8-K 1 ek72302.txt FORM 8-K DATED JULY 23, 2002 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------------- FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 --------------------------- Date of Report (Date of earliest event reported): July 23, 2002 THE ST. PAUL COMPANIES, INC. ------------------------------------------------------ (Exact name of Registrant as specified in its charter) Minnesota 001-10898 41-0518860 ------------------- --------------------- -------------------- (State of (Commission File (I.R.S. Employer Incorporation) Number) Identification No.) 385 Washington St., St. Paul, MN 55102 -------------------------------- ---------- (Address of principal (Zip Code) executive offices) (651) 310-7911 ---------------------------------- (Registrant's telephone number, including area code) N/A ------------------------------------------------------------ (Former name or former address, if changed since last report) Item 5. Other Events ------------ The St. Paul Companies, Inc. today announced its consolidated financial results for the second quarter and six months ended June 30, 2002. Those results are summarized as follows: Three Months Ended Six Months Ended June 30 June 30 (in millions except per ------------------ ---------------- share amounts) 2002 2001 2002 2001 ------ ------ ------ ------ Revenues: Premiums earned $1,920 $1,743 $3,855 $3,371 Net investment income 286 300 579 635 Asset management 89 85 179 170 Realized investment gains (losses) (33) 7 (71) 84 Other 52 28 89 65 ------ ------ ------ ------ Total revenues 2,314 2,163 4,631 4,325 ------ ------ ------ ------ Expenses Insurance losses and loss adjustment expenses 1,986 1,346 3,379 2,529 Policy acquisition expenses 405 356 815 736 Operating and administrative expenses 287 328 605 629 ------ ------ ------ ------ Total expenses 2,678 2,030 4,799 3,894 ------ ------ ------ ------ Income (loss) from continuing operations before income taxes (364) 133 (168) 431 Income tax expense (benefit) (146) 37 (98) 126 ------ ------ ------ ------ Income (loss) before cumulative effect of accounting change (218) 96 (70) 305 Cumulative effect of accounting change, net of taxes - - (6) - ------ ------ ------ ------ Income (loss) from continuing operations (218) 96 (76) 305 Discontinued operations, net of taxes (5) 8 (14) 1 ------ ------ ------ ------ Net income (loss) $ (223) $ 104 $ (90) $ 306 ====== ====== ====== ====== Basic earnings (loss) per share: Income (loss) from continuing operations $(1.07) $ 0.43 $(0.41) $ 1.37 Discontinued operations, net of taxes (0.02) 0.04 (0.06) 0.01 ------ ------ ------ ------ Net income (loss) $(1.09) $ 0.47 $(0.47) $ 1.38 ====== ====== ====== ====== Diluted earnings (loss) per share: Income (loss) from continuing operations $(1.07) $ 0.41 $(0.41) $ 1.32 Discontinued operations, net of taxes (0.02) 0.04 (0.06) 0.01 ------ ------ ------ ------ Net income (loss) $(1.09) $ 0.45 $(0.47) $ 1.33 ====== ====== ====== ====== Dividends declared on common stock $ 0.29 $ 0.28 $ 0.58 $ 0.56 ====== ====== ====== ====== The St. Paul's results in the second quarter of 2002 included a $585 million pretax loss provision ($380 million after-tax) related to the previously announced settlement of the Western MacArthur asbestos litigation. Excluding the impact of that settlement, net income for the second quarter would have been $157 million, or $0.71 per diluted share. The company's estimate of the impact of the Western MacArthur settlement includes the application of approximately $150 million of asbestos reserves and $250 million in net reinsurance recoverables. Related to the Western MacArthur settlement, and as part of an in-depth analysis of the company's asbestos and environmental reserves, the company recorded a $150 million reduction in net environmental reserves, and a corresponding $150 million increase in net asbestos reserves. The Western MacArthur litigation settlement agreement is filed as an exhibit to this Current Report on Form 8-K. The company established $941 million in net reserves for the September 11, 2001 terrorist attack. Net paid losses were $63 million in the second quarter, and totaled $210 million through June 30, 2002. The table on the following page summarizes key financial results for each of The St. Paul's property- liability underwriting business segments (underwriting results are presented on a GAAP basis; combined ratios are presented on a statutory accounting basis). Three Months Ended Six Months Ended (dollars in millions) June 30 June 30 ------------------- ------------------ ---------------- 2002 2001 2002 2001 n ------ ------ ------ ------ Specialty Commercial: Written Premiums $604 485 1,180 941 Underwriting Result $60 17 64 7 Combined Ratio 88.5 95.7 93.8 98.9 Commercial Lines Group: Written Premiums $381 388 887 818 Underwriting Result $(530) 37 (527) 114 Combined Ratio 226.5 90.3 161.6 83.1 Surety and Construction: Written Premiums $329 257 677 521 Underwriting Result $5 21 9 41 Combined Ratio 96.7 87.8 95.6 89.1 Health Care: Written Premiums $29 147 177 324 Underwriting Result $(102) (124) (100) (254) Combined Ratio 205.0 175.3 142.4 172.9 Lloyd's and Other: Written Premiums $245 296 312 394 Underwriting Result $(20) (28) (59) (51) Combined Ratio 111.2 113.5 120.9 115.2 ------ ------ ------ ------ Total Primary Insurance: Written Premiums $1,588 1,573 3,233 2,998 Underwriting Result $(587) (77) (613) (143) Combined Ratio 137.8 105.2 120.1 104.6 Reinsurance: Written Premiums $201 280 662 701 Underwriting Result $(4) (36) 11 (57) Combined Ratio 104.5 114.6 96.5 107.5 ------ ------ ------ ------ Total Property- Liability Insurance: Written Premiums $1,789 1,853 3,895 3,699 GAAP Underwriting Result $(591) (113) (602) (200) Statutory Combined Ratio: Loss and Loss Expense Ratio 103.5 77.2 87.7 75.0 Underwriting Expense Ratio 28.8 29.3 28.3 30.2 ------ ------ ------ ------ Combined Ratio 132.3 106.5 116.0 105.2 ====== ====== ====== ====== In the fourth quarter of 2001, The St. Paul announced that it would exit its worldwide Health Care business, significantly reposition its Reinsurance and Lloyd's operations, and that such operations would exit certain types of business and exit a number of non-U.S. primary insurance markets. The businesses being exited are termed "runoff" businesses. In the second quarter of 2002, the company announced its intention to sell the ongoing reinsurance operations of St. Paul Re to Platinum Underwriters Holdings, Ltd. upon Platinum's completion of its initial public offering. The St. Paul would retain the liabilities and associated reserves for contracts incepting prior to January 1, 2002. The company intends to execute this strategy as capital market conditions allow. As a result, all reinsurance underwriting operations are now considered runoff business. The following table summarizes the written premiums and underwriting results, by segment, of those businesses being exited. Three Months Ended Six Months Ended (in millions) June 30 June 30 ----------- ------------------ ----------------- 2002 2001 2002 2001 Specialty Commercial: ------ ------ ------ ------ Written Premiums $15 35 42 55 Underwriting Result $(6) (12) (10) (17) Surety and Construction: Written Premiums $- 2 2 3 Underwriting Result $1 1 2 1 Health Care: Written Premiums $29 147 177 324 Underwriting Result $(102) (124) (100) (254) Lloyd's and Other: Written Premiums $65 169 115 241 Underwriting Result $(29) (29) (53) (46) ------ ------ ------ ------ Total Primary Insurance: Written Premiums $109 353 336 623 Underwriting Result $(136) (164) (161) (316) Reinsurance: Written Premiums $201 280 662 701 Underwriting Result $(4) (36) 11 (57) ------ ------ ------ ------ Total Runoff Operations: Written Premiums $310 633 998 1,324 ====== ====== ====== ====== GAAP Underwriting Result $(140) (200) (150) (373) ====== ====== ====== ====== A significant portion of the company's loss reserves relate to runoff businesses. The payments for claims from these reserves will negatively impact investment income as invested assets related to the reserves decline. Item 7. Exhibits --------- An Exhibit Index is included herein. Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE ST. PAUL COMPANIES, INC. By: Bruce A. Backberg ------------------ Bruce A. Backberg Senior Vice President Date: July 23, 2002 EXHIBIT INDEX ------------------- Exhibit --------- 99 (a) Settlement Agreement dated June 3, 2002 among MacArthur Company, Western MacArthur Company and Western Asbestos Company, together with each of their predecessors and successors, affiliates and subsidiaries, United States Fidelity & Guaranty Co., The St. Paul Fire and Marine Insurance Company, The St. Paul Companies, Inc., its affiliates and subsidiaries, and the Asbestos Plaintiffs.