11,517 | 74.6 | 74.2 | 75.4 | 0 | 0 |11. 1993.....| 31,619 | 18,120 | 13,499 | 64.1 | 53.0 | 89.0 | 0 | 0 |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- |12. Totals ..| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 ----------------------------------------------------------------------------------------------------------------------------------- *Net = (25 - 26) = (11 + 23) ------------------------------------------------------------ | | | Net Balance Sheet Reserves|| | | 33 | After Discount || | | |-----------------------------|| | |Inter-Company | 34 | 35 || | | Pooling | | Loss || | |Participation | Losses | Expenses || | | Percentage | Unpaid | Unpaid || |--------------|--------------|--------------|--------------|| | | | | || | | | | || | 1. Prior ...| X X X X | 475 | 4 || | 2. 1984.....| 0.0 | 210 | 8 || | 3. 1985.....| 0.0 | 107 | 0 || | 4. 1986.....| 0.0 | 694 | 0 || | 5. 1987.....| 0.0 | 2,168 | 114 || | 6. 1988.....| 0.0 | 2,344 | 18 || | 7. 1989.....| 0.0 | 2,193 | 18 || | 8. 1990.....| 0.0 | 2,118 | 60 || | 9. 1991.....| 0.0 | 1,887 | 69 || |10. 1992.....| 0.0 | 2,910 | 64 || |11. 1993.....| 0.0 | 6,009 | 1,941 || |--------------|--------------|--------------|--------------|| |12. Totals ..| X X X X | 21,115 | 2,296 || ------------------------------------------------------------
Page: Page 73 Form 2 CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND ITS AF FILIATED FIRE AND CASUALTY INSURERS
SCHEDULE P - PART 1H - SECTION 2 - OTHER LIABILITY - CLAIMS-MADE (000 omitted) ----------------------------------------------------------------------------------------------------------------------------------- | 1 | Premiums Earned | Loss and Loss Expense Payments | |-----------------------------------------|-------------------------------------------------------------------------- | Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9 | in Which | | | | | Expense Payments | |Premiums Were | | | |-----------------------------|-----------------------------| Salvage | Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and | Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation | Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- | | | | | | | | | | | | | | | | | | | 1. Prior ...| X X X X | X X X X | X X X X | 0 | 0 | 0 | 0 | 0 | 2. 1984.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 3. 1985.....| 0 | 0 | 0 | 105 | 16 | 20 | 9 | (11) | 4. 1986.....| 0 | 0 | 0 | 882 | 516 | 44 | (2)| (5) | 5. 1987.....| 68 | 0 | 68 | 0 | 0 | (6)| 0 | 0 | 6. 1988.....| 1,993 | 0 | 1,993 | 609 | 28 | 50 | 6 | (13) | 7. 1989.....| 2,406 | 0 | 2,406 | 595 | 0 | 135 | 0 | (18) | 8. 1990.....| 2,190 | 286 | 1,904 | 872 | 0 | 77 | 0 | (11) | 9. 1991.....| 3,137 | 42 | 3,095 | 179 | 0 | 123 | 0 | (18) |10. 1992.....| 2,122 | 270 | 1,852 | 750 | 0 | 104 | 0 | (6) |11. 1993.....| 1,550 | 517 | 1,033 | 59 | 0 | 25 | 0 | (12) |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- |12. Totals ..| X X X X | X X X X | X X X X | 4,051 | 560 | 572 | 13 | (94) ----------------------------------------------------------------------------------------------------------------------------------- Note: For "prior," report amounts paid or received in current year only. Report cumulative amounts paid or received for specific years. Report loss payments net of salvage and subrogation received. ------------------------------------------------------------ | 1 | | | ------------------------------| | | Years | 10 | 11 | 12 | | in Which | | | Number of | |Premiums Were | Unallocated | Total | Claims | | Earned and | Loss | Net Paid | Reported - | | Losses Were | Expense | (5 - 6 + 7 | Direct and | | Incurred | Payments | - 8 + 10) | Assumed | |-------------- |--------------|--------------|--------------| | | | | | | | | | | | 1. Prior ... | 3 | 3 | X X X X | | 2. 1984..... | 1 | 1 | 0 | | 3. 1985..... | 11 | 111 | 0 | | 4. 1986..... | 80 | 492 | 1 | | 5. 1987..... | 8 | 2 | 2 | | 6. 1988..... | 94 | 719 | 111 | | 7. 1989..... | 115 | 845 | 185 | | 8. 1990..... | 64 | 1,013 | 156 | | 9. 1991..... | 79 | 381 | 158 | |10. 1992..... | 78 | 932 | 135 | |11. 1993..... | 27 | 111 | 107 | |-------------- |--------------|--------------|--------------| |12. Totals .. | 560 | 4,610 | X X X X | ------------------------------------------------------------ ----------------------------------------------------------------------------------------------------------------------------------- | | Losses Unpaid | Allocated Loss Expenses Unpaid | |--------------------------------------------------------|----------------------------------------------------------- | | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR | |---------------------------|----------------------------|-----------------------------|----------------------------- | | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20 | | Direct | | Direct | | Direct | | Direct | | | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- | | | | | | | | | | | | | | | | | | | 1. Prior ...| 0 | 0 | 0 | 0 | 0 | 0 | 40 | 0 | 2. 1984.....| 0 | 0 | 0 | 0 | 0 | 0 | 12 | 0 | 3. 1985.....| 122 | 266 | 0 | 0 | 0 | 0 | 5 | 0 | 4. 1986.....| 176 | 162 | 0 | 0 | 0 | 0 | 31 | 0 | 5. 1987.....| 0 | 0 | 0 | 0 | 0 | 0 | 3 | 0 | 6. 1988.....| 0 | 0 | 0 | 0 | 0 | 0 | 3 | 0 | 7. 1989.....| 11 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 8. 1990.....| 0 | 0 | 0 | 0 | 0 | 0 | 119 | 0 | 9. 1991.....| 313 | 0 | 0 | 0 | 0 | 0 | 134 | 0 |10. 1992.....| 208 | 0 | 0 | 0 | 0 | 0 | 86 | 0 |11. 1993.....| 215 | 0 | 0 | 0 | 0 | 0 | 13 | 0 |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- |12. Totals ..| 1,045 | 428 | 0 | 0 | 0 | 0 | 446 | 0 ----------------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------- - | | | | | | | | | 21 | 22 | 23 | 24 | | | | | | | Number of | | | | Salvage | Unallocated | Total | Claims | | | | and | Loss | Net Losses |Outstanding -| | | | Subrogation | Expenses | and Expenses | Direct and | | | | Anticipated | Unpaid | Unpaid | Assumed | | |--------------|--------------|--------------|--------------|-------------| | | | | | | | | | | | | | | | | 1. Prior ...| 0 | 9 | 49 | 0 | | | 2. 1984.....| 0 | 4 | 16 | 0 | | | 3. 1985.....| 0 | 42 | (97)| 0 | | | 4. 1986.....| 0 | 62 | 107 | 0 | | | 5. 1987.....| 0 | 1 | 4 | 0 | | | 6. 1988.....| 0 | 1 | 4 | 0 | | | 7. 1989.....| 0 | 1 | 12 | 0 | | | 8. 1990.....| 0 | 27 | 146 | 1 | | | 9. 1991.....| 0 | 55 | 502 | 5 | | |10. 1992.....| 0 | 42 | 336 | 9 | | |11. 1993.....| 0 | 11 | 239 | 41 | | |--------------|--------------|--------------|--------------|-------------| | |12. Totals ..| 0 | 255 | 1,318 | 56 | | ------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- | | Total Losses and | Loss and Loss Expense Percentage | Discount for Time | | Loss Expenses Incurred | (Incurred/Premiums Earned) | Value of Money | |-----------------------------------------|--------------------------------------------|----------------------------- | | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32 | | | | | | | | | | | Direct | | | Direct | | | | Loss | | and Assumed | Ceded | Net * | and Assumed | Ceded | Net | Loss | Expense |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- | | | | | | | | | | | | | | | | | | | 1. Prior ...| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 | 2. 1984.....| 17 | 0 | 17 | 0.0 | 0.0 | 0.0 | 0 | 0 | 3. 1985.....| 305 | 291 | 14 | 0.0 | 0.0 | 0.0 | 0 | 0 | 4. 1986.....| 1,275 | 676 | 599 | 0.0 | 0.0 | 0.0 | 0 | 0 | 5. 1987.....| 6 | 0 | 6 | 8.8 | 0.0 | 8.8 | 0 | 0 | 6. 1988.....| 757 | 34 | 723 | 38.0 | 0.0 | 36.3 | 0 | 0 | 7. 1989.....| 857 | 0 | 857 | 35.6 | 0.0 | 35.6 | 0 | 0 | 8. 1990.....| 1,159 | 0 | 1,159 | 52.9 | 0.0 | 60.9 | 0 | 0 | 9. 1991.....| 883 | 0 | 883 | 28.1 | 0.0 | 28.5 | 0 | 0 |10. 1992.....| 1,268 | 0 | 1,268 | 59.8 | 0.0 | 68.5 | 0 | 0 |11. 1993.....| 350 | 0 | 350 | 22.6 | 0.0 | 33.9 | 0 | 0 |--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|-------------- |12. Totals ..| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 ----------------------------------------------------------------------------------------------------------------------------------- *Net = (25 - 26) = (11 + 23) ----------------------------------------------------------- - | | | Net Balance Sheet Reserves| | | | 33 | After Discount | | | | |-----------------------------| | | |Inter-Company | 34 | 35 | | | | Pooling | | Loss | | | |Participation | Losses | Expenses | | | | Percentage | Unpaid | Unpaid | | |--------------|--------------|--------------|--------------| | | | | | | | | | | | | | | 1. Prior ...| X X X X | 0 | 49 | | | 2. 1984.....| 0.0 | 0 | 16 | | | 3. 1985.....| 0.0 | (144)| 47 | | | 4. 1986.....| 0.0 | 14 | 93 | | | 5. 1987.....| 0.0 | 0 | 4 | | | 6. 1988.....| 0.0 | 0 | 4 | | | 7. 1989.....| 0.0 | 11 | 1 | | | 8. 1990.....| 0.0 | 0 | 146 | | | 9. 1991.....| 0.0 | 313 | 189 | | |10. 1992.....| 0.0 | 208 | 128 | | |11. 1993.....| 0.0 | 215 | 24 | | |--------------|--------------|--------------|--------------| | |12. Totals ..| X X X X | 617 | 701 | | ----------------------------------------------------------- -
Page # 74 Form 2 CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND ITS AFFILIATED FIRE AND CASUALTY INSURERS
SCHEDULE P - PART 1I - SPECIAL PROPERTY (FIRE, ALLIED LINES, INLAND MARINE, EARTHQUAKE, GLASS, BURGLARY AND THEFT) (000 omitted) ----------------------------------------------------------------------------------------------------------------------------------- | 1 | Premiums Earned | Loss and Loss Expense Payments | |-----------------------------------------|--------------------------------------------------------------------------- | Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9 | | Which | | | | | Expense Payments | | |Premiums Were| | | |-----------------------------|-----------------------------| Salvage | | Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and | | Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation | | Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| | | | | | | | | | | | 1. Prior ...| X X X X | X X X X | X X X X | (1,084)| (8,832)| 1,765 | 311 | 8,744 | | 2. 1992.....| 171,409 | 41,594 | 129,815 | 86,138 | 15,425 | 1,502 | 897 | 891 | | 3. 1993.....| 164,585 | 47,656 | 116,929 | 52,931 | 2,667 | 944 | 54 | 1,168 | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| | 4. Totals ..| X X X X | X X X X | X X X X | 137,985 | 9,260 | 4,210 | 1,262 | 10,803 | ----------------------------------------------------------------------------------------------------------------------------------- Note: For "prior," report amounts paid or received in current year only. Report cumulative amounts paid or received for specific years. Report loss payments net of salvage and subrogation received. ---------------------------------------------------------- | 1 | | | | |-----------------------------| | | Years | 10 | 11 | 12 | | Which | | | Number of | |Premiums Were| Unallocated | Total | Claims | | Earned and | Loss | Net Paid | Reported - | | Losses Were | Expense | (5 - 6 + 7 | Direct and | | Incurred | Payments | - 8 + 10) | Assumed | |-------------|--------------|--------------|--------------| | | | | | | 1. Prior ...| 128 | 9,329 | X X X X | | 2. 1992.....| 6,353 | 77,671 | X X X X | | 3. 1993.....| 5,199 | 56,353 | X X X X | |-------------|--------------|--------------|--------------| | 4. Totals ..| 11,680 | 143,353 | X X X X | ---------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- | | Losses Unpaid | Allocated Loss Expenses Unpaid | | |--------------------------------------------------------|-----------------------------------------------------------| | | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR | | |---------------------------|----------------------------|-----------------------------|-----------------------------| | | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20 | | | Direct | | Direct | | Direct | | Direct | | | | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| | | | | | | | | | | | 1. Prior ...| 19,779 | 2,938 | 10,619 | 63 | 0 | 0 | 564 | 142 | | 2. 1992.....| 12,860 | 1,920 | 1,749 | 69 | 0 | 0 | 438 | 57 | | 3. 1993.....| 27,897 | 8,942 | 6,991 | 3,006 | 0 | 0 | 2,708 | 596 | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| | 4. Totals ..| 60,536 | 13,800 | 19,359 | 3,138 | 0 | 0 | 3,710 | 796 | ----------------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------ | | | | | | | | 21 | 22 | 23 | 24 | | | | | | Number of | | | Salvage | Unallocated | Total | Claims | | | and | Loss | Net Losses |Outstanding -| | | Subrogation | Expense | and Expenses | Direct and | | | Anticipated | Unpaid | Unpaid | Assumed | |-------------|--------------|--------------|--------------|-------------| | | | | | | | 1. Prior ...| (1,623)| 174 | 27,993 | 91 | | 2. 1992.....| (627)| 168 | 13,168 | 121 | | 3. 1993.....| (991)| 951 | 26,002 | 1,139 | |-------------|--------------|--------------|--------------|-------------| | 4. Totals ..| (3,241)| 1,292 | 67,163 | 1,351 | ------------------------------------------------------------------------ ----------------------------------------------------------------------------------------------------------------------------------- | | Total Losses and | Loss and Loss Expense Percentage | Discount for Time | | | Loss Expenses Incurred | (Incurred/Premiums Earned) | Value of Money | | |-----------------------------------------|--------------------------------------------|-----------------------------| | | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32 | | | | | | | | | | | | | Direct | | | Direct | | | | Loss | | | and Assumed | Ceded | Net * | and Assumed | Ceded | Net | Loss | Expense | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| | | | | | | | | | | | 1. Prior ...| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 | | 2. 1992.....| 109,207 | 18,369 | 90,838 | 63.7 | 44.2 | 70.0 | 0 | 0 | | 3. 1993.....| 97,621 | 15,266 | 82,355 | 59.3 | 32.0 | 70.4 | 0 | 0 | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| | 4. Totals ..| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 | ----------------------------------------------------------------------------------------------------------------------------------- *Net = (25 - 26) = (11 + 23) ---------------------------------------------------------- | | | Net Balance Sheet Reserves | | | 33 | After Discount | | | |-----------------------------| | |Inter-Company | 34 | 35 | | | Pooling | | | | |Participation | Losses |Loss Expenses | | | Percentage | Unpaid | Unpaid | |-------------|--------------|--------------|--------------| | | | | | | 1. Prior ...| X X X X | 27,397 | 595 | | 2. 1992.....| 0.0 | 12,619 | 548 | | 3. 1993.....| 0.0 | 22,940 | 3,063 | |-------------|--------------|--------------|--------------| | 4. Totals ..| X X X X | 62,956 | 4,206 | ---------------------------------------------------------- SCHEDULE P - PART 1J - AUTO PHYSICAL DAMAGE (000 omitted) ----------------------------------------------------------------------------------------------------------------------------------- | 1 | Premiums Earned | Loss and Loss Expense Payments | |-----------------------------------------|--------------------------------------------------------------------------- | Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9 | | Which | | | | | Expense Payments | | |Premiums Were| | | |-----------------------------|-----------------------------| Salvage | | Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and | | Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation | | Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| | | | | | | | | | | | 1. Prior ...| X X X X | X X X X | X X X X | 1,280 | 1,225 | 1,223 | 20 | 50,083 | | 2. 1992.....| 289,710 | 10,099 | 279,611 | 151,634 | 4,834 | 1,974 | 607 | 21,947 | | 3. 1993.....| 251,550 | 16,407 | 235,142 | 112,413 | 7,867 | 1,188 | 68 | 8,865 | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| | 4. Totals ..| X X X X | X X X X | X X X X | 265,327 | 13,927 | 4,386 | 695 | 80,895 | ----------------------------------------------------------------------------------------------------------------------------------- Note: For "prior," report amounts paid or received in current year only. Report cumulative amounts paid or received for specific years. Report loss payments net of salvage and subrogation received. ---------------------------------------------------------- | 1 | | | | |-----------------------------| | | Years | 10 | 11 | 12 | | Which | | | Number of | |Premiums Were| Unallocated | Total | Claims | | Earned and | Loss | Net Paid | Reported - | | Losses Were | Expense | (5 - 6 + 7 | Direct and | | Incurred | Payments | - 8 + 10) | Assumed | |-------------|--------------|--------------|--------------| | | | | | | 1. Prior ...| 69 | 1,328 | X X X X | | 2. 1992.....| 19,727 | 167,894 | 125,584 | | 3. 1993.....| 13,143 | 118,808 | 102,306 | |-------------|--------------|--------------|--------------| | 4. Totals ..| 32,939 | 288,030 | X X X X | ---------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- | | Losses Unpaid | Allocated Loss Expenses Unpaid | | |--------------------------------------------------------|-----------------------------------------------------------| | | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR | | |---------------------------|----------------------------|-----------------------------|-----------------------------| | | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20 | | | Direct | | Direct | | Direct | | Direct | | | | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| | | | | | | | | | | | 1. Prior ...| 6,728 | 126 | 6,320 | 35 | 0 | 0 | 78 | 16 | | 2. 1992.....| 1,240 | 28 | (421)| 14 | 0 | 0 | 96 | 4 | | 3. 1993.....| 17,272 | 1,863 | 3,199 | 512 | 0 | 0 | 3,497 | 336 | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| | 4. Totals ..| 25,241 | 2,016 | 9,098 | 560 | 0 | 0 | 3,671 | 356 | ----------------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------ | | | | | | | | 21 | 22 | 23 | 24 | | | | | | Number of | | | Salvage | Unallocated | Total | Claims | | | and | Loss | Net Losses |Outstanding -| | | Subrogation | Expense | and Expenses | Direct and | | | Anticipated | Unpaid | Unpaid | Assumed | |-------------|--------------|--------------|--------------|-------------| | | | | | | | 1. Prior ...| (3,639)| 36 | 12,986 | 81 | | 2. 1992.....| (3,013)| 48 | 918 | 92 | | 3. 1993.....| (8,259)| 1,384 | 22,641 | 5,049 | |-------------|--------------|--------------|--------------|-------------| | 4. Totals ..| (14,911)| 1,468 | 36,544 | 5,222 | ------------------------------------------------------------------------ ----------------------------------------------------------------------------------------------------------------------------------- | | Total Losses and | Loss and Loss Expense Percentage | Discount for Time | | | Loss Expenses Incurred | (Incurred/Premiums Earned) | Value of Money | | |-----------------------------------------|--------------------------------------------|-----------------------------| | | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32 | | | | | | | | | | | | | Direct | | | Direct | | | | Loss | | | and Assumed | Ceded | Net * | and Assumed | Ceded | Net | Loss | Expense | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| | | | | | | | | | | | 1. Prior ...| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 | | 2. 1992.....| 174,299 | 5,487 | 168,812 | 60.2 | 54.3 | 60.4 | 0 | 0 | | 3. 1993.....| 152,095 | 10,647 | 141,448 | 60.5 | 64.9 | 60.2 | 0 | 0 | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| | 4. Totals ..| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 | ----------------------------------------------------------------------------------------------------------------------------------- *Net = (25 - 26) = (11 + 23) ---------------------------------------------------------- | | | Net Balance Sheet Reserves | | | 33 | After Discount | | | |-----------------------------| | |Inter-Company | 34 | 35 | | | Pooling | | | | | Participation | Losses |Loss Expenses | | | Percentage | Unpaid | Unpaid | |-------------| -------------|--------------|--------------| | | | | | | 1. Prior ...| X X X X | 12,888 | 98 | | 2. 1992.....| 0.0 | 777 | 141 | | 3. 1993.....| 0.0 | 18,096 | 4,544 | |-------------| --------------|--------------|--------------| | 4. Totals ..| X X X X | 31,762 | 4,783 | -------------- --------------------------------------------
Page # 75 Form 2 CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND ITS AFFILIATED FIRE AND CASUALTY INSURERS
SCHEDULE P - PART 1K - FIDELITY, SURETY, FINANCIAL GUARANTY, MORTGAGE GUARANTY (000 omitted) ----------------------------------------------------------------------------------------------------------------------------------- | 1 | Premiums Earned | Loss and Loss Expense Payments | |-----------------------------------------|--------------------------------------------------------------------------- | Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9 | | Which | | | | | Expense Payments | | |Premiums Were| | | |-----------------------------|-----------------------------| Salvage | | Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and | | Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation | | Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| | | | | | | | | | | | 1. Prior ...| X X X X | X X X X | X X X X | 4,418 | (4,413)| 8,585 | 2,133 | 13,587 | | 2. 1992.....| 142,463 | 34,068 | 108,394 | 33,790 | 5,809 | 2,995 | 819 | 755 | | 3. 1993.....| 144,905 | 30,121 | 114,784 | 9,376 | 1,820 | 841 | 143 | 20 | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| | 4. Totals ..| X X X X | X X X X | X X X X | 47,585 | 3,215 | 12,420 | 3,096 | 14,363 | ----------------------------------------------------------------------------------------------------------------------------------- Note: For "prior," report amounts paid or received in current year only. Report cumulative amounts paid or received for specific years. Report loss payments net of salvage and subrogation received. ---------------------------------------------------------- | 1 | | | | |-----------------------------| | | Years | 10 | 11 | 12 | | Which | | | Number of | |Premiums Were| Unallocated | Total | Claims | | Earned and | Loss | Net Paid | Reported - | | Losses Were | Expense | (5 - 6 + 7 | Direct and | | Incurred | Payments | - 8 + 10) | Assumed | |-------------|--------------|--------------|--------------| | | | | | | 1. Prior ...| 3,114 | 18,396 | X X X X | | 2. 1992.....| 6,324 | 36,481 | X X X X | | 3. 1993.....| 1,229 | 9,483 | X X X X | |-------------|--------------|--------------|--------------| | 4. Totals ..| 10,667 | 64,361 | X X X X | ---------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- | | Losses Unpaid | Allocated Loss Expenses Unpaid | | |--------------------------------------------------------|-----------------------------------------------------------| | | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR | | |---------------------------|----------------------------|-----------------------------|-----------------------------| | | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20 | | | Direct | | Direct | | Direct | | Direct | | | | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| | | | | | | | | | | | 1. Prior ...| 25,014 | 8,833 | (14,050)| (6,730)| 0 | 0 | 19,992 | 5,753 | | 2. 1992.....| 12,240 | 8,128 | 218 | 0 | 0 | 0 | 6,655 | 1,535 | | 3. 1993.....| 5,844 | 1,045 | 9,946 | 2,476 | 0 | 0 | 9,603 | 1,970 | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| | 4. Totals ..| 43,099 | 18,006 | (3,886)| (4,254)| 0 | 0 | 36,250 | 9,258 | ----------------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------ | | | | | | | | 21 | 22 | 23 | 24 | | | | | | Number of | | | Salvage | Unallocated | Total | Claims | | | and | Loss | Net Losses |Outstanding -| | | Subrogation | Expense | and Expenses | Direct and | | |A nticipated | Unpaid | Unpaid | Assumed | |-------------|--------------|--------------|--------------|-------------| | | | | | | | 1. Prior ...| (13,785)| 1,571 | 24,671 | 1,646 | | 2. 1992.....| (1,782)| 695 | 10,146 | 966 | | 3. 1993.....| (2,520)| 1,437 | 21,340 | 613 | |-------------| -------------|--------------|--------------|-------------| | 4. Totals ..| (18,087)| 3,704 | 56,157 | 3,225 | ------------------------------------------------------------------------ ----------------------------------------------------------------------------------------------------------------------------------- | | Total Losses and | Loss and Loss Expense Percentage | Discount for Time | | | Loss Expenses Incurred | (Incurred/Premiums Earned) | Value of Money | | |-----------------------------------------|--------------------------------------------|-----------------------------| | | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32 | | | | | | | | | | | | | Direct | | | Direct | | | | Loss | | | and Assumed | Ceded | Net * | and Assumed | Ceded | Net | Loss | Expense | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| | | | | | | | | | | | 1. Prior ...| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 | | 2. 1992.....| 62,918 | 16,291 | 46,627 | 44.2 | 47.8 | 43.0 | 0 | 0 | | 3. 1993.....| 38,277 | 7,454 | 30,824 | 26.4 | 24.7 | 26.9 | 0 | 0 | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| | 4. Totals ..| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 | ----------------------------------------------------------------------------------------------------------------------------------- *Net = (25 - 26) = (11 + 23) ---------------------------------------------------------- | | | Net Balance Sheet Reserves | | | 33 | After Discount | | | |-----------------------------| | Inter-Company | 34 | 35 | | | Pooling | | | | |Participation | Losses |Loss Expenses | | | Percentage | Unpaid | Unpaid | |-------------|--------------|--------------|--------------| | | | | | 1. Prior ...| X X X X | 8,861 | 15,810 | | 2. 1992.....| 0.0 | 4,330 | 5,815 | | 3. 1993.....| 0.0 | 12,270 | 9,070 | |-------------|--------------|--------------|--------------| | 4. Totals ..| X X X X | 25,461 | 30,695 | -------------- -------------------------------------------- SCHEDULE P - PART 1L - OTHER (INCLUDING CREDIT, ACCIDENT AND HEALTH) (000 omitted) ----------------------------------------------------------------------------------------------------------------------------------- | 1 | Premiums Earned | Loss and Loss Expense Payments | |-----------------------------------------|--------------------------------------------------------------------------- | Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9 | | Which | | | | | Expense Payments | | |Premiums Were| | | |-----------------------------|-----------------------------| Salvage | | Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and | | Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation | | Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| | | | | | | | | | | | 1. Prior ...| X X X X | X X X X | X X X X | 47 | 9 | 1 | 0 | 4 | | 2. 1992.....| 6 | 14,851 | (14,845)| 0 | 0 | 0 | 0 | 0 | | 3. 1993.....| 14 | (14,332)| 14,347 | 0 | 0 | 0 | 0 | 0 | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| | 4. Totals ..| X X X X | X X X X | X X X X | 47 | 9 | 1 | 0 | 4 | ----------------------------------------------------------------------------------------------------------------------------------- Note: For "prior," report amounts paid or received in current year only. Report cumulative amounts paid or received for specific years. Report loss payments net of salvage and subrogation received. ---------------------------------------------------------- | 1 | | | | |-----------------------------| | | Years | 10 | 11 | 12 | | Which | | | Number of | |Premiums Were| Unallocated | Total | Claims | | Earned and | Loss | Net Paid | Reported - | | Losses Were | Expense | (5 - 6 + 7 | Direct and | | Incurred | Payments | - 8 + 10) | Assumed | |-------------|--------------|--------------|--------------| | | | | | | 1. Prior ...| 25 | 64 | X X X X | | 2. 1992.....| 0 | 0 | X X X X | | 3. 1993.....| 0 | 0 | X X X X | |-------------|--------------|--------------|--------------| | 4. Totals ..| 25 | 64 | X X X X | ---------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- | | Losses Unpaid | Allocated Loss Expenses Unpaid | | |--------------------------------------------------------|-----------------------------------------------------------| | | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR | | |---------------------------|----------------------------|-----------------------------|-----------------------------| | | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20 | | | Direct | | Direct | | Direct | | Direct | | | | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| | | | | | | | | | | | 1. Prior ...| 222 | 95 | 0 | 0 | 0 | 0 | 13 | 9 | | 2. 1992.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | | 3. 1993.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| | 4. Totals ..| 222 | 95 | 0 | 0 | 0 | 0 | 13 | 9 | ----------------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------ | | | | | | | | 21 | 22 | 23 | 24 | | | | | | Number of | | | Salvage | Unallocated | Total | Claims | | | and | Loss | Net Losses |Outstanding -| | | Subrogation | Expense | and Expenses | Direct and | | | Anticipated | Unpaid | Unpaid | Assumed | |-------------|--------------|--------------|--------------|-------------| | | | | | | | 1. Prior ...| 0 | 19 | 150 | 6 | | 2. 1992.....| 0 | 0 | 0 | 0 | | 3. 1993.....| 0 | 0 | 0 | 0 | |-------------|--------------|--------------|--------------|-------------| | 4. Totals ..| 0 | 19 | 150 | 6 | ------------------------------------------------------------------------ ----------------------------------------------------------------------------------------------------------------------------------- | | Total Losses and | Loss and Loss Expense Percentage | Discount for Time | | | Loss Expenses Incurred | (Incurred/Premiums Earned) | Value of Money | | |-----------------------------------------|--------------------------------------------|-----------------------------| | | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32 | | | | | | | | | | | | | Direct | | | Direct | | | | Loss | | | and Assumed | Ceded | Net * | and Assumed | Ceded | Net | Loss | Expense | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| | | | | | | | | | | | 1. Prior ...| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 | | 2. 1992.....| 0 | 0 | 0 | 1.9 | 0.0 | (0.0)| 0 | 0 | | 3. 1993.....| 0 | 0 | 0 | 0.0 | 0.0 | 0.0 | 0 | 0 | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| | 4. Totals ..| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 | ----------------------------------------------------------------------------------------------------------------------------------- *Net = (25 - 26) = (11 + 23) ---------------------------------------------------------- | | | Net Balance Sheet Reserves | | | 33 | After Discount | | | |-----------------------------| | |Inter-Company | 34 | 35 | | | Pooling | | | | |Participation | Losses |Loss Expenses | | | Percentage | Unpaid | Unpaid | |-------------|--------------|--------------|--------------| | | | | | | 1. Prior ...| X X X X | 127 | 23 | | 2. 1992.....| 0.0 | 0 | 0 | | 3. 1993.....| 0.0 | 0 | 0 | |-------------|--------------|--------------|--------------| | 4. Totals ..| X X X X | 127 | 23 | ----------------------------------------------------------
Page # 76 Form 2 CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND ITS AFFILIATED FIRE AND CASUALTY INSURERS
SCHEDULE P - PART IM - INTERNATIONAL (000 omitted) ----------------------------------------------------------------------------------------------------------------------------------- | | Premiums Earned | Loss and Loss Expense Payments | 1 |-----------------------------------------|--------------------------------------------------------------------------- | Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9 | | in Which | | | | | Expense Payments | | |Premiums Were| | | |-----------------------------|-----------------------------| Salvage | | Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and | | Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation | | Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| | | | | | | | | | | c> | 1. Prior ..| X X X X | X X X X | X X X X | 0 | 0 | 0 | 0 | 0 | | 2. 1984....| 27 | 0 | 27 | 0 | 0 | 0 | 0 | 0 | | 3. 1985....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | | 4. 1986....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | | 5. 1987....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | | 6. 1988....| 19,649 | 337 | 19,312 | 13,321 | 90 | 389 | 1 | 0 | | 7. 1989....| 14,651 | 122 | 14,529 | 10,054 | 24 | 328 | (0)| 0 | | 8. 1990....| 12,386 | 63 | 12,323 | 10,358 | 212 | 339 | (0)| 0 | | 9. 1991....| 9,982 | 69 | 9,913 | 7,185 | 46 | 222 | (2)| 0 | |10. 1992....| 4,683 | 39 | 4,644 | 2,879 | 11 | 45 | (8)| 0 | |11. 1993....| 12,988 | 0 | 12,988 | 355 | 1 | 0 | (0)| 0 | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| |12. Totals ..| X X X X | X X X X | X X X X | 44,153 | 384 | 1,324 | (10)| 0 | ----------------------------------------------------------------------------------------------------------------------------------- Note: For "prior," report amounts paid or received in current year only. Report cumulative amounts paid or received for specific years. Report loss payments net of salvage and subrogation received. --------------------------------------------------------- - | | | | | | 1 |-----------------------------| 12 | | | Years | 10 | 11 | | | | in Which | | | Number of | | |Premiums Were| Unallocated | Total | Claims | | | Earned and | Loss | Net Paid | Reported - | | | Losses Were | Expense | (5 - 6 + 7 | Direct and | | | Incurred | Payments | - 8 + 10) | Assumed | | |-------------|--------------|--------------|--------------| | | | | | | | | 1. Prior ..| 0 | 0 | X X X X | | | 2. 1984....| 0 | 0 | X X X X | | | 3. 1985....| 0 | 0 | X X X X | | | 4. 1986....| 0 | 0 | X X X X | | | 5. 1987....| 0 | 0 | X X X X | | | 6. 1988....| 0 | 13,619 | X X X X | | | 7. 1989....| 0 | 10,358 | X X X X | | | 8. 1990....| 0 | 10,486 | X X X X | | | 9. 1991....| 0 | 7,364 | X X X X | | |10. 1992....| 0 | 2,920 | X X X X | | |11. 1993....| 0 | 355 | X X X X | | |-------------|--------------|--------------|--------------| | |12. Totals ..| 0 | 45,103 | X X X X | | --------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- | | Losses Unpaid | Allocated Loss Expenses Unpaid | | |--------------------------------------------------------|-----------------------------------------------------------| | | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR | | |---------------------------|----------------------------|-----------------------------|-----------------------------| | | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20 | | | Direct | | Direct | | Direct | | Direct | | | | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| | | | | | | | | | | | 1. Prior ..| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | | 2. 1984....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | | 3. 1985....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | | 4. 1986....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | | 5. 1987....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | | 6. 1988....| 729 | 0 | 1,694 | 0 | 0 | 0 | 0 | 0 | | 7. 1989....| 880 | 0 | 1,444 | 0 | 0 | 0 | 0 | 0 | | 8. 1990....| 411 | 0 | 958 | 0 | 0 | 0 | 0 | 0 | | 9. 1991....| 494 | 0 | 1,728 | 0 | 0 | 0 | 0 | 0 | |10. 1992....| 479 | 0 | 1,735 | 0 | 0 | 0 | 0 | 0 | |11. 1993....| 5,226 | 0 | 4,466 | 0 | 0 | 0 | 0 | 0 | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| |12. Totals ..| 8,219 | 0 | 12,025 | 0 | 0 | 0 | 0 | 0 | ----------------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------ | | | | | | | | 21 | 22 | 23 | 24 | | | | | | Number of | | | Salvage | Unallocated | Total | Claims | | | and | Loss | Net Losses |Outstanding -| | | Subrogation | Expenses | and Expenses | Direct | | | Anticipated | Unpaid | Unpaid | and Assumed | |-------------|--------------|--------------|--------------|-------------| | | | | | | | 1. Prior ..| 0 | 0 | 0 | 0 | | 2. 1984....| 0 | 0 | 0 | 0 | | 3. 1985....| 0 | 0 | 0 | 0 | | 4. 1986....| 0 | 0 | 0 | 0 | | 5. 1987....| 0 | 0 | 0 | 0 | | 6. 1988....| 0 | 0 | 2,423 | 0 | | 7. 1989....| 0 | 0 | 2,324 | 0 | | 8. 1990....| 0 | 0 | 1,369 | 0 | | 9. 1991....| 0 | 0 | 2,222 | 0 | |10. 1992....| 0 | 0 | 2,214 | 0 | |11. 1993....| 0 | 0 | 9,692 | 0 | |-------------|--------------|--------------|--------------|-------------| |12. Totals ..| 0 | 0 | 20,244 | 0 | ------------------------------------------------------------------------ ----------------------------------------------------------------------------------------------------------------------------------- | | Total Losses and | Loss and Loss Expense Percentage | Discount for Time | | | Loss Expenses Incurred | (Incurred/Premiums Earned) | Value of Money | | |-----------------------------------------|--------------------------------------------|-----------------------------| | | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32 | | | Direct | | | Direct | | | | Loss | | | and Assumed | Ceded | Net * | and Assumed | Ceded | Net | Loss | Expense | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| | | | | | | | | | | | 1. Prior ..| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 | | 2. 1984....| 0 | 0 | 0 | 0.0 | 0.0 | 0.0 | 0 | 0 | | 3. 1985....| 0 | 0 | 0 | 0.0 | 0.0 | 0.0 | 0 | 0 | | 4. 1986....| 0 | 0 | 0 | 0.0 | 0.0 | 0.0 | 0 | 0 | | 5. 1987....| 0 | 0 | 0 | 0.0 | 0.0 | 0.0 | 0 | 0 | | 6. 1988....| 16,133 | 91 | 16,042 | 82.1 | 27.0 | 83.1 | 0 | 0 | | 7. 1989....| 12,706 | 24 | 12,682 | 86.7 | 19.7 | 87.3 | 0 | 0 | | 8. 1990....| 12,066 | 212 | 11,855 | 97.4 | 335.9 | 96.2 | 0 | 0 | | 9. 1991....| 9,630 | 43 | 9,587 | 96.5 | 62.8 | 96.7 | 0 | 0 | |10. 1992....| 5,138 | 3 | 5,134 | 109.7 | 8.7 | 110.5 | 0 | 0 | |11. 1993....| 10,048 | 1 | 10,048 | 77.4 | 64,200.0 | 77.4 | 0 | 0 | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| |12. Totals ..| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 | ----------------------------------------------------------------------------------------------------------------------------------- *Net = (25 - 26) = (11 + 23) ---------------------------------------------------------- | | | Net Balance Sheet Reserves | | | 33 | After Discount | | |Inter-Company |-----------------------------| | | Pooling | 34 | 35 | | |Participation | Losses |Loss Expenses | | | Percentage | Unpaid | Unpaid | |-------------|--------------|--------------|--------------| | | | | | | 1. Prior ..| X X X X | 0 | 0 | | 2. 1984....| 0.0 | 0 | 0 | | 3. 1985....| 0.0 | 0 | 0 | | 4. 1986....| 0.0 | 0 | 0 | | 5. 1987....| 0.0 | 0 | 0 | | 6. 1988....| 0.0 | 2,423 | 0 | | 7. 1989....| 0.0 | 2,324 | 0 | | 8. 1990....| 0.0 | 1,369 | 0 | | 9. 1991....| 0.0 | 2,222 | 0 | |10. 1992....| 0.0 | 2,214 | 0 | |11. 1993....| 0.0 | 9,692 | 0 | |-------------|--------------|--------------|--------------| |12. Totals ..| X X X X | 20,244 | 0 | ----------------------------------------------------------
Page # 77 Form 2 CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND ITS AFFILIATED FIRE AND CASUALTY INSURERS
SCHEDULE P - PART 1N - REINSURANCE A (000 omitted) ----------------------------------------------------------------------------------------------------------------------------------- | 1 | Premiums Earned | Loss and Loss Expense Payments | |-----------------------------------------|--------------------------------------------------------------------------- | Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9 | | Which | | | | | Expense Payments | | |Premiums Were| | | |-----------------------------|-----------------------------| Salvage | | Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and | | Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation | | Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| | | | | | | | | | | | 1. 1988.....| 34,707 | 1,738 | 32,968 | 11,192 | 949 | 352 | 85 | 0 | | 2. 1989.....| 25,922 | 2,056 | 23,866 | 13,312 | 1,855 | 408 | (188)| 0 | | 3. 1990.....| 79,740 | 60,145 | 19,595 | 51,100 | 42,042 | 894 | 85 | 0 | | 4. 1991.....| 60,073 | 34,454 | 25,619 | 23,017 | 17,964 | 342 | (67)| 0 | | 5. 1992.....| 56,589 | 10,089 | 46,500 | 18,738 | 16,671 | 207 | 133 | 0 | | 6. 1993.....| 61,844 | 10,382 | 51,462 | 2,250 | 1,179 | 27 | 14 | 0 | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| | 7. Totals ..| X X X X | X X X X | X X X X | 119,609 | 80,659 | 2,230 | 64 | 0 | ----------------------------------------------------------------------------------------------------------------------------------- NOTE: Report cumulative amounts paid or received for specific years. Report loss payments net of salvage and subrogation received. ---------------------------------------------------------- | 1 | | | | -----------------------------| | | Years | 10 | 11 | 12 | | Which | | | Number of | |Premiums Were Unallocated | Total | Claims | | Earned and | Loss | Net Paid | Reported - | | Losses Were | Expense | (5 - 6 + 7 | Direct and | | Incurred | Payments | - 8 + 10) | Assumed | |-------------|-------------|--------------|--------------| | | | | | | 1. 1988.....| 0 | 10,510 | X X X X | | 2. 1989.....| 0 | 12,053 | X X X X | | 3. 1990.....| 0 | 9,867 | X X X X | | 4. 1991.....| 0 | 5,463 | X X X X | | 5. 1992.....| 0 | 2,140 | X X X X | | 6. 1993.....| 0 | 1,084 | X X X X | |-------------|-------------|--------------|--------------| | 7. Totals ..| 0 | 41,117 | X X X X | ---------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- | | Losses Unpaid | Allocated Loss Expenses Unpaid | | |--------------------------------------------------------|-----------------------------------------------------------| | | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR | | |---------------------------|----------------------------|-----------------------------|-----------------------------| | | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20 | | | Direct | | Direct | | Direct | | Direct | | | | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| | | | | | | | | | | | 1. 1988.....| 1,565 | 12 | 3,620 | 9 | 0 | 0 | 0 | 0 | | 2. 1989.....| 2,390 | 9 | 4,962 | 21 | 0 | 0 | 0 | 0 | | 3. 1990.....| 750 | 62 | 5,093 | 19 | 0 | 0 | 0 | 0 | | 4. 1991.....| 3,339 | 1,251 | 7,005 | 89 | 0 | 0 | 0 | 0 | | 5. 1992.....| 7,930 | 2,667 | 23,659 | 5,115 | 0 | 0 | 0 | 0 | | 6. 1993.....| 4,360 | 898 | 44,093 | 9,120 | 0 | 0 | 0 | 0 | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| | 7. Totals ..| 20,335 | 4,899 | 88,432 | 14,373 | 0 | 0 | 0 | 0 | ----------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------- - | | | | | | | | | 21 | 22 | 23 | 24 | | | | | | | Number of | | | | Salvage | Unallocated | Total | Claims | | | | and | Loss | Net Losses |Outstanding -| | | | Subrogation | Expense | and Expenses | Direct and | | | | Anticipated | Unpaid | Unpaid | Assumed | | |-------------|--------------|--------------|--------------|-------------| | | | | | | | | | 1. 1988.....| 0 | 0 | 5,163 | X X X X | | | 2. 1989.....| 0 | 0 | 7,323 | X X X X | | | 3. 1990.....| 0 | 0 | 5,763 | X X X X | | | 4. 1991.....| 0 | 0 | 9,004 | X X X X | | | 5. 1992.....| 0 | 0 | 23,807 | X X X X | | | 6. 1993.....| 0 | 0 | 38,435 | X X X X | | |-------------|--------------|--------------|--------------|-------------| | | 7. Totals ..| 0 | 0 | 89,495 | X X X X | | ----------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- | | Total Losses and | Loss and Loss Expense Percentage | Discount for Time | | | Loss Expenses Incurred | (Incurred/Premiums Earned) | Value of Money | | |-----------------------------------------|--------------------------------------------|-----------------------------| | | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32 | | | | | | | | | | | | | Direct | | | Direct | | | | Loss | | | and Assumed | Ceded | Net * | and Assumed | Ceded | Net | Loss | Expense | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| | | | | | | | | | | | 1. 1988.....| 16,729 | 1,056 | 15,673 | 48.2 | 60.8 | 47.5 | 0 | 0 | | 2. 1989.....| 21,073 | 1,697 | 19,376 | 81.3 | 82.5 | 81.2 | 0 | 0 | | 3. 1990.....| 57,837 | 42,207 | 15,630 | 72.5 | 70.2 | 79.8 | 0 | 0 | | 4. 1991.....| 33,704 | 19,237 | 14,467 | 56.1 | 55.8 | 56.5 | 0 | 0 | | 5. 1992.....| 50,534 | 24,586 | 25,948 | 89.3 | 243.7 | 55.8 | 0 | 0 | | 6. 1993.....| 50,730 | 11,211 | 39,519 | 82.0 | 108.0 | 76.8 | 0 | 0 | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| | 7. Totals ..| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 | ----------------------------------------------------------------------------------------------------------------------------------- *Net = (25 - 26) = (11 + 23) ---------------------------------------------------------- | | | Net Balance Sheet Reserves | | | 33 | After Discount | | | |-----------------------------| | |Inter-Company | 34 | 35 | | | Pooling | | | | |Participation | Losses |Loss Expenses | | | Percentage | Unpaid | Unpaid | |-------------|--------------|--------------|--------------| | | | | | | 1. 1988.....| 0.0 | 5,163 | 0 | | 2. 1989.....| 0.0 | 7,323 | 0 | | 3. 1990.....| 0.0 | 5,763 | 0 | | 4. 1991.....| 0.0 | 9,004 | 0 | | 5. 1992.....| 0.0 | 23,807 | 0 | | 6. 1993.....| 0.0 | 38,435 | 0 | |-------------|--------------|--------------|--------------| | 7. Totals ..| X X X X | 89,495 | 0 | ---------------------------------------------------------- SCHEDULE P - PART 1O - REINSURANCE B (000 Omitted) ----------------------------------------------------------------------------------------------------------------------------------- | 1 | Premiums Earned | Loss and Loss Expense Payments | |-----------------------------------------|--------------------------------------------------------------------------- | Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9 | | Which | | | | | Expense Payments | | |Premiums Were| | | |-----------------------------|-----------------------------| Salvage | | Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and | | Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation | | Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| | | | | | | | | | | | 1. 1988.....| 155,207 | 139,405 | 15,802 | 85,207 | 79,623 | 1,062 | 170 | 0 | | 2. 1989.....| 443,293 | 419,913 | 23,380 | 215,551 | 204,195 | 2,501 | 85 | 0 | | 3. 1990.....| 321,700 | 308,404 | 13,296 | 154,278 | 148,785 | 1,919 | 339 | 0 | | 4. 1991.....| 150,161 | 142,532 | 7,629 | 53,613 | 52,290 | 891 | 192 | 0 | | 5. 1992.....| 193,065 | 175,005 | 18,060 | 163,272 | 152,991 | 159 | 85 | 0 | | 6. 1993.....| 331,591 | 372,114 | (40,523)| 70,423 | 70,177 | 87 | (153)| 0 | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| | 7. Totals ..| X X X X | X X X X | X X X X | 742,344 | 708,063 | 6,618 | 717 | 0 | ----------------------------------------------------------------------------------------------------------------------------------- NOTE: Report cumulative amounts paid or received for specific years. Report loss payments net of salvage and subrogation received. ---------------------------------------------------------- | 1 | | | | |-----------------------------| | | Years | 10 | 11 | 12 | | Which | | | Number of | |Premiums Were| Unallocated | Total | Claims | | Earned and | Loss | Net Paid | Reported - | | Losses Were | Expense | (5 - 6 + 7 | Direct and | | Incurred | Payments | - 8 + 10) | Assumed | |-------------|--------------|--------------|--------------| | | | | | | 1. 1988.....| 0 | 6,476 | X X X X | | 2. 1989.....| 0 | 13,773 | X X X X | | 3. 1990.....| 0 | 7,073 | X X X X | | 4. 1991.....| 0 | 2,022 | X X X X | | 5. 1992.....| 0 | 10,354 | X X X X | | 6. 1993.....| 0 | 485 | X X X X | |-------------|--------------|--------------|--------------| | 7. Totals ..| 0 | 40,182 | X X X X | ---------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- | | Losses Unpaid | Allocated Loss Expenses Unpaid | | |--------------------------------------------------------|-----------------------------------------------------------| | | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR | | |---------------------------|----------------------------|-----------------------------|-----------------------------| | | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20 | | | Direct | | Direct | | Direct | | Direct | | | | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| | | | | | | | | | | | 1. 1988.....| 83,758 | 82,826 | 1,993 | 178 | 0 | 0 | 0 | 0 | | 2. 1989.....| 91,770 | 90,023 | 2,567 | 404 | 0 | 0 | 0 | 0 | | 3. 1990.....| 98,743 | 98,458 | 2,174 | 352 | 0 | 0 | 0 | 0 | | 4. 1991.....| 9,386 | 8,451 | 21,415 | 17,374 | 0 | 0 | 0 | 0 | | 5. 1992.....| 25,975 | 23,950 | 13,647 | 4,960 | 0 | 0 | 0 | 0 | | 6. 1993.....| 26,450 | 23,957 | 27,645 | 17,955 | 0 | 0 | 0 | 0 | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| | 7. Totals ..| 336,082 | 327,666 | 69,442 | 41,224 | 0 | 0 | 0 | 0 | ----------------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------ | | | | | | | | 21 | 22 | 23 | 24 | | | | | | Number of | | | Salvage | Unallocated | Total | Claims | | | and | Loss | Net Losses |Outstanding -| | | Subrogation | Expense | and Expenses | Direct and | | | Anticipated | Unpaid | Unpaid | Assumed | |-------------|--------------|--------------|--------------|-------------| | | | | | | | 1. 1988.....| 0 | 0 | 2,746 | X X X X | | 2. 1989.....| 0 | 0 | 3,910 | X X X X | | 3. 1990.....| 0 | 0 | 2,107 | X X X X | | 4. 1991.....| 0 | 0 | 4,976 | X X X X | | 5. 1992.....| 0 | 0 | 10,711 | X X X X | | 6. 1993.....| 0 | 0 | 12,183 | X X X X | |-------------|--------------|--------------|--------------|-------------| | 7. Totals ..| 0 | 0 | 36,634 | X X X X | ------------------------------------------------------------------------ ----------------------------------------------------------------------------------------------------------------------------------- | | Total Losses and | Loss and Loss Expense Percentage | Discount for Time | | | Loss Expenses Incurred | (Incurred/Premiums Earned) | Value of Money | | |-----------------------------------------|--------------------------------------------|-----------------------------| | | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32 | | | | | | | | | | | | | Direct | | | Direct | | | | Loss | | | and Assumed | Ceded | Net * | and Assumed | Ceded | Net | Loss | Expense | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| | | | | | | | | | | | 1. 1988.....| 172,019 | 162,797 | 9,222 | 110.8 | 116.8 | 58.4 | 0 | 0 | | 2. 1989.....| 312,389 | 294,707 | 17,682 | 70.5 | 70.2 | 75.6 | 0 | 0 | | 3. 1990.....| 257,115 | 247,935 | 9,180 | 79.9 | 80.4 | 69.0 | 0 | 0 | | 4. 1991.....| 85,305 | 78,307 | 6,998 | 56.8 | 54.9 | 91.7 | 0 | 0 | | 5. 1992.....| 203,053 | 181,987 | 21,065 | 105.2 | 104.0 | 116.6 | 0 | 0 | | 6. 1993.....| 124,605 | 111,937 | 12,668 | 37.6 | 30.1 | (31.3)| 0 | 0 | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| | 7. Totals ..| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 | ----------------------------------------------------------------------------------------------------------------------------------- *Net = (25 - 26) = (11 + 23) ---------------------------------------------------------- | | | Net Balance Sheet Reserves | | | 33 | After Discount | | | |-----------------------------| | |Inter-Company | 34 | 35 | | | Pooling | | | | |Participation | Losses |Loss Expenses | | | Percentage | Unpaid | Unpaid | |-------------|--------------|--------------|--------------| | | | | | | 1. 1988.....| 0.0 | 2,746 | 0 | | 2. 1989.....| 0.0 | 3,910 | 0 | | 3. 1990.....| 0.0 | 2,107 | 0 | | 4. 1991.....| 0.0 | 4,976 | 0 | | 5. 1992.....| 0.0 | 10,711 | 0 | | 6. 1993.....| 0.0 | 12,183 | 0 | |-------------|--------------|--------------|--------------| | 7. Totals ..| X X X X | 36,634 | 0 | ----------------------------------------------------------
Page # 78 Form 2 CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND ITS AFFILIATED FIRE AND CASUALTY INSURERS
SCHEDULE P - PART 1P - REINSURANCE C (OOO omitted) ----------------------------------------------------------------------------------------------------------------------------------- | 1 | Premiums Earned | Loss and Loss Expense Payments | |-----------------------------------------|--------------------------------------------------------------------------- | Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9 | | Which | | | | | Expense Payments | | |Premiums Were| | | |-----------------------------|-----------------------------| Salvage | | Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and | | Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation | | Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| | | | | | | | | | | | 1. 1988.....| 1,548 | (3)| 1,551 | 394 | 0 | 7 | 0 | 0 | | 2. 1989.....| 1,673 | 0 | 1,673 | 0 | 0 | 0 | 0 | 0 | | 3. 1990.....| 365 | 330 | 35 | 0 | 0 | 0 | 0 | 0 | | 4. 1991.....| 1,068 | 1,068 | 0 | 0 | 0 | 0 | 0 | 0 | | 5. 1992.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | | 6. 1993.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| | 7. Totals ..| X X X X | X X X X | X X X X | 394 | 0 | 7 | 0 | 0 | ----------------------------------------------------------------------------------------------------------------------------------- NOTE: Report cumulative amounts paid or received for specific years. Report loss payments net of salvage and subrogation received. ---------------------------------------------------------- | 1 | | | | |-----------------------------| | | Years | 10 | 11 | 12 | | Which | | | Number of | |Premiums Were| Unallocated | Total | Claims | | Earned and | Loss | Net Paid | Reported - | | Losses Were | Expense | (5 - 6 + 7 | Direct and | | Incurred | Payments | - 8 + 10) | Assumed | |-------------|--------------|--------------|--------------| | | | | | | 1. 1988.....| 0 | 401 | X X X X | | 2. 1989.....| 0 | 0 | X X X X | | 3. 1990.....| 0 | 0 | X X X X | | 4. 1991.....| 0 | 0 | X X X X | | 5. 1992.....| 0 | 0 | X X X X | | 6. 1993.....| 0 | 0 | X X X X | |-------------|--------------|--------------|--------------| | 7. Totals ..| 0 | 401 | X X X X | ---------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- | | Losses Unpaid | Allocated Loss Expenses Unpaid | | |--------------------------------------------------------|-----------------------------------------------------------| | | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR | | |---------------------------|----------------------------|-----------------------------|-----------------------------| | | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20 | | | Direct | | Direct | | Direct | | Direct | | | | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| | | | | | | | | | | | 1. 1988.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | | 2. 1989.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | | 3. 1990.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | | 4. 1991.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | | 5. 1992.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | | 6. 1993.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| | 7. Totals ..| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | ----------------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------ | | | | | | | | 21 | 22 | 23 | 24 | | | | | | Number of | | | Salvage | Unallocated | Total | Claims | | | and | Loss | Net Losses |Outstanding -| | | Subrogation | Expense | and Expenses | Direct and | | | Anticipated | Unpaid | Unpaid | Assumed | |-------------|--------------|--------------|--------------|-------------| | | | | | | | 1. 1988.....| 0 | 0 | 0 | X X X X | | 2. 1989.....| 0 | 0 | 0 | X X X X | | 3. 1990.....| 0 | 0 | 0 | X X X X | | 4. 1991.....| 0 | 0 | 0 | X X X X | | 5. 1992.....| 0 | 0 | 0 | X X X X | | 6. 1993.....| 0 | 0 | 0 | X X X X | |-------------|--------------|--------------|--------------|-------------| | 7. Totals ..| 0 | 0 | 0 | X X X X | ------------------------------------------------------------------------ ----------------------------------------------------------------------------------------------------------------------------------- | | Total Losses and | Loss and Loss Expense Percentage | Discount for Time | | | Loss Expenses Incurred | (Incurred/Premiums Earned) | Value of Money | | |-----------------------------------------|--------------------------------------------|-----------------------------| | | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32 | | | | | | | | | | | | | Direct | | | Direct | | | | Loss | | | and Assumed | Ceded | Net * | and Assumed | Ceded | Net | Loss | Expense | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| | | | | | | | | | | | 1. 1988.....| 401 | 0 | 401 | 25.9 | 0.0 | 25.8 | 0 | 0 | | 2. 1989.....| 0 | 0 | 0 | 0.0 | 0.0 | 0.0 | 0 | 0 | | 3. 1990.....| 0 | 0 | 0 | 0.0 | 0.0 | 0.0 | 0 | 0 | | 4. 1991.....| 0 | 0 | 0 | 0.0 | 0.0 | 0.0 | 0 | 0 | | 5. 1992.....| 0 | 0 | 0 | 0.0 | 0.0 | 0.0 | 0 | 0 | | 6. 1993.....| 0 | 0 | 0 | 0.0 | 0.0 | 0.0 | 0 | 0 | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| | 7. Totals ..| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 | ----------------------------------------------------------------------------------------------------------------------------------- *Net = (25 - 26) = (11 + 23) ---------------------------------------------------------- | | | Net Balance Sheet Reserves | | | 33 | After Discount | | | |-----------------------------| | |Inter-Company | 34 | 35 | | | Pooling | | | | |Participation | Losses |Loss Expenses | | | Percentage | Unpaid | Unpaid | |-------------|--------------|--------------|--------------| | | | | | | 1. 1988.....| 0.0 | 0 | 0 | | 2. 1989.....| 0.0 | 0 | 0 | | 3. 1990.....| 0.0 | 0 | 0 | | 4. 1991.....| 0.0 | 0 | 0 | | 5. 1992.....| 0.0 | 0 | 0 | | 6. 1993.....| 0.0 | 0 | 0 | |-------------|--------------|--------------|--------------| | 7. Totals ..| X X X X | 0 | 0 | ---------------------------------------------------------- SCHEDULE P - PART 1Q - REINSURANCE D (OOO omitted) ----------------------------------------------------------------------------------------------------------------------------------- | 1 | Premiums Earned | Loss and Loss Expense Payments | |-----------------------------------------|--------------------------------------------------------------------------- | Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9 | | Which | | | | | Expense Payments | | |Premiums Were| | | |-----------------------------|-----------------------------| Salvage | | Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and | | Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation | | Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| | | | | | | | | | | | 1. Prior ...| X X X X | X X X X | X X X X | 0 | 0 | 0 | 0 | 0 | | 2. 1984.....| 2,162 | 1,685 | 477 | (108,463)| (111,318)| 73 | 28 | 0 | | 3. 1985.....| 48,980 | 27,823 | 21,157 | 26,546 | 8,386 | 284 | (34)| 0 | | 4. 1986.....| 101,003 | 61,408 | 39,595 | 53,924 | 25,703 | 681 | 221 | 0 | | 5. 1987.....| 49,262 | 5,704 | 43,558 | 32,938 | 4,128 | 850 | (169)| 0 | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| | 6. Totals ..| X X X X | X X X X | X X X X | 4,947 | (73,101)| 1,889 | 46 | 0 | ----------------------------------------------------------------------------------------------------------------------------------- NOTE: For "prior," report amounts paid or received in current year only. Report cumulative amounts paid or received for specific years. Report loss payments net of salvage and subrogation received. ---------------------------------------------------------- | 1 | | | | |-----------------------------| | | Years | 10 | 11 | 12 | | Which | | | Number of | |Premiums Were| Unallocated | Total | Claims | | Earned and | Loss | Net Paid | Reported - | | Losses Were | Expense | (5 - 6 + 7 | Direct and | | Incurred | Payments | - 8 + 10) | Assumed | |-------------|--------------|--------------|--------------| | | | | | | 1. Prior ...| 0 | 0 | X X X X | | 2. 1984.....| 0 | 2,901 | X X X X | | 3. 1985.....| 0 | 18,478 | X X X X | | 4. 1986.....| 0 | 28,682 | X X X X | | 5. 1987.....| 0 | 29,830 | X X X X | |-------------|--------------|--------------|--------------| | 6. Totals ..| 0 | 79,890 | X X X X | ---------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- | | Losses Unpaid | Allocated Loss Expenses Unpaid | | |--------------------------------------------------------|-----------------------------------------------------------| | | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR | | |---------------------------|----------------------------|-----------------------------|-----------------------------| | | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20 | | | Direct | | Direct | | Direct | | Direct | | | | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| | | | | | | | | | | | 1. Prior ...| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | | 2. 1984.....| 0 | 0 | 125,334 | 125,334 | 0 | 0 | 0 | 0 | | 3. 1985.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | | 4. 1986.....| 463 | 0 | 442 | 0 | 0 | 0 | 0 | 0 | | 5. 1987.....| 1,429 | 6 | 2,492 | 0 | 0 | 0 | 0 | 0 | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| | 6. Totals ..| 1,892 | 6 | 128,268 | 125,334 | 0 | 0 | 0 | 0 | ----------------------------------------------------------------------------------------------------------------------------------- -------------- ---------------------------------------------------------- | | | | | | | | 21 | 22 | 23 | 24 | | | | | | Number of | | | Salvage | Unallocated | Total | Claims | | | and | Loss | Net Losses |Outstanding -| | | Subrogation | Expense | and Expenses | Direct and | | | Anticipated | Unpaid | Unpaid | Assumed | |-------------| --------------|--------------|--------------|-------------| | | | | | | | 1. Prior ...| 0 | 0 | 0 | X X X X | | 2. 1984.....| 0 | 0 | 0 | X X X X | | 3. 1985.....| 0 | 0 | 0 | X X X X | | 4. 1986.....| 0 | 0 | 905 | X X X X | | 5. 1987.....| 0 | 0 | 3,916 | X X X X | |-------------| --------------|--------------|--------------|-------------| | 6. Totals ..| 0 | 0 | 4,820 | X X X X | -------------- ---------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- | | Total Losses and | Loss and Loss Expense Percentage | Discount for Time | | | Loss Expenses Incurred | (Incurred/Premiums Earned) | Value of Money | | |-----------------------------------------|--------------------------------------------|-----------------------------| | | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32 | | | | | | | | | | | | | Direct | | | Direct | | | | Loss | | | and Assumed | Ceded | Net * | and Assumed | Ceded | Net | Loss | Expense | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| | | | | | | | | | | | 1. Prior ...| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 | | 2. 1984.....| 16,945 | 14,044 | 2,901 | 783.9 | 833.5 | 608.7 | 0 | 0 | | 3. 1985.....| 26,830 | 8,353 | 18,478 | 54.8 | 30.0 | 87.3 | 0 | 0 | | 4. 1986.....| 55,510 | 25,924 | 29,586 | 55.0 | 42.2 | 74.7 | 0 | 0 | | 5. 1987.....| 37,710 | 3,965 | 33,746 | 76.6 | 69.5 | 77.5 | 0 | 0 | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| | 6. Totals ..| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 | ----------------------------------------------------------------------------------------------------------------------------------- *Net = (25 - 26) = (11 + 23) ---------------------------------------------------------- | | | Net Balance Sheet Reserves | | | 33 | After Discount | | | |-----------------------------| | |Inter-Company | 34 | 35 | | | Pooling | | | | |Participation | Losses |Loss Expenses | | | Percentage | Unpaid | Unpaid | |-------------|--------------|--------------|--------------| | | | | | | 1. Prior ...| 0.0 | 0 | 0 | | 2. 1984.....| 0.0 | 0 | 0 | | 3. 1985.....| 0.0 | 0 | 0 | | 4. 1986.....| 0.0 | 905 | 0 | | 5. 1987.....| 0.0 | 3,916 | 0 | |-------------|--------------|--------------|--------------| | 6. Totals ..| X X X X | 4,820 | 0 | ----------------------------------------------------------
Page # 79 Form 2 CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND ITS AFFILIATED FIRE AND CASUALTY INSURERS
SCHEDULE P - PART 1R - SECTION 1 - PRODUCTS LIABILITY - OCCURRENCE (000 omitted) ----------------------------------------------------------------------------------------------------------------------------------- | | Premiums Earned | Loss and Loss Expense Payments | 1 |-----------------------------------------|--------------------------------------------------------------------------- | Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9 | | in Which | | | | | Expense Payments | | |Premiums Were| | | |-----------------------------|-----------------------------| Salvage | | Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and | | Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation | | Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| | | | | | | | | | | | 1. Prior ...| X X X X | X X X X | X X X X | 3,805 | 12 | 27 | 51 | 141 | | 2. 1984.....| 17,934 | 3,056 | 14,878 | 17,736 | 865 | 8,817 | 455 | 758 | | 3. 1985.....| 29,241 | 6,615 | 22,626 | 17,506 | 1,978 | 9,345 | 627 | 747 | | 4. 1986.....| 58,624 | 17,080 | 41,544 | 17,987 | 2,286 | 9,340 | 861 | 303 | | 5. 1987.....| 69,307 | 20,533 | 48,774 | 21,913 | 7,039 | 11,590 | 2,508 | 919 | | 6. 1988.....| 45,670 | 15,513 | 30,157 | 11,747 | 1,979 | 5,932 | 598 | 373 | | 7. 1989.....| 29,430 | 10,438 | 18,992 | 10,716 | 2,913 | 5,154 | 1,449 | 212 | | 8. 1990.....| 24,424 | 8,559 | 15,864 | 4,464 | 1,119 | 1,922 | 483 | 41 | | 9. 1991.....| 17,168 | 5,206 | 11,962 | 3,985 | 954 | 1,630 | 415 | 23 | |10. 1992.....| 12,044 | 3,459 | 8,585 | 500 | 155 | 269 | 55 | 3 | |11. 1993.....| 11,626 | 5,243 | 6,382 | 1,178 | 49 | 96 | 8 | 0 | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| |12. Totals ..| X X X X | X X X X | X X X X | 111,538 | 19,350 | 54,122 | 7,510 | 3,521 | ----------------------------------------------------------------------------------------------------------------------------------- Note: For "prior," report amounts paid or received in current year only. Report cumulative amounts paid or received for specific years. Report loss payments net of salvage and subrogation received. ---------------------------------------------------------- | | | | | 1 |-----------------------------| 12 | | Years | 10 | 11 | | | in Which | | | Number of | |Premiums Were| Unallocated | Total | Claims | | Earned and | Loss | Net Paid | Reported - | | Losses Were | Expense | (5 - 6 + 7 | Direct and | | Incurred | Payments | - 8 + 10) | Assumed | |-------------|--------------|--------------|--------------| | | | | | | 1. Prior ...| 595 | 4,363 | X X X X | | 2. 1984.....| 1,412 | 26,645 | 1,470 | | 3. 1985.....| 1,272 | 25,518 | 1,518 | | 4. 1986.....| 1,154 | 25,333 | 1,397 | | 5. 1987.....| 1,237 | 25,192 | 1,197 | | 6. 1988.....| 806 | 15,908 | 891 | | 7. 1989.....| 567 | 12,075 | 987 | | 8. 1990.....| 501 | 5,286 | 965 | | 9. 1991.....| 507 | 4,753 | 589 | |10. 1992.....| 568 | 1,127 | 403 | |11. 1993.....| 168 | 1,386 | 187 | |-------------|--------------|--------------|--------------| |12. Totals ..| 8,787 | 147,587 | X X X X | ---------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- | | Losses Unpaid | Allocated Loss Expenses Unpaid | | |--------------------------------------------------------|-----------------------------------------------------------| | | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR | | |---------------------------|----------------------------|-----------------------------|-----------------------------| | | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20 | | | Direct | | Direct | | Direct | | Direct | | | | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| | | | | | | | | | | | 1. Prior ...| 14,090 | 104 | 7,993 | 18 | 0 | 0 | 21,834 | 14 | | 2. 1984.....| 1,943 | 21 | 1,351 | 11 | 0 | 0 | 1,578 | 3 | | 3. 1985.....| 977 | 175 | 1,936 | 26 | 0 | 0 | 1,563 | 20 | | 4. 1986.....| 1,792 | 118 | 2,214 | 20 | 0 | 0 | 2,097 | 16 | | 5. 1987.....| 2,696 | 72 | 2,843 | 10 | 0 | 0 | 2,756 | 8 | | 6. 1988.....| 3,738 | 339 | 2,558 | 30 | 0 | 0 | 2,542 | 48 | | 7. 1989.....| 2,869 | 1,062 | 2,029 | 65 | 0 | 0 | 1,724 | 143 | | 8. 1990.....| 4,456 | 1,628 | 2,322 | 82 | 0 | 0 | 1,947 | 155 | | 9. 1991.....| 4,854 | 1,528 | 2,743 | 115 | 0 | 0 | 2,280 | 151 | |10. 1992.....| 2,312 | 624 | 3,102 | 92 | 0 | 0 | 1,523 | 50 | |11. 1993.....| 1,293 | 753 | 3,165 | 266 | 0 | 0 | 3,426 | 839 | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| |12. Totals ..| 41,019 | 6,423 | 32,256 | 734 | 0 | 0 | 43,268 | 1,447 | ----------------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------ | | | | | | | | 21 | 22 | 23 | 24 | | | | | | Number of | | | Salvage | Unallocated | Total | Claims | | | and | Loss | Net Losses |Outstanding -| | | Subrogation | Expenses | and Expenses | Direct | | | Anticipated | Unpaid | Unpaid | and Assumed | |-------------|--------------|--------------|--------------|-------------| | | | | | | | 1. Prior ...| (143)| 3,066 | 46,847 | 235 | | 2. 1984.....| (43)| 402 | 5,239 | 47 | | 3. 1985.....| (58)| 289 | 4,543 | 44 | | 4. 1986.....| (68)| 510 | 6,460 | 77 | | 5. 1987.....| (79)| 577 | 8,782 | 91 | | 6. 1988.....| (71)| 491 | 8,913 | 61 | | 7. 1989.....| (46)| 181 | 5,533 | 42 | | 8. 1990.....| (41)| 271 | 7,132 | 56 | | 9. 1991.....| (59)| 402 | 8,484 | 81 | |10. 1992.....| (48)| 281 | 6,451 | 62 | |11. 1993.....| (26)| 90 | 6,116 | 45 | |-------------|--------------|--------------|--------------|-------------| |12. Totals ..| (682)| 6,562 | 114,500 | 841 | ------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ | | Total Losses and | Loss and Loss Expense Percentage | Discount for Time | | | Loss Expenses Incurred | (Incurred/Premiums Earned) | Value of Money | | |-----------------------------------------|--------------------------------------------|-----------------------------| | | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32 | | | Direct | | | Direct | | | | Loss | | | and Assumed | Ceded | Net * | and Assumed | Ceded | Net | Loss | Expense | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| | | | | | | | | | | | 1. Prior ...| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 | | 2. 1984.....| 33,239 | 1,355 | 31,884 | 185.3 | 44.3 | 214.3 | 0 | 0 | | 3. 1985.....| 32,887 | 2,825 | 30,062 | 112.5 | 42.7 | 132.9 | 0 | 0 | | 4. 1986.....| 35,094 | 3,301 | 31,793 | 59.9 | 19.3 | 76.5 | 0 | 0 | | 5. 1987.....| 43,612 | 9,638 | 33,974 | 62.9 | 46.9 | 69.7 | 0 | 0 | | 6. 1988.....| 27,814 | 2,994 | 24,821 | 60.9 | 19.3 | 82.3 | 0 | 0 | | 7. 1989.....| 23,239 | 5,631 | 17,608 | 79.0 | 54.0 | 92.7 | 0 | 0 | | 8. 1990.....| 15,885 | 3,467 | 12,418 | 65.0 | 40.5 | 78.3 | 0 | 0 | | 9. 1991.....| 16,400 | 3,163 | 13,237 | 95.5 | 60.8 | 110.7 | 0 | 0 | |10. 1992.....| 8,554 | 976 | 7,578 | 71.0 | 28.2 | 88.3 | 0 | 0 | |11. 1993.....| 9,417 | 1,915 | 7,502 | 81.0 | 36.5 | 117.5 | 0 | 0 | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| |12. Totals ..| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 | ----------------------------------------------------------------------------------------------------------------------------------- *Net = (25 - 26) = (11 + 23) - ----------------------------------------------------------- | | Net Balance Sheet Reserves | | | 33 | After Discount | | |Inter-Company |-----------------------------| | | Pooling | 34 | 35 | | |Participation | Losses |Loss Expenses | | | Percentage | Unpaid | Unpaid | |-------------|--------------|--------------|--------------| | | | | | | 1. Prior ...| X X X X | 21,962 | 24,886 | | 2. 1984.....| 0.0 | 3,262 | 1,977 | | 3. 1985.....| 0.0 | 2,711 | 1,832 | | 4. 1986.....| 0.0 | 3,868 | 2,592 | | 5. 1987.....| 0.0 | 5,457 | 3,325 | | 6. 1988.....| 0.0 | 5,927 | 2,985 | | 7. 1989.....| 0.0 | 3,771 | 1,762 | | 8. 1990.....| 0.0 | 5,068 | 2,063 | | 9. 1991.....| 0.0 | 5,954 | 2,530 | |10. 1992.....| 0.0 | 4,698 | 1,753 | |11. 1993.....| 0.0 | 3,439 | 2,677 | |-------------|--------------|--------------|--------------| |12. Totals ..| X X X X | 66,117 | 48,383 | -------------|--------------------------------------------
Page # 80 Form 2 CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND ITS AFFILIATED FIRE AND CASUALTY INSURERS
SCHEDULE P - PART 1R - SECTION 2 - PRODUCTS LIABILITY - CLAIMS-MADE (000 omitted) ----------------------------------------------------------------------------------------------------------------------------------- | | Premiums Earned | Loss and Loss Expense Payments | 1 |-----------------------------------------|--------------------------------------------------------------------------- | Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9 | | in Which | | | | | Expense Payments | | |Premiums Were| | | |-----------------------------|-----------------------------| Salvage | | Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and | | Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation | | Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| | | | | | | | | | | > | 1. Prior ...| X X X X | X X X X | X X X X | 0 | 0 | 0 | 0 | 0 | | 2. 1984.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | | 3. 1985.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | | 4. 1986.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | | 5. 1987.....| 14 | 0 | 14 | 0 | 0 | 0 | 0 | 0 | | 6. 1988.....| 234 | 0 | 234 | 6 | 0 | 7 | 0 | (1)| | 7. 1989.....| 310 | 0 | 310 | 9 | 0 | 10 | 0 | 0 | | 8. 1990.....| 294 | 0 | 294 | 82 | 0 | 345 | 0 | 0 | | 9. 1991.....| 285 | 0 | 285 | 94 | 0 | 72 | 0 | (4)| |10. 1992.....| 104 | 0 | 104 | 8 | 0 | 23 | 0 | (1)| |11. 1993.....| 118 | 0 | 118 | 0 | 0 | 20 | 0 | 0 | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| |12. Totals ..| X X X X | X X X X | X X X X | 198 | 0 | 477 | 0 | (5)| ----------------------------------------------------------------------------------------------------------------------------------- Note: For "prior," report amounts paid or received in current year only. Report cumulative amounts paid or received for specific years. Report loss payments net of salvage and subrogation received. ---------------------------------------------------------- | | | | | 1 |-----------------------------| 12 | | Years | 10 | 11 | | | in Which | | | Number of | |Premiums Were| Unallocated | Total | Claims | | Earned and | Loss | Net Paid | Reported - | | Losses Were | Expense | (5 - 6 + 7 | Direct and | | Incurred | Payments | - 8 + 10) | Assumed | |-------------|--------------|--------------|--------------| | | | | | | 1. Prior ...| 0 | 0 | X X X X | | 2. 1984.....| 0 | 0 | 0 | | 3. 1985.....| 0 | 0 | 0 | | 4. 1986.....| 0 | 0 | 0 | | 5. 1987.....| 2 | 2 | 0 | | 6. 1988.....| 11 | 24 | 6 | | 7. 1989.....| 15 | 33 | 2 | | 8. 1990.....| 40 | 466 | 8 | | 9. 1991.....| 44 | 210 | 13 | |10. 1992.....| 201 | 231 | 6 | |11. 1993.....| 2 | 23 | 81 | |-------------|--------------|--------------|--------------| |12. Totals ..| 314 | 990 | X X X X | ---------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- | | Losses Unpaid | Allocated Loss Expenses Unpaid | | |--------------------------------------------------------|-----------------------------------------------------------| | | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR | | |---------------------------|----------------------------|-----------------------------|-----------------------------| | | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20 | | | Direct | | Direct | | Direct | | Direct | | | | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| | | | | | | | | | | | 1. Prior ...| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | | 2. 1984.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | | 3. 1985.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | | 4. 1986.....| 0 | 0 | 0 | 0 | 0 | 0 | 3 | 0 | | 5. 1987.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | | 6. 1988.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | | 7. 1989.....| 0 | 0 | 0 | 0 | 0 | 0 | 2 | 0 | | 8. 1990.....| 0 | 0 | 0 | 0 | 0 | 0 | (0)| 0 | | 9. 1991.....| 5 | 0 | 0 | 0 | 0 | 0 | 12 | 0 | |10. 1992.....| 0 | 0 | 0 | 0 | 0 | 0 | 348 | 0 | |11. 1993.....| 850 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| |12. Totals ..| 855 | 0 | 0 | 0 | 0 | 0 | 365 | 0 | ----------------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------ | | | | | | | | 21 | 22 | 23 | 24 | | | | | | Number of | | | Salvage | Unallocated | Total | Claims | | | and | Loss | Net Losses |Outstanding -| | | Subrogation | Expenses | and Expenses | Direct | | | Anticipated | Unpaid | Unpaid | and Assumed | |-------------|--------------|--------------|--------------|-------------| | | | | | | | 1. Prior ...| 0 | 0 | 0 | 0 | | 2. 1984.....| 0 | 0 | 0 | 0 | | 3. 1985.....| 0 | 0 | 0 | 0 | | 4. 1986.....| 0 | 2 | 5 | 0 | | 5. 1987.....| 0 | 0 | 0 | 0 | | 6. 1988.....| 0 | 0 | 0 | 0 | | 7. 1989.....| 0 | 0 | 2 | 0 | | 8. 1990.....| 0 | 0 | (0)| 0 | | 9. 1991.....| 0 | 1 | 18 | 2 | |10. 1992.....| 0 | 228 | 576 | 0 | |11. 1993.....| 0 | 0 | 850 | 79 | |-------------|--------------|--------------|--------------|-------------| |12. Totals ..| 0 | 231 | 1,450 | 81 | ------------------------------------------------------------------------ ----------------------------------------------------------------------------------------------------------------------------------- | | Total Losses and | Loss and Loss Expense Percentage | Discount for Time | | | Loss Expenses Incurred | (Incurred/Premiums Earned) | Value of Money | | |-----------------------------------------|--------------------------------------------|-----------------------------| | | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32 | | | Direct | | | Direct | | | | Loss | | | and Assumed | Ceded | Net * | and Assumed | Ceded | Net | Loss | Expense | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| | | | | | | | | | | | 1. Prior ...| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 | | 2. 1984.....| 0 | 0 | 0 | 0.0 | 0.0 | 0.0 | 0 | 0 | | 3. 1985.....| 0 | 0 | 0 | 0.0 | 0.0 | 0.0 | 0 | 0 | | 4. 1986.....| 5 | 0 | 5 | 0.0 | 0.0 | 0.0 | 0 | 0 | | 5. 1987.....| 2 | 0 | 2 | 12.9 | 0.0 | 12.9 | 0 | 0 | | 6. 1988.....| 24 | 0 | 24 | 10.4 | 0.0 | 10.4 | 0 | 0 | | 7. 1989.....| 35 | 0 | 35 | 11.2 | 0.0 | 11.2 | 0 | 0 | | 8. 1990.....| 466 | 0 | 466 | 158.4 | 0.0 | 158.4 | 0 | 0 | | 9. 1991.....| 228 | 0 | 228 | 80.1 | 0.0 | 80.1 | 0 | 0 | |10. 1992.....| 807 | 0 | 807 | 778.2 | 0.0 | 778.2 | 0 | 0 | |11. 1993.....| 873 | 0 | 873 | 741.1 | 0.0 | 741.1 | 0 | 0 | |-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------| |12. Totals ..| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 | ----------------------------------------------------------------------------------------------------------------------------------- *Net = (25 - 26) = (11 + 23) ---------------------------------------------------------- | | | Net Balance Sheet Reserves | | | 33 | After Discount | | |Inter-Company |-----------------------------| | | Pooling | 34 | 35 | | |Participation | Losses |Loss Expenses | | | Percentage | Unpaid | Unpaid | |-------------|--------------|--------------|--------------| | | | | | | 1. Prior ...| X X X X | 0 | 0 | | 2. 1984.....| 0.0 | 0 | 0 | | 3. 1985.....| 0.0 | 0 | 0 | | 4. 1986.....| 0.0 | 0 | 5 | | 5. 1987.....| 0.0 | 0 | 0 | | 6. 1988.....| 0.0 | 0 | 0 | | 7. 1989.....| 0.0 | 0 | 2 | | 8. 1990.....| 0.0 | 0 | (0)| | 9. 1991.....| 0.0 | 5 | 13 | |10. 1992.....| 0.0 | 0 | 576 | |11. 1993.....| 0.0 | 850 | 0 | |-------------|--------------|--------------|--------------| |12. Totals ..| X X X X | 855 | 595 | ----------------------------------------------------------
Page 81 Form 2 CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND ITS AFFILIATED FIRE AND CASUALTY INSURERS
SCHEDULE P - PART 2A - HOMEOWNERS/FARMOWNERS ------------------------------------------------------------------------------------------------------------------------ | 1 | Incurred Losses and Allocated Expenses Reported at Year End (000 omitted) | |---------------------------------------------------------------------------------------------------- | Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 | | Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | | Incurred | | | | | | | | |-------------------|---------------|-------------|-------------|-------------|-------------|-------------|-------------| | | | | | | | | | | | 1. Prior ......| 20,853 * | 18,939 | 17,488 | 19,341 | 19,015 | 19,095 | 19,181 | | 2. 1984........| 130,259 | 130,600 | 130,504 | 129,995 | 130,289 | 130,224 | 130,381 | | 3. 1985........| X X X X | 163,293 | 161,780 | 163,183 | 163,943 | 163,699 | 163,870 | | 4. 1986........| X X X X | X X X X | 150,891 | 140,466 | 141,188 | 141,094 | 140,779 | | 5. 1987........| X X X X | X X X X | X X X X | 145,362 | 133,500 | 131,436 | 129,910 | | 6. 1988........| X X X X | X X X X | X X X X | X X X X | 136,735 | 127,851 | 127,629 | | 7. 1989........| X X X X | X X X X | X X X X | X X X X | X X X X | 161,136 | 152,034 | | 8. 1990........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 148,750 | | 9. 1991........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 10. 1992........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 11. 1993........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | ------------------------------------------------------------------------------------------------------------------------ ----------------------------------------------------------------------------------------- | 1 | Development** || | |----------------------------------------|---------------------------|| | Years in Which | 9 | 10 | 11 | 12 | 13 || | Losses Were | 1991 | 1992 | 1993 | One Year | Two Year || | Incurred | | | | | || |--------------------|------------|-------------|-------------|-------------|-------------|| | | | | | | || | 1. Prior ...... | 19,114 | 19,087 | 19,067 | (20)| (47)|| | 2. 1984........ | 130,447 | 130,432 | 130,438 | 6 | (9)|| | 3. 1985........ | 163,968 | 164,046 | 164,437 | 391 | 469 || | 4. 1986........ | 140,166 | 140,140 | 140,049 | (91)| (117)|| | 5. 1987........ | 126,780 | 126,913 | 126,790 | (123)| 10 || | 6. 1988........ | 126,023 | 125,826 | 125,748 | (78)| (275)|| | 7. 1989........ | 150,820 | 151,861 | 151,951 | 90 | 1,131 || | 8. 1990........ | 139,518 | 140,024 | 140,055 | 31 | 537 || | 9. 1991........ | 177,601 | 165,548 | 165,009 | (539)| (12,592)|| | 10. 1992........ | X X X X | 193,601 | 181,168 | (12,433)| X X X X || | 11. 1993........ | X X X X | X X X X | 110,806 | X X X X | X X X X || ------------------------------------------------------------ |-------------|-------------|- 12. Totals | (12,766)| (10,893)| ------------------------------------------------- SCHEDULE P - PART 2B - PRIVATE PASSENGER AUTO LIABILITY/MEDICAL ------------------------------------------------------------------------------------------------------------------------ | 1 | Incurred Losses and Allocated Expenses Reported at Year End (000 omitted) | |---------------------------------------------------------------------------------------------------- | Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 | | Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | | Incurred | | | | | | | | -------------------|---------------|-------------|-------------|-------------|-------------|-------------|-------------| | 1. Prior ......| 138,769 * | 151,900 | 150,026 | 154,209 | 159,279 | 159,648 | 159,575 | | 2. 1984........| 262,701 | 282,722 | 294,679 | 297,308 | 300,574 | 304,915 | 305,530 | | 3. 1985........| X X X X | 281,456 | 314,605 | 322,512 | 328,421 | 332,819 | 333,041 | | 4. 1986........| X X X X | X X X X | 310,271 | 313,575 | 321,444 | 317,969 | 320,962 | | 5. 1987........| X X X X | X X X X | X X X X | 301,420 | 306,677 | 308,344 | 308,884 | | 6. 1988........| X X X X | X X X X | X X X X | X X X X | 285,941 | 302,310 | 303,811 | | 7. 1989........| X X X X | X X X X | X X X X | X X X X | X X X X | 309,260 | 321,455 | | 8. 1990........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 339,210 | | 9. 1991........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 10. 1992........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 11. 1993........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | ------------------------------------------------------------------------------------------------------------------------ ----------------------------------------------------------------------------------------- | 1 | Development** | | |---------------------------------------|---------------------------| | Years in Which | 9 | 10 | 11 | 12 | 13 | | Losses Were | 1991 | 1992 | 1993 | One Year | Two Year | | Incurred | | | | | | |---------------------|-----------|-------------|-------------|-------------|-------------| | 1. Prior ...... | 163,860 | 165,350 | 171,538 | 6,188 | 7,678 | | 2. 1984........ | 309,694 | 309,519 | 310,251 | 732 | 557 | | 3. 1985........ | 332,261 | 337,846 | 334,839 | (3,007)| 2,578 | | 4. 1986........ | 320,731 | 325,471 | 323,967 | (1,504)| 3,236 | | 5. 1987........ | 304,696 | 308,511 | 309,930 | 1,419 | 5,234 | | 6. 1988........ | 299,676 | 305,696 | 304,813 | (883)| 5,137 | | 7. 1989........ | 312,009 | 315,294 | 315,019 | (275)| 3,010 | | 8. 1990........ | 327,128 | 307,879 | 312,942 | 5,063 | (14,186)| | 9. 1991........ | 374,565 | 349,433 | 338,548 | (10,885)| (36,017)| | 10. 1992........ | X X X X | 272,009 | 265,017 | (6,992)| X X X X | | 11. 1993........ | X X X X | X X X X | 235,858 | X X X X | X X X X | ------------------------------------------------------------|-------------|-------------| 12. Totals | (10,144)| (22,773)| ------------------------------------------------- SCHEDULE P - PART 2C - COMMERCIAL AUTO/TRUCK LIABILITY/MEDICAL ------------------------------------------------------------------------------------------------------------------------ | 1 | Incurred Losses and Allocated Expenses Reported at Year End (000 omitted) | |---------------------------------------------------------------------------------------------------- | Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 | | Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | | Incurred | | | | | | | | -------------------|---------------|-------------|-------------|-------------|-------------|-------------|-------------| | 1. Prior ......| 166,509 * | 202,363 | 198,495 | 192,148 | 199,046 | 199,565 | 199,572 | | 2. 1984........| 206,373 | 241,921 | 250,678 | 256,147 | 258,892 | 264,016 | 263,821 | | 3. 1985........| X X X X | 262,315 | 299,226 | 303,712 | 312,550 | 323,355 | 329,849 | | 4. 1986........| X X X X | X X X X | 344,128 | 333,515 | 315,451 | 302,275 | 320,045 | | 5. 1987........| X X X X | X X X X | X X X X | 391,334 | 355,821 | 314,506 | 308,358 | | 6. 1988........| X X X X | X X X X | X X X X | X X X X | 283,122 | 291,544 | 301,662 | | 7. 1989........| X X X X | X X X X | X X X X | X X X X | X X X X | 302,863 | 269,923 | | 8. 1990........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 272,448 | | 9. 1991........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 10. 1992........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 11. 1993........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | ------------------------------------------------------------------------------------------------------------------------ ---------------------------------------------------------------------------------------- | 1 | | Development** | | |---------------------------------------|---------------------------| | Years in Which | 9 | 10 | 11 | 12 | 13 | | Losses Were | 1991 | 1992 | 1993 | One Year | Two Year | | Incurred | | | | | | -------------------|-----------|-------------|-------------|-------------|-------------| | 1. Prior ..... 204,005 | 207,166 | 206,277 | (889)| 2,272 | | 2. 1984....... 264,485 | 264,999 | 265,186 | 187 | 701 | | 3. 1985....... 331,349 | 331,925 | 333,115 | 1,190 | 1,766 | | 4. 1986....... 308,836 | 310,490 | 309,908 | (582)| 1,072 | | 5. 1987....... 303,308 | 302,538 | 305,408 | 2,870 | 2,100 | | 6. 1988....... 286,355 | 285,382 | 284,706 | (676)| (1,649)| | 7. 1989....... 282,409 | 279,507 | 274,040 | (5,467)| (8,369)| | 8. 1990....... 282,049 | 267,172 | 259,560 | (7,612)| (22,489)| | 9. 1991....... 263,709 | 247,952 | 228,224 | (19,728)| (35,485)| | 10. 1992....... X X X X | 205,427 | 185,499 | (19,928)| X X X X | | 11. 1993....... X X X X | X X X X | 155,709 | X X X X | X X X X | -----------------------------------------------------------|-------------|-------------| 12. Totals | (50,635)| (60,081)| --------------------------- SCHEDULE P - PART 2D - WORKERS' COMPENSATION ------------------------------------------------------------------------------------------------------------------------ | 1 | Incurred Losses and Allocated Expenses Reported at Year End (000 omitted) | |---------------------------------------------------------------------------------------------------- | Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 | | Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | | Incurred | | | | | | | | ------------------------------------------------------------------------------------------------------------------------ | 1. Prior ......| 617,498 * | 652,737 | 670,984 | 719,649 | 781,762 | 840,479 | 865,365 | | 2. 1984........| 370,864 | 412,572 | 420,400 | 431,681 | 451,254 | 465,521 | 475,693 | | 3. 1985........| X X X X | 456,662 | 486,686 | 490,368 | 521,699 | 546,043 | 564,044 | | 4. 1986........| X X X X | X X X X | 526,887 | 528,478 | 519,711 | 524,929 | 526,776 | | 5. 1987........| X X X X | X X X X | X X X X | 505,533 | 499,516 | 500,958 | 525,304 | | 6. 1988........| X X X X | X X X X | X X X X | X X X X | 521,268 | 539,213 | 578,796 | | 7. 1989........| X X X X | X X X X | X X X X | X X X X | X X X X | 588,512 | 615,008 | | 8. 1990........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 606,690 | | 9. 1991........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 10. 1992........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 11. 1993........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | ------------------------------------------------------------------------------------------------------------------------ ---------------------------------------------------------------------------------------- | 1 | | Development** | | |-----------------------------------------|---------------------------| | Years in Which | 9 | 10 | 11 | 12 | 13 | | Losses Were | 1991 | 1992 | 1993 | One Year | Two Year | | Incurred | | | | | | -------------------|-------------|-------------|-------------|-------------|-------------| | 1. Prior ......| 917,318 | 941,284 | 1,004,032 | 62,748 | 86,714 | | 2. 1984........| 489,953 | 499,256 | 519,705 | 20,449 | 29,752 | | 3. 1985........| 578,875 | 587,520 | 613,205 | 25,685 | 34,330 | | 4. 1986........| 547,050 | 551,728 | 573,491 | 21,763 | 26,441 | | 5. 1987........| 534,379 | 536,409 | 566,997 | 30,588 | 32,618 | | 6. 1988........| 585,768 | 594,656 | 621,926 | 27,270 | 36,158 | | 7. 1989........| 674,752 | 663,508 | 699,681 | 36,173 | 24,929 | | 8. 1990........| 589,411 | 601,101 | 617,348 | 16,247 | 27,937 | | 9. 1991........| 478,680 | 483,984 | 453,183 | (30,801)| (25,497)| | 10. 1992........| X X X X | 317,061 | 298,582 | (18,479)| X X X X | | 11. 1993........| X X X X | X X X X | 154,703 | X X X X | X X X X | -------------------------------------------------------------|-------------|-------------| 12. Totals | 191,643 | 273,382 | --------------------------- SCHEDULE P - PART 2E - COMMERCIAL MULTIPLE PERIL ------------------------------------------------------------------------------------------------------------------------ | 1 | Incurred Losses and Allocated Expenses Reported at Year End (000 omitted) | |---------------------------------------------------------------------------------------------------- | Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 | | Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | | Incurred | | | | | | | | ------------------------------------------------------------------------------------------------------------------------ | 1. Prior ......| 105,031 * | 109,421 | 116,787 | 125,541 | 129,627 | 127,979 | 139,929 | | 2. 1984........| 134,759 | 147,885 | 152,560 | 154,828 | 161,827 | 163,022 | 162,920 | | 3. 1985........| X X X X | 162,765 | 172,620 | 174,674 | 185,429 | 195,720 | 196,477 | | 4. 1986........| X X X X | X X X X | 170,445 | 155,001 | 161,660 | 172,818 | 174,757 | | 5. 1987........| X X X X | X X X X | X X X X | 169,796 | 146,449 | 152,706 | 182,449 | | 6. 1988........| X X X X | X X X X | X X X X | X X X X | 328,658 | 307,656 | 304,487 | | 7. 1989........| X X X X | X X X X | X X X X | X X X X | X X X X | 458,116 | 435,566 | | 8. 1990........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 444,097 | | 9. 1991........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 10. 1992........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 11. 1993........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | ------------------------------------------------------------------------------------------------------------------------ *Reported reserves only. Subsequent development relates only to subsequent payments and reserves. **Current year less first or second prior year, showing (redundant) or adverse. ---------------------------------------------------------------------------------------- | 1 | | Development** | | |-----------------------------------------|---------------------------| | Years in Which | 9 | 10 | 11 | 12 | 13 | | Losses Were | 1991 | 1992 | 1993 | One Year | Two Year | | Incurred | | | | | | -------------------|-------------|-------------|-------------|-------------|-------------| | 1. Prior ......| 142,370 | 142,075 | 145,798 | 3,723 | 3,428 | | 2. 1984........| 165,323 | 164,469 | 165,117 | 648 | (206)| | 3. 1985........| 202,923 | 200,964 | 201,185 | 221 | (1,738)| | 4. 1986........| 179,701 | 183,294 | 184,509 | 1,215 | 4,808 | | 5. 1987........| 183,979 | 192,505 | 193,336 | 831 | 9,357 | | 6. 1988........| 303,271 | 312,866 | 312,959 | 93 | 9,688 | | 7. 1989........| 420,114 | 404,101 | 414,981 | 10,880 | (5,133)| | 8. 1990........| 466,286 | 456,981 | 446,101 | (10,880)| (20,185)| | 9. 1991........| 432,035 | 417,797 | 413,224 | (4,573)| (18,811)| | 10. 1992........| X X X X | 417,018 | 383,326 | (33,692)| X X X X | | 11. 1993........| X X X X | X X X X | 376,986 | X X X X | X X X X | -------------------------------------------------------------|-------------|-------------| 12. Totals | (31,534)| (18,792)| ---------------------------
Page 82 Form 2 CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND ITS AFFILIATED FIRE AND CASUALTY INSURERS
SCHEDULE P - PART 2F - SECTION 1 - MEDICAL MALPRACTICE - OCCURRENCE - ------------------------------------------------------------------------------------------------------------------------- | 1 | Incurred Losses and Allocated Expenses Reported at Year End (000 omitted) | |---------------------------------------------------------------------------------------------------- | Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 | | Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | | Incurred | | | | | | | | |-------------------|---------------|-------------|-------------|-------------|-------------|-------------|-------------| | | | | | | | | | | | 1. Prior | 47,900 * | 60,821 | 59,128 | 63,267 | 67,621 | 69,457 | 71,925 | | 2. 1984........| 9,965 | 9,994 | 10,764 | 16,714 | 20,225 | 18,594 | 16,514 | | 3. 1985........| X X X X | 10,272 | 11,890 | 8,598 | 6,936 | 7,529 | 6,006 | | 4. 1986........| X X X X | X X X X | 120 | 2 | 8 | 13 | 4 | | 5. 1987........| X X X X | X X X X | X X X X | 7 | 123 | 15 | 17 | | 6. 1988........| X X X X | X X X X | X X X X | X X X X | 164 | 13 | 37 | | 7. 1989........| X X X X | X X X X | X X X X | X X X X | X X X X | 10 | 20 | | 8. 1990........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 10 | | 9. 1991........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 10. 1992........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 11. 1993........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | ------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------ | 1 | Development** | | ------------------------------------------|---------------------------| | Years in Which | 9 | 10 | 11 | 12 | 13 | | Losses Were | 1991 | 1992 | 1993 | One Year | Two Year | | Incurred | | | | | | |--------------------|------------|-------------|-------------|-------------|-------------| | | | | | | | | 1. Prior ...... | 70,045 | 69,037 | 73,823 | 4,786 | 3,778 | | 2. 1984........ | 12,110 | 11,362 | 10,802 | (560)| (1,308)| | 3. 1985........ | 5,202 | 4,754 | 5,158 | 404 | (44)| | 4. 1986........ | 4 | 4 | 4 | 0 | 0 | | 5. 1987........ | 17 | 17 | 17 | 0 | 0 | | 6. 1988........ | 38 | 43 | 43 | 0 | 5 | | 7. 1989........ | 24 | 24 | 24 | 0 | 0 | | 8. 1990........ | 0 | 356 | 358 | 2 | 358 | | 9. 1991........ | 3 | 0 | 35 | 35 | 32 | | 10. 1992........ | X X X X | 0 | 0 | 0 | X X X X | | 11. 1993........ | X X X X | X X X X | 0 | X X X X | X X X X | -------------------------------------------------------------|-------------|-------------| 12. Totals | 4,667 | 2,821 | --------------------------- SCHEDULE P - PART 2F - SECTION 2 - MEDICAL MALPRACTICE - CLAIMS-MADE - ------------------------------------------------------------------------------------------------------------------------- | 1 | Incurred Losses and Allocated Expenses Reported at Year End (000 omitted) | |---------------------------------------------------------------------------------------------------- | Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 | | Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | | Incurred | | | | | | | | |-------------------|---------------|-------------|-------------|-------------|-------------|-------------|-------------| | 1. Prior ......| 0 * | 0 | 0 | 0 | 0 | 0 | 0 | | 2. 1984........| 0 | 0 | 0 | 0 | 0 | 0 | 0 | | 3. 1985........| X X X X | 0 | 0 | 1,178 | 1,020 | 1,037 | 1,037 | | 4. 1986........| X X X X | X X X X | 0 | 23 | 30 | 32 | 32 | | 5. 1987........| X X X X | X X X X | X X X X | 0 | 0 | 95 | 112 | | 6. 1988........| X X X X | X X X X | X X X X | X X X X | 0 | 198 | 409 | | 7. 1989........| X X X X | X X X X | X X X X | X X X X | X X X X | 176 | 197 | | 8. 1990........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 80 | | 9. 1991........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 10. 1992........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 11. 1993........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | ------------------------------------------------------------------------------------------------------------------------ - -------------------------------------------------------------------------------------------- | 1 | Development** | | ----------- ------------------------------|---------------------------| | Years in Which | 9 | 10 | 11 | 12 | 13 | | Losses Were | 1991 | 1992 | 1993 | One Year | Two Year | | Incurred | | | | | | |-------------------|---------------------------------------------------------------------| | 1. Prior ..... | 0 | 0 | 0 | 0 | 0 | | 2. 1984........| 0 | 0 | 0 | 0 | 0 | | 3. 1985........| 945 | 945 | 945 | 0 | 0 | | 4. 1986........| 32 | 32 | 32 | 0 | 0 | | 5. 1987........| 88 | 88 | 48 | (40)| (40)| | 6. 1988........| 236 | 231 | 295 | 64 | 59 | | 7. 1989........| 210 | 378 | 424 | 46 | 214 | | 8. 1990........| 191 | 333 | 304 | (29)| 113 | | 9. 1991........| 224 | 224 | 224 | 0 | 0 | | 10. 1992........| X X X X | 191 | 191 | 0 | X X X X | | 11. 1993........| X X X X | X X X X | 40 | X X X X | X X X X | -------------------------------------------------------------|-------------|-------------| 12. Totals | 41 | 346 | --------------------------- SCHEDULE P - PART 2G - SPECIAL LIABILITY (OCEAN MARINE, AIRCRAFT (ALL PERILS), BOILER AND MACHINERY) - ------------------------------------------------------------------------------------------------------------------------- | 1 | Incurred Losses and Allocated Expenses Reported at Year End (000 omitted) | |---------------------------------------------------------------------------------------------------- | Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 | | Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | | Incurred | | | | | | | | ------------------------------------------------------------------------------------------------------------------------ | 1. Prior ......| 8,553 * | 8,539 | 8,896 | 8,674 | 9,175 | 9,482 | 8,619 | | 2. 1984........| 14,897 | 15,951 | 14,735 | 14,793 | 15,014 | 14,987 | 15,113 | | 3. 1985........| X X X X | 19,026 | 18,592 | 18,763 | 19,218 | 19,379 | 19,455 | | 4. 1986........| X X X X | X X X X | 32,710 | 31,068 | 31,472 | 31,574 | 31,264 | | 5. 1987........| X X X X | X X X X | X X X X | 34,199 | 33,346 | 33,152 | 31,094 | | 6. 1988........| X X X X | X X X X | X X X X | X X X X | 33,994 | 27,941 | 26,529 | | 7. 1989........| X X X X | X X X X | X X X X | X X X X | X X X X | 28,336 | 25,561 | | 8. 1990........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 24,440 | | 9. 1991........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 10. 1992........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 11. 1993........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | ------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------ | 1 | Development** | | -------------------------------------------|---------------------------| | Years in Which | 9 | 10 | 11 | 12 | 13 | | Losses Were | 1991 | 1992 | 1993 | One Year | Two Year | | Incurred | | | | | | |--------------------|-------------|-------------|-------------|---------------------------| | 1. Prior ......| 8,473 | 8,459 | 8,475 | 16 | 2 | | 2. 1984........| 15,111 | 15,147 | 15,130 | (17)| 19 | | 3. 1985........| 19,406 | 19,177 | 19,176 | (1)| (230)| | 4. 1986........| 30,183 | 30,036 | 29,880 | (156)| (303)| | 5. 1987........| 30,500 | 31,021 | 31,097 | 76 | 597 | | 6. 1988........| 25,407 | 25,698 | 25,583 | (115)| 176 | | 7. 1989........| 24,421 | 24,419 | 24,753 | 334 | 332 | | 8. 1990........| 21,880 | 21,355 | 20,838 | (517)| (1,042)| | 9. 1991........| 21,188 | 20,078 | 19,310 | (768)| (1,878)| | 10. 1992........| X X X X | 14,494 | 11,410 | (3,084)| X X X X | | 11. 1993........| X X X X | X X X X | 13,251 | X X X X | X X X X | | ------------------------------------------------------------|-------------|-------------| 12. Totals | (4,232)| (2,327)| --------------------------- SCHEDULE P - PART 2H - SECTION 1 - OTHER LIABILITY - OCCURRENCE - ------------------------------------------------------------------------------------------------------------------------- | 1 | Incurred Losses and Allocated Expenses Reported at Year End (000 omitted) | |---------------------------------------------------------------------------------------------------- | Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 | | Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | | Incurred | | | | | | | | ------------------------------------------------------------------------------------------------------------------------ | 1. Prior ......| 353,117 * | 414,497 | 453,995 | 478,173 | 503,660 | 543,409 | 564,262 | | 2. 1984........| 143,703 | 152,697 | 163,218 | 169,349 | 178,504 | 188,744 | 188,799 | | 3. 1985........| X X X X | 196,505 | 192,845 | 198,323 | 213,753 | 221,417 | 231,058 | | 4. 1986........| X X X X | X X X X | 257,917 | 270,026 | 260,207 | 226,968 | 224,648 | | 5. 1987........| X X X X | X X X X | X X X X | 304,479 | 290,562 | 251,419 | 237,160 | | 6. 1988........| X X X X | X X X X | X X X X | X X X X | 221,807 | 186,050 | 223,022 | | 7. 1989........| X X X X | X X X X | X X X X | X X X X | X X X X | 148,722 | 146,744 | | 8. 1990........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 158,238 | | 9. 1991........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 10. 1992........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 11. 1993........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | ------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------- | 1 | Development** | | |---------------------------------------------------------------------| | Years in Which | 9 | 10 | 11 | 12 | 13 | | Losses Were | 1991 | 1992 | 1993 | One Year | Two Year | | Incurred | | | | | | -------------------|-------------|-------------|-------------|-------------|-------------| | 1. Prior ......| 614,667 | 658,179 | 717,546 | 59,367 | 102,879 | | 2. 1984........| 191,849 | 200,347 | 210,873 | 10,526 | 19,024 | | 3. 1985........| 237,991 | 239,717 | 243,285 | 3,568 | 5,294 | | 4. 1986........| 236,206 | 241,842 | 239,809 | (2,033)| 3,603 | | 5. 1987........| 243,973 | 257,103 | 244,529 | (12,574)| 556 | | 6. 1988........| 170,605 | 182,232 | 166,662 | (15,570)| (3,943)| | 7. 1989........| 144,171 | 131,353 | 123,285 | (8,068)| (20,886)| | 8. 1990........| 162,112 | 159,602 | 135,630 | (23,972)| (26,482)| | 9. 1991........| 117,006 | 118,491 | 99,979 | (18,512)| (17,027)| | 10. 1992........| X X X X | 76,240 | 67,663 | (8,577)| X X X X | | 11. 1993........| X X X X | X X X X | 57,671 | X X X X | X X X X | -------------------------------------------------------------|-------------|-------------| 12. Totals | (15,845)| 63,018 | --------------------------- SCHEDULE P - PART 2H - SECTION 2 - OTHER LIABILITY - CLAIMS-MADE - ------------------------------------------------------------------------------------------------------------------------- | 1 | Incurred Losses and Allocated Expenses Reported at Year End (000 omitted) | |---------------------------------------------------------------------------------------------------- | Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 | | Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | | Incurred | | | | | | | | ------------------------------------------------------------------------------------------------------------------------ | 1. Prior ......| 0 * | 0 | 0 | 0 | 0 | 0 | 0 | | 2. 1984........| 0 | 0 | 0 | 0 | 0 | 0 | 0 | | 3. 1985........| X X X X | 0 | 0 | (62)| (73)| (28)| (77)| | 4. 1986........| X X X X | X X X X | 0 | 325 | 268 | 207 | (380)| | 5. 1987........| X X X X | X X X X | X X X X | 8 | 0 | 0 | (6)| | 6. 1988........| X X X X | X X X X | X X X X | X X X X | 205 | 216 | 295 | | 7. 1989........| X X X X | X X X X | X X X X | X X X X | X X X X | 652 | 729 | | 8. 1990........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 481 | | 9. 1991........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 10. 1992........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 11. 1993........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | ------------------------------------------------------------------------------------------------------------------------ *Reported reserves only. Subsequent development relates only to subsequent payments and reserves. **Current year less first or second prior year, showing (redundant) or adverse. - ------------------------------------------------------------------------------------------ | 1 | | Development** | |--------------------------------------------------------------------- | Years in Which | 9 | 10 | 11 | 12 | 13 | | Losses Were | 1991 | 1992 | 1993 | One Year | Two Year | | Incurred | | | | | | | | | | | | | - --------------------|------------|-------------|-------------|-------------|-------------| | 1. Prior ......| 0 | 0 | 40 | 40 | 40 | | 2. 1984........| 0 | 0 | 12 | 12 | 12 | | 3. 1985........| 58 | (113)| (39)| 74 | (97)| | 4. 1986........| 64 | 435 | 456 | 21 | 392 | | 5. 1987........| (6)| (6)| (3)| 3 | 3 | | 6. 1988........| 813 | 626 | 629 | 3 | (184)| | 7. 1989........| 754 | 756 | 742 | (14)| (12)| | 8. 1990........| 433 | 443 | 1,068 | 625 | 635 | | 9. 1991........| 945 | 576 | 749 | 173 | (196)| | 10. 1992........| X X X X | 1,305 | 1,148 | (157)| X X X X | | 11. 1993........| X X X X | X X X X | 312 | X X X X | X X X X | |------------------------------------------------------------|-------------|-------------| 12. Totals | 780 | 593 | ---------------------------
Page 83 Form 2 CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND ITS AFFILIATED FIRE AND CASUALTY INSURERS
SCHEDULE P - PART 2I - SPECIAL PROPERTY (FIRE, ALLIED LINES, INLAND MARINE, EARTHQUAKE, GLASS, BURGLARY AND THEFT) - --------------------------------------------------------------------------------------------------------------------------------- | 1 | Incurred Losses and Allocated Expenses Reported at Year End (000 omitted) | |--------------------------------------------------------------------------------------------------------------- | Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | 1991 | Incurred | | | | | | | | | | | | | | | | | |-----------------|---------------|-------------|-------------|-------------|-------------|-------------|-------------|----------- | | | | | | | | | | 1. Prior .....| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 83,912 * | 2. 1992.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 3. 1993.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X ---------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------- | 1 | Development** | | -----------------------------|---------------------------| | Years in Which | 10 | 11 | 12 | 13 | | Losses Were | 1992 | 1993 | One Year | Two Year | | Incurred | | | | | | | | | | | |------------------|-------------|-------------|-------------|-------------| | | | | | | | 1. Prior ..... | 84,622 | 76,939 | (7,683)| (6,973)| | 2. 1992....... | 89,970 | 84,318 | (5,652)| X X X X | | 3. 1993....... | X X X X | 76,206 | X X X X | X X X X | ----------------------------------------------|-------------|-------------| 4. Totals | (13,335)| (6,973)| --------------------------- SCHEDULE P - PART 2J - AUTO PHYSICAL DAMAGE - --------------------------------------------------------------------------------------------------------------------------------- | 1 | Incurred Losses and Allocated Expenses Reported at Year End (000 omitted) | |-------------------------------------------------------------------------------------------------------------- | Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | 1991 | Incurred | | | | | | | | | | | | | | | | | |-----------------|---------------|-------------|-------------|-------------|-------------|-------------|-------------|---------- | | | | | | | | | | 1. Prior .....| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 49,455 * | 2. 1992.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 3. 1993.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X -------------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------- | 1 | | Development** | | |-------------------------|---------------------------| | Years in Which | 10 | 11 | 12 | 13 | | Losses Were | 1992 | 1993 | One Year | Two Year | | Incurred | | | | | | | | | | | |-----------------|-----------|-------------|-------------|-------------| | | | | | | | 1. Prior .....| 41,944 | 34,959 | (6,985)| (14,496)| | 2. 1992.......| 155,394 | 149,037 | (6,357)| X X X X | | 3. 1993.......| X X X X | 126,922 | X X X X | X X X X | -------------------------------------------|-------------|-------------| 4. Totals | (13,342)| (14,496)| --------------------------- SCHEDULE P - PART 2K - FIDELITY, SURETY, FINANCIAL GUARANTY, MORTGAGE GUARANTY - -------------------------------------------------------------------------------------------------------------------------------- | 1 | Incurred Losses and Allocated Expenses Reported at Year End (000 omitted) | |-------------------------------------------------------------------------------------------------------------- | Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | 1991 | Incurred | | | | | | | | | | | | | | | | | |-----------------|---------------|-------------|-------------|-------------|-------------|-------------|-------------|---------- | | | | | | | | | | 1. Prior .....| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 41,830 * | 2. 1992.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 3. 1993.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X -------------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------- | 1 | | Development** | | |---------------------------|---------------------------| | Years in Which | 10 | 11 | 12 | 13 | | Losses Were | 1992 | 1993 | One Year | Two Year | | Incurred | | | | | | | | | | | - ------------------|-------------|-------------|-------------|-------------| | | | | | | | 1. Prior .... | 48,154 | 55,055 | 6,901 | 13,225 | | 2. 1992...... | 21,694 | 39,607 | 17,913 | X X X X | | 3. 1993...... | X X X X | 28,157 | X X X X | X X X X | |---------------------------------------------|-------------|-------------| 4. Totals | 24,814 | 13,225 | --------------------------- SCHEDULE P - PART 2L - OTHER (INCLUDING CREDIT, ACCIDENT AND HEALTH) - --------------------------------------------------------------------------------------------------------------------------------- | 1 | Incurred Losses and Allocated Expenses Reported at Year End (000 omitted) | |-------------------------------------------------------------------------------------------------------------- | Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | 1991 | Incurred | | | | | | | | | | | | | | | | | |-----------------|---------------|-------------|-------------|-------------|-------------|-------------|-------------|--------- | | | | | | | | | | 1. Prior .....| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 200 * | 2. 1992.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 3. 1993.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X ------------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------| | 1 | | Development** | | |---------------------------|---------------------------| | Years in Which | 10 | 11 | 12 | 13 | | Losses Were | 1992 | 1993 | One Year | Two Year | | Incurred | | | | | | | | | | | |-----------------|-------------|-------------|-------------|------------- | | | | | | | 1. Prior .... | 111 | 240 | 129 | 40 | | 2. 1992...... | 108 | 0 | (108)| X X X X | | 3. 1993...... | X X X X | 0 | X X X X | X X X X | |---------------------------------------------|-------------|-------------| 4. Totals | 21 | 40 | -------------------------- SCHEDULE P - PART 2M - INTERNATIONAL - -------------------------------------------------------------------------------------------------------------------------------- | 1 | Incurred Losses and Allocated Expenses Reported at Year End (000 omitted) | |------------------------------------------------------------------------------------------------------------- | Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | 1991 | Incurred | | | | | | | | | | | | | | | | | |-----------------|---------------|-------------|-------------|-------------|-------------|-------------|-------------|--------- | | | | | | | | | | 1. Prior .....| 0 * | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 2. 1984.......| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 3. 1985.......| X X X X | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 4. 1986.......| X X X X | X X X X | 0 | 0 | 0 | 0 | 0 | 0 | 5. 1987.......| X X X X | X X X X | X X X X | 0 | 0 | 0 | 0 | 0 | 6. 1988.......| X X X X | X X X X | X X X X | X X X X | 18,581 | 18,142 | 17,663 | 15,821 | 7. 1989.......| X X X X | X X X X | X X X X | X X X X | X X X X | 13,397 | 13,678 | 13,166 | 8. 1990.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 13,549 | 14,227 | 9. 1991.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 12,266 | 10. 1992.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 11. 1993.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X -------------------------------------------------------------------------------------------------------------------------------- *Reported reserves only. Subsequent development relates only to subsequent payments and reserves. **Current year less first or second prior year, showing (redundant) or adverse. - --------------------------------------------------------------------------| | 1 | | Development** | | |---------------------------|---------------------------| | Years in Which | 10 | 11 | 12 | 13 | | Losses Were | 1992 | 1993 | One Year | Two Year | | Incurred | | | | | | | | | | | |-----------------| ------------|-------------|-------------|------------- | | | | | | | 1. Prior .....| 0 | 0 | 0 | 0 | | 2. 1984.......| 0 | 0 | 0 | 0 | | 3. 1985.......| 0 | 0 | 0 | 0 | | 4. 1986.......| 0 | 0 | 0 | 0 | | 5. 1987.......| 0 | 0 | 0 | 0 | | 6. 1988.......| 16,002 | 16,042 | 40 | 221 | | 7. 1989.......| 12,957 | 12,682 | (275)| (484)| | 8. 1990.......| 13,373 | 11,855 | (1,518)| (2,372)| | 9. 1991.......| 11,005 | 9,587 | (1,418)| (2,679)| | 10. 1992.......| 4,919 | 5,134 | 215 | X X X X | | 11. 1993.......| X X X X | 10,048 | X X X X | X X X X | ---------------------------------------------|-------------|-------------| 12. Totals | (2,956)| (5,314)| ---------------------------
Page 84 Form 2 CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND ITS AFFILIATED FIRE AND CASUALTY INSURERS
SCHEDULE P - PART 2N - REINSURANCE A -------------------------------------------------------------------------------------------------------------------------------- | 1 | Incurred Losses and Allocated Expenses Reported at Year End (000 omitted) | |-------------------------------------------------------------------------------------------------------------- | Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | 1991 | Incurred | | | | | | | | | | | | | | | | | |-----------------|---------------|-------------|-------------|-------------|-------------|-------------|-------------|---------- | 1. 1988.......| X X X X | X X X X | X X X X | X X X X | 34,100 | 28,393 | 25,499 | 15,105 | 2. 1989.......| X X X X | X X X X | X X X X | X X X X | X X X X | 24,435 | 26,489 | 25,917 | 3. 1990.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 26,318 | 27,156 | 4. 1991.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 36,977 | 5. 1992.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 6. 1993.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X -------------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------ | 1 | Development** | | --------------------------------|---------------------------| | Years in Which | 10 | 11 | 12 | 13 | | Losses Were | 1992 | 1993 | One Year | Two Year | | Incurred | | | | | | | | | | | |-------------------|-------------| -------------|-------------|-------------| | 1. 1988....... | 14,671 | 15,673 | 1,002 | 568 | | 2. 1989....... | 25,756 | 19,376 | (6,380)| (6,541)| | 3. 1990....... | 26,452 | 15,630 | (10,822)| (11,526)| | 4. 1991....... | 30,203 | 14,467 | (15,736)| (22,510)| | 5. 1992....... | 30,035 | 25,947 | (4,088)| X X X X | | 6. 1993....... | X X X X | 39,518 | X X X X | X X X X | -------------------------------------------------|-------------|-------------| 7. Totals | (36,024)| (40,009)| --------------------------- SCHEDULE P - PART 2O - REINSURANCE B -------------------------------------------------------------------------------------------------------------------------------- | 1 | Incurred Losses and Allocated Expenses Reported at Year End (000 omitted) | |-------------------------------------------------------------------------------------------------------------- | Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | 1991 | Incurred | | | | | | | | | | | | | | | | | |-----------------|---------------|-------------|-------------|-------------|-------------|-------------|-------------|---------- | | | | | | | | | | 1. 1988.......| X X X X | X X X X | X X X X | X X X X | 21,132 | 18,019 | 15,891 | 8,671 | 2. 1989.......| X X X X | X X X X | X X X X | X X X X | X X X X | 20,774 | 20,740 | 19,070 | 3. 1990.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 11,804 | 12,076 | 4. 1991.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 13,076 | 5. 1992.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 6. 1993.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X -------------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------ | 1 | Development** | | --------------------------------|---------------------------| | Years in Which | 10 | 11 | 12 | 13 | | Losses Were | 1992 | 1993 | One Year | Two Year | | Incurred | | | | | | | | | | | |--------------------|-------------|---------------|-------------|-------------| | 1. 1988....... | 8,506 | 9,222 | 716 | 551 | | 2. 1989....... | 19,009 | 17,682 | (1,327)| (1,388)| | 3. 1990....... | 12,087 | 9,180 | (2,907)| (2,896)| | 4. 1991....... | 12,136 | 6,998 | (5,138)| (6,078)| | 5. 1992....... | 24,264 | 21,065 | (3,199)| X X X X | | 6. 1993....... | X X X X | 12,666 | X X X X | X X X X | --------------------------------------------------|-------------|-------------| 7. Totals | (11,855)| (9,811)| --------------------------- SCHEDULE P - PART 2P - REINSURANCE C -------------------------------------------------------------------------------------------------------------------------------- | 1 | Incurred Losses and Allocated Expenses Reported at Year End (000 omitted) | |-------------------------------------------------------------------------------------------------------------- | Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | 1991 | Incurred | | | | | | | | | | | | | | | | | |-----------------|---------------|-------------|-------------|-------------|-------------|-------------|-------------|---------- | | | | | | | | | | 1. 1988.......| X X X X | X X X X | X X X X | X X X X | 0 | 200 | 200 | 200 | 2. 1989.......| X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 | 0 | 3. 1990.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 | 4. 1991.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 5. 1992.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 6. 1993.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X -------------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------- | 1 | Development** | | ------------------------------|---------------------------| | Years in Which | 10 | 11 | 12 | 13 | | Losses Were | 1992 | 1993 | One Year | Two Year | | Incurred | | | | | | | | | | | - ------------------|-------------|---------------|-------------|-------------| | | | | | | | 1. 1988.......| 200 | 401 | 201 | 201 | | 2. 1989.......| 0 | 0 | 0 | 0 | | 3. 1990.......| 0 | 0 | 0 | 0 | | 4. 1991.......| 0 | 0 | 0 | 0 | | 5. 1992.......| 0 | 0 | 0 | X X X X | | 6. 1993.......| X X X X | 0 | X X X X | X X X X | | ----------------------------------------------|-------------|-------------| 7. Totals | 201 | 201 | --------------------------- SCHEDULE P - PART 2Q - REINSURANCE D -------------------------------------------------------------------------------------------------------------------------------- | 1 | Incurred Losses and Allocated Expenses Reported at Year End (000 omitted) | |-------------------------------------------------------------------------------------------------------------- | Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | 1991 | Incurred | | | | | | | | | | | | | | | | | |-----------------|---------------|-------------|-------------|-------------|-------------|-------------|-------------|---------- | | | | | | | | | | 1. Prior .....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 2. 1984.......| 1,263 | 6,211 | 2,690 | 2,731 | 2,886 | 2,885 | 2,942 | 2,958 | 3. 1985.......| X X X X | 10,843 | 21,295 | 18,969 | 18,942 | 18,927 | 19,225 | 19,028 | 4. 1986.......| X X X X | X X X X | 29,813 | 31,455 | 30,817 | 30,500 | 30,668 | 29,981 | 5. 1987.......| X X X X | X X X X | X X X X | 39,253 | 36,884 | 36,116 | 36,095 | 33,673 -------------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------- | 1 | Development** | | ------------------------------|---------------------------| | Years in Which | 10 | 11 | 12 | 13 | | Losses Were | 1992 | 1993 | One Year | Two Year | | Incurred | | | | | | | | | | | |------------------ ------------|---------------|-------------|-------------| | 1. Prior .....| 0 | 0 | 0 | 0 | | 2. 1984.......| 2,903 | 2,901 | (2)| (57)| | 3. 1985.......| 18,879 | 18,478 | (401)| (550)| | 4. 1986.......| 30,341 | 29,586 | (755)| (395)| | 5. 1987.......| 33,196 | 33,746 | 550 | 73 | ----------------------------------------------|-------------|-------------| 6. Totals | (608)| (929)| --------------------------- SCHEDULE P - PART 2R - SECTION 1 - PRODUCTS LIABILITY - OCCURRENCE -------------------------------------------------------------------------------------------------------------------------------- | 1 | Incurred Losses and Allocated Expenses Reported at Year End (000 omitted) | |-------------------------------------------------------------------------------------------------------------- | Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | 1991 | Incurred | | | | | | | | | | | | | | | | | |-----------------|---------------|-------------|-------------|-------------|-------------|-------------|-------------|---------- | | | | | | | | | | 1. Prior .....| 44,344 * | 54,886 | 59,940 | 77,036 | 95,182 | 102,386 | 115,163 | 128,804 | 2. 1984.......| 12,221 | 14,711 | 20,545 | 22,399 | 22,245 | 24,344 | 26,259 | 27,016 | 3. 1985.......| X X X X | 15,377 | 15,189 | 20,479 | 24,209 | 25,549 | 27,820 | 28,070 | 4. 1986.......| X X X X | X X X X | 38,882 | 30,746 | 31,467 | 26,974 | 25,628 | 27,465 | 5. 1987.......| X X X X | X X X X | X X X X | 31,769 | 30,772 | 32,980 | 34,006 | 29,612 | 6. 1988.......| X X X X | X X X X | X X X X | X X X X | 21,475 | 22,525 | 28,761 | 18,114 | 7. 1989.......| X X X X | X X X X | X X X X | X X X X | X X X X | 18,447 | 19,272 | 14,518 | 8. 1990.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 13,429 | 11,459 | 9. 1991.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 10,317 | 10. 1992.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 11. 1993.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X -------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------- | 1 | | Development** | | |------------------------------|---------------------------| | Years in Which | 10 | 11 | 12 | 13 | | Losses Were | 1992 | 1993 | One Year | Two Year | | Incurred | | | | | | | | | | | |-----------------------------------------------------------------------------| | 1. Prior .... | 133,442 | 144,341 | 10,899 | 15,537 | | 2. 1984...... | 28,162 | 30,070 | 1,908 | 3,054 | | 3. 1985...... | 27,131 | 28,501 | 1,370 | 431 | | 4. 1986...... | 26,830 | 30,128 | 3,298 | 2,663 | | 5. 1987...... | 28,674 | 32,160 | 3,486 | 2,548 | | 6. 1988...... | 19,826 | 23,523 | 3,697 | 5,409 | | 7. 1989...... | 14,585 | 16,861 | 2,276 | 2,343 | | 8. 1990...... | 11,088 | 11,645 | 557 | 186 | | 9. 1991...... | 11,241 | 12,329 | 1,088 | 2,012 | | 10. 1992...... | 7,732 | 6,729 | (1,003)| X X X X | | 11. 1993...... | X X X X | 7,244 | X X X X | X X X X | ---------------------------------|---------------|-------------|-------------| 12. Totals | 27,576 | 34,183 | --------------------------- SCHEDULE P - PART 2R - SECTION 2 - PRODUCTS LIABILITY - CLAIMS-MADE -------------------------------------------------------------------------------------------------------------------------------- | 1 | Incurred Losses and Allocated Expenses Reported at Year End (000 omitted) | |-------------------------------------------------------------------------------------------------------------- | Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | 1991 | Incurred | | | | | | | | | | | | | | | | | |-----------------|---------------|-------------|-------------|-------------|-------------|-------------|-------------|---------- | | | | | | | | | | 1. Prior .....| 0 * | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 2. 1984.......| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 3. 1985.......| X X X X | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 4. 1986.......| X X X X | X X X X | 0 | 0 | 0 | 0 | 0 | 0 | 5. 1987.......| X X X X | X X X X | X X X X | 0 | 0 | 0 | 0 | 0 | 6. 1988.......| X X X X | X X X X | X X X X | X X X X | 7 | 12 | 13 | 13 | 7. 1989.......| X X X X | X X X X | X X X X | X X X X | X X X X | 1 | 12 | 18 | 8. 1990.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 120 | 239 | 9. 1991.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 208 | 10. 1992.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 11. 1993.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X ------------------------------------------------------------------------------------------------------------------------------- *Reported reserves only. Subsequent development relates only to subsequent payments and reserves. **Current year less first or second prior year, showing (redundant) or adverse. - ------------------------------------------------------------------------------ | 1 | | Development** | | | ----------------------------|---------------------------| | Years in Which | 10 | 11 | 12 | 13 | | Losses Were | 1992 | 1993 | One Year | Two Year | | Incurred | | | | | |------------------|-------------|---------------|-------------|-------------| | | | | | | | 1. Prior .... | 0 | 0 | 0 | 0 | | 2. 1984...... | 0 | 0 | 0 | 0 | | 3. 1985...... | 0 | 0 | 0 | 0 | | 4. 1986...... | 0 | 3 | 3 | 3 | | 5. 1987...... | 0 | 0 | 0 | 0 | | 6. 1988...... | 13 | 13 | 0 | 0 | | 7. 1989...... | 18 | 20 | 2 | 2 | | 8. 1990...... | 340 | 426 | 86 | 187 | | 9. 1991...... | 164 | 184 | 20 | (24)| | 10. 1992...... | 91 | 379 | 288 | X X X X | | 11. 1993...... | X X X X | 870 | X X X X | X X X X | ------------------------------------------------|-------------|-------------| 12. Totals | 399 | 168 | ---------------------------
Page 85 Form 2 CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND ITS AFFILIATED FIRE AND CASUALTY INSURERS
SCHEDULE P - PART 3A - HOMEOWNERS/FARMOWNERS ----------------------------------------------------------------------------------------------------------------------- | 1 | Cumulative Paid Losses and Allocated Expenses at Year End (000 omitted) | |-------------------------------------------------------------------------------------------------- | Years in Which | | | | | | | | | Losses Were | 2 | 3 | 4 | 5 | 6 | 7 | 8 | | Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | | | | | | | | | | |--------------------|-------------|-------------|-------------|-------------|-------------|-------------|-------------| | | | | | | | | | | 1. Prior .......| 000 | 6,804 | 12,096 | 16,242 | 17,348 | 17,567 | 18,156 | | 2. 1984.........| 89,116 | 119,429 | 123,827 | 127,083 | 128,807 | 129,777 | 130,046 | | 3. 1985.........| X X X X | 115,057 | 151,486 | 156,034 | 159,189 | 161,415 | 162,308 | | 4. 1986.........| X X X X | X X X X | 92,590 | 123,363 | 129,682 | 133,986 | 135,731 | | 5. 1987.........| X X X X | X X X X | X X X X | 81,167 | 110,930 | 116,296 | 119,779 | | 6. 1988.........| X X X X | X X X X | X X X X | X X X X | 82,160 | 113,632 | 117,560 | | 7. 1989.........| X X X X | X X X X | X X X X | X X X X | X X X X | 99,281 | 139,429 | | 8. 1990.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 93,167 | | 9. 1991.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 10. 1992.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 11. 1993.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | ----------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------ | 1 | 12 | 13 | | -----------------------------------------| Number of | Number of | | Years in Which | | | | Claims | Claims | | Losses Were | 9 | 10 | 11 | Closed | Closed | | Incurred | 1991 | 1992 | 1993 | With Loss | Without | | | | | | Payment |Loss Payment | |--------------------|-------------|-------------|-------------|-------------|-------------| | | | | | | | | 1. Prior .......| 18,632 | 18,725 | 18,992 | 1,164 | 670 | | 2. 1984.........| 130,202 | 130,248 | 130,337 | 56,634 | 13,373 | | 3. 1985.........| 163,243 | 163,510 | 163,780 | 68,941 | 15,733 | | 4. 1986.........| 137,420 | 138,265 | 138,720 | 53,622 | 13,772 | | 5. 1987.........| 121,830 | 123,370 | 124,308 | 48,547 | 13,946 | | 6. 1988.........| 121,324 | 122,770 | 124,064 | 45,330 | 13,784 | | 7. 1989.........| 144,266 | 147,076 | 149,106 | 57,974 | 16,963 | | 8. 1990.........| 127,235 | 132,665 | 135,782 | 50,527 | 16,039 | | 9. 1991.........| 113,582 | 151,510 | 157,213 | 56,001 | 17,947 | | 10. 1992.........| X X X X | 126,000 | 167,477 | 48,067 | 15,973 | | 11. 1993.........| X X X X | X X X X | 74,300 | 34,642 | 12,334 | ------------------------------------------------------------------------------------------ SCHEDULE P - PART 3B - PRIVATE PASSENGER AUTO LIABILITY/MEDICAL ----------------------------------------------------------------------------------------------------------------------- | 1 | Cumulative Paid Losses and Allocated Expenses at Year End (000 omitted) | |-------------------------------------------------------------------------------------------------- | Years in Which | | | | | | | | | Losses Were | 2 | 3 | 4 | 5 | 6 | 7 | 8 | | Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | | | | | | | | | | |--------------------|-------------|-------------|-------------|-------------|-------------|-------------|-------------| | | | | | | | | | | 1. Prior .......| 000 | 65,939 | 104,802 | 122,628 | 135,531 | 145,142 | 147,389 | | 2. 1984.........| 98,299 | 195,966 | 245,346 | 267,362 | 282,144 | 292,515 | 297,168 | | 3. 1985.........| X X X X | 103,218 | 214,911 | 267,415 | 296,891 | 317,114 | 325,175 | | 4. 1986.........| X X X X | X X X X | 105,317 | 207,471 | 258,603 | 289,164 | 306,025 | | 5. 1987.........| X X X X | X X X X | X X X X | 102,959 | 198,718 | 248,056 | 278,173 | | 6. 1988.........| X X X X | X X X X | X X X X | X X X X | 96,163 | 195,472 | 245,103 | | 7. 1989.........| X X X X | X X X X | X X X X | X X X X | X X X X | 97,508 | 206,044 | | 8. 1990.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 100,690 | | 9. 1991.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 10. 1992.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 11. 1993.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | ----------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------- | 1 | 12 | 13 | | -----------------------------------------| Number of | Number of | | Years in Which | | | | Claims | Claims | | Losses Were | 9 | 10 | 11 | Closed | Closed | | Incurred | 1991 | 1992 | 1993 | With Loss | Without | | | | | | Payment |Loss Payment | |--------------------|-------------|-------------|-------------|-------------|-------------| | | | | | | | | 1. Prior .......| 149,341 | 151,516 | 153,837 | 9,687 | 3,914 | | 2. 1984.........| 301,359 | 302,044 | 303,171 | 111,390 | 43,962 | | 3. 1985.........| 328,339 | 329,622 | 330,070 | 114,135 | 43,848 | | 4. 1986.........| 314,030 | 316,518 | 318,243 | 106,210 | 41,260 | | 5. 1987.........| 292,406 | 296,871 | 302,413 | 96,165 | 37,248 | | 6. 1988.........| 274,391 | 285,653 | 291,860 | 91,030 | 34,868 | | 7. 1989.........| 258,100 | 284,531 | 298,685 | 88,687 | 33,776 | | 8. 1990.........| 207,436 | 246,934 | 277,729 | 82,604 | 30,830 | | 9. 1991.........| 103,524 | 208,156 | 267,329 | 71,799 | 28,345 | | 10. 1992.........| X X X X | 77,150 | 156,696 | 53,071 | 22,005 | | 11. 1993.........| X X X X | X X X X | 72,022 | 30,910 | 12,837 | ------------------------------------------------------------------------------------------ SCHEDULE P - PART 3C - COMMERCIAL AUTO/TRUCK LIABILITY/MEDICAL ----------------------------------------------------------------------------------------------------------------------- | 1 | Cumulative Paid Losses and Allocated Expenses at Year End (000 omitted) | |-------------------------------------------------------------------------------------------------- | Years in Which | | | | | | | | | Losses Were | 2 | 3 | 4 | 5 | 6 | 7 | 8 | | Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | | | | | | | | | | |--------------------|-------------|-------------|-------------|-------------|-------------|-------------|-------------| | | | | | | | | | | 1. Prior .......| 000 | 90,529 | 139,862 | 168,829 | 184,202 | 190,581 | 193,195 | | 2. 1984.........| 56,233 | 126,832 | 182,183 | 218,648 | 239,956 | 253,266 | 259,209 | | 3. 1985.........| X X X X | 67,128 | 161,406 | 228,393 | 267,725 | 296,309 | 313,989 | | 4. 1986.........| X X X X | X X X X | 66,520 | 148,007 | 214,438 | 255,656 | 283,055 | | 5. 1987.........| X X X X | X X X X | X X X X | 61,095 | 145,291 | 203,988 | 245,594 | | 6. 1988.........| X X X X | X X X X | X X X X | X X X X | 60,080 | 139,053 | 201,965 | | 7. 1989.........| X X X X | X X X X | X X X X | X X X X | X X X X | 51,868 | 127,921 | | 8. 1990.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 51,439 | | 9. 1991.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 10. 1992.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 11. 1993.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | ----------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------- | 1 | 12 | 13 | | -----------------------------------------| Number of | Number of | | Years in Which | | | | Claims | Claims | | Losses Were | 9 | 10 | 11 | Closed | Closed | | Incurred | 1991 | 1992 | 1993 | With Loss | Without | | | | | | Payment |Loss Payment | |--------------------|-------------|-------------|-------------|-------------|-------------| | | | | | | | | 1. Prior .......| 195,387 | 199,369 | 200,698 | 5,657 | 3,005 | | 2. 1984.........| 261,678 | 262,729 | 263,059 | 61,814 | 24,119 | | 3. 1985.........| 322,448 | 328,062 | 330,234 | 66,457 | 26,318 | | 4. 1986.........| 294,455 | 301,794 | 304,786 | 56,703 | 23,017 | | 5. 1987.........| 274,061 | 285,955 | 292,793 | 52,026 | 21,700 | | 6. 1988.........| 243,146 | 260,397 | 268,986 | 47,228 | 19,353 | | 7. 1989.........| 193,076 | 229,864 | 248,073 | 43,617 | 17,327 | | 8. 1990.........| 132,153 | 177,937 | 211,206 | 39,185 | 16,378 | | 9. 1991.........| 43,431 | 104,451 | 150,229 | 30,893 | 14,166 | | 10. 1992.........| X X X X | 31,098 | 72,856 | 24,911 | 12,093 | | 11. 1993.........| X X X X | X X X X | 25,501 | 15,256 | 7,781 | ------------------------------------------------------------------------------------------ SCHEDULE P - PART 3D - WORKERS' COMPENSATION ----------------------------------------------------------------------------------------------------------------------- | 1 | Cumulative Paid Losses and Allocated Expenses at Year End (000 omitted) | |-------------------------------------------------------------------------------------------------- | Years in Which | | | | | | | | | Losses Were | 2 | 3 | 4 | 5 | 6 | 7 | 8 | | Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | | | | | | | | | | |--------------------|-------------|-------------|-------------|-------------|-------------|-------------|-------------| | | | | | | | | | | 1. Prior .......| 000 | 142,530 | 250,985 | 353,173 | 420,767 | 473,689 | 524,696 | | 2. 1984.........| 113,619 | 232,500 | 297,440 | 340,126 | 370,363 | 390,235 | 406,336 | | 3. 1985.........| X X X X | 125,317 | 272,341 | 352,953 | 405,406 | 438,237 | 463,028 | | 4. 1986.........| X X X X | X X X X | 129,275 | 256,810 | 336,848 | 385,302 | 419,084 | | 5. 1987.........| X X X X | X X X X | X X X X | 127,476 | 262,831 | 330,325 | 378,370 | | 6. 1988.........| X X X X | X X X X | X X X X | X X X X | 132,278 | 279,538 | 367,993 | | 7. 1989.........| X X X X | X X X X | X X X X | X X X X | X X X X | 132,318 | 307,603 | | 8. 1990.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 131,068 | | 9. 1991.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 10. 1992.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 11. 1993.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | ----------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------- | 1 | 12 | 13 | | -----------------------------------------| Number of | Number of | | Years in Which | | | | Claims | Claims | | Losses Were | 9 | 10 | 11 | Closed | Closed | | Incurred | 1991 | 1992 | 1993 | With Loss | Without | | | | | | Payment |Loss Payment | |--------------------|-------------|-------------|-------------|-------------|-------------| | | | | | | | | 1. Prior .......| 572,931 | 609,356 | 650,207 | 19,169 | 3,359 | | 2. 1984.........| 418,441 | 429,251 | 436,036 | 43,407 | 3,439 | | 3. 1985.........| 482,893 | 497,067 | 510,948 | 46,853 | 4,199 | | 4. 1986.........| 444,813 | 461,871 | 470,818 | 42,575 | 3,990 | | 5. 1987.........| 419,643 | 440,887 | 453,900 | 39,210 | 3,918 | | 6. 1988.........| 424,742 | 461,087 | 481,115 | 41,819 | 4,168 | | 7. 1989.........| 412,167 | 471,076 | 511,904 | 43,307 | 4,675 | | 8. 1990.........| 279,877 | 365,754 | 420,467 | 39,674 | 4,338 | | 9. 1991.........| 102,910 | 208,085 | 270,790 | 32,837 | 4,266 | | 10. 1992.........| X X X X | 66,055 | 137,483 | 22,511 | 3,898 | | 11. 1993.........| X X X X | X X X X | 30,004 | 8,154 | 1,677 | ------------------------------------------------------------------------------------------ SCHEDULE P - PART 3E - COMMERCIAL MULTIPLE PERIL ----------------------------------------------------------------------------------------------------------------------- | 1 | Cumulative Paid Losses and Allocated Expenses at Year End (000 omitted) | |-------------------------------------------------------------------------------------------------- | Years in Which | | | | | | | | | Losses Were | 2 | 3 | 4 | 5 | 6 | 7 | 8 | | Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | | | | | | | | | | |--------------------|-------------|-------------|-------------|-------------|-------------|-------------|-------------| | | | | | | | | | | 1. Prior .......| 000 | 35,285 | 62,251 | 84,215 | 100,397 | 109,495 | 125,402 | | 2. 1984.........| 64,563 | 98,421 | 114,389 | 129,425 | 141,074 | 149,193 | 154,129 | | 3. 1985.........| X X X X | 71,158 | 110,772 | 129,654 | 149,909 | 166,634 | 177,366 | | 4. 1986.........| X X X X | X X X X | 64,384 | 98,950 | 119,499 | 136,584 | 148,644 | | 5. 1987.........| X X X X | X X X X | X X X X | 53,661 | 89,211 | 107,156 | 123,977 | | 6. 1988.........| X X X X | X X X X | X X X X | X X X X | 76,340 | 144,648 | 174,450 | | 7. 1989.........| X X X X | X X X X | X X X X | X X X X | X X X X | 107,105 | 191,421 | | 8. 1990.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 118,896 | | 9. 1991.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 10. 1992.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 11. 1993.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | ----------------------------------------------------------------------------------------------------------------------- Note: Net of salvage and subrogation received. ------------------------------------------------------------------------------------------- | 1 | 12 | 13 | | -----------------------------------------| Number of | Number of | | Years in Which | | | | Claims | Claims | | Losses Were | 9 | 10 | 11 | Closed | Closed | | Incurred | 1991 | 1992 | 1993 | With Loss | Without | | | | | | Payment |Loss Payment | |--------------------|-------------|-------------|-------------|-------------|-------------| | | | | | | | | 1. Prior .......| 129,142 | 131,656 | 135,081 | 3,679 | 5,030 | | 2. 1984.........| 156,903 | 160,038 | 161,279 | 29,722 | 12,000 | | 3. 1985.........| 186,848 | 191,821 | 195,076 | 31,696 | 13,404 | | 4. 1986.........| 158,824 | 170,923 | 175,284 | 24,656 | 12,236 | | 5. 1987.........| 156,006 | 172,963 | 177,270 | 21,659 | 11,970 | | 6. 1988.........| 214,079 | 243,297 | 263,206 | 37,726 | 21,040 | | 7. 1989.........| 249,666 | 292,770 | 326,053 | 50,524 | 27,466 | | 8. 1990.........| 204,136 | 255,940 | 302,906 | 47,949 | 28,231 | | 9. 1991.........| 114,986 | 180,550 | 229,123 | 43,755 | 27,247 | | 10. 1992.........| X X X X | 102,008 | 180,206 | 38,218 | 24,768 | | 11. 1993.........| X X X X | X X X X | 110,882 | 30,353 | 19,931 | ------------------------------------------------------------------------------------------
Page 86 Form 2 CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND ITS AFFILIATED FIRE AND CASUALTY INSURERS
SCHEDULE P - PART 3F - SECTION 1 - MEDICAL MALPRACTICE - OCCURRENCE ----------------------------------------------------------------------------------------------------------------------- | 1 | Cumulative Paid Losses and Allocated Expenses at Year End (000 omitted) | |-------------------------------------------------------------------------------------------------- | Years in Which | | | | | | | | | Losses Were | 2 | 3 | 4 | 5 | 6 | 7 | 8 | | Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | | | | | | | | | | |--------------------|-------------|-------------|-------------|-------------|-------------|-------------|-------------| | | | | | | | | | | 1. Prior .......| 000 | 15,024 | 29,302 | 39,911 | 47,495 | 53,354 | 58,668 | | 2. 1984.........| 42 | 603 | 2,999 | 4,668 | 7,227 | 8,717 | 9,303 | | 3. 1985.........| X X X X | 146 | 465 | 1,118 | 2,271 | 3,027 | 3,374 | | 4. 1986.........| X X X X | X X X X | 7 | 6 | 7 | 8 | 4 | | 5. 1987.........| X X X X | X X X X | X X X X | 7 | 7 | 11 | 17 | | 6. 1988.........| X X X X | X X X X | X X X X | X X X X | 0 | 0 | 4 | | 7. 1989.........| X X X X | X X X X | X X X X | X X X X | X X X X | 8 | 7 | | 8. 1990.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | | 9. 1991.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 10. 1992.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 11. 1993.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | ----------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------ | 1 | 12 | 13 | | -----------------------------------------| Number of | Number of | | Years in Which | | | | Claims | Claims | | Losses Were | 9 | 10 | 11 | Closed | Closed | | Incurred | 1991 | 1992 | 1993 | With Loss |Without Loss | | | | | | Payment | Payment | |--------------------|-------------|-------------|-------------|-------------|-------------| | | | | | | | | 1. Prior .......| 60,266 | 62,668 | 64,077 | 677 | 947 | | 2. 1984.........| 8,737 | 9,358 | 9,306 | 192 | 517 | | 3. 1985.........| 3,871 | 3,969 | 4,538 | 111 | 192 | | 4. 1986.........| 4 | 4 | 4 | 1 | 1 | | 5. 1987.........| 17 | 17 | 17 | 2 | 3 | | 6. 1988.........| 38 | 43 | 43 | 2 | 2 | | 7. 1989.........| 24 | 24 | 24 | 2 | 2 | | 8. 1990.........| 0 | 19 | 358 | 1 | 3 | | 9. 1991.........| 0 | 0 | 35 | 1 | 0 | | 10. 1992.........| X X X X | 0 | 0 | 0 | 0 | | 11. 1993.........| X X X X | X X X X | 0 | 0 | 1 | ------------------------------------------------------------------------------------------ SCHEDULE P - PART 3F - SECTION 2 - MEDICAL MALPRACTICE - CLAIMS-MADE - ------------------------------------------------------------------------------------------------------------------------ | 1 | Cumulative Paid Losses and Allocated Expenses at Year End (000 omitted) | | |-------------------------------------------------------------------------------------------------| | Years in Which | | | | | | | | | Losses Were | 2 | 3 | 4 | 5 | 6 | 7 | 8 | | Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | | | | | | | | | | |--------------------|-------------|-------------|-------------|-------------|-------------|-------------|-------------| | | | | | | | | | | 1. Prior .......| 000 | 0 | 0 | 0 | 0 | 0 | 0 | | 2. 1984.........| 0 | 0 | 0 | 0 | 0 | 0 | 0 | | 3. 1985.........| X X X X | 0 | 0 | 662 | 1,018 | 1,037 | 1,037 | | 4. 1986.........| X X X X | X X X X | 0 | 10 | 16 | 32 | 32 | | 5. 1987.........| X X X X | X X X X | X X X X | 0 | 0 | 0 | 24 | | 6. 1988.........| X X X X | X X X X | X X X X | X X X X | 0 | 1 | 101 | | 7. 1989.........| X X X X | X X X X | X X X X | X X X X | X X X X | 1 | 9 | | 8. 1990.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 1 | | 9. 1991.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 10. 1992.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 11. 1993.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | ----------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------- | 1 | 12 | 13 || | -----------------------------------------| Number of | Number of || | Years in Which | | | | Claims | Claims || | Losses Were | 9 | 10 | 11 | Closed | Closed || | Incurred | 1991 | 1992 | 1993 | With Loss |Without Loss || | | | | | Payment | Payment || |------------------- |-------------|-------------|-------------|-------------|-------------|| | | | | | | || | 1. Prior .......| 0 | 0 | 0 | 0 | 0 || | 2. 1984.........| 0 | 0 | 0 | 0 | 0 || | 3. 1985.........| 945 | 945 | 945 | 0 | 0 || | 4. 1986.........| 32 | 32 | 32 | 0 | 0 || | 5. 1987.........| 24 | 24 | 24 | 0 | 0 || | 6. 1988.........| 117 | 120 | 141 | 0 | 0 || | 7. 1989.........| 25 | 240 | 255 | 0 | 0 || | 8. 1990.........| 10 | 99 | 266 | 0 | 0 || | 9. 1991.........| 0 | 4 | 9 | 0 | 0 || | 10. 1992.........| X X X X | 0 | 3 | 0 | 0 || | 11. 1993.........| X X X X | X X X X | 0 | 0 | 0 || ------------------------------------------------------------------------------------------ SCHEDULE P - PART 3G - SPECIAL LIABILITY (OCEAN MARINE, AIRCRAFT (ALL PERILS), BOILER AND MACHINERY) - ------------------------------------------------------------------------------------------------------------------------ | 1 | Cumulative Paid Losses and Allocated Expenses at Year End (000 omitted) | | |-------------------------------------------------------------------------------------------------| | Years in Which | | | | | | | | | Losses Were | 2 | 3 | 4 | 5 | 6 | 7 | 8 | | Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | | | | | | | | | | |--------------------|-------------|-------------|-------------|-------------|-------------|-------------|-------------| | | | | | | | | | | 1. Prior .......| 000 | 2,200 | 4,449 | 5,842 | 6,581 | 7,221 | 7,453 | | 2. 1984.........| 9,233 | 12,800 | 13,717 | 14,160 | 14,339 | 14,730 | 14,777 | | 3. 1985.........| X X X X | 8,762 | 14,339 | 16,267 | 17,244 | 18,178 | 18,680 | | 4. 1986.........| X X X X | X X X X | 13,767 | 20,949 | 24,613 | 27,333 | 29,370 | | 5. 1987.........| X X X X | X X X X | X X X X | 9,533 | 17,862 | 24,502 | 26,695 | | 6. 1988.........| X X X X | X X X X | X X X X | X X X X | 9,231 | 16,454 | 19,180 | | 7. 1989.........| X X X X | X X X X | X X X X | X X X X | X X X X | 11,402 | 16,737 | | 8. 1990.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 7,945 | | 9. 1991.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 10. 1992.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 11. 1993.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | ----------------------------------------------------------------------------------------------------------------------- - --------------------- ---------------------------------------------------------------------- | 1 | | 12 | 13 | | |-----------------------------------------| Number of | Number of | | Years in Which | | | | Claims | Claims | | Losses Were | 9 | 10 | 11 | Closed | Closed | | Incurred | 1991 | 1992 | 1993 | With Loss |Without Loss | | | | | | Payment | Payment | |------------------- |-------------|-------------|-------------|-------------|-------------| | | | | | | | | 1. Prior .......| 7,532 | 7,688 | 7,996 | X X X X | X X X X | | 2. 1984.........| 14,821 | 14,909 | 14,912 | X X X X | X X X X | | 3. 1985.........| 19,100 | 19,025 | 19,068 | X X X X | X X X X | | 4. 1986.........| 29,415 | 29,450 | 29,187 | X X X X | X X X X | | 5. 1987.........| 27,769 | 28,522 | 28,827 | X X X X | X X X X | | 6. 1988.........| 20,912 | 22,588 | 23,225 | X X X X | X X X X | | 7. 1989.........| 19,342 | 21,705 | 22,545 | X X X X | X X X X | | 8. 1990.........| 14,633 | 16,945 | 18,666 | X X X X | X X X X | | 9. 1991.........| 9,730 | 15,533 | 17,363 | X X X X | X X X X | | 10. 1992.........| X X X X | 5,677 | 8,448 | X X X X | X X X X | | 11. 1993.........| X X X X | X X X X | 5,338 | X X X X | X X X X | ------------------------------------------------------------------------------------------ SCHEDULE P - PART 3H - SECTION 1 - OTHER LIABILITY - OCCURRENCE - ------------------------------------------------------------------------------------------------------------------------ | 1 | Cumulative Paid Losses and Allocated Expenses at Year End (000 omitted) | | |-------------------------------------------------------------------------------------------------| | Years in Which | | | | | | | | | Losses Were | 2 | 3 | 4 | 5 | 6 | 7 | 8 | | Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | | | | | | | | | | |--------------------|-------------|-------------|-------------|-------------|-------------|-------------|-------------| | | | | | | | | | | 1. Prior .......| 000 | 117,828 | 220,405 | 307,210 | 370,275 | 431,506 | 478,211 | | 2. 1984.........| 16,591 | 41,121 | 68,519 | 96,906 | 120,553 | 146,912 | 158,239 | | 3. 1985.........| X X X X | 17,555 | 47,982 | 88,943 | 124,960 | 153,560 | 176,920 | | 4. 1986.........| X X X X | X X X X | 18,393 | 45,614 | 82,671 | 120,553 | 150,472 | | 5. 1987.........| X X X X | X X X X | X X X X | 21,818 | 52,420 | 87,499 | 122,123 | | 6. 1988.........| X X X X | X X X X | X X X X | X X X X | 10,761 | 27,514 | 48,724 | | 7. 1989.........| X X X X | X X X X | X X X X | X X X X | X X X X | 8,733 | 21,122 | | 8. 1990.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 11,619 | | 9. 1991.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 10. 1992.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 11. 1993.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | ----------------------------------------------------------------------------------------------------------------------- - --------------------- ---------------------------------------------------------------------- | 1 | | 12 | 13 | | |-----------------------------------------| Number of | Number of | | Years in Which | | | | Claims | Claims | | Losses Were | 9 | 10 | 11 | Closed | Closed | | Incurred | 1991 | 1992 | 1993 | With Loss |Without Loss | | | | | | Payment | Payment | |--------------------|-------------|-------------|-------------|-------------|-------------| | | | | | | | | 1. Prior .......| 505,896 | 535,285 | 572,654 | 9,075 | 14,011 | | 2. 1984.........| 167,366 | 173,558 | 178,268 | 25,721 | 13,612 | | 3. 1985.........| 192,605 | 197,272 | 206,127 | 24,896 | 14,826 | | 4. 1986.........| 172,690 | 185,334 | 195,092 | 19,607 | 12,343 | | 5. 1987.........| 157,422 | 173,081 | 190,522 | 16,643 | 11,535 | | 6. 1988.........| 72,687 | 102,251 | 114,779 | 12,952 | 8,165 | | 7. 1989.........| 36,345 | 52,958 | 65,520 | 8,305 | 6,058 | | 8. 1990.........| 25,544 | 48,198 | 65,946 | 8,065 | 6,971 | | 9. 1991.........| 5,929 | 15,617 | 27,507 | 5,542 | 4,747 | | 10. 1992.........| X X X X | 3,682 | 8,472 | 2,788 | 2,701 | | 11. 1993.........| X X X X | X X X X | 3,122 | 1,403 | 1,236 | ------------------------------------------------------------------------------------------ SCHEDULE P - PART 3H - SECTION 2 - OTHER LIABILITY - CLAIMS-MADE - ------------------------------------------------------------------------------------------------------------------------ | 1 | Cumulative Paid Losses and Allocated Expenses at Year End (000 omitted) | | |-------------------------------------------------------------------------------------------------| | Years in Which | | | | | | | | | Losses Were | 2 | 3 | 4 | 5 | 6 | 7 | 8 | | Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | | | | | | | | | | --------------------|-------------|-------------|-------------|-------------|-------------|-------------|-------------| | | | | | | | | | | 1. Prior .......| 000 | 0 | 0 | 0 | 0 | 0 | 0 | | 2. 1984.........| 0 | 0 | 0 | 0 | 0 | 0 | 0 | | 3. 1985.........| X X X X | 0 | 0 | 29 | 40 | 58 | 72 | | 4. 1986.........| X X X X | X X X X | 0 | 209 | 341 | 389 | 328 | | 5. 1987.........| X X X X | X X X X | X X X X | 0 | 0 | 0 | (6)| | 6. 1988.........| X X X X | X X X X | X X X X | X X X X | 69 | 111 | 218 | | 7. 1989.........| X X X X | X X X X | X X X X | X X X X | X X X X | 248 | 446 | | 8. 1990.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 143 | | 9. 1991.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 10. 1992.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 11. 1993.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | ----------------------------------------------------------------------------------------------------------------------- Note: Net of salvage and subrogation received. - --------------------- ---------------------------------------------------------------------- | 1 | | 12 | 13 | | |-----------------------------------------| Number of | Number of | | Years in Which | | | | Claims | Claims | | Losses Were | 9 | 10 | 11 | Closed | Closed | | Incurred | 1991 | 1992 | 1993 | With Loss |Without Loss | | | | | | Payment | Payment | --------------------|-------------|-------------|-------------|-------------|-------------| | | | | | | | | 1. Prior .......| 0 | 0 | 0 | 0 | 0 | | 2. 1984.........| 0 | 0 | 0 | 0 | 0 | | 3. 1985.........| 90 | 88 | 99 | 0 | 0 | | 4. 1986.........| 393 | 367 | 411 | 1 | 0 | | 5. 1987.........| (6)| (6)| (6)| 0 | 2 | | 6. 1988.........| 225 | 626 | 626 | 70 | 41 | | 7. 1989.........| 640 | 687 | 730 | 126 | 59 | | 8. 1990.........| 269 | 285 | 949 | 85 | 70 | | 9. 1991.........| 159 | 234 | 301 | 70 | 83 | | 10. 1992.........| X X X X | 88 | 854 | 59 | 67 | | 11. 1993.........| X X X X | X X X X | 85 | 34 | 32 | ------------------------------------------------------------------------------------------
Page 87 Form 2 CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND ITS AFFILIATED FIRE AND CASUALTY INSURERS
SCHEDULE P - PART 3I - SPECIAL PROPERTY (FIRE, ALLIED LINES, INLAND MARINE, EARTHQUAKE, GLASS, BURGLARY AND THEFT) ----------------------------------------------------------------------------------------------------------------------- | 1 | Cumulative Paid Losses and Allocated Expenses at Year End (000 omitted) | |-------------------------------------------------------------------------------------------------- | Years in Which | | | | | | | | | Losses Were | 2 | 3 | 4 | 5 | 6 | 7 | 8 | | Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | | | | | | | | | | |--------------------|-------------|-------------|-------------|-------------|-------------|-------------|-------------| | | | | | | | | | | 1. Prior .......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 2. 1992.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 3. 1993.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | ----------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------ | 1 | 12 | 13 | | ------------------------------------------| Number of | Number of | | Years in Which | | | | Claims |Claims Closed| | Losses Were | 9 | 10 | 11 | Closed With | Without | | Incurred | 1991 | 1992 | 1993 |Loss Payment |Loss Payment | | | | | | | | |-------------------|--------------|-------------|-------------|-------------|-------------| | | | | | | | | 1. Prior ......|. 000 | 39,918 | 49,120 | X X X X | X X X X | | 2. 1992........|. X X X X | 47,224 | 71,318 | X X X X | X X X X | | 3. 1993........|. X X X X | X X X X | 51,154 | X X X X | X X X X | ------------------------------------------------------------------------------------------ SCHEDULE P - PART 3J - AUTO PHYSICAL DAMAGE ----------------------------------------------------------------------------------------------------------------------- | 1 | Cumulative Paid Losses and Allocated Expenses at Year End (000 omitted) | |-------------------------------------------------------------------------------------------------- | Years in Which | | | | | | | | | Losses Were | 2 | 3 | 4 | 5 | 6 | 7 | 8 | | Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | | | | | | | | | | |--------------------|-------------|-------------|-------------|-------------|-------------|-------------|-------------| | | | | | | | | | | 1. Prior .......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 2. 1992.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 3. 1993.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | ----------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------- | 1 | | 12 | 13 | | |------------------------------------------| Number of | Number of | | Years in Which | | | | Claims |Claims Closed| | Losses Were | 9 | 10 | 11 | Closed With | Without | | Incurred | 1991 | 1992 | 1993 |Loss Payment |Loss Payment | | | | | | | | |--------------------|----------------------------|-------------|-------------|-------------| | | | | | | | | 1. Prior .......| 000 | 20,750 | 22,009 | 442 | 264 | | 2. 1992.........| X X X X | 131,558 | 148,167 | 100,524 | 24,968 | | 3. 1993.........| X X X X | X X X X | 105,665 | 80,138 | 17,119 | ------------------------------------------------------------------------------------------ SCHEDULE P - PART 3K - FIDELITY, SURETY, FINANCIAL GUARANTY, MORTGAGE GUARANTY ----------------------------------------------------------------------------------------------------------------------- | 1 | Cumulative Paid Losses and Allocated Expenses at Year End (000 omitted) | |-------------------------------------------------------------------------------------------------- | Years in Which | | | | | | | | | Losses Were | 2 | 3 | 4 | 5 | 6 | 7 | 8 | | Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | | | | | | | | | | | 1. Prior .......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 2. 1992.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 3. 1993.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | ----------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------- | 1 | | 12 | 13 | | |------------------------------------------| Number of | Number of | | Years in Which | | | | Claims |Claims Closed| | Losses Were | 9 | 10 | 11 |Closed With | Without | | Incurred | 1991 | 1992 | 1993 |Loss Payment|Loss Payment | | | | | | | | - ---------------------|----------------------------|-------------|------------|-------------| | | | | | | | | 1. Prior .......| 000 | 16,673 | 31,956 | X X X X | X X X X | | 2. 1992.........| X X X X | 2,960 | 30,157 | X X X X | X X X X | | 3. 1993.........| X X X X | X X X X | 8,254 | X X X X | X X X X | -------------------------------------------------------------------------------------------- SCHEDULE P - PART 3L - OTHER (INCLUDING CREDIT, ACCIDENT AND HEALTH) ----------------------------------------------------------------------------------------------------------------------- | 1 | Cumulative Paid Losses and Allocated Expenses at Year End (000 omitted) | |-------------------------------------------------------------------------------------------------- | Years in Which | | | | | | | | | Losses Were | 2 | 3 | 4 | 5 | 6 | 7 | 8 | | Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | | | | | | | | | | | | 1. Prior .......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 2. 1992.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 3. 1993.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | ----------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------- | 1 | | 12 | 13 | | |------------------------------------------| Number of | Number of | | Years in Which | | | | Claims |Claims Closed| | Losses Were | 9 | 10 | 11 | Closed With | Without | | Incurred | 1991 | 1992 | 1993 |Loss Payment |Loss Payment | | | | | | | | - --------------------------------------------------------------------------------------------- | | | | | | 1. Prior .......| 000 | 69 | 108 | X X X X | X X X X | | 2. 1992.........| X X X X | 0 | 0 | X X X X | X X X X | | 3. 1993.........| X X X X | X X X X | 0 | X X X X | X X X X | ------------------------------------------------------------------------------------------ SCHEDULE P - PART 3M - INTERNATIONAL ----------------------------------------------------------------------------------------------------------------------- | 1 | Cumulative Paid Losses and Allocated Expenses at Year End (000 omitted) | |-------------------------------------------------------------------------------------------------- | Years in Which | | | | | | | | | Losses Were | 2 | 3 | 4 | 5 | 6 | 7 | 8 | | Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | | | | | | | | | | - ------------------------------------------------------------------------------------------------------------------| | 1. Prior .......| 000 | 0 | 0 | 0 | 0 | 0 | 0 | | 2. 1984.........| 0 | 0 | 0 | 0 | 0 | 0 | 0 | | 3. 1985.........| X X X X | 0 | 0 | 0 | 0 | 0 | 0 | | 4. 1986.........| X X X X | X X X X | 0 | 0 | 0 | 0 | 0 | | 5. 1987.........| X X X X | X X X X | X X X X | 0 | 0 | 0 | 0 | | 6. 1988.........| X X X X | X X X X | X X X X | X X X X | 4,610 | 10,615 | 12,406 | | 7. 1989.........| X X X X | X X X X | X X X X | X X X X | X X X X | 3,850 | 8,531 | | 8. 1990.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 3,585 | | 9. 1991.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 10. 1992.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 11. 1993.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | ----------------------------------------------------------------------------------------------------------------------- Note: Net of salvage and subrogation received. --------------------------------------------------------------------------------------------- | 1 | | 12 | 13 | | |------------------------------------------| Number of | Number of | | Years in Which | | | | Claims |Claims Closed| | Losses Were | 9 | 10 | 11 | Closed With | Without | | Incurred | 1991 | 1992 | 1993 |Loss Payment |Loss Payment | | |--------------------------------------------------------------------- | 1. Prior .......| 0 | 0 | 0 | X X X X | X X X X | | 2. 1984.........| 0 | 0 | 0 | X X X X | X X X X | | 3. 1985.........| 0 | 0 | 0 | X X X X | X X X X | | 4. 1986.........| 0 | 0 | 0 | X X X X | X X X X | | 5. 1987.........| 0 | 0 | 0 | X X X X | X X X X | | 6. 1988.........| 13,164 | 13,562 | 13,619 | X X X X | X X X X | | 7. 1989.........| 9,812 | 10,323 | 10,358 | X X X X | X X X X | | 8. 1990.........| 8,889 | 10,293 | 10,486 | X X X X | X X X X | | 9. 1991.........| 4,478 | 6,649 | 7,364 | X X X X | X X X X | | 10. 1992.........| X X X X | 1,232 | 2,920 | X X X X | X X X X | | 11. 1993.........| X X X X | X X X X | 355 | X X X X | X X X X | ------------------------------------------------------------------------------------------
Page 88 Form 2 CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND ITS AFFILIATED FIRE AND CASUALTY INSURERS
SCHEDULE P - PART 3N - REINSURANCE A ----------------------------------------------------------------------------------------------------------------------- | 1 | Cumulative Paid Losses and Allocated Expenses at Year End (000 Omitted) | |-------------------------------------------------------------------------------------------------- | Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 | | Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | | Incurred | | | | | | | | | | | | | | | | | |--------------------|-------------|-------------|-------------|-------------|-------------|-------------|-------------| | | 1. 1988.........| X X X X | X X X X | X X X X | X X X X | 2,283 | 4,302 | 5,753 | | 2. 1989.........| X X X X | X X X X | X X X X | X X X X | X X X X | 5,873 | 8,625 | | 3. 1990.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 4,784 | | 4. 1991.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 5. 1992.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 6. 1993.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | ----------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------ | 1 | 12 | 13 | | -----------------------------------------| Number of | Number of | | Years in Which | 9 | 10 | 11 | Claims | Claims | | Losses Were | 1991 | 1992 | 1993 | Closed | Closed | | Incurred | | | | With Loss |Without Loss | | | | | | Payment | Payment | |--------------------|-------------|-------------|-------------|-------------|-------------| | 1. 1988.........| 6,950 | 9,296 | 10,510 | X X X X | X X X X | | 2. 1989.........| 10,264 | 11,671 | 12,053 | X X X X | X X X X | | 3. 1990.........| 6,108 | 9,592 | 9,867 | X X X X | X X X X | | 4. 1991.........| 1,301 | 4,570 | 5,463 | X X X X | X X X X | | 5. 1992.........| X X X X | 6,875 | 2,140 | X X X X | X X X X | | 6. 1993.........| X X X X | X X X X | 1,083 | X X X X | X X X X | ------------------------------------------------------------------------------------------ SCHEDULE P - PART 3O - REINSURANCE B ----------------------------------------------------------------------------------------------------------------------- | 1 | Cumulative Paid Losses and Allocated Expenses at Year End (000 Omitted) | |-------------------------------------------------------------------------------------------------- | Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 | | Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | | Incurred | | | | | | | | | | | | | | | | | |--------------------|-------------|-------------|-------------|-------------|-------------|-------------|-------------| | | | | | | | | | | 1. 1988.........| X X X X | X X X X | X X X X | X X X X | 1,108 | 2,954 | 3,793 | | 2. 1989.........| X X X X | X X X X | X X X X | X X X X | X X X X | 10,817 | 11,867 | | 3. 1990.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 1,567 | | 4. 1991.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 5. 1992.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 6. 1993.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | ----------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------- | 1 | 12 | 13 | | -----------------------------------------| Number of | Number of | | Years in Which | 9 | 10 | 11 | Claims | Claims | | Losses Were | 1991 | 1992 | 1993 | Closed | Closed | | Incurred | | | | With Loss |Without Loss | | | | | | Payment | Payment | |--------------------|-------------|-------------|-------------|-------------|-------------| | | | | | | | | 1. 1988.........| 4,770 | 5,650 | 6,476 | X X X X | X X X X | | 2. 1989.........| 12,902 | 13,472 | 13,773 | X X X X | X X X X | | 3. 1990.........| 2,232 | 6,826 | 7,073 | X X X X | X X X X | | 4. 1991.........| 402 | 1,555 | 2,022 | X X X X | X X X X | | 5. 1992.........| X X X X | 10,626 | 10,354 | X X X X | X X X X | | 6. 1993.........| X X X X | X X X X | 485 | X X X X | X X X X | ------------------------------------------------------------------------------------------ SCHEDULE P - PART 3P - REINSURANCE C ----------------------------------------------------------------------------------------------------------------------- | 1 | Cumulative Paid Losses and Allocated Expenses at Year End (000 Omitted) | |-------------------------------------------------------------------------------------------------- | Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 | | Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | | Incurred | | | | | | | | | | | | | | | | | |--------------------|-------------|-------------|-------------|-------------|-------------|-------------|-------------| | | | | | | | | | | 1. 1988.........| X X X X | X X X X | X X X X | X X X X | 0 | 200 | 200 | | 2. 1989.........| X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 | | 3. 1990.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | | 4. 1991.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 5. 1992.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 6. 1993.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | ----------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------- | 1 | | 12 | 13 | | |-----------------------------------------| Number of | Number of | | Years in Which | 9 | 10 | 11 | Claims | Claims | | Losses Were | 1991 | 1992 | 1993 | Closed | Closed | | Incurred | | | | With Loss |Without Loss | | | | | | Payment | Payment | |--------------------|-------------|-------------|-------------|-------------|-------------| | | | | | | | | 1. 1988.........| 200 | 200 | 401 | X X X X | X X X X | | 2. 1989.........| 0 | 0 | 0 | X X X X | X X X X | | 3. 1990.........| 0 | 0 | 0 | X X X X | X X X X | | 4. 1991.........| 0 | 0 | 0 | X X X X | X X X X | | 5. 1992.........| X X X X | 0 | 0 | X X X X | X X X X | | 6. 1993.........| X X X X | X X X X | X X X X | X X X X | X X X X | ------------------------------------------------------------------------------------------ SCHEDULE P - PART 3Q - REINSURANCE D ----------------------------------------------------------------------------------------------------------------------- | 1 | Cumulative Paid Losses and Allocated Expenses at Year End (000 Omitted) | |-------------------------------------------------------------------------------------------------- | Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 | | Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | | Incurred | | | | | | | | | | | | | | | | | |--------------------|-------------|-------------|-------------|-------------|-------------|-------------|-------------| | | | | | | | | | | 1. Prior .......| 000 | 0 | 0 | 0 | 0 | 0 | 0 | | 2. 1984.........| (27,008)| (25,173)| (24,786)| (24,448)| (24,335)| (23,634)| 2,942 | | 3. 1985.........| X X X X | 1,856 | 11,761 | 17,564 | 18,244 | 18,601 | 18,927 | | 4. 1986.........| X X X X | X X X X | 8,482 | 20,448 | 24,661 | 26,542 | 27,789 | | 5. 1987.........| X X X X | X X X X | X X X X | (119,003)| (150,152)| (152,812)| 27,625 | ----------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------- | 1 | | 12 | 13 | | |-----------------------------------------| Number of | Number of | | Years in Which | 9 | 10 | 11 | Claims | Claims | | Losses Were | 1991 | 1992 | 1993 | Closed | Closed | | Incurred | | | | With Loss |Without Loss | | | | | | Payment | Payment | |--------------------|-------------|-------------|-------------|-------------|-------------| | | | | | | | | 1. Prior .......| 0 | 0 | 0 | X X X X | X X X X | | 2. 1984.........| 2,958 | 2,903 | 2,901 | X X X X | X X X X | | 3. 1985.........| 19,025 | 18,879 | 18,478 | X X X X | X X X X | | 4. 1986.........| 28,421 | 29,168 | 28,682 | X X X X | X X X X | | 5. 1987.........| 28,886 | 29,549 | 29,830 | X X X X | X X X X | - -------------------------------------------------------------------------------------------- SCHEDULE P - PART 3R - SECTION 1 - PRODUCTS LIABILITY - OCCURRENCE ------------------------------------------------------------------------------------------------------------------------ | 1 | Cumulative Paid Losses and Allocated Expenses at Year End (000 Omitted) | |-------------------------------------------------------------------------------------------------- | Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 | | Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | | Incurred | | | | | | | | | | | | | | | | | |--------------------|-------------|-------------|-------------|-------------|-------------|-------------|-------------| | | | | | | | | | | 1. Prior .......| 000 | 12,496 | 22,105 | 34,509 | 49,032 | 62,402 | 76,730 | | 2. 1984.........| 944 | 2,618 | 7,065 | 11,564 | 13,654 | 18,600 | 21,284 | | 3. 1985.........| X X X X | 692 | 2,067 | 5,349 | 10,599 | 15,704 | 20,191 | | 4. 1986.........| X X X X | X X X X | 535 | 1,397 | 3,706 | 8,522 | 13,765 | | 5. 1987.........| X X X X | X X X X | X X X X | 1,046 | 3,165 | 6,478 | 13,019 | | 6. 1988.........| X X X X | X X X X | X X X X | X X X X | 168 | 2,599 | 6,118 | | 7. 1989.........| X X X X | X X X X | X X X X | X X X X | X X X X | 375 | 2,727 | | 8. 1990.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 459 | | 9. 1991.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 10. 1992.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 11. 1993.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | ----------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------- | 1 | | 12 | 13 | | |-----------------------------------------| Number of | Number of | | Years in Which | 9 | 10 | 11 | Claims | Claims | | Losses Were | 1991 | 1992 | 1993 | Closed | Closed | | Incurred | | | | With Loss |Without Loss | | | | | | Payment | Payment | |--------------------|-------------|-------------|-------------|-------------|-------------| | | | | | | | | 1. Prior .......| 88,637 | 96,792 | 100,560 | 934 | 5,607 | | 2. 1984.........| 22,971 | 24,114 | 25,233 | 800 | 623 | | 3. 1985.........| 22,232 | 23,153 | 24,247 | 807 | 667 | | 4. 1986.........| 18,809 | 21,089 | 24,179 | 627 | 693 | | 5. 1987.........| 19,099 | 22,219 | 23,955 | 523 | 583 | | 6. 1988.........| 10,643 | 12,598 | 15,102 | 420 | 410 | | 7. 1989.........| 5,374 | 8,197 | 11,508 | 481 | 464 | | 8. 1990.........| 1,290 | 2,326 | 4,785 | 472 | 437 | | 9. 1991.........| 434 | 1,152 | 4,246 | 258 | 250 | | 10. 1992.........| X X X X | 205 | 559 | 114 | 227 | | 11. 1993.........| X X X X | X X X X | 1,218 | 87 | 55 | ------------------------------------------------------------------------------------------ SCHEDULE P - PART 3R - SECTION 2 - PRODUCTS LIABILITY - CLAIMS-MADE ----------------------------------------------------------------------------------------------------------------------- | 1 | Cumulative Paid Losses and Allocated Expenses at Year End (000 Omitted) | |-------------------------------------------------------------------------------------------------- | Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 | | Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | | Incurred | | | | | | | | | | | | | | | | | |--------------------|-------------|-------------|-------------|-------------|-------------|-------------|-------------| | | | | | | | | | | 1. Prior .......| 000 | 0 | 0 | 0 | 0 | 0 | 0 | | 2. 1984.........| 0 | 0 | 0 | 0 | 0 | 0 | 0 | | 3. 1985.........| X X X X | 0 | 0 | 0 | 0 | 0 | 0 | | 4. 1986.........| X X X X | X X X X | 0 | 0 | 0 | 0 | 0 | | 5. 1987.........| X X X X | X X X X | X X X X | 0 | 0 | 0 | 0 | | 6. 1988.........| X X X X | X X X X | X X X X | X X X X | 1 | 5 | 13 | | 7. 1989.........| X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 4 | | 8. 1990.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 20 | | 9. 1991.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 10. 1992.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 11. 1993.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | ----------------------------------------------------------------------------------------------------------------------- Note: Net of salvage and subrogation received. ------------------------------------------------------------------------------------------- | 1 | | 12 | 13 | | |-----------------------------------------| Number of | Number of | | Years in Which | 9 | 10 | 11 | Claims | Claims | | Losses Were | 1991 | 1992 | 1993 | Closed | Closed | | Incurred | | | | With Loss |Without Loss | | | | | | Payment | Payment | |--------------------|-------------|-------------|-------------|-------------|-------------| | | | | | | | | 1. Prior .......| 0 | 0 | 0 | 0 | 0 | | 2. 1984.........| 0 | 0 | 0 | 0 | 0 | | 3. 1985.........| 0 | 0 | 0 | 0 | 0 | | 4. 1986.........| 0 | 0 | 0 | 0 | 0 | | 5. 1987.........| 0 | 0 | 0 | 0 | 0 | | 6. 1988.........| 13 | 13 | 13 | 4 | 2 | | 7. 1989.........| 18 | 18 | 18 | 1 | 1 | | 8. 1990.........| 170 | 291 | 426 | 5 | 3 | | 9. 1991.........| 21 | 55 | 167 | 4 | 7 | | 10. 1992.........| X X X X | 7 | 31 | 1 | 5 | | 11. 1993.........| X X X X | X X X X | 20 | 0 | 2 | ------------------------------------------------------------------------------------------
Page 89 Form 2 CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND ITS AFFILIATED FIRE AND CASUALTY INSURERS
SCHEDULE P - PART 4A - HOMEOWNERS/FARMOWNERS ------------------------------------------------------------------------------------------------------------------------------ | 1 |BULK AND INCURRED BUT NOT REPORTED RESERVES ON LOSSES AND ALLOCATED EXPENSES AT YEAR END | |(000 OMITTED) | |------------------------------------------------------------------------------------------------ | Years in Which | | | | | | | | Losses Were | 2 | 3 | 4 | 5 | 6 | 7 | | Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | | | | | | | | | |-----------------------------|---------------|---------------|---------------|---------------|---------------|---------------| | | | | | | | | | 1. Prior ..............| 8,408 | 4,501 | 1,090 | 531 | 307 | 264 | | 2. 1984................| 14,690 | 3,627 | 1,780 | 819 | 276 | 73 | | 3. 1985................| X X X X | 21,677 | 3,598 | 2,218 | 1,424 | 489 | | 4. 1986................| X X X X | X X X X | 26,818 | 8,442 | 6,075 | 3,916 | | 5. 1987................| X X X X | X X X X | X X X X | 34,155 | 14,953 | 10,076 | | 6. 1988................| X X X X | X X X X | X X X X | X X X X | 26,295 | 8,421 | | 7. 1989................| X X X X | X X X X | X X X X | X X X X | X X X X | 29,666 | | 8. 1990................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 9. 1991................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 10. 1992................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 11. 1993................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | ------------------------------------------------------------------------------------------------------------------------------ --------------------------------------------------------------------------------------------- | 1 | | | |---------------------------------------------------------------| | Years in Which | | | | | | Losses Were | 8 | 9 | 10 | 11 | | Incurred | 1990 | 1991 | 1992 | 1993 | | | | | | | |----------------------------|---------------|---------------|---------------|---------------| | | | | | | | 1. Prior .............|. 275 | 115 | 52 | 8 | | 2. 1984...............|. 165 | 129 | 82 | 48 | | 3. 1985...............|. 534 | 200 | 234 | 159 | | 4. 1986...............|. 2,588 | 1,079 | 763 | 516 | | 5. 1987...............|. 6,872 | 2,075 | 1,617 | 1,208 | | 6. 1988...............|. 5,420 | 2,061 | 1,322 | 716 | | 7. 1989...............|. 7,917 | 3,082 | 2,177 | 918 | | 8. 1990...............|. 23,709 | 5,481 | 3,249 | 1,085 | | 9. 1991...............|. X X X X | 23,758 | 5,380 | 2,233 | | 10. 1992...............|. X X X X | X X X X | 21,121 | 4,065 | | 11. 1993...............|. X X X X | X X X X | X X X X | 13,203 | --------------------------------------------------------------------------------------------- SCHEDULE P - PART 4B - PRIVATE PASSENGER AUTO LIABILITY/MEDICAL ------------------------------------------------------------------------------------------------------------------------------ | 1 |BULK AND INCURRED BUT NOT REPORTED RESERVES ON LOSSES AND ALLOCATED EXPENSES AT YEAR END | |(000 OMITTED) | |------------------------------------------------------------------------------------------------ | Years in Which | | | | | | | | Losses Were | 2 | 3 | 4 | 5 | 6 | 7 | | Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | | | | | | | | | |-----------------------------|---------------|---------------|---------------|---------------|---------------|---------------| | | | | | | | | | 1. Prior ..............| 40,853 | 23,930 | 10,084 | 4,748 | 3,474 | 1,568 | | 2. 1984................| 68,284 | 28,845 | 14,844 | 5,790 | 3,853 | 2,381 | | 3. 1985................| X X X X | 76,623 | 33,084 | 13,453 | 7,756 | 4,835 | | 4. 1986................| X X X X | X X X X | 100,864 | 44,855 | 25,884 | 8,775 | | 5. 1987................| X X X X | X X X X | X X X X | 103,612 | 47,271 | 24,394 | | 6. 1988................| X X X X | X X X X | X X X X | X X X X | 95,979 | 47,928 | | 7. 1989................| X X X X | X X X X | X X X X | X X X X | X X X X | 111,634 | | 8. 1990................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 9. 1991................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 10. 1992................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 11. 1993................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | ------------------------------------------------------------------------------------------------------------------------------ ---------------------------------------------------------------------------------------------- | 1 | | | |---------------------------------------------------------------| | | | | | | | Years in Which | 8 | 9 | 10 | 11 | | Losses Were | 1990 | 1991 | 1992 | 1993 | | Incurred | | | | | | | | | | | |-----------------------------|---------------|---------------|---------------|---------------| | | | | | | | 1. Prior ..............| 1,054 | 822 | 785 | 6,468 | | 2. 1984................| 1,076 | 654 | 784 | 392 | | 3. 1985................| 2,605 | 1,133 | 7,293 | 4,015 | | 4. 1986................| 4,734 | 2,021 | 6,250 | 4,162 | | 5. 1987................| 12,635 | 4,094 | 6,719 | 4,856 | | 6. 1988................| 24,340 | 7,862 | 12,097 | 8,460 | | 7. 1989................| 54,405 | 19,073 | 11,678 | 5,459 | | 8. 1990................| 135,402 | 57,174 | 23,091 | 11,912 | | 9. 1991................| X X X X | 153,113 | 65,878 | 28,461 | | 10. 1992................| X X X X | X X X X | 103,343 | 48,345 | | 11. 1993................| X X X X | X X X X | X X X X | 79,287 | --------------------------------------------------------------------------------------------- SCHEDULE P - PART 4C - COMMERCIAL AUTO/TRUCK LIABILITY/MEDICAL ------------------------------------------------------------------------------------------------------------------------------ | 1 |BULK AND INCURRED BUT NOT REPORTED RESERVES ON LOSSES AND ALLOCATED EXPENSES AT YEAR END | |(000 OMITTED) | |------------------------------------------------------------------------------------------------ | Years in Which | | | | | | | | Losses Were | 2 | 3 | 4 | 5 | 6 | 7 | | Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | | | | | | | | | - ----------------------------------------------------------------------------------------------|--------------|---------------| | 1. Prior ........... | 59,301 | 47,117 | 20,750 | 4,324 | 3,432 | 2,698 | | 2. 1984...............| 84,676 | 53,041 | 26,692 | 11,429 | 4,044 | 3,198 | | 3. 1985...............| X X X X | 113,446 | 60,304 | 27,174 | 10,184 | 6,271 | | 4. 1986...............| X X X X | X X X X | 202,473 | 112,979 | 51,470 | 15,808 | | 5. 1987...............| X X X X | X X X X | X X X X | 248,615 | 133,340 | 59,272 | | 6. 1988...............| X X X X | X X X X | X X X X | X X X X | 149,682 | 82,498 | | 7. 1989...............| X X X X | X X X X | X X X X | X X X X | X X X X | 178,608 | | 8. 1990...............| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 9. 1991...............| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 10. 1992...............| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 11. 1993...............| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | ------------------------------------------------------------------------------------------------------------------------------ --------------------------------------------------------------------------------------------- | 1 | | | |---------------------------------------------------------------| | | | | | | | Years in Which | 8 | 9 | 10 | 11 | | Losses Were | 1990 | 1991 | 1992 | 1993 | | Incurred | | | | | --------------------------------------------|---------------|---------------|---------------| | 1. Prior ........... | 1,914 | 3,598 | 3,269 | 2,001 | | 2. 1984...............| 1,586 | 1,485 | 1,731 | 1,865 | | 3. 1985...............| 3,557 | 2,446 | 2,725 | 2,960 | | 4. 1986...............| 21,272 | 4,655 | 3,884 | 3,241 | | 5. 1987...............| 29,793 | 9,555 | 6,531 | 7,344 | | 6. 1988...............| 51,411 | 15,394 | 8,560 | 5,279 | | 7. 1989...............| 70,725 | 39,054 | 23,430 | 11,156 | | 8. 1990...............| 152,903 | 89,729 | 45,468 | 18,673 | | 9. 1991...............| X X X X | 150,745 | 82,270 | 37,108 | | 10. 1992...............| X X X X | X X X X | 117,172 | 51,518 | | 11. 1993...............| X X X X | X X X X | X X X X | 80,775 | -------------------------------------------------------------------------------------------- SCHEDULE P - PART 4D - WORKERS' COMPENSATION ------------------------------------------------------------------------------------------------------------------------------ | 1 |BULK AND INCURRED BUT NOT REPORTED RESERVES ON LOSSES AND ALLOCATED EXPENSES AT YEAR END | |(000 OMITTED) | |------------------------------------------------------------------------------------------------ | Years in Which | | | | | | | | Losses Were | 2 | 3 | 4 | 5 | 6 | 7 | | Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | | | | | | | | | |---------------------------------------------------------------------------------------------|---------------|---------------| | | | | | | | | | 1. Prior ..............| 137,202 | 86,094 | 41,049 | 28,509 | 24,853 | 42,879 | | 2. 1984................| 138,587 | 75,358 | 38,284 | 16,841 | 11,316 | 11,511 | | 3. 1985................| X X X X | 190,788 | 88,806 | 31,769 | 19,387 | 19,052 | | 4. 1986................| X X X X | X X X X | 256,925 | 146,642 | 72,609 | 45,722 | | 5. 1987................| X X X X | X X X X | X X X X | 225,586 | 100,780 | 54,322 | | 6. 1988................| X X X X | X X X X | X X X X | X X X X | 217,855 | 95,573 | | 7. 1989................| X X X X | X X X X | X X X X | X X X X | X X X X | 240,622 | | 8. 1990................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 9. 1991................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 10. 1992................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 11. 1993................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | ------------------------------------------------------------------------------------------------------------------------------ ---------------------------------------------------------------------------------------------- | 1 | | | |---------------------------------------------------------------| | | | | | | | Years in Which | 8 | 9 | 10 | 11 | | Losses Were | 1990 | 1991 | 1992 | 1993 | | Incurred | | | | | | | | | | | |---------------------------------------------|---------------|---------------|---------------| | | | | | | | 1. Prior ..............| 48,345 | 71,429 | 89,513 | 127,475 | | 2. 1984................| 14,574 | 18,760 | 23,503 | 31,073 | | 3. 1985................| 23,741 | 29,136 | 33,745 | 51,253 | | 4. 1986................| 28,594 | 30,038 | 28,176 | 52,740 | | 5. 1987................| 50,283 | 39,361 | 34,549 | 61,164 | | 6. 1988................| 79,054 | 54,422 | 46,533 | 60,793 | | 7. 1989................| 124,810 | 116,610 | 81,195 | 91,398 | | 8. 1990................| 258,997 | 128,726 | 100,789 | 99,092 | | 9. 1991................| X X X X | 167,039 | 142,657 | 84,057 | | 10. 1992................| X X X X | X X X X | 109,895 | 66,943 | | 11. 1993................| X X X X | X X X X | X X X X | 67,534 | - ---------------------------------------------------------------------------------------------- SCHEDULE P - PART 4E - COMMERCIAL MULTIPLE PERIL ------------------------------------------------------------------------------------------------------------------------------ | 1 |BULK AND INCURRED BUT NOT REPORTED RESERVES ON LOSSES AND ALLOCATED EXPENSES AT YEAR END | |(000 OMITTED) | |------------------------------------------------------------------------------------------------ | Years in Which | | | | | | | | Losses Were | 2 | 3 | 4 | 5 | 6 | 7 | | Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | | | | | | | | | |---------------------------------------------------------------------------------------------|---------------|---------------| | | | | | | | | | 1. Prior ..............| 42,870 | 26,354 | 20,390 | 15,671 | 11,295 | 8,768 | | 2. 1984................| 38,390 | 23,862 | 18,284 | 10,922 | 8,617 | 6,842 | | 3. 1985................| X X X X | 59,058 | 33,833 | 20,461 | 14,944 | 12,074 | | 4. 1986................| X X X X | X X X X | 70,183 | 33,146 | 21,992 | 18,627 | | 5. 1987................| X X X X | X X X X | X X X X | 79,374 | 34,475 | 27,072 | | 6. 1988................| X X X X | X X X X | X X X X | X X X X | 181,058 | 117,500 | | 7. 1989................| X X X X | X X X X | X X X X | X X X X | X X X X | 272,787 | | 8. 1990................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 9. 1991................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 10. 1992................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 11. 1993................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | ------------------------------------------------------------------------------------------------------------------------------ ----------------------------------------------------------------------------------------------- | 1 | | | |---------------------------------------------------------------| | | | | | | | Years in Which | 8 | 9 | 10 | 11 | | Losses Were | 1990 | 1991 | 1992 | 1993 | | Incurred | | | | | | | | | | | |---------------------------------------------|---------------|---------------|---------------| | | | | | | | 1. Prior ..............| 6,818 | 6,846 | 4,331 | 5,982 | | 2. 1984................| 4,807 | 5,022 | 2,872 | 2,417 | | 3. 1985................| 8,356 | 6,673 | 4,514 | 3,309 | | 4. 1986................| 13,659 | 10,074 | 6,226 | 4,622 | | 5. 1987................| 42,558 | 8,503 | 12,476 | 10,554 | | 6. 1988................| 83,612 | 47,275 | 42,361 | 29,455 | | 7. 1989................| 184,073 | 117,913 | 70,317 | 57,597 | | 8. 1990................| 240,641 | 194,651 | 139,082 | 91,692 | | 9. 1991................| X X X X | 234,305 | 176,395 | 123,218 | | 10. 1992................| X X X X | X X X X | 225,071 | 146,435 | | 11. 1993................| X X X X | X X X X | X X X X | 181,370 | ----------------------------------------------------------------------------------------------
Page 90 Form 2 CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND ITS AFFILIATED FIRE AND CASUALTY INSURERS
SCHEDULE P - PART 4F - SECTION 1 - MEDICAL MALPRACTICE - OCCURRENCE ------------------------------------------------------------------------------------------------------------------------------ | 1 |BULK AND INCURRED BUT NOT REPORTED RESERVES ON LOSSES AND ALLOCATED EXPENSES AT YEAR-END | |(000 omitted) | |------------------------------------------------------------------------------------------------ | Years in Which | | | | | | | | Losses Were | 2 | 3 | 4 | 5 | 6 | 7 | | Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | | | | | | | | | |-----------------------------|---------------|---------------|---------------|---------------|---------------|---------------| | | | | | | | | | 1. Prior ..............| 26,512 | 21,939 | 12,255 | 7,399 | 6,807 | 4,825 | | 2. 1984................| 9,269 | 6,853 | 5,085 | 3,864 | 4,478 | 3,429 | | 3. 1985................| X X X X | 9,518 | 9,830 | 5,261 | 1,978 | 1,853 | | 4. 1986................| X X X X | X X X X | 68 | (4)| 0 | 1 | | 5. 1987................| X X X X | X X X X | X X X X | 0 | 96 | 1 | | 6. 1988................| X X X X | X X X X | X X X X | X X X X | 165 | 4 | | 7. 1989................| X X X X | X X X X | X X X X | X X X X | X X X X | 2 | | 8. 1990................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 9. 1991................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 10. 1992................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 11. 1993................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | ------------------------------------------------------------------------------------------------------------------------------ --------------------------------------------------------------------------------------------- | 1 | | ----------------------------------------------------------------| | Years in Which | | | | | | Losses Were | 8 | 9 | 10 | 11 | | Incurred | 1990 | 1991 | 1992 | 1993 | | | | | | | |-----------------------------|---------------|---------------|---------------|---------------| | | | | | | | 1. Prior ..............| 4,995 | 3,133 | 1,610 | 4,848 | | 2. 1984................| 2,997 | 1,630 | 1,254 | 866 | | 3. 1985................| 1,491 | 944 | 730 | 519 | | 4. 1986................| 0 | 0 | 0 | 0 | | 5. 1987................| 0 | 0 | 0 | 0 | | 6. 1988................| 9 | 0 | 0 | 0 | | 7. 1989................| 4 | 0 | 0 | 0 | | 8. 1990................| 5 | 0 | 88 | 0 | | 9. 1991................| X X X X | 3 | 0 | 0 | | 10. 1992................| X X X X | X X X X | 0 | 0 | | 11. 1993................| X X X X | X X X X | X X X X | 0 | --------------------------------------------------------------------------------------------- SCHEDULE P - PART 4F - SECTION 2 - MEDICAL MALPRACTICE - CLAIMS-MADE ------------------------------------------------------------------------------------------------------------------------------ | 1 |BULK AND INCURRED BUT NOT REPORTED RESERVES ON LOSSES AND ALLOCATED EXPENSES AT YEAR-END | |(000 omitted) | |------------------------------------------------------------------------------------------------ | Years in Which | | | | | | | | Losses Were | 2 | 3 | 4 | 5 | 6 | 7 | | Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | | | | | | | | | |-----------------------------|---------------|---------------|---------------|---------------|---------------|---------------| | | | | | | | | | 1. Prior ..............| 0 | 0 | 0 | 0 | 0 | 0 | | 2. 1984................| 0 | 0 | 0 | 0 | 0 | 0 | | 3. 1985................| X X X X | 0 | 0 | 134 | 1 | 0 | | 4. 1986................| X X X X | X X X X | 0 | 4 | 4 | 0 | | 5. 1987................| X X X X | X X X X | X X X X | 0 | 0 | 94 | | 6. 1988................| X X X X | X X X X | X X X X | X X X X | 0 | 163 | | 7. 1989................| X X X X | X X X X | X X X X | X X X X | X X X X | 161 | | 8. 1990................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 9. 1991................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 10. 1992................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 11. 1993................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | ------------------------------------------------------------------------------------------------------------------------------ ---------------------------------------------------------------------------------------------| | 1 | | | | ----------------------------------------------------------------| | Years in Which | | | | | | Losses Were | 8 | 9 | 10 | 11 | | Incurred | 1990 | 1991 | 1992 | 1993 | | | | | | | |-----------------------------|---------------|---------------|---------------|---------------| | | | | | | | 1. Prior ..............| 0 | 0 | 0 | 0 | | 2. 1984................| 0 | 0 | 0 | 0 | | 3. 1985................| 0 | 0 | 0 | 0 | | 4. 1986................| 0 | 0 | 0 | 0 | | 5. 1987................| 88 | 64 | 55 | 24 | | 6. 1988................| 280 | 0 | 0 | 0 | | 7. 1989................| 129 | 0 | 0 | 0 | | 8. 1990................| 73 | 30 | 0 | 0 | | 9. 1991................| X X X X | 212 | 200 | 97 | | 10. 1992................| X X X X | X X X X | 177 | 135 | | 11. 1993................| X X X X | X X X X | X X X X | 40 | --------------------------------------------------------------------------------------------- SCHEDULE P - PART 4G - SPECIAL LIABILITY (OCEAN MARINE, AIRCRAFT (ALL PERILS), BOILER AND MACHINERY) ------------------------------------------------------------------------------------------------------------------------------ | 1 |BULK AND INCURRED BUT NOT REPORTED RESERVES ON LOSSES AND ALLOCATED EXPENSES AT YEAR-END | |(000 omitted) | |------------------------------------------------------------------------------------------------ | Years in Which | | | | | | | | Losses Were | 2 | 3 | 4 | 5 | 6 | 7 | | Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | | | | | | | | | |-----------------------------|---------------|---------------|---------------|---------------|---------------|---------------| | | | | | | | | | 1. Prior ..............| 1,152 | 1,376 | 695 | 296 | 280 | 193 | | 2. 1984................| 2,365 | 962 | 178 | 60 | 0 | 0 | | 3. 1985................| X X X X | 3,931 | 966 | 333 | 200 | 55 | | 4. 1986................| X X X X | X X X X | 8,647 | 3,035 | 1,998 | 1,619 | | 5. 1987................| X X X X | X X X X | X X X X | 11,245 | 5,428 | 3,595 | | 6. 1988................| X X X X | X X X X | X X X X | X X X X | 11,836 | 3,750 | | 7. 1989................| X X X X | X X X X | X X X X | X X X X | X X X X | 7,701 | | 8. 1990................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 9. 1991................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 10. 1992................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 11. 1993................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | ------------------------------------------------------------------------------------------------------------------------------ ---------------------------------------------------------------------------------------------| | 1 | | | | ----------------------------------------------------------------| | Years in Which | | | | | | Losses Were | 8 | 9 | 10 | 11 | | Incurred | 1990 | 1991 | 1992 | 1993 | | | | | | | |-----------------------------|---------------|---------------|---------------|---------------| | | | | | | | 1. Prior ..............| 0 | 0 | 4 | 4 | | 2. 1984................| 0 | 0 | 8 | 8 | | 3. 1985................| 22 | 2 | 0 | 0 | | 4. 1986................| 823 | 165 | 125 | 215 | | 5. 1987................| 1,491 | 367 | 383 | 863 | | 6. 1988................| 1,624 | 353 | 189 | 771 | | 7. 1989................| 1,995 | 617 | 294 | 453 | | 8. 1990................| 6,682 | 1,759 | 1,050 | 189 | | 9. 1991................| X X X X | 5,660 | 2,064 | 318 | | 10. 1992................| X X X X | X X X X | 4,727 | 547 | | 11. 1993................| X X X X | X X X X | X X X X | 3,631 | --------------------------------------------------------------------------------------------- SCHEDULE P - PART 4H - SECTION 1 - OTHER LIABILITY - OCCURRENCE ------------------------------------------------------------------------------------------------------------------------------ | 1 |BULK AND INCURRED BUT NOT REPORTED RESERVES ON LOSSES AND ALLOCATED EXPENSES AT YEAR-END | |(000 omitted) | |------------------------------------------------------------------------------------------------ | Years in Which | | | | | | | | Losses Were | 2 | 3 | 4 | 5 | 6 | 7 | | Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | | | | | | | | | |-----------------------------|---------------|---------------|---------------|---------------|---------------|---------------| | | | | | | | | | 1. Prior ..............| 179,088 | 148,377 | 101,181 | 65,292 | 52,245 | 40,610 | | 2. 1984................| 97,898 | 74,206 | 56,747 | 40,196 | 30,886 | 26,244 | | 3. 1985................| X X X X | 140,056 | 95,657 | 65,153 | 52,126 | 41,785 | | 4. 1986................| X X X X | X X X X | 218,982 | 188,844 | 140,570 | 76,095 | | 5. 1987................| X X X X | X X X X | X X X X | 255,083 | 201,512 | 128,329 | | 6. 1988................| X X X X | X X X X | X X X X | X X X X | 188,732 | 130,153 | | 7. 1989................| X X X X | X X X X | X X X X | X X X X | X X X X | 124,748 | | 8. 1990................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 9. 1991................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 10. 1992................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 11. 1993................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | ------------------------------------------------------------------------------------------------------------------------------ ----------------------------------------------------------------------------------------------| | 1 | | | | ----------------------------------------------------------------| | Years in Which | | | | | | Losses Were | 8 | 9 | 10 | 11 | | Incurred | 1990 | 1991 | 1992 | 1993 | | | | | | | |------------------------------|---------------|---------------|---------------|---------------| | | | | | | | 1. Prior ...............| 29,001 | 56,098 | 66,741 | 106,445 | | 2. 1984.................| 20,342 | 13,815 | 20,223 | 26,876 | | 3. 1985.................| 36,612 | 34,047 | 30,415 | 31,330 | | 4. 1986.................| 49,571 | 43,325 | 41,594 | 35,822 | | 5. 1987.................| 87,279 | 61,191 | 63,292 | 42,081 | | 6. 1988.................| 145,770 | 66,435 | 61,503 | 36,881 | | 7. 1989.................| 104,146 | 82,543 | 55,293 | 41,007 | | 8. 1990.................| 125,630 | 109,041 | 90,026 | 55,009 | | 9. 1991.................| X X X X | 98,570 | 87,514 | 55,193 | | 10. 1992.................| X X X X | X X X X | 64,920 | 46,732 | | 11. 1993.................| X X X X | X X X X | X X X X | 47,924 | ---------------------------------------------------------------------------------------------- SCHEDULE P - PART 4H - SECTION 2 - OTHER LIABILITY - CLAIMS-MADE ------------------------------------------------------------------------------------------------------------------------------ | 1 |BULK AND INCURRED BUT NOT REPORTED RESERVES ON LOSSES AND ALLOCATED EXPENSES AT YEAR-END | |(000 omitted) | |------------------------------------------------------------------------------------------------ | Years in Which | | | | | | | | Losses Were | 2 | 3 | 4 | 5 | 6 | 7 | | Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | | | | | | | | | |-----------------------------|---------------|---------------|---------------|---------------|---------------|---------------| | | | | | | | | | 1. Prior ..............| 0 | 0 | 0 | 0 | 0 | 0 | | 2. 1984................| 0 | 0 | 0 | 0 | 0 | 0 | | 3. 1985................| X X X X | 0 | 0 | (27)| (33)| (25)| | 4. 1986................| X X X X | X X X X | 0 | 34 | (21)| (52)| | 5. 1987................| X X X X | X X X X | X X X X | 2 | 0 | 0 | | 6. 1988................| X X X X | X X X X | X X X X | X X X X | 40 | 30 | | 7. 1989................| X X X X | X X X X | X X X X | X X X X | X X X X | 116 | | 8. 1990................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 9. 1991................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 10. 1992................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 11. 1993................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | ------------------------------------------------------------------------------------------------------------------------------ ---------------------------------------------------------------------------------------------| | 1 | | | | ----------------------------------------------------------------| | Years in Which | | | | | | Losses Were | 8 | 9 | 10 | 11 | | Incurred | 1990 | 1991 | 1992 | 1993 | | | | | | | |-----------------------------|---------------|---------------|---------------|---------------| | | | | | | | 1. Prior ..............| 0 | 0 | 0 | 40 | | 2. 1984................| 0 | 0 | 0 | 12 | | 3. 1985................| (44)| (9)| (57)| 5 | | 4. 1986................| (208)| (91)| 20 | 31 | | 5. 1987................| 0 | 0 | 0 | 3 | | 6. 1988................| 23 | 162 | 0 | 3 | | 7. 1989................| 83 | 32 | 20 | 0 | | 8. 1990................| 99 | 45 | 45 | 119 | | 9. 1991................| X X X X | 217 | 98 | 134 | | 10. 1992................| X X X X | X X X X | 348 | 86 | | 11. 1993................| X X X X | X X X X | X X X X | 13 | ---------------------------------------------------------------------------------------------
Page 91 Form 2 CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND ITS AFFILIATED FIRE AND CASUALTY INSURERS
SCHEDULE P - PART 4I - SPECIAL PROPERTY (FIRE, ALLIED LINES, INLAND MARINE, EARTHQUAKE, GLASS, BURGLARY AND THEFT) ------------------------------------------------------------------------------------------------------------------------------ | |BULK AND INCURRED BUT NOT REPORTED RESERVES ON LOSSES AND ALLOCATED EXPENSES AT YEAR END | |(000 omitted) | 1 |------------------------------------------------------------------------------------------------ | | | | | | | | | Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | | Losses Were | | | | | | | | Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | | | | | | | | | | | | | | | | | |-----------------------------|---------------|---------------|---------------|---------------|---------------|---------------| | | | | | | | | | 1. Prior ..............| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 2 1992................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 3. 1993................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | ------------------------------------------------------------------------------------------------------------------------------ --------------------------------------------------------------------------------------------- | | | 1 ----------------------------------------------------------------| | | | | | | | Years in Which | 8 | 9 | 10 | 11 | | Losses Were | | | | | | Incurred | 1990 | 1991 | 1992 | 1993 | | | | | | | | | | | | | |-----------------------------|---------------|---------------|---------------|---------------| | | | | | | | 1. Prior ..............| X X X X | 32,120 | 21,344 | 10,977 | | 2 1992................| X X X X | X X X X | 16,111 | 2,061 | | 3. 1993................| X X X X | X X X X | X X X X | 6,097 | --------------------------------------------------------------------------------------------- SCHEDULE P - PART 4J - AUTO PHYSICAL DAMAGE ------------------------------------------------------------------------------------------------------------------------------ | |BULK AND INCURRED BUT NOT REPORTED RESERVES ON LOSSES AND ALLOCATED EXPENSES AT YEAR END | |(000 omitted) | 1 |------------------------------------------------------------------------------------------------ | | | | | | | | | Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | | Losses Were | | | | | | | | Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | | | | | | | | | | | | | | | | | |-----------------------------|---------------|---------------|---------------|---------------|---------------|---------------| | | | | | | | | | 1. Prior ..............| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 2 1992................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 3. 1993................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | ------------------------------------------------------------------------------------------------------------------------------ ---------------------------------------------------------------------------------------------| | | | | | 1 ----------------------------------------------------------------| | | | | | | | Years in Which | 8 | 9 | 10 | 11 | | Losses Were | | | | | | Incurred | 1990 | 1991 | 1992 | 1993 | | | | | | | | | | | | | |-----------------------------|---------------|---------------|---------------|---------------| | | | | | | | 1. Prior ..............| X X X X | 18,208 | 12,862 | 6,347 | | 2 1992................| X X X X | X X X X | 4,424 | (343)| | 3. 1993................| X X X X | X X X X | X X X X | 5,847 | ---------------------------------------------------------------------------------------------- SCHEDULE P - PART 4K - FIDELITY, SURETY, FINANCIAL GUARANTY, MORTGAGE GUARANTY ------------------------------------------------------------------------------------------------------------------------------ | |BULK AND INCURRED BUT NOT REPORTED RESERVES ON LOSSES AND ALLOCATED EXPENSES AT YEAR END | |(000 omitted) | 1 |------------------------------------------------------------------------------------------------ | | | | | | | | | Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | | Losses Were | | | | | | | | Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | | | | | | | | | | | | | | | | | |-----------------------------|---------------|---------------|---------------|---------------|---------------|---------------| | | | | | | | | | 1. Prior ..............| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 2 1992................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 3. 1993................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | ------------------------------------------------------------------------------------------------------------------------------ ---------------------------------------------------------------------------------------------| | | | 1 ----------------------------------------------------------------| | | | | | | | Years in Which | 8 | 9 | 10 | 11 | | Losses Were | | | | | | Incurred | 1990 | 1991 | 1992 | 1993 | | | | | | | | | | | | | |-----------------------------|---------------|---------------|---------------|---------------| | | | | | | | 1. Prior ..............| X X X X | 7,223 | 4,210 | 6,918 | | 2 1992................| X X X X | X X X X | 9,776 | 5,338 | | 3. 1993................| X X X X | X X X X | X X X X | 15,103 | --------------------------------------------------------------------------------------------- SCHEDULE P - PART 4L - OTHER (INCLUDING CREDIT, ACCIDENT AND HEALTH) ------------------------------------------------------------------------------------------------------------------------------ | |BULK AND INCURRED BUT NOT REPORTED RESERVES ON LOSSES AND ALLOCATED EXPENSES AT YEAR END | |(000 omitted) | 1 |------------------------------------------------------------------------------------------------ | | | | | | | | | Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | | Losses Were | | | | | | | | Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | | | | | | | | | | | | | | | | | |-----------------------------|---------------|---------------|---------------|---------------|---------------|---------------| | | | | | | | | | 1. Prior ..............| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 2 1992................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 3. 1993................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | ------------------------------------------------------------------------------------------------------------------------------ ---------------------------------------------------------------------------------------------| | | | | | | | 1 |---------------------------------------------------------------| | | | | | | | Years in Which | 8 | 9 | 10 | 11 | | Losses Were | | | | | | Incurred | 1990 | 1991 | 1992 | 1993 | | | | | | | | | | | | | |-----------------------------|--------------------------------------------------------------- | | | | | | | 1. Prior ..............| X X X X | 20 | (4) | 4 | | 2 1992................| X X X X | X X X X | 8 | 0 | | 3. 1993................| X X X X | X X X X | X X X X | 0 | --------------------------------------------------------------------------------------------- SCHEDULE P - PART 4M - INTERNATIONAL ------------------------------------------------------------------------------------------------------------------------------ | |BULK AND INCURRED BUT NOT REPORTED RESERVES ON LOSSES AND ALLOCATED EXPENSES AT YEAR END | |(000 omitted) | 1 |------------------------------------------------------------------------------------------------ | | | | | | | | | Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | | Losses Were | | | | | | | | Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | | | | | | | | | | | | | | | | | |-----------------------------|---------------|---------------|---------------|---------------|---------------|---------------| | | | | | | | | | 1. Prior ..............| 0 | 0 | 0 | 0 | 0 | 0 | | 2. 1984................| 0 | 0 | 0 | 0 | 0 | 0 | | 3. 1985................| X X X X | 0 | 0 | 0 | 0 | 0 | | 4. 1986................| X X X X | X X X X | 0 | 0 | 0 | 0 | | 5. 1987................| X X X X | X X X X | X X X X | 0 | 0 | 0 | | 6. 1988................| X X X X | X X X X | X X X X | X X X X | 6,976 | 4,332 | | 7. 1989................| X X X X | X X X X | X X X X | X X X X | X X X X | 4,930 | | 8. 1990................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 9. 1991................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 10. 1992................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 11. 1993................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | ------------------------------------------------------------------------------------------------------------------------------ ---------------------------------------------------------------------------------------------| | | | | | | | 1 |---------------------------------------------------------------| | | | | | | | Years in Which | 8 | 9 | 10 | 11 | | Losses Were | | | | | | Incurred | 1990 | 1991 | 1992 | 1993 | | | | | | | | | | | | | |-----------------------------|---------------------------------------------------------------| | | | | | | | 1. Prior ..............| 0 | 0 | 0 | 0 | | 2. 1984................| 0 | 0 | 0 | 0 | | 3. 1985................| 0 | 0 | 0 | 0 | | 4. 1986................| 0 | 0 | 0 | 0 | | 5. 1987................| 0 | 0 | 0 | 0 | | 6. 1988................| 3,098 | 1,388 | 1,425 | 1,694 | | 7. 1989................| 2,760 | 1,775 | 1,523 | 1,444 | | 8. 1990................| 5,303 | 3,754 | 2,259 | 958 | | 9. 1991................| X X X X | 5,740 | 3,247 | 1,728 | | 10. 1992................| X X X X | X X X X | 2,293 | 1,735 | | 11. 1993................| X X X X | X X X X | X X X X | 4,466 | ---------------------------------------------------------------------------------------------
Page 92 Form 2 CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND ITS AFFILIATED FIRE AND CASUALTY INSURERS
SCHEDULE P - PART 4N - REINSURANCE A ------------------------------------------------------------------------------------------------------------------------------ | |BULK AND INCURRED BUT NOT REPORTED RESERVES ON LOSSES AND ALLOCATED EXPENSES AT YEAR END | |(000 omitted) | 1 |------------------------------------------------------------------------------------------------ | | | | | | | | | Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | | Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | | Incurred | | | | | | | | | | | | | | | | | | | | | | | |-----------------------------|---------------|---------------|---------------|---------------|---------------|---------------| | 1. 1988................| X X X X | X X X X | X X X X | X X X X | 29,167 | 20,669 | | 2. 1989................| X X X X | X X X X | X X X X | X X X X | X X X X | 14,575 | | 3. 1990................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 4. 1991................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 5. 1992................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 6. 1993................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | ------------------------------------------------------------------------------------------------------------------------------ ---------------------------------------------------------------------------------------------| | | | | | 1 ----------------------------------------------------------------| | | | | | | | Years in Which | 8 | 9 | 10 | 11 | | Losses Were | 1990 | 1991 | 1992 | 1993 | | Incurred | | | | | | | | | | | | | | | | | |-----------------------------|---------------|---------------|---------------|---------------| | 1. 1988................| 16,864 | 5,599 | 3,332 | 3,611 | | 2. 1989................| 13,294 | 13,088 | 11,443 | 4,941 | | 3. 1990................| 17,082 | 17,746 | 15,433 | 5,074 | | 4. 1991................| X X X X | 32,597 | 23,320 | 6,916 | | 5. 1992................| X X X X | X X X X | 23,417 | 18,544 | | 6. 1993................| X X X X | X X X X | X X X X | 34,972 | --------------------------------------------------------------------------------------------- SCHEDULE P - PART 4O - REINSURANCE B ------------------------------------------------------------------------------------------------------------------------------ | |BULK AND INCURRED BUT NOT REPORTED RESERVES ON LOSSES AND ALLOCATED EXPENSES AT YEAR END | |(000 omitted) | 1 |------------------------------------------------------------------------------------------------ | | | | | | | | | Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | | Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | | Incurred | | | | | | | | | | | | | | | | | | | | | | | |-----------------------------|---------------|---------------|---------------|---------------|---------------|---------------| | | | | | | | | | 1. 1988................| X X X X | X X X X | X X X X | X X X X | 18,119 | 12,928 | | 2. 1989................| X X X X | X X X X | X X X X | X X X X | X X X X | 6,987 | | 3. 1990................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 4. 1991................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 5. 1992................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 6. 1993................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | ------------------------------------------------------------------------------------------------------------------------------ ---------------------------------------------------------------------------------------------| | | | | | 1 ----------------------------------------------------------------| | | | | | | | Years in Which | 8 | 9 | 10 | 11 | | Losses Were | 1990 | 1991 | 1992 | 1993 | | Incurred | | | | | | | | | | | | | | | | | |-----------------------------|---------------|---------------|---------------|---------------| | 1. 1988................| 10,228 | 2,583 | 1,598 | 1,815 | | 2. 1989................| 5,714 | 4,607 | 3,651 | 2,163 | | 3. 1990................| 5,534 | 5,443 | 4,686 | 1,822 | | 4. 1991................| X X X X | 11,202 | 9,182 | 4,041 | | 5. 1992................| X X X X | X X X X | 13,249 | 8,686 | | 6. 1993................| X X X X | X X X X | X X X X | 9,690 | --------------------------------------------------------------------------------------------- SCHEDULE P - PART 4P - REINSURANCE C ------------------------------------------------------------------------------------------------------------------------------ | |BULK AND INCURRED BUT NOT REPORTED RESERVES ON LOSSES AND ALLOCATED EXPENSES AT YEAR END | |(000 omitted) | 1 |------------------------------------------------------------------------------------------------ | | | | | | | | | Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | | Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | | Incurred | | | | | | | | | | | | | | | | | | | | | | | |-----------------------------|---------------|---------------|---------------|---------------|---------------|---------------| | | | | | | | | | 1. 1988................| X X X X | X X X X | X X X X | X X X X | 0 | 0 | | 2. 1989................| X X X X | X X X X | X X X X | X X X X | X X X X | 0 | | 3. 1990................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 4. 1991................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 5. 1992................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 6. 1993................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | ------------------------------------------------------------------------------------------------------------------------------ ---------------------------------------------------------------------------------------------| | | | | | 1 ----------------------------------------------------------------| | | | | | | | Years in Which | 8 | 9 | 10 | 11 | | Losses Were | 1990 | 1991 | 1992 | 1993 | | Incurred | | | | | | | | | | | | | | | | | |-----------------------------|---------------|---------------|---------------|---------------| | 1. 1988................| 0 | 0 | 0 | 0 | | 2. 1989................| 0 | 0 | 0 | 0 | | 3. 1990................| 0 | 0 | 0 | 0 | | 4. 1991................| X X X X | 0 | 0 | 0 | | 5. 1992................| X X X X | X X X X | 0 | 0 | | 6. 1993................| X X X X | X X X X | X X X X | 0 | --------------------------------------------------------------------------------------------- SCHEDULE P - PART 4Q - REINSURANCE D ------------------------------------------------------------------------------------------------------------------------------ | |BULK AND INCURRED BUT NOT REPORTED RESERVES ON LOSSES AND ALLOCATED EXPENSES AT YEAR END | |(000 omitted) | 1 |------------------------------------------------------------------------------------------------ | | | | | | | | | Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | | Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | | Incurred | | | | | | | | | | | | | | | | | | | | | | | |-----------------------------|---------------|---------------|---------------|---------------|---------------|---------------| | | | | | | | | | 1. Prior ..............| 0 | 0 | 0 | 0 | 0 | 0 | | 2. 1984................| 452 | 3,340 | 179 | 4 | 23 | 0 | | 3. 1985................| X X X X | 6,413 | 7,117 | 931 | 346 | 125 | | 4. 1986................| X X X X | X X X X | 15,706 | 7,079 | 3,446 | 2,206 | | 5. 1987................| X X X X | X X X X | X X X X | 20,805 | 10,661 | 6,768 | ------------------------------------------------------------------------------------------------------------------------------ ---------------------------------------------------------------------------------------------| | | | | | 1 ----------------------------------------------------------------| | | | | | | | Years in Which | 8 | 9 | 10 | 11 | | Losses Were | 1990 | 1991 | 1992 | 1993 | | Incurred | | | | | | | | | | | | | | | | | |-----------------------------|---------------|---------------|---------------|---------------| | 1. 1988................| | | | | | 2. 1989................| 0 | 0 | 0 | 0 | | 3. 1990................| 0 | 0 | 0 | 0 | | 4. 1991................| 195 | 2 | 0 | 0 | | 5. 1992................| 1,663 | 814 | 590 | 442 | | 6. 1993................| 5,997 | 2,624 | 2,139 | 2,492 | --------------------------------------------------------------------------------------------- SCHEDULE P - PART 4R - SECTION 1 - PRODUCTS LIABILITY - OCCURRENCE ------------------------------------------------------------------------------------------------------------------------------ | |BULK AND INCURRED BUT NOT REPORTED RESERVES ON LOSSES AND ALLOCATED EXPENSES AT YEAR END | |(000 omitted) | 1 |------------------------------------------------------------------------------------------------ | | | | | | | | | Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | | Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | | Incurred | | | | | | | | | | | | | | | | | | | | | | | |-----------------------------|---------------|---------------|---------------|---------------|---------------|---------------| | | | | | | | | | 1. Prior ..............| 24,190 | 23,576 | 11,272 | 8,962 | 8,552 | 4,944 | | 2. 1984................| 7,309 | 5,947 | 6,196 | 4,975 | 4,101 | 3,498 | | 3. 1985................| X X X X | 10,485 | 7,804 | 7,597 | 6,977 | 5,298 | | 4. 1986................| X X X X | X X X X | 26,221 | 19,150 | 16,072 | 9,372 | | 5. 1987................| X X X X | X X X X | X X X X | 24,856 | 18,904 | 15,562 | | 6. 1988................| X X X X | X X X X | X X X X | X X X X | 17,164 | 13,768 | | 7. 1989................| X X X X | X X X X | X X X X | X X X X | X X X X | 13,345 | | 8. 1990................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 9. 1991................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 10. 1992................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 11. 1993................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | ------------------------------------------------------------------------------------------------------------------------------ ---------------------------------------------------------------------------------------------| | | | | | 1 ----------------------------------------------------------------| | | | | | | | Years in Which | 8 | 9 | 10 | 11 | | Losses Were | 1990 | 1991 | 1992 | 1993 | | Incurred | | | | | | | | | | | | | | | | | |-----------------------------|---------------|---------------|---------------|---------------| | | | | | | | 1. Prior ..............| 13,286 | 20,381 | 25,550 | 29,795 | | 2. 1984................| 2,584 | 1,627 | 2,026 | 2,914 | | 3. 1985................| 4,066 | 3,226 | 2,847 | 3,452 | | 4. 1986................| 5,213 | 4,975 | 3,763 | 4,275 | | 5. 1987................| 11,129 | 6,489 | 4,705 | 5,581 | | 6. 1988................| 14,915 | 4,998 | 5,183 | 5,022 | | 7. 1989................| 9,827 | 5,407 | 3,061 | 3,546 | | 8. 1990................| 10,345 | 7,066 | 5,154 | 4,032 | | 9. 1991................| X X X X | 7,951 | 6,021 | 4,756 | | 10. 1992................| X X X X | X X X X | 6,687 | 4,483 | | 11. 1993................| X X X X | X X X X | X X X X | 5,486 | --------------------------------------------------------------------------------------------- SCHEDULE P - PART 4R - SECTION 2 - PRODUCTS LIABILITY - CLAIMS-MADE ------------------------------------------------------------------------------------------------------------------------------ | |BULK AND INCURRED BUT NOT REPORTED RESERVES ON LOSSES AND ALLOCATED EXPENSES AT YEAR END | |(000 omitted) | 1 |------------------------------------------------------------------------------------------------ | | | | | | | | | Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | | Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | | Incurred | | | | | | | | | | | | | | | | | | | | | | | |-----------------------------|---------------|---------------|---------------|---------------|---------------|---------------| | | | | | | | | | 1. Prior ..............| 0 | 0 | 0 | 0 | 0 | 0 | | 2. 1984................| 0 | 0 | 0 | 0 | 0 | 0 | | 3. 1985................| X X X X | 0 | 0 | 0 | 0 | 0 | | 4. 1986................| X X X X | X X X X | 0 | 0 | 0 | 0 | | 5. 1987................| X X X X | X X X X | X X X X | 0 | 0 | 0 | | 6. 1988................| X X X X | X X X X | X X X X | X X X X | 2 | 2 | | 7. 1989................| X X X X | X X X X | X X X X | X X X X | X X X X | 0 | | 8. 1990................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 9. 1991................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 10. 1992................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | | 11. 1993................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | ------------------------------------------------------------------------------------------------------------------------------ ---------------------------------------------------------------------------------------------| | | | | | 1 ----------------------------------------------------------------| | | | | | | | Years in Which | 8 | 9 | 10 | 11 | | Losses Were | 1990 | 1991 | 1992 | 1993 | | Incurred | | | | | | | | | | | | | | | | | |-----------------------------|---------------|---------------|---------------|---------------| | | | | | | | 1. Prior ..............| 0 | 0 | 0 | 0 | | 2. 1984................| 0 | 0 | 0 | 0 | | 3. 1985................| 0 | 0 | 0 | 0 | | 4. 1986................| 0 | 0 | 0 | 3 | | 5. 1987................| 0 | 0 | 0 | 0 | | 6. 1988................| 0 | 0 | 0 | 0 | | 7. 1989................| 2 | 0 | 0 | 2 | | 8. 1990................| 29 | 19 | 14 | 0 | | 9. 1991................| X X X X | 52 | 31 | 12 | | 10. 1992................| X X X X | X X X X | 24 | 348 | | 11. 1993................| X X X X | X X X X | X X X X | 0 | ----------------------------------------------------------------------------------------------
Page # 93 Form 2 CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND ITS AFFILIATED FIRE AND CASUALTY INSURERS
SCHEDULE P INTERROGATORIES --------------------------------------------------------------------------------------------------------------------------- | | | 1. Computation of excess statutory reserves over statement reserves. See Instructions for explanation and formulas. | | (a) Auto Liability (private passenger and commercial) | | 1993 ( 60.0%) 1992 ( 60.0%) | ------------------------------------------- ----------------------------------------- | 1991 ( 60.0%) Total | ------------------------------------------ ------------------------- | | | (b) Other Liability and Products Liability | | 1993 ( 60.0%) 1992 ( 60.0%) | ------------------------------------------ ------------------------------------------ | 1991 ( 60.0%) Total | ------------------------------------------ ------------------------- | | (c) Medical Malpractice | | 1993 ( 60.0%) 1992 ( 60.0%) | ------------------------------------------ ------------------------------------------ | 1991 ( 60.0%) Total | ------------------------------------------ ------------------------- | | (d) Workers' Compensation | | 1993 ( 65.0%) 1992 ( 65.0%) | ------------------------------------------- --------------------------------------- | 1991 ( 65.0%) Total | ------------------------------------------ ------------------------- | | (e) Credit Total | ------------------------- | | (f) All Lines Total (Report here and Page 3) Total ________________________ |
| | | 2. What is the extended loss and expense reserve-direct and assumed-for the | following classes? An example of an extended loss and expense reserve is | is the actuarial reserve for the free-tail coverage arising upon death, | disability or retirement in most medical malpractice policies. Such a | liability is to be reported here even if it was not reported elsewhere | in Schedule P, but otherwise reported as a liability item on page 3. | Show the full reserve amount, not just the change during the current | year. |
| | ------------------------------------------------------------------------------ ----------------------------------------- | | Year in which premiums | 1 | 2 | 3 | | | were earned and losses | Medical | Other | Products | | | were incurred | Malpractice | Liability | Liability | | |---------------------------------------------------|-------------------------|-------------------------|---------------| | | | (a) 1987 | 0 | 0 | 0 | | | (b) 1988 | 0 | 0 | 0 | | | (c) 1989 | 0 | 0 | 0 | | | (d) 1990 | 0 | 0 | 0 | | | (e) 1991 | 0 | 0 | 0 | | | (f) 1992 | 0 | 0 | 0 | | | (g) 1993 | 0 | 0 | 0 | | |---------------------------------------------------|-------------------------|-------------------------|---------------| | | (h) Totals | 0 | 0 | 0 | | -----------------------------------------------------------------------------------------------------------------------
3. The term "Loss expense" includes all payments for legal expenses, including attorney's and witness fees and court costs,salaries and expenses of investigators, adjustors and field men,rents, stationery, telegraph and telephone charges,postage, salaries and expenses of office employees, home office expenses and all other payments under or on account of such injuries, whether the payments are allocated to specific claims or are unallocated. Are they so reported in this statement? Answer: Yes [ X ] No [ ] 4. The unallocated loss expense payments paid during the most recent calendar year should be distributed to the various years in which losses were incurred as follows: (1) 45% to the most recent year, (2) 5% to the next most recent year, and (3) the balance to all years, including the most recent, in proportion to the amount of loss payments paid for each year during the most recent calendar year. If the distribution in (1) or (2) produces an accumulated distribution to such year in excess of 10% of the premiums earned for such year, disregarding all distributions made under (3), such accumulated distribution should be limited to 10% of premiums earned and the balance distributed in accordance with (3). Are they so reported in this Statement? Answer: Yes [ ] No [ X ] See note below ! 5. Do any lines in Schedule P include reserves which are reported gross of any discount to present value of future payments, but are reported net of such discounts on page 10? Yes [ X ] No [ ] If yes, proper reporting must be made in the Notes to Financial Statements, as specified in the Instructions. Also, the discounts must be reported in Schedule P - Part 1, Columns 31 and 32. Schedule P must be completed gross of non-tabular discounting. Work papers relating to discount calculations must be available for examination upon request. Discounting is allowed only if expressly permitted by the state insurance department to which this Annual Statement is being filed. 6. What were the net premiums in force at the end of the year for: (in thousands of dollars)
(a) Fidelity $17,308 (b) Surety $94,380
7. Claim count information is reported (check one) If not the same in all years, explain in Question 8. (a) per claim ---------------------- (b) per claimant X ---------------------- 8. The information provided in Schedule P will be used by many persons to estimate the adequacy of the current loss and expense reserves, among other things. Are there any especially significant events, coverage, retention or accounting changes which have occurred which must be considered when making such analyses (An extended statement may be attached)? In 1993, for the first time, USF&G explicitly reduced carried reserves for anticipated Salvage & Subrogation recoveries. To eliminate distortions in the one and two year developments shown in Part 2 we also restated carried reserves as of 12/91 and 12/92 for Parts 2 & 4 to be net of anticipated Salvage & Subrogation. The 1993 Earned Premiums for Part 10 - Reins. B reflects $60,000,000 of net ceded premiums associated with two reinsurance contracts. These excess of loss contracts cover risk reinsurance assumed through the operation of our Reinsurance Management Company, F&G Re. No losses were ceded under these contracts as of December 31, 1993. In 1984 United States Fidelity and Guaranty began actively writing reinsurance. This book of business is managed by F&G Re. It is characterized by relatively large IBNR reserves and by slower payment patterns. In 1985, United States Fidelity and Guaranty began increasing the use of structured settlements to close claims. This has the effect of speeding up loss payment patterns. See Footnote #17 for the impact of the WCRB commutation. ITEM 4 NOTE - The accident year distribution of the calendar year 1993 ULAE Payments was based on cost accounting studies. -----END PRIVACY-ENHANCED MESSAGE-----