10-K405

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2001

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                                      to                                     

Commission file number 001-10898

THE ST. PAUL COMPANIES, INC.
(Exact name of Registrant as specified in its charter)

Minnesota (State or other jurisdiction of ncorporation or organization)	41-0518860 (I.R.S. Employer Identification No.)
385 Washington Street, Saint Paul, MN (Address of principal executive offices)	55102 (Zip Code)

Registrant's telephone number, including area code    651-310-7911

Securities registered pursuant to Section 12(b) of the Act:

	New York Stock Exchange and
Common Stock (without par value)	London Stock Exchange
(Title of class)	(Name of each exchange on which registered)
7.6% Trust Preferred Securities*	New York Stock Exchange
(Title of class)	(Name of each exchange on which registered)

*

Issued by St. Paul Capital Trust I. Payments of distributions and payments upon liquidation or redemption are guaranteed by The St. Paul Companies, Inc.

Securities registered pursuant to Section 12(g) of the Act:
None.

        Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        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. ý

        The aggregate market value of the outstanding Common Stock held by nonaffiliates of the Registrant on March 14, 2002, was $9,821,422,594. The number of shares of the Registrant's Common Stock, without par value, outstanding at March 14, 2002, was 207,987,546.

An Exhibit Index is set forth at page 36 of this report.

DOCUMENTS INCORPORATED BY REFERENCE

        Portions of the Registrant's 2001 Annual Report to Shareholders are incorporated by reference into Parts I, II and IV of this report. Portions of the Registrant's Proxy Statement relating to the Annual Meeting of Shareholders to be held May 7, 2002 are incorporated by reference into Parts III and IV of this report.

PART I

Item 1. Business.

General Description

        The St. Paul Companies, Inc. ("The St. Paul") is incorporated as a general business corporation under the laws of the State of Minnesota. The St. Paul and its subsidiaries constitute one of the oldest insurance organizations in the United States, dating back to 1853. We are a management company principally engaged, through our subsidiaries, in providing commercial property-liability insurance and nonlife reinsurance products and services worldwide. We also have a presence in the asset management industry through our 77% majority ownership of The John Nuveen Company ("Nuveen"). As a management company, we oversee the operations of our subsidiaries and provide them with capital, management and administrative services. At March 1, 2002, The St. Paul and its subsidiaries employed approximately 10,200 persons. Based on total revenues, we ranked No. 222 on the 2000 Fortune 500 list of the largest companies in the United States.

Summary of Results

        The following table summarizes The St. Paul's consolidated results for the last three years:

Year ended December 31			2001			2000			1999
			(In millions, except per share data)
Pretax income (loss):
	Property-liability insurance		$	(1,400	)	$	1,467		$	971
	Asset management			142			135			123
	Parent company and other operations			(173	)		(201	)		(143	)
		Pretax income (loss) from continuing operations		(1,431	)		1,401			951
Income tax expense (benefit)				(422	)		431			219
	Income (loss) from continuing operations before cumulative effect of accounting change			(1,009	)		970			732
Cumulative effect of accounting change, net of taxes				—			—			(27	)
	Income (loss) from continuing operations			(1,009	)		970			705
Discontinued operations, net of taxes				(79	)		23			129
	Net income (loss)		$	(1,088	)	$	993		$	834
	Per common share (diluted)		$	(5.22	)	$	4.24		$	3.41

        Our consolidated $1.4 billion pretax loss from continuing operations in 2001 was driven by $941 million of pretax losses from the September 11 terrorist attack and pretax provisions to strengthen prior-year insurance loss reserves in our Health Care underwriting segment totaling $735 million. In addition, realized investment losses of $94 million, goodwill write-downs totaling $73 million and restructuring charges of $62 million contributed to our pretax loss in 2001.

        Property-liability results in all three years in the table benefited from the aggregate excess-of-loss reinsurance treaties described on page 11 of this report. Excluding the impact of those reinsurance treaties, net written premiums totaled $7.89 billion in 2001, 24% higher than comparable 2000 premium volume of $6.36 billion. The increase was driven by price increases throughout our underwriting operations, and new business in many of those operations. Price increases in our U.S. underwriting operations averaged over 16% in 2001, and those increases accelerated further in the fourth quarter in the aftermath of the terrorist attack.

        Our asset management subsidiary, Nuveen, posted its seventh consecutive year of record earnings on the strength of record-high product sales and a strategic acquisition that expanded its product offerings for institutional investors.

        The following discussion summarizes the major events and transactions that impacted our results in 2001.

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        September 11, 2001 Terrorist Attack.    On Sept. 11, 2001, terrorists hijacked four commercial passenger jets in the United States. Two of the jets were flown into the World Trade Center towers in New York, N.Y., causing their collapse. The third jet was flown into the Pentagon building in Washington, D.C., and the fourth jet crashed in rural Pennsylvania. The terrorist attack caused significant loss of life and resulted in unprecedented losses for the property-liability insurance industry, including $941 million in net pretax losses for The St. Paul. Note 2 to our consolidated financial statements on page 50 of our 2001 Annual Report to Shareholders, which includes additional information regarding the terrorist attack, is incorporated herein by reference.

        Withdrawal from Certain Lines of Business and Related Goodwill Write-Down.    In December 2001, we announced a series of strategic actions designed to improve our profitability, summarized as follows:

•

We will exit, on a global basis, all business underwritten in our Health Care segment, through the cessation of new business and the non-renewal of business upon policy expiration, in accordance with regulatory requirements.



•

We will narrow the product offerings and geographic presence of our reinsurance operations. We will no longer underwrite aviation or bond and credit reinsurance, or offer certain financial risk and capital markets reinsurance products. We will also substantially reduce the North American reinsurance business we underwrite in London. Our reinsurance operation will focus on certain coverages, including property catastrophe reinsurance, excess-of-loss casualty reinsurance, and marine and traditional finite reinsurance.



•

In our operations at Lloyd's, we will exit most of our casualty insurance and reinsurance business, in addition to U.S. surplus lines and certain non-marine reinsurance lines of business. We will continue to underwrite aviation, marine, financial and professional services, property insurance, kidnap and ransom, accident and health, creditor and other personal specialty products.



•

We will exit those countries where we have determined that it is unlikely we will achieve competitive scale, and we are pursuing the sale of certain of these international operations. We will no longer underwrite business in Germany, France, the Netherlands, Argentina, Mexico (excluding surety business, which will continue), Spain, Australia, New Zealand, Botswana and South Africa. We will continue to underwrite business through our offices in Canada, the United Kingdom, and Ireland.

        The businesses we are exiting have been placed in "runoff," meaning that we have ceased or plan to cease underwriting business in these operations as soon as possible. The operations placed in runoff collectively accounted for $1.61 billion, or 22%, of our net earned premiums and $1.5 billion of underwriting losses in 2001. In connection with these strategic actions, we wrote off $73 million of goodwill in 2001 related to the businesses to be exited.

        2001 Restructuring Charge.    In December 2001, in connection with our announced intention to withdraw from the foregoing businesses and as part of our overall effort to reduce company-wide expenses, we announced plans to eliminate approximately 1,200 employee positions and reduce the amount of office space we lease. We recorded a pretax restructuring charge of $62 million in 2001 related to these plans. Note 16 on pages 67 and 68 of our 2001 Annual Report to Shareholders, which includes additional information about the components of the restructuring charge, is incorporated herein by reference.

        Elimination of One-Quarter Reporting Lag.    In 2001, we eliminated the one-quarter reporting lag for our primary underwriting operations in foreign countries (not including our operations at Lloyd's), and now report the results of those operations on a current basis. The incremental impact on our property-liability operations of eliminating the reporting lag, which consisted of the results of these operations for the three months ended Dec. 31, 2001, increased our net written premiums by $71 million, net earned premiums by $86 million, GAAP underwriting losses by $45 million, net investment income by $14 million, and our pretax loss from continuing operations by $31 million.

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        Sale of Life Insurance Operations.    In September 2001, we sold Fidelity and Guaranty Life Insurance Company ("F&G Life") to Old Mutual plc, a London-based international financial services company, for $335 million in cash and Old Mutual common shares with a value of $300 million on the closing date. We recorded an after-tax loss of $73 million on the sale of F&G Life. Also in September 2001, we sold American Continental Life Insurance Company to CNA Financial Corporation, recording an after-tax loss of $1 million on cash sale proceeds of $21 million. Notes 14 and 15 on pages 64 through 67 of our 2001 Annual Report to Shareholders, which provide more information regarding the terms of, and contingent liabilities related to, the sale of these operations, are incorporated herein by reference.

        Repurchase of Common Shares.    In 2001, we repurchased and retired approximately 13 million of our common shares for a total cost of $589 million. The shares repurchased represented 6% of our total shares outstanding at the beginning of the year. The repurchases were financed through a combination of internally generated funds and the issuance of commercial paper debt.

        Issuance of Preferred Securities.    In November 2001, we issued $575 million of Trust Preferred Securities through St. Paul Capital Trust I, which was formed for the sole purpose of issuing these securities. The securities pay a quarterly distribution at an annual rate of 7.6% and mature on Oct. 15, 2050. In December 2001, $500 million of the proceeds from the issuance of these securities was contributed to the policyholders' surplus of our largest primary insurance underwriting subsidiary in the United States.

Business Segments

        The following table summarizes the sources of our consolidated revenues from continuing operations for each of the years 1999 through 2001. Following the table is a narrative description of each of our business segments. Additional financial information about our business segments is set forth in Note 19 to the consolidated financial statements on pages 70 through 72 of our 2001 Annual Report to Shareholders, which is incorporated herein by reference. Also included in Note 19 is a discussion of the new segment reporting structure we implemented in 2001 after an extensive strategic review of our property-liability insurance underwriting operations. All data for 2000 and 1999 in the following table are presented on a basis consistent with our new reporting structure.

				Percentage of Consolidated Revenues
				2001		2000		1999
Property-liability insurance:
	Underwriting
		Specialty Commercial		21.5	%	16.8	%	17.8	%
		Commercial Lines Group		16.4		17.2		19.1
		Surety and Construction		10.5		9.9		11.0
		Health Care		8.9		7.8		9.0
		Lloyd's and Other		6.4		4.3		2.2
			Total primary insurance operations	63.7		56.0		59.1
		Reinsurance		17.9		14.1		12.3
			Total underwriting	81.6		70.1		71.4
	Investment operations:
		Net investment income		13.4		15.6		17.6
		Realized investment gains (losses)		(1.4	)	7.9		3.8
			Total investment operations	12.0		23.5		21.4
	Other			1.6		1.2		1.8
			Total property-liability insurance	95.2		94.8		94.6
Asset management				4.2		4.7		4.9
Parent company, other operations and eliminations				0.6		0.5		0.5
			Total	100.0	%	100.0	%	100.0	%

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Narrative Description of Business

Property-Liability Insurance

        Our property-liability insurance operations consist of five business segments that underwrite primary insurance ("Primary Insurance Operations"), a reinsurance segment ("St. Paul Re"), and an investment segment responsible for administering and overseeing our property-liability investment portfolio. Our Primary Insurance Operations underwrite property and liability insurance and provide insurance-related products and services to commercial and professional customers throughout the United States and in selected international markets. In the United States, our largest primary insurance underwriting subsidiary is St. Paul Fire and Marine Insurance Company ("Fire and Marine").

        The primary sources of property-liability revenues are premiums earned from insurance policies and reinsurance contracts, income earned from the investment portfolio and gains from sales of investments. According to the most recent industry statistics published in "Best's Review" with respect to property-liability insurers doing business in the United States, our property-liability underwriting operations ranked 15^th on the basis of 2000 written premiums.

        Principal Departments and Products.    The "Underwriting Results by Segment" table included in "Management's Discussion and Analysis" on page 21 of our 2001 Annual Report to Shareholders, which summarizes written premiums, underwriting results, statutory combined ratios and adjusted combined ratios (as described in the footnote to the table) for each of our underwriting segments for the last three years, is incorporated herein by reference. The following discussion provides more information about the structure of, and products offered by, our property-liability insurance underwriting segments.

Primary Insurance Operations

        Our Primary Insurance Operations consist of the following five business segments:

        Specialty Commercial.    This segment consists of 11 business centers that we have designated specialty commercial operations because each provides dedicated underwriting, claim and risk control services that require specialized expertise, and each business center focuses exclusively on the respective customer group that it serves. These business centers, which collectively generated $2.1 billion of net written premiums in 2001, are as follows: Technology offers a comprehensive portfolio of specialty products and services to companies involved in telecommunications, information technology, medical technology, biotechnology, and electronics manufacturing. Financial and Professional Services provides coverages for financial institutions, including property, liability, professional liability and management liability coverages. This business center also provides financial products coverages for corporations and nonprofit organizations, and errors and omissions coverages for a variety of professionals such as lawyers, insurance agents, real estate agents and appraisers. Public Sector Services markets insurance products and services, including professional liability coverages, to cities, counties, townships and special governmental districts. Discover Re underwrites primary insurance and reinsurance and provides related services to self-insured companies and insurance pools, in addition to ceding to and reinsuring captive insurers, all within the alternative risk transfer market. Through alternative risk transfer, a company self-insures, or insures through a captive insurer, the portion of its own losses which are predictable and purchases insurance for the less predictable, high-severity losses that could have a major financial impact on the company. Catastrophe Risk underwrites property coverages for major U.S. corporations and personal property coverages in certain states exposed to earthquakes and hurricanes.

Ocean Marine provides a variety of property-liability insurance coverage internationally for ocean and inland waterways traffic, including cargo and hull property protection. Umbrella/Excess & Surplus Lines underwrites umbrella and excess liability coverages, as well as property and liability insurance for high-risk classes of business and unique, sometimes one-of-a-kind risks that standard insurance markets generally avoid. Oil & Gas provides specialized insurance products for customers involved in the exploration and production of oil and gas, including operators, drillers and oil servicing contractors. Transportation offers a broad range of coverage options for the trucking industry. National Programs underwrites comprehensive insurance programs that are national in scope. The International Specialty business center is comprised of specialty insurance business in several foreign countries that is managed on a regional basis.

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        Commercial Lines Group.    The Commercial Lines Group underwrites general liability and casualty, property, workers' compensation, commercial auto, inland marine, umbrella and excess liability, and package coverages in the United States. This segment, which generated $1.6 billion of net written premiums in 2001, includes the following business centers: Small Commercial provides coverages to small businesses such as retailers, wholesalers, service companies, professional offices, manufacturers and contractors. Middle Market Commercial provides comprehensive property and liability insurance and risk management services for a wide variety of commercial manufacturing, distributing, retailing and property ownership enterprises where annual insurance costs range from $75,000 to $1 million. The Large Accounts business center serves larger commercial entities that are willing to share in their insurance risk through significant deductibles and self-insured retentions.

        Results from our participation in insurance pools and associations, which provide specialized underwriting skills and risk management services for the classes of business that they write, are also included in the Commercial Lines Group segment. These pools and associations serve to increase the underwriting capacity of participating companies for insurance policies where the concentration of risk is so high or the amount so large that a single company could not prudently accept the entire risk. We limit our participation in these pools and associations.

        Surety and Construction.    These operations, which accounted for $991 million of net written premium volume in 2001, are included in the same segment because of their shared customer based and executive management, as well as the similarity in expertise required to underwrite these coverages. Our Surety operation underwrites surety bonds, which are agreements under which one party, the surety, guarantees to another party, the owner or obligee, that a third party, the contractor or principal, will perform in accordance with contractual obligations. The Contract Surety business center specializes in providing bid, performance and payment bonds, domestically and internationally, to a broad spectrum of clients specializing in general contracting, highway and bridge construction, asphalt paving, underground and pipeline construction, manufacturing, civil and heavy engineering, and mechanical and electrical construction. Bid bonds provide financial assurance that a bid has been submitted in good faith and that the contractor intends to enter into the contract at the price bid and provide the required performance and payment bonds. Performance bonds protect the obligee from financial loss should the contractor fail to perform the contract in accordance with the terms and conditions of the contract documents. Payment bonds guarantee that the contractor will pay certain subcontractor, labor and material bills associated with a project. The Commercial Surety and Fidelity business center offers license and permit bonds, court bonds, public official bonds and other miscellaneous bonds. Our Construction operation provides traditional insurance, and financial and risk management solutions, to a broad range of contractors and owners of construction projects.

        According to data published by the Surety Association of America, our domestic Surety operations were the largest in North America based on 2000 net written premiums, accounting for approximately 11% of the domestic market. Our Surety operation also includes Afianzadora Insurgentes, the leading surety underwriter in Mexico.

        Health Care.    Our Health Care segment, which generated $770 million in net written premium volume in 2001, underwrites professional liability, property and general liability insurance throughout the entire healthcare delivery system. Products include coverages for healthcare professionals (physicians and surgeons, dental professionals and nurses); individual healthcare facilities (including hospitals, long-term care facilities and other facilities such as laboratories); and entire systems, such as hospital networks and managed care systems. Our Health Care segment historically has been one of the leading medical liability insurers in the United States. In the fourth quarter of 2001, after a strategic review of our Health Care segment led us to conclude that prospects for future profitability were minimal, we announced our intention to exit the medical liability insurance market, subject to applicable regulatory requirements. We anticipate that net written premium volume in this segment in 2002 will total approximately $400 million, half of which is expected to result from reporting endorsements. Of the $73 million goodwill write-down that we recorded in the fourth quarter of 2001, $56 million related to goodwill recorded upon our April 2000 acquisition of MMI Companies, Inc. ("MMI"), an international health care risk services company.

        Lloyd's and Other.    Our Lloyd's and Other business segment, which accounted for $608 million of net written premiums in 2001, consists of our operations at Lloyd's, where we provide capital to five underwriting syndicates and own a managing agency; our participation in the insuring of the Lloyd's Central Fund, which is utilized if an individual member of

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Lloyd's were to be unable to pay its share of a syndicate's losses; and results from MMI's London-based insurance operation, Unionamerica, where the only new business we are underwriting is that which we are contractually obligated to underwrite through 2004 in two syndicates at Lloyd's. As discussed in more detail on page 3 of this report, at the end of 2001 we announced that we would cease underwriting certain business through Lloyd's in 2002 and would, when current contractual commitments expire in 2003, end our involvement in the insuring of the Lloyd's Central Fund. We are continuing to review the role of our operations at Lloyd's in our long-term corporate strategy.

        Reinsurance.    Our Reinsurance segment, which generated $1.7 billion of net written premium volume in 2001, primarily operates under the name "St. Paul Re," which underwrites traditional treaty and facultative reinsurance for property, liability, ocean marine, surety, health and certain specialty classes of coverages. St. Paul Re also underwrites certain types of "non-traditional" reinsurance, which combines elements of traditional underwriting risk with financial risk protection to meet specific financial objectives of corporate customers. Reinsurance is an agreement by which an insurance company will pay a premium to transfer, or "cede," a portion of the risk it has underwritten to a reinsurer. A large portion of reinsurance is effected automatically under general reinsurance contracts known as treaties. In some instances, reinsurance is effected by negotiation on individual risks, which is referred to as facultative reinsurance. St. Paul Re underwrites traditional reinsurance for leading property, liability and other non-life insurance companies worldwide, with clients in North America, Latin America, the Caribbean, Europe, Australia and the Asia-Pacific region. As discussed in more detail on page 3 of this report, at the end of 2001 we announced that in 2002 we would narrow the product offerings and geographic presence of our reinsurance operations. We are continuing to review the role of our reinsurance operations in our long-term corporate strategy.

        According to the most recent data published by the Reinsurance Association of America, St. Paul Re's written premium volume through the first nine months of 2001 ranked it as the 5th-largest reinsurer in the United States. According to data published by Standard & Poor's, St. Paul Re was ranked as the 14th-largest reinsurance group in the world, based on 2000 written premiums.

Principal Markets and Methods of Distribution

        Our Primary Insurance Operations in the United States are licensed to transact business in all 50 states, the District of Columbia, Puerto Rico, Guam and the Virgin Islands. At least five percent of our 2001 U.S. property-liability written premiums were produced in each of Illinois, California, Texas and New York.

        Our primary insurance business in the United States is produced primarily through over 5,000 independent insurance agencies and insurance brokers. The needs of agents, brokers and policyholders are addressed through approximately 160 offices located throughout the United States. Discover Re, a component of our Specialty Commercial segment, underwrites alternative risk transfer business from its Farmington, CT headquarters, from regional U.S. offices in Atlanta, Pittsburgh, Dallas, Minneapolis and San Francisco, and from a correspondent office in London.

        Our International operations are headquartered in London and, in 2001, underwrote insurance primarily through domestic operations in 14 markets outside the United States (Argentina, Australia, Botswana, Canada, France, Germany, Ireland, Lesotho, Mexico, New Zealand, South Africa, Spain, the Netherlands and the United Kingdom). As discussed on page 3 of this report, we announced in the fourth quarter of 2001 that we would cease underwriting primary insurance business in all foreign locations except Canada, the United Kingdom and Ireland in 2002. We will also continue to underwrite surety business in Mexico.

        Through our involvement at Lloyd's, we have access to insurance markets in virtually every country in the world. At Lloyd's, our managing agency, operating under the name St. Paul Syndicate Management Ltd., underwrites business for five syndicates in which we are investors, collectively representing approximately 4% of Lloyd's total capacity.

        St. Paul Re underwrites business through brokers and, for certain types of reinsurance and in certain markets, on a direct basis. In 2001, St. Paul Re produced reinsurance business from its New York headquarters, as well as from offices in London, Brussels, Chicago, Hong Kong, Miami, Morristown NJ, Munich, Singapore, Sydney and Tokyo. As part of our effort to narrow the geographic presence of our reinsurance operations, we have ceased underwriting at or intend to close the following offices in 2002: Brussels, Hong Kong, Munich, Singapore and Sydney.

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Reserves for Losses and Loss Adjustment Expenses

        General Information.    When claims are made by or against policyholders, any amounts that our underwriting operations pay or expect to pay to the claimant are referred to as losses. The costs of investigating, resolving and processing these claims are referred to as loss adjustment expenses ("LAE"). We establish reserves that reflect the estimated unpaid total cost of these two items. The reserves for unpaid losses and LAE at Dec. 31, 2001 cover claims that were incurred not only in 2001 but also in prior years. They include estimates of the total cost of claims that have already been reported but not yet settled ("case" reserves), and those that have been incurred but not yet reported ("IBNR" reserves). Loss reserves are reduced for estimates of salvage and subrogation.

        Loss reserves for tabular workers' compensation business and certain assumed reinsurance contracts are discounted to present value. Additional information about these discounted liabilities is set forth in Note 1 to the consolidated financial statements on pages 45 through 49 of our 2001 Annual Report to Shareholders, and is incorporated herein by reference. During 2001, $22.2 million of discount was amortized and $3.8 million of additional discount was accrued.

        Because many of the coverages we offer involve claims that may not ultimately be settled for many years after they are incurred, subjective judgments as to our ultimate exposure to losses are an integral and necessary component of our loss reserving process. We record our reserves by considering a range of estimates bounded by a high and low point. Within that range, we record our best estimate. We continually review our reserves, using a variety of statistical and actuarial techniques to analyze current claim costs, frequency and severity data, and prevailing economic, social and legal factors. We adjust reserves established in prior years as loss experience develops and new information becomes available. Adjustments to previously estimated reserves are reflected in results in the year in which they are made.

        While our reported reserves make a reasonable provision for all of our unpaid loss and loss adjustment expense obligations, it should be noted that the process of estimating required reserves does, by its very nature, involve uncertainty. The level of uncertainty can be influenced by such factors as the existence of coverages with long duration payment patterns and changes in claim handling practices. Many of the insurance subsidiaries within The St. Paul's group have written coverages with long duration payment patterns such as medical professional liability, large deductible workers' compensation and assumed reinsurance. In addition, claim handling practices change and evolve over the years. For example, new initiatives are commenced, claim offices are reorganized and relocated, claim handling responsibilities of individual adjusters are changed, use of a call center is increased, use of technology is increased, caseload issues and case reserving practices are monitored more frequently, etc. However, these are sources of uncertainty that we have recognized in establishing our reserves.

        Ten-year Development.    The table on page 10 presents a development of net loss and LAE reserve liabilities and payments for the years 1991 through 2001. The top line on the table shows the estimated liability for unpaid losses and LAE, net of reinsurance recoverables, recorded at the balance sheet date for each of the years indicated.

        The table excludes the reserves and activity of Economy Fire and Casualty Company and its subsidiaries ("Economy"), which were included in the sale of our standard personal insurance operations to Metropolitan Property and Casualty Insurance Company ("Metropolitan") in 1999. The table does, however, include reserves and activity for the non-Economy standard personal insurance business that was sold to Metropolitan, since we remain liable for claims on non-Economy standard personal insurance policies that result from losses occurring prior to Sept. 30, 1999 (the closing date of the sale). Also excluded from the table are the reserves and activity for our nonstandard auto business, which we sold to Prudential Insurance Company of America in the second quarter of 2000. Notes 9 and 14 to the consolidated financial statements on page 55, and pages 64 through 66, respectively, of our 2001 Annual Report to Shareholders, which include additional information regarding the sale of these operations and the related reserves, are incorporated herein by reference.

        In 1997, we changed the method by which we assign loss activity to a particular year for assumed reinsurance written by our U.K.-based reinsurance operation. Prior to 1997, that loss activity was assigned to the year in which the underlying reinsurance contract was written. In 1997, our analysis indicated that an excess amount of loss activity was being assigned to

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prior years because of this practice. As a result, we implemented an improved procedure in 1997 that more accurately assigns loss activity for this business to the year in which it occurred. This change had the impact of increasing favorable development on previously established reserves by approximately $110 million in 1997. There was no net impact on total incurred losses, however, because there was a corresponding increase in the provision for current year loss activity in 1997. Development data for individual years prior to 1997 in this table were not restated to reflect this new procedure because reliable data to do so was not available.

        The upper portion of the table, which shows the re-estimated amounts relating to the previously recorded liabilities, is based upon experience as of the end of each succeeding year. These estimates are either increased or decreased as further information becomes known about individual claims and as changes in the trend of claim frequency and severity become apparent.

        The "Cumulative redundancy (deficiency)" line on the table for any given year represents the aggregate change in the estimates for all years subsequent to the year the reserves were initially established. For example, the 1992 net reserve of $13,195 million developed to $12,574 million, or a $621 million redundancy, by the end of 1994. By the end of 2001, the 1992 reserve had developed a redundancy of $1,800 million. The changes in the estimate of 1992 loss reserves were reflected in operations during the past nine years. Likewise, the deficiency that developed with respect to year-end 2000 reserves (primarily related to our medical liability business) was reflected in our results of operations for 2001.

        In 1993, we adopted the provisions of SFAS No. 113, "Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts." This statement required, among other things, that reinsurance recoverables on unpaid losses and LAE be shown as an asset, instead of the prior practice of netting this amount against insurance reserves for balance sheet reporting purposes.

        The middle portion of the table, which includes data for only those periods impacted since the adoption of SFAS No. 113 (the years 1992 through 2001), represents a reconciliation between the net reserve liability as shown on the top line of the table and the gross reserve liability as shown on our balance sheet. This portion of the table also presents the gross re-estimated reserve liability as of the end of the latest re-estimation period (Dec. 31, 2001) and the related re-estimated reinsurance recoverable. We did not restate data for years prior to 1992 in this table for presentation on a gross basis due to the impracticality of determining such gross data on a reliable basis for our foreign underwriting operations.

        The lower portion of the table presents the cumulative amounts paid with respect to the previously recorded liability as of the end of each succeeding year. For example, as of Dec. 31, 2001, $9,242 million of the currently estimated $11,395 million of net losses and LAE that have been incurred for the years up to and including 1992 have been paid. Thus, as of Dec. 31, 2001, it is estimated that $2,153 million of net incurred losses and LAE have yet to be paid for the years up to and including 1992.

        Caution should be exercised in evaluating the information shown in this table. It should be noted that each amount includes the effects of all changes in amounts for prior periods. For example, the portion of the development shown for year-end 1996 reserves that relates to 1991 losses is included in the cumulative redundancy (deficiency) for the years 1991 through 1996.

        In addition, the table presents calendar year data. It does not present accident or policy year development data, which some readers may be more accustomed to analyzing. The social, economic and legal conditions and other trends which have had an impact on the changes in the estimated liability in the past are not necessarily indicative of the future. Accordingly, readers are cautioned against extrapolating any conclusions about future results from the information presented in this table.

        Note 9 to the consolidated financial statements, on page 55 of our 2001 Annual Report to Shareholders, includes a reconciliation of beginning and ending loss reserve liabilities for each of the last three years and is incorporated herein by reference. Additional information about our reserves is contained in the "Loss and Loss Adjustment Expense Reserves" and "Environmental and Asbestos Claims" sections of "Management's Discussion and Analysis" on pages 31 and 32 of our 2001 Annual Report to Shareholders, which are incorporated herein by reference.

9

Analysis of Loss and Loss Adjustment Expense (LAE) Development

Year ended December 31	1991		1992	1993	1994	1995	1996	1997	1998	1999	2000		2001
	(In millions)
Net liability for unpaid losses and LAE	$	12,838	13,195	12,970	12,997	13,464	14,689	14,704	14,813	14,042	13,545		15,253
Liability re-estimated as of:
One year later		12,676	12,896	12,601	12,665	12,995	13,929	14,534	14,822	13,315	14,139
Two years later		12,470	12,574	12,227	12,227	12,289	13,703	14,534	14,097	13,183
Three years later		12,270	12,369	11,929	11,770	12,141	13,791	13,917	13,821
Four years later		12,213	12,129	11,567	11,621	12,195	13,395	13,502
Five years later		12,056	11,900	11,454	11,580	11,683	12,967
Six years later		11,936	11,802	11,404	11,197	11,316
Seven years later		11,890	11,763	11,112	10,876
Eight years later		11,823	11,640	10,843
Nine years later		11,731	11,395
Ten years later		11,532
Cumulative redundancy (deficiency)	$	1,306	1,800	2,127	2,121	2,148	1,722	1,202	992	859	(594	)
Net liability for unpaid losses and LAE			13,195	12,970	12,997	13,464	14,689	14,704	14,813	14,042	13,545		15,253
Reinsurance recoverable on unpaid losses			3,904	2,581	2,533	2,824	2,864	3,051	3,199	3,678	4,651		6,848
Gross liability			17,099	15,551	15,530	16,288	17,553	17,755	18,012	17,720	18,196		22,101
Gross re-estimated liability:
One year later			16,452	15,157	15,620	15,844	17,024	17,725	17,840	17,011	19,576
Two years later			16,128	15,181	15,257	15,105	16,787	17,466	16,813	17,111
Three years later			15,983	14,968	14,666	14,985	16,669	16,559	16,777
Four years later			15,810	14,500	14,675	14,743	15,881	16,259
Five years later			15,521	14,530	14,350	13,883	15,583
Six years later			15,549	14,234	13,688	13,576
Seven years later			15,406	13,813	13,375
Eight years later			15,187	13,501
Nine years later			14,878
Gross cumulative redundancy (deficiency)			2,221	2,050	2,155	2,712	1,970	1,496	1,235	609	(1,380	)
Cumulative amount of net liability paid through:
One year later	$	3,021	3,008	2,723	2,641	2,893	3,335	3,518	3,950	3,769	4,574
Two years later		5,018	4,958	4,506	4,491	4,827	5,657	6,144	6,476	6,589
Three years later		6,372	6,249	5,778	5,817	6,309	7,444	7,906	8,354
Four years later		7,268	7,159	6,693	6,851	7,390	8,698	9,147
Five years later		7,908	7,824	7,423	7,648	7,857	9,465
Six years later		8,415	8,314	8,020	7,940	8,360
Seven years later		8,803	8,684	8,247	8,305
Eight years later		9,082	8,988	8,540
Nine years later		9,343	9,242
Ten years later		9,579
Cumulative amount of gross liability paid through:
One year later			4,064	3,316	3,241	3,408	3,702	3,943	4,392	4,297	5,619
Two years later			6,572	5,489	5,491	5,386	6,310	6,796	7,170	7,632
Three years later			8,164	7,054	6,842	7,074	8,316	8,657	9,428
Four years later			9,290	7,989	8,034	8,289	9,559	10,168
Five years later			9,994	8,831	8,942	8,870	10,486
Six years later			10,582	9,540	9,311	9,478
Seven years later			11,177	9,866	9,758
Eight years later			11,511	10,231
Nine years later			11,833

10

        Ceded Reinsurance.    Through ceded reinsurance, other insurers and reinsurers agree to share certain risks that our subsidiaries have underwritten. The purpose of reinsurance is to limit a ceding insurer's maximum net loss arising from large risks or catastrophes. Reinsurance also serves to increase the direct writing capacity of the ceding insurer. Amounts recoverable on ceded losses are recorded as an asset. In addition, through aggregate excess-of-loss treaties, reinsurance can serve to reduce the volatility often associated with the results of primary property-liability insurance underwriting entities.

        The collectibility of reinsurance is subject to the solvency of reinsurers. Our Reinsurance Credit Risk Committee, which has established financial standards to determine qualified, financially secure reinsurers, guides the placement of ceded reinsurance. Generally, uncollectible reinsurance recoverables have not had a material adverse impact on our results of operations, liquidity or financial position; however, we increased our provision for uncollectible reinsurance by $47 million subsequent to the Sept. 11, 2001 terrorist attack.

        Our reported results in 2001, 2000 and 1999 included the impact of separate aggregate excess-of-loss reinsurance treaties that we entered into effective January 1 of each year (the "corporate program"). In addition, our Reinsurance segment results in each year benefited from separate aggregate excess-of-loss reinsurance treaties, unrelated to the corporate program. The combined impact of these treaties on our reported results was as follows:

		2001		2000		1999
		(In millions)
Ceded written premiums		$	128	$	474	$	273
Ceded losses and loss adjustment expenses premiums			253		831		534
Ceded earned premiums			128		474		273
	Net pretax benefit	$	125	$	357	$	261

Note 17 to the consolidated financial statements on page 69 of our 2001 Annual Report to Shareholders, which provides a schedule of ceded reinsurance and additional information about the aggregate excess-of-loss reinsurance treaties, is incorporated herein by reference.

Property—Liability Investment Operations

        Objectives.    Our board of directors approves the overall investment plan for the companies within The St. Paul's property-liability operations. Each subsidiary develops its own specific investment policy tailored to comply with domestic laws and regulations and the overall corporate investment plan. The primary objectives of those plans are as follows:

1)

to maintain a widely diversified fixed maturity portfolio structured to maximize investment returns while generating sufficient liquidity to fund operational cash requirements;

2)

to minimize credit risk through investments in high-quality instruments; and

3)

to provide for long-term growth in the market value of the investment portfolio and enhance shareholder value through investments in certain other investment classes, such as equity securities, venture capital and real estate.

        The following discussion provides more information on each of our invested asset classes.

        Fixed Maturities.    Fixed maturities constituted 73% (at cost) of our property-liability insurance operations' investment portfolio at Dec. 31, 2001. The portfolio is primarily composed of high-quality, intermediate-term taxable U.S. government corporate and mortgage-backed bonds, and tax-exempt U.S. municipal bonds. The table on the following page presents information about the fixed maturity portfolio for the years 1999 through 2001 (dollars in millions).

11

Year	Amortized Cost at Year-end		Estimated Fair Value at Year-end		Pretax Net Investment Income		Weighted Average Pre-tax Yield		Weighted Average After-tax Yield
2001	$	15,194	$	15,756	$	1,107	6.6	%	4.8	%
2000		14,205		14,584		1,162	6.8	%	5.1	%
1999		13,995		13,963		1,171	6.8	%	5.1	%

        We determine the mix of our taxable and tax-exempt investment purchases based on current and projected corporate tax considerations, and the relationship between taxable and tax-exempt investment yields at the time of purchase. Taxable, intermediate-term, investment-grade securities accounted for the majority of new bond purchases in each of the years 2001, 2000 and 1999. We carry our fixed maturities on our balance sheet at their estimated fair value, with unrealized appreciation and depreciation (net of taxes) recorded in common shareholders' equity.

        We manage our bond portfolio conservatively to provide reasonable returns while limiting exposure to risks. Approximately 95% of the fixed maturities portfolio is rated at investment grade levels (BBB- or better). The remaining 5% of the portfolio is split between nonrated and non-investment grade (high-yield) securities. We believe the nonrated securities would be considered investment-grade in quality if rated.

        Equities.    Equity securities comprised 5% of the property-liability operations' investments (at cost) at Dec. 31, 2001, and consist of a diversified portfolio of common stocks, which are held with the primary objective of achieving capital appreciation. Sales of equities generated pretax realized investment losses of $4 million in 2001, and dividend income totaled $15 million. Equity markets in the United States in 2001 suffered from an economic slowdown and the Sept. 11 terrorist attack. The portfolio's carrying value at year-end 2001 of $1.1 billion included $52 million of pretax unrealized appreciation.

        Real Estate and Mortgage Loans.    Our real estate holdings consist of a diversified portfolio of commercial office and warehouse properties that we own directly or have partial interest in through joint ventures. The properties are geographically distributed throughout the United States and had an overall occupancy rate of 95% at Dec. 31, 2001. We also have a portfolio of real estate mortgage investments acquired in our merger with USF&G Corporation in 1998. The real estate and mortgage loan portfolio produced $115 million of pretax investment income in 2001 and generated $4 million of pretax realized gains.

        Venture Capital.    Securities of small- to medium-sized companies spanning a variety of industries comprise our venture capital holdings, which accounted for 4% of property-liability investments (at cost) at Dec. 31, 2001. These investments are in the form of limited partnership interests or direct equity investments. Venture capital investments generated pretax realized investment losses of $43 million in 2001. The carrying value of venture capital investments at Dec. 31, 2001 included $93 million of pretax unrealized appreciation.

        Securities on Loan.    We participate in a securities lending program whereby certain fixed maturities from our portfolio are loaned to other institutions for short periods of time. We receive a fee from the borrower in return. We require collateral equal to 102% of the fair value of the loaned securities, and we record the collateral as a liability. The collateral is invested in short-term securities and reported as such on our balance sheet. At Dec. 31, 2001, collateral invested totaled $775 million, representing approximately 4% of our total property-liability investments. We retain full ownership of the loaned securities and are indemnified by the lending agent in the event a borrower becomes insolvent or fails to return the securities.

        Short-Term and Other Investments.    Our portfolio also includes short-term securities and other miscellaneous investments, which in the aggregate comprised 10% of property-liability investments at Dec. 31, 2001.

12

        Derivatives.    Our property-liability investment operations have had limited involvement with derivative financial instruments, primarily for purposes of hedging against fluctuations in foreign currency exchange rates. Effective Jan. 1, 2001, we adopted the provisions of Statement of Financial Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended, which required the recognition of all derivative instruments as either assets or liabilities on the balance sheet. Note 8 to our consolidated financial statements included in our 2001 Annual Report to Shareholders, which provides more information regarding the impact of adopting SFAS No. 133, is incorporated herein by reference.

        In addition to Note 8, Notes 1, 6 and 7 to our consolidated financial statements, which are included in our 2001 Annual Report to Shareholders, also provide additional information about our investment portfolio and are incorporated herein by reference. The "Investment Operations" and "Exposures to Market Risk" sections of "Management's Discussion and Analysis" in said Annual Report are also incorporated herein by reference.

Asset Management

        The John Nuveen Company ("Nuveen") is our asset management subsidiary. The St. Paul and its largest property-liability insurance subsidiary, St. Paul Fire and Marine Insurance Company ("Fire and Marine") hold a combined 77% interest in Nuveen.

        Nuveen's principal businesses are asset management and the development, marketing and distribution of investment products and services for the affluent, high-net-worth and institutional market segments. Nuveen distributes its investment products and services, including mutual funds (open-end funds), exchange-traded funds (closed-end funds), defined portfolios and individual managed accounts to the affluent and high-net-worth market segments through unaffiliated intermediary firms, broker-dealers, commercial banks, affiliates of insurance providers, financial planners, accountants, consultants and investment advisors. Nuveen also provides investment products and services to institutional markets.

        Nuveen's primary business activities generate three principal sources of revenue: (1) ongoing advisory fees earned on assets under management, including individually managed accounts, mutual funds and exchange-traded funds; (2) distribution revenues earned upon the sale of certain investment products; and (3) fees earned on certain institutional accounts based on the performance of such accounts.

        Nuveen's operations are organized around nine subsidiaries, including Nuveen Investments, a registered broker and dealer in securities under the Securities Exchange Act of 1934, and six investment advisory subsidiaries registered under the Investment Advisers Act of 1940. The six investment advisory subsidiaries are Nuveen Advisory Corp. ("NAC"), Nuveen Institutional Advisory Corp. ("NIAC"), Nuveen Asset Management Inc. ("NAM"), Rittenhouse Financial Services, Inc. ("Rittenhouse"), Nuveen Senior Loan Asset Management, Inc. ("NSLAM") and Symphony Asset Management LLC ("Symphony"). Nuveen Investments provides investment product distribution and related services for Nuveen's managed funds and defined portfolios. NAC, NIAC and NSLAM provide investment management services for and administer the business affairs of the Nuveen managed funds. Rittenhouse and NAM provide investment management services for individually managed accounts, and Rittenhouse also acts as sub-adviser and portfolio manager for a mutual fund managed by NIAC. Symphony, acquired in July 2001 for a total cost of approximately $208 million, provides managed accounts and investment funds designed to reduce risk through market-neutral and other strategies in several equity and fixed-income asset classes for institutional investors. The other two subsidiaries are not registered broker-dealers or investment advisors.

        At Dec. 31, 2001, Nuveen's assets under management totaled $68.5 billion, consisting of $32.0 billion of exchange-traded funds, $24.7 billion of managed accounts, and $11.8 billion of mutual funds. Municipal securities accounted for approximately 70% of the underlying managed assets.

13

Competition and Regulation

        The financial services industry in general continues to be affected by an intensifying competitive environment, as demonstrated by consolidation through mergers and acquisitions and competition from new entrants, as well as established competitors using new technologies, including the Internet, to establish or expand their businesses. The Gramm-Leach-Bliley Act, passed in 1999, which repealed U.S. laws that separated commercial banking, investment banking and insurance activities, together with changes to the industry resulting from previous reforms, has increased the number of companies competing for a similar customer base.

        Property-Liability Insurance.    Our domestic and international underwriting subsidiaries compete with a large number of other insurers and reinsurers. In addition, many large commercial customers self-insure their risks or utilize large deductibles on purchased insurance. Our subsidiaries compete principally by attempting to offer a combination of superior products, underwriting expertise and services at a competitive, yet profitable, price. The combination of products, services, pricing and other methods of competition varies by line of insurance and by coverage within each line of insurance.

        The St. Paul and our underwriting subsidiaries are subject to regulation by certain states as an insurance holding company system. Such regulation generally provides that transactions between companies within the holding company system must be fair and equitable. Transfers of assets among such affiliated companies, certain dividend payments from underwriting subsidiaries and certain material transactions between companies within the system may be subject to prior notice to, or prior approval by, state regulatory authorities. During 2001, we received dividends in the form of cash and securities of $827 million from our U.S. underwriting subsidiaries. Although $414 million will be available for dividends in 2002, business and regulatory considerations may impact the amount of dividends actually paid. We do not anticipate the receipt of any dividends from our U.S. underwriting subsidiaries in 2002. We have sufficient resources available at the parent company to fund common and preferred shareholder dividends, interest payments and distributions on preferred securities, respectively, and other administrative expenses.

        Any change of control (generally presumed by the holding company laws to occur with the acquisition of 10% or more of an insurance holding company's voting securities) of The St. Paul and its underwriting subsidiaries is subject to prior approval by regulators.

        Our underwriting subsidiaries are subject to licensing and supervision by government regulatory agencies in the jurisdictions in which they do business. The nature and extent of such regulation vary but generally have their source in statutes which delegate regulatory, supervisory and administrative powers to insurance regulators, which in the U.S. are state authorities. Such regulation, supervision and administration of the underwriting subsidiaries may relate, among other things, to the standards of solvency which must be met and maintained; the licensing of insurers and their agents; the nature of and limitations on investments; restrictions on the size of risk which may be insured under a single policy; deposits of securities for the benefit of policyholders; regulation of policy forms and premium rates; periodic examination of the affairs of insurance companies; annual and other reports required to be filed on the financial condition of insurers or for other purposes; requirements regarding reserves for unearned premiums, losses and other matters; the nature of and limitations on dividends to policyholders and shareholders; the nature and extent of required participation in insurance guaranty funds; and the involuntary assumption of hard-to-place or high-risk insurance business, primarily in workers' compensation insurance lines. In addition, the terms and conditions of our plan to exit the medical liability insurance market in 2002 are subject to regulatory approval in several states.

        Loss ratio trends in property-liability insurance underwriting experience may be improved by, among other things, changing the kinds of coverages provided by policies, providing loss prevention and risk management services, increasing premium rates, purchasing reinsurance or by a combination of these factors. The ability of our insurance underwriting subsidiaries to meet emerging adverse underwriting trends may be delayed, from time to time, by the effects of laws which require prior approval by insurance regulatory authorities of changes in policy forms and premium rates. Our U.S. underwriting operations do business in all 50 states and the District of Columbia, Puerto Rico, Guam and the U.S. Virgin Islands. Many of these jurisdictions require prior approval of most or all premium rates.

14

        Our insurance underwriting business in the United Kingdom is regulated by the Financial Services Authority (FSA). The FSA's principal objectives are to ensure that insurance companies are responsibly managed, that they have adequate funds to meet liabilities to policyholders and that they maintain required levels of solvency. In Canada, the conduct of insurance business is regulated under provisions of the Insurance Companies Act of 1992, which requires insurance companies to maintain certain levels of capital depending on the type and amount of insurance policies in force. The Lloyd's operation is currently regulated by the Council of Lloyd's, a self-regulatory organization, which will in due course be regulated by the FSA. We are also subject to regulations in the other countries and jurisdictions in which we underwrite insurance business. The terms and conditions of our plans to cease underwriting operations in selected foreign countries are subject to regulatory approval in several of those countries.

        Asset Management.    Nuveen is subject to substantial competition in all aspects of its business. Investment products are sold to the public and institutions by broker-dealers, banks, insurance companies and others. Nuveen competes with other providers of products primarily on the basis of the range of products offered, the investment performance of such products, quality of service, fees charged, the level and type of broker compensation, the manner in which such products are marketed and distributed, and the services provided to investors.

        Nuveen is a publicly-traded company registered under the Securities Exchange Act of 1934 and listed on the New York Stock Exchange. One of its subsidiaries, Nuveen Investments, is a broker-dealer registered under the Securities Exchange Act of 1934, and is subject to regulation by the Securities and Exchange Commission, the National Association of Securities Dealers, Inc. and other federal and state agencies and self-regulatory organizations. It is also subject to net capital requirements that restrict its ability to pay dividends. Six of Nuveen's other subsidiaries are investment advisers registered under the Investment Advisers Act of 1940. As such, they are subject to regulation by the Securities and Exchange Commission.

Forward-Looking Statement Disclosure

        This report contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements other than historical information or statements of current condition. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks" or "estimates," or variations of such words, and similar expressions are also intended to identify forward-looking statements. Examples of these forward-looking statements include statements concerning: market and other conditions and their effect on future premiums, revenues, earnings, cash flow and investment income; price increases, improved loss experience, and expense savings resulting from the restructuring and other actions and initiatives announced in recent years.

        In light of the risks and uncertainties inherent in future projections, many of which are beyond our control, actual results could differ materially from those in forward-looking statements. These statements should not be regarded as a representation that anticipated events will occur or that expected objectives will be achieved. Risks and uncertainties include, but are not limited to, the following: competitive considerations, including the ability to implement price increases and possible actions by competitors; general economic conditions, including changes in interest rates and the performance of financial markets; changes in domestic and foreign laws, regulations and taxes; changes in the demand for, pricing of, or supply of insurance or reinsurance; catastrophic events of unanticipated frequency or severity; loss of significant customers; the possibility of worse-than-anticipated loss development from business written in prior years; changes in our estimate of insurance industry losses resulting from the Sept. 11, 2001 terrorist attack, the potential impact of the global war on terrorism and Federal solutions to make available insurance coverage for acts of terrorism; judicial decisions and rulings; anticipated increases in premiums; our implementation of new strategies as a result of the strategic review completed in late 2001; and various other matters. We undertake no obligation to release publicly the results of any future revisions we may make to forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

15

Item 2. Properties.

        Fire and Marine owns our corporate headquarters buildings, located at 385 Washington Street and 130 West Sixth Street, St. Paul, MN. These buildings are adjacent to one another and consist of approximately 1.1 million square feet of gross floor space. Fire and Marine also owns property in Woodbury, MN where its Administrative Services Building and off-site computer processing operations are located. Fire and Marine also owns the former USF&G headquarters campus known as Mount Washington Center, located in Baltimore, MD. The campus currently houses offices for certain executives of The St. Paul, as well as offices for certain underwriting, legal and claim personnel. A training and development center also resides on the Mount Washington campus. Fire and Marine has leased a substantial portion of one of the buildings on the campus to an outside party.

        St. Paul International Insurance Company Ltd. owns a building in London, England, which houses a portion of its operations. We retained ownership of another building in London subsequent to the sale of Minet Holdings plc to Aon Corporation in 1997, which is being leased to an outside party. In a transaction completed in March 2001, we sold a 50% interest in this building.

        Fire and Marine and its subsidiary, St. Paul Properties, Inc., own a portfolio of income-producing properties in various locations across the United States that they have purchased for investment.

        Our operating subsidiaries rent or lease office space in most cities in which they operate.

        Management considers the currently owned and leased office facilities of The St. Paul and its subsidiaries adequate for the current and anticipated future level of operations.

Item 3. Legal Proceedings.

        The information set forth in the "Legal Matters" section of Note 15 to the consolidated financial statements, and the "Environmental and Asbestos Claims" section of "Management's Discussion and Analysis," which are included in our 2001 Annual Report to Shareholders on pages 66 and 67, and 31 and 32, respectively, are incorporated herein by reference.

        In 1990, at the direction of the UK Department of Trade and Industry (DTI), five insurance underwriting subsidiaries of London United Investments PLC (LUI) suspended underwriting new insurance business. At the same time, four of those subsidiaries, being insolvent, suspended payment of claims and have since been placed in provisional liquidation. The fifth subsidiary, Walbrook Insurance Company, continued paying claims until May of 1992 but has now also been placed in provisional insolvent liquidation. Weavers Underwriting Agency (Weavers), an LUI subsidiary, managed these insurers. Minet, a former insurance brokerage subsidiary of ours, had brokered business to and from Weavers for many years. From 1973 through 1980, our UK-based underwriting operations, now called St. Paul International Insurance Company Ltd. (SPI), had accepted business from Weavers. A portion of that business was ceded by SPI to reinsurers. Certain of those reinsurers have challenged the validity of certain reinsurance contracts (or the amount of recovery thereunder) relating to the Weavers pool, of which SPI was a member, in an attempt to avoid liability under those contracts. SPI and other members of the Weavers pool are seeking enforcement of the reinsurance contracts. Minet may also become the subject of legal proceedings arising from its role as one of the major brokers for Weavers. When we sold Minet in May 1997, we agreed to indemnify the purchaser for most of Minet's then existing liabilities, including liabilities relating to the Weavers matter. We will vigorously contest any proceedings relating to the Weavers matter. We recognize that the final outcome of these proceedings, if adverse to us, may materially impact the results of operations in the period in which that outcome occurs. We believe that such an adverse outcome, however, will not have a materially adverse effect on our liquidity or overall financial position.

Item 4. Submission of Matters to a Vote of Security Holders.

        No matter was submitted to a vote of security holders during the quarter ended Dec. 31, 2001.

16

Executive Officers Of The St. Paul

        All of the following persons are regarded as executive officers of The St. Paul Companies, Inc. because of their responsibilities and duties as elected officers of The St. Paul, Fire and Marine, St. Paul Re or Discover Re. There are no family relationships between any of our executive officers and directors, and there are no arrangements or understandings between any of these officers and any other person pursuant to which the officer was selected as an officer. The officers listed in the chart below, except Jay S. Fishman, Thomas A. Bradley, Andy F. Bessette, Jerome T. Fadden, John A. MacColl, Timothy M. Yessman, Robert J. Lamendola, George L. Estes III and Marita Zuraitis have held positions with The St. Paul or one or more of its subsidiaries for more than five years, and have been employees of The St. Paul or a subsidiary for more than five years.

        Jay S. Fishman joined The St. Paul in October 2001. Prior to that date, Mr. Fishman was employed as Chairman, President and Chief Executive Officer of The Travelers Insurance Group and as Chief Operating Officer—Finance and Risk of Citigroup, Inc. Mr. Fishman held various executive positions with Citigroup and its predecessor since 1989 and with Travelers since 1993. Andy F. Bessette joined The St. Paul in January 2002. For more than five years prior to that date, Mr. Bessette held various positions in corporate real estate and corporate services at Travelers Insurance Company, including the position of vice president since 1999. Jerome T. Fadden joined The St. Paul in March 2002. For one year prior to that date, Mr. Fadden served as Executive Vice President and Director of Strategic Development in the Office of the Chairman at UBS PaineWebber. From 1999 to 2001, Mr. Fadden was employed as Chief Financial Officer of the Paine Webber Group. From 1996 to 1998, Mr. Fadden was employed as Executive Vice President, Chief Financial Officer and Treasurer of NAC Re. Timothy M. Yessman joined The St. Paul in November 2001. For more than five years prior to that date, Mr. Yessman was employed in various capacities at Travelers Property Casualty Company, including most recently in the position of Senior Vice President of Travelers Specialty Liability Group.

        Messrs. Thomas A. Bradley, John A. MacColl, Robert J. Lamendola and George L. Estes III, and Ms. Marita Zuraitis, held positions and were employees of USF&G Corporation or one of its subsidiaries for five or more years prior to its merger with The St. Paul in April of 1998.

Name	Age	Positions Presently Held	Term of Office and Period of Service
Jay S. Fishman	49	Chairman, Chief Executive Officer and President (The St. Paul Companies, Inc.)	Serving at the pleasure of the Board from October 2001.
Thomas A. Bradley	44	Chief Financial Officer (The St. Paul Companies, Inc.)	Serving at the pleasure of the Board from March 2001.
Michael R. Wright	45	Chief Investment Officer (The St. Paul Companies, Inc.)	Serving at the pleasure of the Board from March 2001.
Andy F. Bessette	48	Senior Vice President and Chief Administrative Officer (The St. Paul Companies, Inc.)	Serving at the pleasure of the Board from January 2002
Jerome T. Fadden	45	Chief Executive Officer—St. Paul Re	Serving at the pleasure of the Board from March 2002.

17

Name	Age	Positions Presently Held	Term of Office and Period of Service
John A. MacColl	53	Executive Vice President and General Counsel (The St. Paul Companies, Inc.)	Serving at the pleasure of the Board from May 1999.
Timothy M. Yessman	42	Executive Vice President, Claim (Fire and Marine)	Serving at the pleasure of the Board from November 2001.
Robert J. Lamendola	57	President and Chief Executive Officer—Surety and Construction (Fire and Marine)	Serving at the pleasure of the Board from October 1999.
Michael J. Schell	51	President and Chief Operating Officer—Global Reinsurance (St. Paul Re)	Serving at the pleasure of the Board from July 2000.
George L. Estes III	53	President and Chief Executive Officer—Discover Re	Serving at the pleasure of the Board from April 1998.
Marita Zuraitis	41	Executive Vice President—U.S. Insurance Operations (Fire and Marine)	Serving at the pleasure of the Board from July 2001.
T. Michael Miller	43	Senior Vice President—Global Specialty Practices (Fire and Marine)	Serving at the pleasure of the Board from October 1999.
Kent D. Urness	53	Senior Vice President—Global Specialty Practices (Fire and Marine)	Serving at the pleasure of the Board from October 1999.
Bruce A. Backberg	53	Senior Vice President and Corporate Secretary (The St. Paul Companies, Inc.)	Serving at the pleasure of the Board from November 1997.
Wayne L. Hoeschen	54	Senior Vice President—Information Systems (Fire and Marine)	Serving at the pleasure of the Board from April 1992.
John P. Clifford	46	Senior Vice President—Human Resources (The St. Paul Companies, Inc.)	Serving at the pleasure of the Board from March 2002.
John C. Treacy	38	Vice President and Corporate Controller (The St. Paul Companies, Inc.)	Serving at the pleasure of the Board from March 2001.
Laura C. Gagnon	40	Vice President—Finance and Investor Relations (The St. Paul Companies, Inc.)	Serving at the pleasure of the Board from July 1999.

18

Part II

Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters.

        Our common stock is traded on the New York Stock Exchange, where it is assigned the symbol SPC. The stock is also listed on the London Stock Exchange. Options on our stock trade on the Chicago Board Options Exchange. The number of holders of record, including individual owners, of our common stock was 17,467 as of March 14, 2002. The following table sets forth the amount of cash dividends declared per share and the high and low closing sales prices of our common stock for each quarter during the last two years.

	High		Low		Cash Dividend Declared
2001
First Quarter	$	51.38	$	40.25	$	0.28
Second Quarter		52.12		41.53		0.28
Third Quarter		50.79		35.50		0.28
Fourth Quarter		51.50		40.30		0.28
2000
First Quarter	$	34.250	$	21.750	$	0.27
Second Quarter		39.188		29.875		0.27
Third Quarter		50.625		34.625		0.27
Fourth Quarter		56.375		44.063		0.27

        Cash dividends paid per share in 2001 and 2000 were $1.11 and $1.07, respectively.

Item 6. Selected Financial Data.

        The "Six-Year Summary of Selected Financial Data" on page 39 of our 2001 Annual Report to Shareholders is incorporated herein by reference.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

        The "Management's Discussion and Analysis" on pages 12 through 38 of our 2001 Annual Report to Shareholders is incorporated herein by reference.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

        The "Exposures to Market Risk" section of "Management's Discussion and Analysis" on pages 36 through 38 of our 2001 Annual Report to Shareholders is incorporated herein by reference.

Item 8. Financial Statements and Supplementary Data.

        The "Independent Auditors' Report," "Management's Responsibility for Financial Statements," Consolidated Balance Sheets, Consolidated Statements of Operations, Comprehensive Income, Shareholders' Equity and Cash Flows, and Notes to Consolidated Financial Statements on pages 40 through 73 of our 2001 Annual Report to Shareholders are incorporated herein by reference.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

        None.

19

Part III

Item 10. Directors and Executive Officers of the Registrant.

        The "Election of Directors—Nominees for Directors" section, which provides information regarding our directors, on pages 4 through 6 of the Proxy Statement relating to the Annual Meeting of Shareholders to be held May 7, 2002, is incorporated herein by reference. Douglas W. Leatherdale, 65, is currently a director of The St. Paul, but is not standing for re-election at the 2002 Annual Meeting of Shareholders.

        The "Section 16(a) Beneficial Ownership Reporting Compliance" section on page 30 of the Proxy Statement relating to the Annual Meeting of Shareholders to be held May 7, 2002, is incorporated herein by reference.

Item 11. Executive Compensation.

        The "Executive Compensation" section on pages 15 to 25 and the "Election of Directors—Board of Directors Compensation" section on pages 6 to 8 of the Proxy Statement relating to the Annual Meeting of Shareholders to be held May 7, 2002, are incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management.

        The "Security Ownership of Certain Beneficial Owners and Management" section on pages 27 to 29 of the Proxy Statement relating to the Annual Meeting of Shareholders to be held May 7, 2002, is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions.

        The "Indebtedness of Management" section on page 26 of the Proxy Statement relating to the Annual Meeting of Shareholders to be held May 7, 2002, is incorporated herein by reference.

Part IV

Item 14. Exhibits, Financial Statements, Financial Statement Schedules and Reports on Form 8-K.

(a)	Filed documents. The following documents are filed as part of this report:
	1.	Financial Statements.
		Incorporated by reference into Part II of this report:
			The St. Paul Companies, Inc. and Subsidiaries:
			Consolidated Statements of Operations—Years Ended December 31, 2001, 2000 and 1999
			Consolidated Statements of Comprehensive Income—Years Ended December 31, 2001, 2000 and 1999
			Consolidated Balance Sheets—December 31, 2001 and 2000
			Consolidated Statements of Shareholders' Equity—Years Ended December 31, 2001, 2000 and 1999
			Consolidated Statements of Cash Flows—Years Ended December 31, 2001, 2000 and 1999
			Notes to Consolidated Financial Statements
			Independent Auditors' Report
		The foregoing documents are incorporated by reference to The St. Paul's 2001 Annual Report to Shareholders.

20

	2.	Financial Statement Schedules.
		The St. Paul Companies, Inc. and Subsidiaries:
				Independent Auditors' Report on Financial Statement Schedules
			I.	Summary of Investments—Other than Investments in Related Parties
			II.	Condensed Financial Information of Registrant
			III.	Supplementary Insurance Information
			IV.	Reinsurance
			V.	Valuation and Qualifying Accounts
		All other schedules are omitted because they are not applicable, not required, or the information is included elsewhere in the Consolidated Financial Statements or Notes thereto.
	3.	Exhibits. An Exhibit Index is set forth at page 36 of this report.
Exhibit No.
	(3)	(a)	The current articles of incorporation of The St. Paul are incorporated by reference to Form 10-K for the year ended December 31, 1998.
		(b)	The current bylaws of The St. Paul are incorporated by reference to Form 10-K for the year ended December 31, 2000.
	(4)	(a)	A specimen certificate of The St. Paul's common stock is incorporated by reference to Form 10-K for the year ended December 31, 1998.
			There are no long-term debt instruments in which the total amount of securities authorized exceeds 10% of the total assets of The St. Paul and its subsidiaries on a consolidated basis. The St. Paul agrees to furnish a copy of any of its long-term debt instruments to the Securities and Exchange Commission upon request.
	(10)	(a)	The Senior Executive Performance Plan is filed herewith.
		(b)	The Employment Agreement dated October 10, 2001 between The St. Paul and Mr. Jay S. Fishman is incorporated by reference to Form 10-Q for the quarter ended September 30, 2001.
		(c)	The Employment Agreement dated September 18, 2001 between The St. Paul and Mr. Douglas W. Leatherdale is incorporated by reference to Form 10-Q for the quarter ended September 30, 2001.
		(d)	The Deferred Stock Plan for Non-Employee Directors is incorporated by reference to Form 10-K for the year ended December 31, 2000.
		(e)	The Amended and Restated Senior Executive Severance Policy is filed herewith.
		(f)	The Amended and Restated 1994 Stock Incentive Plan is filed herewith.
		(g)	The Directors' Charitable Award Program, as Amended, is incorporated by reference to Form 10-K for the year ended December 31, 2000.

21

	(h)	The Amended and Restated Special Severance Policy is incorporated by reference to Form 10-K for the year ended December 31, 1998.
	(i)	The Amendment to the Amended and Restated Special Severance Policy is incorporated by reference to Form 10-K for the year ended December 31, 2000.
	(j)	The 1988 Stock Option Plan as in effect for options granted prior to June 1994, as amended, is incorporated by reference to Form 10-K for the year ended December 31, 1998.
	(k)	The Non-Employee Director Stock Retainer Plan is incorporated by reference to Form 10-K for the year ended December 31, 1998.
	(l)	The Annual Incentive Plan is incorporated by reference to the Proxy Statement relating to the 1999 Annual Meeting of Shareholders that was held on May 4, 1999.
	(m)	The Deferred Management Incentive Awards Plan is incorporated by reference to Form 10-K for the year ended December 31, 1997.
	(n)	The Directors' Deferred Compensation Plan is incorporated by reference to Form 10-K for the year ended December 31, 1997.
	(o)	The Benefit Equalization Plan—1995 Revision is incorporated by reference to Form 10-K for the year ended December 31, 1997.
	(p)	First Amendment to Benefit Equalization Plan—1995 Revision is incorporated by reference to Form 10-K for the year ended December 31, 1997.
	(q)	Executive Post-Retirement Life Insurance Plan—Summary Plan Description is incorporated by reference to Form 10-K for the year ended December 31, 1997.
	(r)	Executive Long-Term Disability Plan—Summary Plan Description is incorporated by reference to Form 10-K for the year ended December 31, 1997.
	(s)	The St. Paul Re Long-Term Incentive Plan is incorporated by reference to the Form S-8 Registration Statement filed March 17, 1998 (Commission File No. 333-48121).
	(t)	The Special Leveraged Stock Purchase Plan is incorporated by reference to Form 10-Q for the quarter ended March 31, 1997.
	(u)	The summary description of the Outside Directors' Retirement Plan is incorporated by reference to the Proxy Statement relating to the 2002 Annual Meeting of Shareholders to be held May 7, 2002.
(11)	A statement regarding the computation of per share earnings is filed herewith.
(12)	A statement regarding the computation of the ratio of earnings to fixed charges and the ratio of earnings to combined fixed charges and preferred stock dividends is filed herewith.

22

(13)
The St. Paul's 2001 Annual Report to Shareholders is furnished to the Commission in paper format pursuant to Rule 14a-3(c). The following portions of such annual report, representing those portions expressly incorporated by reference in this report on Form 10-K, are filed as an exhibit to this report:

Portions of Annual Report for the Year Ended December 31, 2001	Location of Information Incorporated by Reference
Consolidated Financial Statements	Item 8
Notes to Consolidated Financial Statements	Item 1, 8
Independent Auditors' Report	Item 8
Management's Discussion and Analysis	Item 1, 3, 7
Six-Year Summary of Selected Financial Data	Item 6

(21)	List of subsidiaries of The St. Paul Companies, Inc. is filed herewith.
(23)	Consent of independent auditors to incorporation by reference of certain reports into Registration Statements on Form S-8 (SEC File No. 33-15392, No. 33-23446, No. 33-23948, No. 33-24220, No. 33-24575, No. 33-26923, No. 33-49273, No. 33-56987, No. 333-01065, No. 333-22329, No. 333-25203, No. 333-28915, No. 333-48121, No. 333-50941, No. 333-50943, No. 333-67983, No. 333-63114, No. 333-63118, No. 333-65726 and No. 333-65728) and Form S-3 (SEC File No. 333-73848, No. 333-73848-01 and No. 333-44122) is filed herewith.
(24)	Power of attorney is filed herewith.

(b)

Reports on Form 8-K.

(1)

A Form 8-K/A Current Report dated September 28, 2001 was filed related to the restatement of certain pro forma financial information previously filed related to The St. Paul's sale of Fidelity and Guaranty Life Insurance Company to Old Mutual plc.

(2)

A Form 8-K Current Report dated December 4, 2001 was filed related to the announcement of The St. Paul's aggregate limits of insurance exposure related to the Enron Corporation and the amount of Enron Corporation senior unsecured debt held in The St. Paul's investment portfolio. This Form 8-K also related to The St. Paul's announcement of a series of actions resulting from the completion of a strategic review and intended to improve profitability.

(3)

A Form 8-K Current Report dated March 5, 2002 was filed containing the following documents for The St. Paul for the year ended Dec. 31, 2001: Management's Discussion and Analysis of Financial Condition and Results of Operations; Six-year Summary of Selected Financial Data; Statement Regarding Management's Responsibility for Financial Statements; Independent Auditors' Report; Consolidated Financial Statements; Notes to Consolidated Financial Statements; and Consent of Independent Auditors.

(4)

A Form 8-K Current Report dated March 7, 2002 was filed relating to The St. Paul's issuance of $500 million of Senior Notes due in 2007.

23

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, The St. Paul Companies, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		THE ST. PAUL COMPANIES, INC. (Registrant)
Date: March 29, 2002	By	BRUCE A. BACKBERG Bruce A. Backberg Senior Vice President and Corporate Secretary

        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 St. Paul Companies, Inc. and in the capacities and on the dates indicated.

Date: March 29, 2002	By	JAY S. FISHMAN Jay S. Fishman, Director, Chairman of the Board, Chief Executive Officer and President
Date: March 29, 2002	By	THOMAS A. BRADLEY Thomas A. Bradley, Chief Financial Officer
Date: March 29, 2002	By	JOHN C. TREACY John C. Treacy, Vice President and Corporate Controller (Principal Accounting Officer)
Date: March 29, 2002	By	H. FURLONG BALDWIN H. Furlong Baldwin*, Director
Date: March 29, 2002	By	CAROLYN H. BYRD Carolyn H. Byrd*, Director
Date: March 29, 2002	By	JOHN H. DASBURG John H. Dasburg*, Director
Date: March 29, 2002	By	JANET M. DOLAN Janet M. Dolan*, Director
Date: March 29, 2002	By	KENNETH M. DUBERSTEIN Kenneth M. Duberstein*, Director
Date: March 29, 2002	By	PIERSON M. GRIEVE Pierson M. Grieve*, Director
Date: March 29, 2002	By	THOMAS R. HODGSON Thomas R. Hodgson*, Director
Date: March 29, 2002	By	DAVID G. JOHN David G. John*, Director
Date: March 29, 2002	By	WILLIAM H. KLING William H. Kling*, Director

24

Date: March 29, 2002	By	DOUGLAS W. LEATHERDALE Douglas W. Leatherdale*, Director
Date: March 29, 2002	By	BRUCE K. MACLAURY Bruce K. MacLaury*, Director
Date: March 29, 2002	By	GLEN D. NELSON, M.D. Glen D. Nelson, M.D.*, Director
Date: March 29, 2002	By	GORDON M. SPRENGER Gordon M. Sprenger*, Director
Date: March 29, 2002	*By	BRUCE A. BACKBERG Bruce A. Backberg, Attorney-in-fact

25

INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULES

The Board of Directors and Shareholders
The St. Paul Companies, Inc.:

        Under date of January 23, 2002, we reported on the consolidated balance sheets of The St. Paul Companies, Inc. and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of operations, shareholders' equity, comprehensive income and cash flows for each of the years in the three-year period ended December 31, 2001, as contained in the 2001 annual report to shareholders. These consolidated financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the year 2001. In connection with our audits of the aforementioned consolidated financial statements we also have audited the related financial statement schedules I through V, as listed in the index in Item 14(a)2 of said Form 10-K. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statement schedules based on our audits.

        In our opinion, based on our audits such financial statement schedules I through V, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

        As discussed in Notes 1 and 8 to the consolidated financial statements, in 2001 the Company adopted the provisions of the Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" and, as also described in Note 1, in 1999 the Company adopted the provisions of Statement of Position No. 97-3, "Accounting by Insurance and Other Enterprises for Insurance-Related Assessments."

	KPMG LLP        KPMG LLP
Minneapolis, Minnesota January 23, 2002

26

THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES

SCHEDULE I—SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN RELATED PARTIES
December 31, 2001
(In millions)

		2001
		Cost*			Value*		Amount at which shown in the balance sheet
Type of investment:
Fixed maturities:
United States Government and government agencies and     authorities		$	1,197		$	1,270	$	1,270
States, municipalities and political subdivisions			4,720			4,948		4,948
Foreign governments			1,168			1,201		1,201
Corporate securities			5,654			5,824		5,824
Asset-backed securities			115			116		116
Mortgage-backed securities			2,493			2,552		2,552
	Total fixed maturities		15,347			15,911		15,911
Equity securities:
Common stocks:
Public utilities			13			14		14
Banks, trusts and insurance companies			474			419		419
Industrial, miscellaneous and all other			928			977		977
	Total equity securities		1,415			1,410		1,410
Venture capital			766			859		859
Real estate and mortgage loans			978	**				972
Securities lending collateral			739			775		775
Other investments			98					98
Short-term investments			2,153					2,153
Total investments		$	21,496				$	22,178

*

See Notes 1, 6, 7 and 8 to the consolidated financial statements included in our 2001 Annual Report to Shareholders.

**

The cost of real estate represents the cost of properties before valuation provisions. (See Schedule V on page 35).

27

THE ST. PAUL COMPANIES, INC. (Parent Only)

SCHEDULE II—CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEET INFORMATION
December 31, 2001 and 2000
(In millions)

				2001			2000
Assets:
Investment in subsidiaries				$	7,512		$	8,797
Investments:
	Fixed maturities				214			218
	Equity securities				300			70
	Short-term investments				30			41
Cash					7			—
Deferred income taxes					286			428
Refundable income taxes					—			81
Other assets					351			210
			Total assets	$	8,700		$	9,845
Liabilities:
Debt				$	2,989		$	2,123
Income taxes payable					117			—
Dividends payable to shareholders					58			59
Other liabilities					422			436
			Total liabilities		3,586			2,618
Shareholders' Equity:
	Preferred:
		Convertible preferred stock			111			117
		Guaranteed obligation—PSOP			(53	)		(68	)
			Total preferred shareholders' equity		58			49
Common:
	Common stock, authorized 480 shares; issued 208 shares (218 in 2000)				2,192			2,238
	Retained earnings				2,500			4,243
	Accumulated other comprehensive income:
		Unrealized appreciation of investments			442			765
		Unrealized loss on foreign currency translation			(76	)		(68	)
		Unrealized loss on derivatives			(2	)		—
			Total accumulated other comprehensive income		364			697
			Total common shareholders' equity		5,056			7,178
			Total shareholders' equity		5,114			7,227
			Total liabilities and shareholders' equity	$	8,700		$	9,845

See accompanying notes to condensed financial information.

28

THE ST. PAUL COMPANIES, INC. (Parent Only)

SCHEDULE II—CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENT OF INCOME INFORMATION
Years Ended December 31, 2001, 2000 and 1999
(In millions)

			2001			2000			1999
Revenues:
	Net investment income		$	26		$	29		$	17
	Realized investment gains			24			8			10
	Other			8			—			—
		Total revenues		58			37			27
Expenses:
	Interest expense			152			165			145
	Administrative and other expenses			92			97			51
		Total expenses		244			262			196
		Loss before income tax benefit		(186	)		(225	)		(169	)
Income tax benefit				(58	)		(89	)		(59	)
	Loss from continuing operations—parent company only			(128	)		(136	)		(110	)
Equity in net income (loss) of subsidiaries				(881	)		1,106			842
	Income (loss) from continuing operations before cumulative effect of accounting change			(1,009	)		970			732
Cumulative effect of accounting change				—			—			(27	)
	Income (loss) from continuing operations			(1,009	)		970			705
Gain (loss) from discontinued operations				(79	)		23			129
	Consolidated net income (loss)		$	(1,088	)	$	993		$	834

See accompanying notes to condensed financial information.

29

THE ST. PAUL COMPANIES, INC. (Parent Only)

SCHEDULE II—CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENT OF CASH FLOWS INFORMATION
Years Ended December 31, 2001, 2000 and 1999
(In millions)

			2001			2000			1999
Operating Activities:
	Net loss—parent only		$	(128	)	$	(136	)	$	(110	)
	Cash dividends from subsidiaries			513			510			320
	Tax payments from subsidiaries			305			339			69
	Net federal income tax refund (payments)			111			(110	)		(71	)
	Adjustments to reconcile net loss to net cash provided by operating activities:
		Pretax realized investment gains		(24	)		(8	)		(10	)
		Other		(27	)		(24	)		—
		Cash provided by operating activities		750			571			198
Investing Activities:
	Purchases of investments			(155	)		(278	)		(155	)
	Proceeds from sales and maturities of investments			169			168			153
	Capital contributions and loans to subsidiaries			(821	)		(119	)		(4	)
	Proceeds received upon assumption of subsidiary debt			—			123			—
	Proceeds from repayment of intercompany loans			—			—			294
	Discontinued operations			(6	)		(9	)		(10	)
	Purchase of property and equipment			—			(18	)		—
	Other			39			(1	)		6
		Cash provided (used) by investing activities		(774	)		(134	)		284
Financing Activities:
	Dividends paid to shareholders			(245	)		(241	)		(246	)
	Proceeds from issuance of debt			467			498			204
	Proceeds from issuance of preferred securities			575			—			—
	Repayment of debt and preferred securities			(216	)		(259	)		(121	)
	Repurchase of common shares			(589	)		(536	)		(356	)
	Stock options exercised and other			39			97			32
		Cash provided (used) by financing activities		31			(441	)		(487	)
Change in cash				7			(4	)		(5	)
Cash at beginning of year				—			4			9
		Cash at end of year	$	7		$	—		$	4

See accompanying notes to condensed financial information.

30

THE ST. PAUL COMPANIES, INC. (Parent Only)

SCHEDULE II—CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL INFORMATION

1.

The accompanying condensed financial information should be read in conjunction with the consolidated financial statements and notes included in our 2001 Annual Report to Shareholders. The Annual Report includes our Consolidated Statements of Shareholders' Equity and Comprehensive Income.

Some data in the accompanying condensed financial information for the years 2000 and 1999 were reclassified to conform to the 2001 presentation.

2.

Debt of the parent company consisted of the following (in millions):

				December 31,
				2001		2000
External:
	Commercial paper			$	606	$	138
	Medium-term notes				571		617
	77/8% senior notes				249		249
	81/8% senior notes				249		249
	Zero coupon convertible notes				103		98
	71/8% senior notes				80		80
	Variable rate borrowings				64		64
	83/8% senior notes				—		150
	Fair value of interest rate swap agreements				23		—
			Total external debt		1,945		1,645
Intercompany(1):
	Subordinated debentures				932		353
	Guaranteed PSOP debt				53		68
	Notes payable to subsidiaries				59		57
			Total intercompany debt		1,044		478
		Total debt		$	2,989	$	2,123

(1)

Eliminated in consolidation. The intercompany subordinated debentures are payable to subsidiary trusts holding solely convertible subordinated debentures of the company. These trusts issued external financing in the form of company-obligated mandatorily redeemable preferred securities.

        See Note 11 to the consolidated financial statements included in the 2001 Annual Report to Shareholders for further information on debt outstanding at Dec. 31, 2001.

        The amount of debt, other than commercial paper and debt eliminated in consolidation, that becomes due during each of the next five years is as follows: 2002; $108 million; 2003, $67 million; 2004, $180 million; 2005, $428 million; and 2006, $59 million.

        In the normal course of business, the parent company guarantees the performance of our consolidated subsidiaries. These obligations are included in the consolidated financial statements and footnotes in our 2001 Annual Report to Shareholders.

31

THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES

SCHEDULE III—SUPPLEMENTARY INSURANCE INFORMATION
(In millions)

			December 31,
			Deferred policy acquisition expenses		Gross loss, loss adjustment expense reserves		Gross unearned premiums
2001
Property-Liability Insurance:
	Specialty Commercial		$	173	$	4,316	$	1,368
	Commercial Lines Group			141		5,528		852
	Surety and Construction			130		1,709		576
	Healthcare			26		3,162		432
	Lloyd's and Other			50		2,091		245
		Total Primary Underwriting		520		16,806		3,473
Reinsurance				108		4,800		400
	Total Property-Liability Insurance			628		21,606		3,873
Discontinued operations				—		495		84
Total			$	628	$	22,101	$	3,957
2000
Property-Liability Insurance:
	Specialty Commercial		$	150	$	3,343	$	1,116
	Commercial Lines Group			124		5,650		685
	Surety and Construction			121		1,568		496
	Health Care			50		2,602		429
	Lloyd's and Other			45		1,178		311
		Total Primary Underwriting		490		14,341		3,037
	Reinsurance			86		3,347		316
		Total Property-Liability Insurance		576		17,688		3,353
	Discontinued operations			—		508		294
		Total	$	576	$	18,196	$	3,647

32

THE ST. PAUL COMPANIES, INC.

SCHEDULE III—SUPPLEMENTARY INSURANCE INFORMATION
(In millions)

			Premiums earned		Net investment income		Insurance losses, loss adjustment expenses		Amortization of policy acquisition expenses		Other operating expenses		Premiums written
2001
Property-Liability Insurance:
	Specialty Commercial		$	1,924	$	—	$	1,598	$	323	$	238	$	2,109
	Commercial Lines Group			1,470		—		978		366		175		1,604
	Surety and Construction			940		—		617		300		109		991
	Healthcare			791		—		1,578		143		49		770
	Lloyd's and Other			574		—		783		109		122		608
		Total Primary Underwriting		5,699		—		5,554		1,241		693		6,082
	Reinsurance			1,597		—		1,925		348		151		1,681
Net investment income				—		1,199		—		—		—		—
		Total	$	7,296	$	1,199	$	7,479	$	1,589	$	844	$	7,763
2000
Property-Liability Insurance:
	Specialty Commercial		$	1,338	$	—	$	912	$	297	$	207	$	1,563
	Commercial Lines Group			1,368		—		834		320		180		1,436
	Surety and Construction			791		—		362		282		114		859
	Healthcare			624		—		693		108		65		599
	Lloyd's and Other			347		—		299		84		80		351
		Total Primary Underwriting		4,468		—		3,100		1,091		646		4,808
	Reinsurance			1,124		—		813		305		135		1,076
Net investment income				—		1,247		—		—		—		—
		Total	$	5,592	$	1,247	$	3,913	$	1,396	$	781	$	5,884
1999
Property-Liability Insurance:
	Specialty Commercial		$	1,274	$	—	$	1,024	$	293	$	188	$	1,322
	Commercial Lines Group			1,363		—		1,036		346		190		1,303
	Surety and Construction			789		—		463		280		110		826
	Healthcare			645		—		567		100		66		545
	Lloyd's and Other			154		—		129		32		26		201
		Total Primary Underwriting		4,225		—		3,219		1,051		580		4,197
	Reinsurance			878		—		501		270		114		915
Net investment income				—		1,256		—		—		—		—
		Total	$	5,103	$	1,256	$	3,720	$	1,321	$	694	$	5,112

33

THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES

SCHEDULE IV—REINSURANCE
Years Ended December 31, 2001, 2000 and 1999
(In millions)

	Gross amount		Ceded to other companies		Assumed from other companies		Net amount		Percentage of amount assumed to net
Property-liability insurance premiums earned:
2001	$	6,656	$	2,045	$	2,685	$	7,296	36.8	%
2000	$	5,819	$	2,246	$	2,019	$	5,592	36.0	%
1999	$	4,621	$	1,055	$	1,537	$	5,103	30.1	%

34

THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES

SCHEDULE V—VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2001, 2000 and 1999
(In millions)

				Additions
Description		Balance at beginning of year		Charged to costs and expenses	Charged to other accounts(2)	Deductions(1)	Balance at end of year
2001
Real estate valuation adjustment		$	6	—	—	—	$	6
Allowance for uncollectible:
	Agency loans	$	3	—	—	—	$	3
	Premiums receivable from underwriting activities	$	42	17	—	11	$	48
	Reinsurance	$	31	67	2	—	$	100
	Uncollectible deductibles	$	21	9	—	—	$	30
2000
Real estate valuation adjustment		$	6	—	—	—	$	6
Allowance for uncollectible:
	Agency loans	$	3	—	—	—	$	3
	Premiums receivable from underwriting activities	$	45	16	—	19	$	42
	Reinsurance	$	28	1	5	3	$	31
	Uncollectible deductibles	$	23	—	—	2	$	21
1999
Real estate valuation adjustment		$	9	—	—	3	$	6
Allowance for uncollectible:
	Agency loans	$	2	1	—	—	$	3
	Premiums receivable from underwriting activities	$	42	8	—	5	$	45
	Reinsurance	$	28	1	—	1	$	28
	Uncollectible deductibles	$	23	—	—	—	$	23

(1)

Deductions include write-offs of amounts determined to be uncollectible, unrealized foreign exchange gains and losses and, for certain properties in real estate, a reduction in the valuation allowance for properties sold during the year.

(2)

The $5 million included under "Charged to other accounts" for 2000 represents the uncollectible reinsurance recoverable reserve of MMI, which we acquired in 2000.

35

EXHIBIT INDEX*

Exhibit
(2	)	Plan of acquisition, reorganization, arrangement, liquidation, or succession**
(3	)	Articles of incorporation and by-laws
		(a)	Articles of Incorporation***
		(b)	By-laws***
(4	)	Instruments defining the rights of security holders, including indentures
		(a)	Specimen Common Stock Certificate***
(9	)	Voting trust agreements**
(10	)	Material contracts
		(a)	The Senior Executive Performance Plan	(1)
		(b)	Employment Agreement dated October 10, 2001 between The St. Paul and Mr. Jay S. Fishman***
		(c)	Employment Agreement dated September 18, 2001 between The St. Paul and Mr. Douglas W. Leatherdale***
		(d)	Deferred Stock Plan for Non-Employee Directors***
		(e)	Tha Amended and Restated Senior Executive Severance Policy	(1)
		(f)	The Amended and Restated 1994 Stock Incentive Plan	(1)
		(g)	The Directors' Charitable Award Program, as Amended***
		(h)	The Amended and Restated Special Severance Policy***
		(i)	Amendment to the Amended and Restated Special Severance Policy***
		(j)	1988 Stock Option Plan***
		(k)	Non-Employee Director Stock Retainer Plan***
		(l)	The Annual Incentive Plan***
		(m)	The Deferred Management Incentive Awards Plan***
		(n)	The Directors' Deferred Compensation Plan***
		(o)	Benefit Equalization Plan—1995 Revision***
		(p)	First Amendment to Benefit Equalization Plan—1995 Revision***
		(q)	Executive Post-Retirement Life Insurance Plan—Summary Plan Description***
		(r)	Executive Long-Term Disability Plan—Summary Plan Description***
		(s)	The St. Paul Re Long-Term Incentive Plan***
		(t)	The Special Leveraged Stock Purchase Plan***
		(u)	Outside Directors' Retirement Plan -Summary Description***
(11	)	Statements re computation of per share earnings		(1)
(12	)	Statements re computation of ratios		(1)
(13	)	Annual report to security holders		(1)
(16	)	Letter re change in certifying accountant**
(18	)	Letter re change in accounting principles**
(21	)	Subsidiaries of The St. Paul.		(1)
(22	)	Published report regarding matters submitted to vote of security holders**
(23	)	Consents of experts and counsel
		(a)	Consent of KPMG LLP	(1)
(24	)	Power of attorney		(1)
(99	)	Additional exhibits**

*

The exhibits are included only with the copies of this report that are filed with the Securities and Exchange Commission. However, copies of the exhibits may be obtained from The St. Paul for a reasonable fee by writing to the Corporate Secretary, The St. Paul Companies, Inc., 385 Washington Street, St. Paul, Minnesota 55102.

**

These items are not applicable.

***

These items are incorporated by reference as described in Item 14(a)(3) of this report.

(1)

Filed herewith.

36

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PART I

Item 1. Business.

Item 2. Properties.
Item 3. Legal Proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.

Part II

Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters.
Item 6. Selected Financial Data.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Item 8. Financial Statements and Supplementary Data.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

Part III

Item 10. Directors and Executive Officers of the Registrant.
Item 11. Executive Compensation.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Item 13. Certain Relationships and Related Transactions.

Part IV

Item 14. Exhibits, Financial Statements, Financial Statement Schedules and Reports on Form 8-K.

THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES SCHEDULE I—SUMMARY OF INVESTMENTS OTHER THAN INVESTMENTS IN RELATED PARTIES December 31, 2001 (In millions)
THE ST. PAUL COMPANIES, INC. (Parent Only) SCHEDULE II—CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED BALANCE SHEET INFORMATION December 31, 2001 and 2000 (In millions)
THE ST. PAUL COMPANIES, INC. (Parent Only) SCHEDULE II—CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED STATEMENT OF INCOME INFORMATION Years Ended December 31, 2001, 2000 and 1999 (In millions)
THE ST. PAUL COMPANIES, INC. (Parent Only) SCHEDULE II—CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED STATEMENT OF CASH FLOWS INFORMATION Years Ended December 31, 2001, 2000 and 1999 (In millions)
THE ST. PAUL COMPANIES, INC. (Parent Only) SCHEDULE II—CONDENSED FINANCIAL INFORMATION OF REGISTRANT NOTES TO CONDENSED FINANCIAL INFORMATION
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES SCHEDULE III—SUPPLEMENTARY INSURANCE INFORMATION (In millions)
THE ST. PAUL COMPANIES, INC. SCHEDULE III—SUPPLEMENTARY INSURANCE INFORMATION (In millions)
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES SCHEDULE IV—REINSURANCE Years Ended December 31, 2001, 2000 and 1999 (In millions)
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES SCHEDULE V—VALUATION AND QUALIFYING ACCOUNTS Years Ended December 31, 2001, 2000 and 1999 (In millions)
EXHIBIT INDEX

EX-10.(A)

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EXHIBIT 10(a)

THE ST. PAUL COMPANIES, INC.
SENIOR EXECUTIVE PERFORMANCE PLAN

1.    PURPOSE

        The purpose of The St. Paul Companies, Inc. Senior Executive Performance Plan is to permit The St. Paul Companies, Inc. (the "Company"), through awards of annual incentive compensation which satisfy the requirements for performance-based compensation under Section 162(m) of the Internal Revenue Code, to attract and retain executives and to motivate these executives to promote the profitability and growth of the Company.

2.    DEFINITIONS

        "AFTER-TAX OPERATING EARNINGS" shall mean, for each Performance Period, the Company's net income from continuing operations as reported in the Company's income statement for the Performance Period, adjusted to eliminate the after-tax effects of net realized investment gains or losses in the fixed maturities and real estate portfolios, extraordinary items, and the cumulative effect of accounting changes, each as defined by accounting principles generally accepted in the United States. This amount will be further adjusted to eliminate the after-tax impact of any restructuring charges (as reported in the footnotes to the Company's financial statements), losses from catastrophes (as designated by the Insurance Service Office's Property Claims Service Group, the Lloyd's Claim Office, Swiss Reinsurance Company's sigma report, or a comparable report or organization generally recognized by the insurance industry) in the Company's "core" businesses (as reported in press releases announcing its financial results), and underwriting results of the businesses that the Company does not treat as "core" businesses in those press releases.

        "AWARD" shall mean the amount granted to a Participant by the Committee for a Performance Period.

        "BEGINNING TOTAL COMMON STOCKHOLDERS' EQUITY" shall mean, for each Performance Period, the Company's total common stockholders' equity as reported in the Company's balance sheet for the beginning of the Performance Period, excluding net unrealized appreciation or depreciation of investments.

        "BOARD" shall mean the Board of Directors of the Company.

        "CODE" shall mean the Internal Revenue Code of 1986, as amended.

        "COMMITTEE" shall mean the Personnel and Compensation Committee of the Board or any subcommittee thereof which meets the requirements of Section 162(m)(4)(C) of the Code.

        "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended.

        "EXECUTIVE" shall mean any covered employee as defined in Section 162(m) of the Code and, in the discretion of the Committee, any other executive officer of the Company or its Subsidiaries.

        "PARTICIPANT" shall mean, for each Performance Period, each Executive who is a "covered employee" (as defined in Section 162(m) of the Code) for that Performance Period, unless otherwise determined by the Committee in its sole discretion.

        "PERFORMANCE PERIOD" shall mean the Company's fiscal year or any other period designated by the Committee with respect to which an Award may be granted.

        "PLAN" shall mean The St. Paul Companies, Inc. Senior Executive Performance Plan, as amended from time to time.

1

        "RETURN ON EQUITY" shall mean, for each Performance Period, the percentage equivalent to the fraction resulting from dividing After-Tax Operating Earnings by Beginning Total Common Stockholders' Equity.

        "STOCK PLANS" shall mean The St. Paul Companies, Inc. Amended and Restated 1994 Stock Incentive Plan and/or any prior and successor stock plans adopted or assumed by the Company.

        "SUBSIDIARY" shall mean any entity that is directly or indirectly controlled by the Company or any entity, in which the Company has at least a 50% equity interest.

3.    ADMINISTRATION

        The Plan shall be administered by the Committee, which shall have full authority to interpret the Plan, to establish rules and regulations relating to the operation of the Plan, to select Participants, to determine the maximum Awards and the amounts of any Awards and to make all determinations and take all other actions necessary or appropriate for the proper administration of the Plan. Before any payments are made under the Plan, the Committee shall certify in writing that the Return on Equity required by Section 4(b) has been met. The Committee's interpretation of the Plan, and all actions taken within the scope of its authority, shall be final and binding on the Company, its stockholders and Participants, Executives, former Executives and their respective successors and assigns. No member of the Committee shall be eligible to participate in the Plan.

4.    DETERMINATION OF AWARDS

        (a)  Prior to the beginning of each Performance Period, or at such later time as may be permitted by applicable provisions of the Code, the Committee shall establish for each Participant a maximum Award, expressed as a percentage of the incentive pool for the Performance Period pursuant to paragraph (b) of this section, provided that the total of all such maximum percentages shall not exceed 100%, and the maximum percentage for any single Participant shall not exceed 50%.

        (b)  If the Return on Equity for a Performance Period is greater than 8%, the incentive pool for the Performance Period shall be equal to 1.5% of After-Tax Operating Earnings. If the Return on Equity for a Performance Period is equal to or less than 8%, the incentive pool shall be $0.

        (c)  Following the end of each Performance Period, the Committee may determine to grant to any Participant an Award, which may not exceed the maximum amount specified in paragraph (a) of this section for such Participant. The aggregate amount of all Awards under the Plan for any Performance Period shall not exceed 100% of the incentive pool pursuant to paragraph (b) of this section.

5.    PAYMENT OF AWARDS

        Each Participant shall be eligible to receive, as soon as practicable after the amount of such Participant's Award for a Performance Period has been determined, payment of all or a portion of that Award. Awards may be paid in cash, stock, restricted stock, options, other stock-based or stock-denominated units or any combination thereof determined by the Committee. Equity or equity-based awards may be granted under the terms and conditions of the applicable Stock Plan. Payment of the award may be deferred in accordance with a written election by the Participant pursuant to procedures established by the Committee.

6.    AMENDMENTS

        The Committee may amend the Plan at any time and from time to time, provided that no such amendment that would require the consent of the stockholders of the Company pursuant to Section 162(m) of the Code or the Exchange Act, or any other applicable law, rule or regulation, shall be effective without such consent. No such amendment which adversely affects a Participant's rights to, or interest in, an Award granted prior to the date of the amendment shall be effective unless the Participant shall have agreed thereto in writing.

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7.    TERMINATION

        The Committee may terminate this Plan at any time. In such event, and notwithstanding any provision of the Plan to the contrary, payment of deferred amounts plus any earnings may be accelerated with respect to any affected Participant in the discretion of the Committee and paid as soon as practicable; but in no event shall the termination of the Plan adversely affect the rights of any Participant to deferred amounts previously awarded such Participant, plus any earnings thereon.

8.    OTHER PROVISIONS

        (a)  No Executive or other person shall have any claim or right to be granted an Award under this Plan until such Award is actually granted. Neither the establishment of this Plan, nor any action taken hereunder, shall be construed as giving any Executive any right to be retained in the employ of the Company. Nothing contained in this Plan shall limit the ability of the Company to make payments or awards to Executives under any other plan, agreement or arrangement.

        (b)  The rights and benefits of a Participant hereunder are personal to the Participant and, except for payments made following a Participant's death, shall not be subject to any voluntary or involuntary alienation, assignment, pledge, transfer, encumbrance, attachment, garnishment or other disposition.

        (c)  Awards under this Plan shall not constitute compensation for the purpose of determining participation or benefits under any other plan of the Company unless specifically included as compensation in such plan.

        (d)  The Company shall have the right to deduct from Awards any taxes or other amounts required to be withheld by law.

        (e)  All questions pertaining to the construction, regulation, validity and effect of the provisions of the Plan shall be determined in accordance with the laws of the State of Minnesota without regard to principles of conflict of laws.

        (f)    If any provision of this Plan would cause Awards not to constitute "qualified performance-based compensation" under Section 162(m) of the Code, that provision shall be severed from, and shall be deemed not to be a part of, the Plan, but the other provisions hereof shall remain in full force and effect.

        (g)  No member of the Committee or the Board, and no officer, employee or agent of the Company shall be liable for any act or action hereunder, whether of commission or omission, taken by any other member, or by any officer, agent, or employee, or, except in circumstances involving bad faith, for anything done or omitted to be done in the administration of the Plan.

9.    EFFECTIVE DATE

        The Plan shall be effective as of January 1, 2002, subject to approval by the stockholders of the Company in accordance with Section 162(m) of the Code.

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EXHIBIT 10(a)

THE ST. PAUL COMPANIES, INC. SENIOR EXECUTIVE PERFORMANCE PLAN

EX-10.(E)

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EXHIBIT 10(e)

THE ST. PAUL COMPANIES, INC.

SENIOR EXECUTIVE SEVERANCE POLICY

Effective Date

        This Policy is effective as of February 4, 2001.

Covered Executives

        The executives of the Company covered by the Policy are those executives selected by the Personnel & Compensation Committee from time to time and listed on Exhibit A, as updated annually.

Eligibility for Benefits

        A covered executive is eligible for benefits under the Policy if the executive's employment is terminated by the Company without Cause or by the executive for "Good Reason".

Definition of Cause

        "Cause" means (A) the willful and continued failure of the executive to perform substantially his/her duties with the Company (other than any such failure resulting from incapacity due to physical or mental illness) after a written demand for substantial performance is delivered to the executive which specifically identifies the manner in which the executive has not substantially performed his/her duties, or (B) the willful engaging by the executive in illegal conduct or gross misconduct which is demonstrably and materially injurious to the Company or its affiliates.

Definition of Good Reason

        "Good Reason" means (A) any change in the duties or responsibilities (including reporting responsibilities) of the executive that is inconsistent in any material and adverse respect with the executive's duties, responsibilities or status with the Company or a material and adverse change in the executive's titles or offices with the Company; (B) any reduction in the executive's rate of annual base salary or annual target bonus opportunity; or (C) any requirement of the Company that the executive (1) be based anywhere more than thirty (30) miles from the office where the executive is located, or (2) travel on Company business to an extent substantially greater than the previous travel obligations of the executive.

        For purposes of this definition, a mere change in an executive's reporting relationship (such as a change in reporting from the Chief Executive Officer to the Chief Operating Officer or to any other senior executive officer having broad oversight responsibility) shall not be considered "Good Reason" unless such change materially and adversely diminishes the executive's duties, responsibilities, or status with the Company in a manner that would not be considered as reasonable or customary in the property-liability insurance industry.

Benefits

        The benefits under the Policy consist of the following:

Severance Payment. A lump sum severance payment equal to twice of the sum of the executive's annual base salary and target bonus immediately prior to termination of employment.

1

For purposes of this Policy, "target bonus" means the greater of a covered executive's annual incentive target in place on October 10, 2001, or 45% of his/her current annual base salary.

Health Benefits. Continuation of coverage under medical and dental plans for two years.

Stock Options. All unvested stock options, other than stock options granted within one year before the termination date and "mega-grants", will become fully vested and, along with previously vested options, will be exercisable for three years after the date of termination, so long as no options are extended more than ten years beyond the date they were granted. The foregoing option vesting acceleration and post-termination exercise extension provisions shall not apply to options granted after February 1, 2002.

Restricted Stock. All restrictions will end, except for restricted shares awarded after February 1, 2002, restricted shares awarded less than one year before the termination date and stock which serves as collateral for a loan from the Company.

Except as otherwise provided by contract, this Policy shall not apply to any executive who has an employment contract with the Company.

Withholding

        All payments shall be subject to deductions for required withholding of income and employment taxes.

Amendment and Termination

        All executives named to be covered by this Policy (including any executives added hereafter pursuant to approval by this Committee) shall continue to be covered through February 4, 2004, and this Policy shall not be amended in a way that would diminish the rights or prospective benefits of any executive covered by this Policy prior to February 4, 2004, unless required by law, without the unanimous approval of the Board of Directors.

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EXHIBIT 10(e)

THE ST. PAUL COMPANIES, INC. SENIOR EXECUTIVE SEVERANCE POLICY

EX-10.(F)

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Exhibit 10(f)

THE ST. PAUL COMPANIES, INC.
AMENDED AND RESTATED 1994 STOCK INCENTIVE PLAN

        1.    Purpose.    The purposes of The St. Paul Companies, Inc. 1994 Stock Incentive Plan (the "Plan") are (i) to promote the interests of The St. Paul Companies, Inc. (the "Company") and its shareholders by attracting and retaining key Employees and Non-Employee Directors of the Company and its subsidiaries upon whom major responsibilities rest for the successful administration and management of the Company's business, (ii) to provide such Employees and Non-Employee Directors with incentive-based compensation in the form of Company stock, which is supplemental to any other compensation or benefit plans, based upon the Company's sustained financial performance, (iii) to encourage decision making based upon long-term goals and (iv) to align the interest of such Employees and Non-Employee Directors with that of the Company's shareholders by encouraging them to acquire a greater ownership position in the Company.

        2.    Definitions.    Wherever used herein, the following terms shall have the respective meanings set forth below:

        "Award" means an award to a Participant made in accordance with the terms of the Plan.

        "Board" means the Board of Directors of the Company.

        "Committee" means the Personnel and Compensation Committee of the Board, or a subcommittee of that committee.

        "Common Stock" means the common stock of the Company.

        "Disinterested Person" means "disinterested person" as defined in Rule 16b-3 of the Securities and Exchange Commission, as amended from time to time, and, generally, means any member of the Board who is not at the time of acting on a matter, and within the previous year has not been, an officer of the Company or a subsidiary.

        "Employee" means any person employed on a full-time or part-time basis by the Company or its subsidiaries and any person who has entered into an employment agreement to become employed by the Company or a subsidiary.

        "Participant" means a key Employee of the Company or its subsidiaries who is selected by the Committee to participate in the Plan or a Non-Employee Director who is granted options under the provisions of Section 20 and/or Section 21 of the Plan.

        3.    Shares Subject to the Plan.    Subject to adjustment as provided in Section 16, the number of shares of Common Stock which shall be available and reserved for grant of Awards under the Plan shall not exceed thirty-three million four hundred thousand (33,400,000). The shares of Common Stock issued under the Plan will come from authorized and unissued shares. Shares of Common Stock subject to an Award that expires unexercised, that is forfeited, terminated or canceled, in whole or in part, shall thereafter again be available for grant under the Plan. No more than twenty per cent (20%) of all shares subject to the Plan may be granted to Participants as restricted stock.

        4.    Administration.    The Plan shall be administered by the Committee. A majority of the Committee shall constitute a quorum, and the acts of a majority shall be the acts of the Committee.

        Subject to the provisions of the Plan and except where inconsistent with the provisions of Sections 20, 21 and 22 of the Plan, the Committee shall (i) select the Participants, determine the type of Awards to be made to Participants, determine the shares subject to Awards, and (ii) have the authority to interpret the Plan, to establish, amend, and rescind any rules and regulations relating to the

1

administration of the Plan, to determine the terms and provisions of any agreements entered into hereunder, and to make all other determinations necessary or advisable for the administration of the Plan. The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan or in any Award in the manner and to the extent it shall deem desirable to carry it into effect. The determinations of the Committee in the administration of the Plan, as described herein, shall be final and conclusive.

        5.    Eligibility.    Non-Employee Directors shall become Participants under the provisions of Section 20 of the Plan and may become Participants under Section 21 of the Plan. In addition, the Committee shall select from time to time as Participants in the Plan such key Employees of the Company or its subsidiaries who are responsible for the management of the Company or a subsidiary or who are expected to contribute in a substantial measure to the successful performance of the Company. No Employee shall have at any time the right (i) to be selected as a Participant, (ii) to be entitled to an Award, or (iii) having been selected for an Award, to receive any further Awards.

        6.    Awards.    Awards under the Plan may consist of: stock options (either incentive stock options, within the meaning of Section 422 of the Internal Revenue Code, or nonstatutory stock options), Rights and restricted stock. Awards of restricted stock may provide the Participant with dividends or dividend equivalents and voting rights prior to vesting (whether based on a period of time or based on attainment of specified performance conditions).

        7.    Stock Options.    The Committee shall establish the option price, which price shall be no less than the fair market value of a share of the Common Stock, as determined by the Committee in its discretion. Stock options shall be exercisable for such period as specified by the Committee, but in no event may options become exercisable less than one year after the date of grant (unless specifically approved by the Committee to attract a key executive to join the Company and except in the case of a Change of Control) or be exercisable for a period of more than ten (10) years after their date of grant. The option price of each share as to which a stock option is exercised shall be paid in full at the time of such exercise. Such payment shall be made in cash (including check, bank draft or money order), by tender of shares of Common Stock owned by the Participant valued at fair market value as of the date of exercise, subject to such guidelines for the tender of Common Stock as the Committee may establish, in such other consideration as the Committee deems appropriate, or by a combination of cash, shares of Common Stock and such other consideration. No Participant may be granted Awards of stock options with respect to more than 20% of the shares of Common Stock subject to the Plan, subject to adjustment as provided in Section 16. The Committee may, with the consent of the Participant, cancel any outstanding stock option in consideration of a cash payment in an amount not in excess of the difference between the aggregate fair market value (on the date of such cancellation) of the shares subject to the stock option and the aggregate option price of such shares.

        8.[Intentionally Omitted.]    

        9.    Termination of Stock Options.    Each option shall terminate:

        If the Participant is then living, at the earliest of the following times:

(i)

ten (10) years after the date of grant of the option;



(ii)

ninety (90) days after termination of employment other than termination because of retirement or through discharge for cause provided, however, that if any option is not fully exercisable at the time of such termination of employment, such option shall expire on the date of such termination of employment to the extent not then exercisable unless different terms are specifically approved by the Committee in the provisions of a stock option agreement designed to attract a key executive to join the Company;



(iii)

immediately upon termination of employment through discharge for cause; or

2

(iv)

any other time set forth in the agreement describing and setting the terms of the Award, which time shall not exceed ten (10) years after the date of grant.

Notwithstanding the prior provisions of this Section 9, options held by any senior executive officer of the Company or any subsidiary who is a participant in any senior executive severance policy and whose employment is terminated in a manner that causes benefits under such a policy to become payable, shall not terminate until the earlier of three years after the date of such employment termination or ten years after the date the options were granted.

If the Participant dies while employed by the Company or any subsidiary, or if no longer so employed dies prior to termination of the entire option under Section 9 (ii) or (iii) hereof, the Participant's options and Rights shall terminate one (1) year after the date of death, but subject to earlier termination pursuant to Section 9 (i) or (iv). However, notwithstanding the provisions of Section 9 (iv), to the extent an option is exercisable on the date of the Participant's death, it shall remain exercisable until the earlier of one hundred eighty (180) days following the date of death or ten (10) years after the date of grant. To the extent an option is exercisable after the death of the Participant, it may be exercised by the person or persons to whom the Participant's rights under the agreement have passed by will or by the applicable laws of descent and distribution.

        10.    Restricted Stock.    Restricted stock may be granted in the form of actual shares of Common Stock which shall be evidenced by a certificate registered in the name of the Participant but held by the Company until the end of the restricted period. Any employment conditions, performance conditions and the length of the period for vesting of restricted stock shall be established by the Committee in its discretion. In no event will Awards of restricted stock to any one Participant total more than 2.5% of the shares of Common Stock available under this Plan during the term of the Plan, subject to adjustment as provided in Section 16. Any performance conditions applied to any Award of restricted stock may include earnings per share, net income, operating income, total shareholder return, market share, return on equity, achievement of profit or revenue targets by a business unit, or any combination thereof. No Award of restricted stock may vest earlier than one year from the date of grant (unless specifically approved by the Committee to attract a key executive to join the Company and except in the case of a Change of Control or in the event that the Participant dies, retires or terminates employment due to disability). The Committee may, on behalf of the Company, approve the purchase by the Company of any shares subject to an award of restricted stock, to the extent vested, for an amount equal to the aggregate fair market value of such shares on the date of purchase.

        11.    Term Sheets or Agreements.    Each Award under the Plan shall be evidenced by a term sheet or an agreement setting forth the terms and conditions, as determined by the Committee, which shall apply to such Award, in addition to the terms and conditions specified in the Plan.

        12.    Change of Control.    In the event of a Change of Control, as hereinafter defined, (i) the restrictions applicable to all shares of restricted stock shall lapse and such shares shall be deemed fully vested and (ii) subject to any limitations set forth in agreements documenting any stock option Awards, all stock options shall become immediately exercisable in full. The Committee may, in its discretion, include such further provisions and limitations in any agreement documenting such Awards as it may deem equitable and in the best interests of the Company.

        "Change of Control" means a change of control of the Company of a nature that would be required to be reported (assuming such event has not been "previously reported") in response to Item 1(a) of the Current Report on Form 8-K, as in effect on May 3, 1994, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934; provided that, without limitation, such a change in control shall be deemed to have occurred at such time as (a) any "person" within the meaning of Section 14(d) of

3

the Securities Exchange Act of 1934, other than the Company, a subsidiary or any employee benefit plan(s) sponsored by the Company or any subsidiary is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly, of fifty per cent (50%) or more of the Common Stock; or (b) individuals who constitute the Board on May 3, 1994, cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to May 3, 1994, whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least three quarters of the directors comprising the Board on May 3, 1994 (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination) shall be, for purposes of this clause (b), considered as though such person were a member of the Board on May 3, 1994.

        13.    Withholding.    The Company and its subsidiaries shall have the right to deduct from any payment to be made pursuant to the Plan, or to require prior to the issuance or delivery of any shares of Common Stock or the payment of cash under the Plan, any taxes required by law (whether federal, state, local or foreign) to be withheld therefrom. The Committee may, in its discretion, permit a Participant to elect to satisfy such withholding obligation by having the Company retain the number of shares of Common Stock whose fair market value equals the amount required to be withheld. Any fraction of a share of Common Stock required to satisfy such obligation shall be disregarded and the amount due shall instead be paid in cash to the Participant.

        14.    Nontransferability.    No amount payable or other right under the Plan shall be subject in any manner to alienation, sale, transfer, assignment, bankruptcy, pledge, attachment, charge or encumbrance of any kind nor in manner be subject to the debts or liabilities of any person, except by will or the laws of descent and distribution, and any attempt to so alienate or subject any such amount, whether presently or thereafter payable, or any such right shall be void.

        Notwithstanding the foregoing, a Participant who is a current or former Director of the Company may, upon notice to the Company's Corporate Secretary, transfer nonstatutory stock options through gift or a domestic relations order to (i) a Family Member (as defined below), (ii) a trust in which the Participant and/or the Participant's Family Members have more than fifty percent of the beneficial interest, (iii) a foundation in which the Participant and/or the Participant's Family Members control the management of assets, or (iv) any other entity in which the Participant and/or the Participant's Family Members own more than fifty percent of the voting interest. A sale or other transfer of a nonstatutory stock option for value shall not be treated as a "gift" for purposes of this paragraph; provided, however, that neither of the following types of transfers shall be treated as a prohibited transfer for value: (1) a transfer under a domestic relations order, and (2) a transfer to an entity described in clause (iv) of the preceding sentence in exchange for an interest in such entity.

        For purposes of the preceding paragraph, a "Family Member" means any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law of the Participant (including any adoptive relationships) and any person sharing the Participant's household (other than a tenant or employee of the Participant).

        15.    No Right to Employment.    No person shall have any claim or right to be granted an Award, and the grant of an Award shall not be construed as giving a Participant the right to continue in the employ of the Company or its subsidiaries. Further, the Company and its subsidiaries expressly reserve the right at any time to dismiss a Participant without any liability, or any claim under the Plan, except as provided herein or in any agreement entered into hereunder.

        16.    Adjustment of and Changes in Common Stock.    In the event of any stock dividend or split, recapitalization, merger, consolidation, spin-off, combination or exchange of shares or other change in the corporate structure or shares of stock of the Company, or any distributions to common shareholders other than regular cash dividends, the Committee may make such substitution or

4

adjustment, if any, as it deems to be equitable, as to the number or kind of shares of Common Stock or other securities issued or reserved for issuance pursuant to the Plan and to outstanding Awards.

        17.    Amendment.    The Board may amend, suspend or terminate the Plan or any portion thereof at any time, provided that (i) no amendment shall be made without stockholder approval if such approval is necessary in order for the Plan to continue to comply with Rule 16b-3 under the Securities Exchange Act of 1934 and (ii) no amendment, suspension or termination may adversely affect any outstanding Award without the consent of the Participant to whom such Award was made.

        18.    Governing Law.    The Plan shall be construed and its provisions enforced and administered in accordance with the laws of the State of Minnesota.

        19.    Effective Date.    The Plan shall be effective as of May 4, 1994. Subject to earlier termination pursuant to Section 17, the Plan shall have a term of ten (10) years from its effective date.

        20.    Automatic Grant to Non-Employee Directors.    Commencing with the first meeting of the Board in November 1998, each year on the date of the first meeting of the Board in November of each such year, each Non-Employee Director who is a director of the Company as of such date shall, without any Committee action, automatically be granted a stock option to purchase six thousand (6000) shares of Common Stock (subject to adjustment upon changes in capitalization of the Company as provided in Section 16 of the Plan). Each such option shall be evidenced by and subject to the provisions of an agreement setting forth the terms described in Section 22 and such additional terms of the Plan as are not inconsistent with the terms of Section 22.

        21.    Discretionary Grant to Non-Employee Directors.    The Board may, subsequent to the effective date of the Plan, permit Non-Employee Directors to choose to receive all or a portion of their basic annual retainer in the form of stock options valued in accordance with a method deemed appropriate by the Committee. Each such option shall be evidenced by and subject to the provisions of an agreement setting forth the terms described in Section 22 and such additional terms of the Plan as are not inconsistent with the terms of Section 22.

        22.    Non-Employee Director Options.    Options granted pursuant to Section 20 or 21 shall have an exercise price per share equal to 100% of the fair market value of one (1) share of Common Stock on the date the option is granted, shall become exercisable in full one (1) year after the date of grant, and shall remain exercisable until terminated in accordance with Section 9 of the Plan, provided that (i) Section 9(iii) shall be applied without regard to the words "or through discharge for cause," (ii) Sections 9(iv) and (v) shall not be applicable and (iii) references in Section 9 to "employment" and "termination of employment" shall, for the purposes of Sections 20 and 21, refer to "service as a director" and "termination of service as a director."

        Payment of the exercise price of the shares to be purchased under options granted under Sections 20 and 21 must be made in cash only (including check, bank draft or money order) at the time of exercise of such option.

        The provisions of Sections 20 and 21 shall control with respect to options granted under either Section 20 or 21, respectively, over any other inconsistent provisions of the Plan. It is intended that the provisions of Sections 20 and 21 shall not cause the Non-Employee Directors to cease to be considered Disinterested Persons and, as a result, the provisions of Sections 20 and 21 shall be interpreted to be consistent with the foregoing intent.

        Non-Employee Directors may not be granted options under the Plan other than pursuant to the provisions of Sections 20 and 21. No Rights may be granted to Non-Employee Directors.

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Exhibit 10(f)

THE ST. PAUL COMPANIES, INC. AMENDED AND RESTATED 1994 STOCK INCENTIVE PLAN

EX-11

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EXHIBIT 11

THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES

Computation of Earnings Per Common Share
(In millions, except per share amounts)

			Twelve Months Ended December 31,
			2001			2000			1999
EARNINGS:
	Basic:
	Net income (loss), as reported		$	(1,088	)	$	993		$	834
	Preferred stock dividends, net of taxes			(9	)		(8	)		(8	)
	Premium on preferred shares redeemed			(8	)		(11	)		(4	)
		Net income (loss) available to common shareholders	$	(1,105	)	$	974		$	822
	Diluted:
	Net income (loss) available to common shareholders		$	(1,105	)	$	974		$	822
	Effect of dilutive securities:
		Convertible preferred stock		—			6			6
		Zero coupon convertible notes		—			3			3
		Convertible monthly income preferred securities		—			5			8
		Net income (loss) available to common shareholders	$	(1,105	)	$	988		$	839
COMMON SHARES
	Basic:
	Weighted average shares outstanding			212			217			228
	Diluted:
	Weighted average shares outstanding			212			217			228
	Effect of dilutive securities:
		Stock options		—			3			2
		Convertible preferred stock		—			7			7
		Zero coupon convertible notes		—			2			2
		Convertible monthly income preferred securities		—			4			7
		Weighted average, as adjusted		212			233			246
EARNINGS (LOSS) PER COMMON SHARE:
	Basic			(5.22	)		4.50			3.61
	Diluted			(5.22	)		4.24			3.41

        The assumed conversion of preferred stock and zero coupon notes are each anti-dilutive to our net loss per share for the year ended Dec. 31, 2001, and therefore are not included in our Earnings per Share calculation. The convertible monthly preferred securities were fully converted or redeemed during 2000.

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EXHIBIT 11

THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES Computation of Earnings Per Common Share (In millions, except per share amounts)

EX-12

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EXHIBIT 12

THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES

Computation of Ratios
(In millions, except ratios)

			Twelve Months Ended December 31,
			2001			2000		1999		1998		1997
EARNINGS:
Income (loss) from continuing operations before income taxes and cumulative effect of accounting change			$	(1,431	)	$	1,401	$	951	$	100	$	1,356
Add: fixed charges				173			174		175		153		150
		Income (loss) as adjusted	$	(1,258	)	$	1,575	$	1,126	$	253	$	1,506
FIXED CHARGES AND PREFERRED DIVIDENDS:
Fixed charges:
	Interest expense and amortization		$	112		$	116	$	99	$	75	$	87
	Distributions on redeemable preferred securities			33			31		36		38		33
	Rental expense(1)			28			27		40		40		30
		Total fixed charges		173			174		175		153		150
Preferred stock dividend requirements				14			15		16		13		20
		Total fixed charges and preferred stock dividend requirements	$	187		$	189	$	191	$	166	$	170
Ratio of earnings to fixed charges(2)				—			9.03		6.43		1.65		10.06
Ratio of earnings to combined fixed charges and preferred stock dividend requirements(2)				—			8.32		5.88		1.52		8.88

(1)

Interest portion deemed implicit in total rent expense. Amount for 1999 includes an $11 million provision representative of interest included in charge for future lease buy-outs recorded as a result of The St. Paul's cost reduction program. Amount for 1998 includes an $11 million provision representative of interest included in charge for future lease buy-outs recorded as a result of The St. Paul's merger with USF&G Corporation.

(2)

The 2001 loss is inadequate to cover "fixed charges" by $1.43 billion and "combined fixed charges and preferred stock dividends" by $1.45 billion.

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EXHIBIT 12

THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES Computation of Ratios (In millions, except ratios)

EX-13

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Exhibit 13

Management's Discussion and Analysis

Consolidated Overview

Terrorist attack, reserve charges lead to record loss in 2001; insurance operations restructured to focus on core strengths

The St. Paul suffered the largest loss in its 149-year history in 2001, driven by unprecedented losses from one event—the Sept. 11 terrorist attack—and provisions to strengthen loss reserves in certain segments of its business. At the end of the year, senior management announced sweeping initiatives aimed at positioning the company for 2002 and beyond.

        The following table summarizes our results for each of the last three years.

			Year Ended December 31
			2001			2000			1999
			(In Millions, Except Per Share Data)
Pretax income (loss):
	Property-liability insurance		$	(1,400	)	$	1,467		$	971
	Asset management			142			135			123
	Parent company and other operations			(173	)		(201	)		(143	)
		Pretax income (loss) from continuing operations		(1,431	)		1,401			951
Income tax expense (benefit)				(422	)		431			219
		Income (loss) from continuing operations before cumulative effect of accounting change		(1,009	)		970			732
Cumulative effect of accounting change, net of taxes				—			—			(27	)
	Income (loss) from continuing operations			(1,009	)		970			705
Discontinued operations, net of taxes				(79	)		23			129
		Net income (loss)	$	(1,088	)	$	993		$	834
		Per share (diluted)	$	(5.22	)	$	4.24		$	3.41

        Our consolidated $1.4 billion pretax loss from continuing operations in 2001 was driven by $941 million of losses resulting from the terrorist attack, provisions to strengthen prior-year loss reserves in our Health Care segment totaling $735 million, realized investment losses of $94 million, goodwill write-downs totaling $73 million and restructuring charges of $62 million. All of these factors are discussed in detail in the following pages. On the strength of record-high product sales and a strategic acquisition, The John Nuveen Company, our majority-owned asset management subsidiary, posted its seventh consecutive year of record earnings in 2001. The decline in the "parent company and other operations" pretax loss in 2001 resulted from a reduction in executive management stock compensation expense related to our variable stock option grants.

        In 2000, the $450 million growth in pretax income from continuing operations was driven by a significant increase in realized investment gains and an improvement in property-liability underwriting results. Our property-liability results in 2000 and 1999, and, to a lesser extent 2001, included benefits from aggregate excess-of-loss reinsurance treaties, as described on pages 18 and 19 of this report. The increase in the "parent company and other operations" pretax loss in 2000 was largely due to an increase in advertising and interest expenses and expenses associated with our variable stock option grants.

CONSOLIDATED REVENUES

        The following table summarizes the sources of our consolidated revenues from continuing operations for the last three years.

		Year Ended December 31
		2001			2000			1999
		(In Millions)
Revenues:
Insurance premiums earned		$	7,296		$	5,592		$	5,103
Net investment income			1,217			1,262			1,259
Realized investment gains (losses)			(94	)		632			286
Asset management			359			356			340
Other			165			130			161
	Total revenues	$	8,943		$	7,972		$	7,149
	Change from prior year		12	%		12	%

        The 12% growth in revenues in both 2001 and 2000 was centered in our property-liability operations, where price increases, strong business retention rates and new business in several segments were the primary factors driving the increase in insurance premiums earned. Net investment income in 2001 declined from prior-year levels due to a decline in assets invested and reduced yields on new investments in recent years. Our fixed maturities and venture capital portfolios accounted for the majority of realized investment losses in 2001. In 2000, realized gains were unusually high due to strong returns generated by our venture capital holdings.

FORWARD-LOOKING STATEMENT DISCLOSURE

        This discussion contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements other than historical information or statements of current condition. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks" or "estimates," or variations of such words, and similar expressions are intended to identify forward-looking statements. Examples of these forward-looking statements include statements concerning: market and other conditions and their effect on future premiums, revenues, earnings, cash flow and investment income; price increases, improved loss experience, and expense savings resulting from the restructuring and other actions and initiatives announced in recent years.

        In light of the risks and uncertainties inherent in future projections, many of which are beyond our control, actual results could differ materially from those in forward-looking statements. These statements should not be regarded as a representation that anticipated events will occur or that expected objectives will be achieved. Risks and uncertainties include, but are not limited to, the following: competitive considerations, including the ability to implement price increases and possible actions by competitors; general economic conditions, including changes in interest rates and the performance of financial markets; changes in domestic and foreign laws, regulations and taxes; changes in the demand for, pricing of, or supply of insurance or reinsurance; catastrophic events of unanticipated frequency or severity; loss of significant customers; the possibility of worse-than-anticipated loss development from business written in prior years; changes in our estimate of insurance industry losses resulting from the Sept. 11, 2001 terrorist attack; the potential impact of the global war on terrorism and Federal solutions to make available insurance coverage for acts of terrorism; judicial decisions and rulings; anticipated increases in premiums; and various other matters. We undertake no obligation to release publicly the results of any future revisions we may make to forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

SEPTEMBER 11, 2001 TERRORIST ATTACK

        On Sept. 11, 2001, terrorists hijacked four commercial passenger jets in the United States. Two of the jets were flown into the World Trade Center towers in New York, N.Y., causing their collapse. The third jet was flown into the Pentagon building in Washington, D.C., causing severe damage, and the fourth jet crashed in rural Pennsylvania. This terrorist attack caused significant loss of life and resulted in unprecedented losses for the property-liability insurance industry. Our estimated net pretax loss incurred as a result of the terrorist attack totaled $941 million, consisting of the following components.

		Year Ended December 31 2001
		(In Millions)
Gross loss and loss adjustment expenses		$	2,299
Provision for uncollectible reinsurance			47
Reinsurance recoverables			(1,231	)
Additional and reinstatement premiums			(83	)
Reduction in reinsurance contingent commission expense			(91	)
	Total estimated pretax operating loss	$	941

        Our estimated losses were based on a variety of actuarial techniques, coverage interpretations and claims estimation methods. They included an estimate of losses incurred but not reported to us, and an estimate of costs related to the settlement of claims.

        Our estimate of losses is also based on our belief that property-liability insurance losses from the terrorist attack will total between $30 billion and $35 billion for the insurance industry. Our estimate of industry losses is subject to significant uncertainties and may change over time as additional information becomes available. A material increase in our estimate of industry losses would likely cause us to make a corresponding material increase to our provision for losses related to the attack.

        As of Dec. 31, 2001, the majority of our total reinsurance recoverables are from companies with ratings of A- or better, or from state-sponsored reinsurance programs or collateralized reinsurance programs.

        The estimated net pretax loss of $941 million related to the terrorist attack was distributed among our property-liability business segments as follows.

		Year Ended December 31 2001
		(In Millions)
Specialty Commercial		$	89
Commercial Lines Group			108
Surety and Construction			2
Health Care			5
Lloyd's and Other			181
	Total Primary Insurance		385
Reinsurance			556
	Total	$	941

        In the Specialty Commercial and Commercial Lines Group segments, property damage and business interruption coverages were the primary sources for losses incurred. Estimated losses in our Lloyd's and Other segment were centered in our operations at Lloyd's, where we were a participant in an aviation syndicate that provided property coverage on the four planes involved in the terrorist attack. This segment also included $50 million of estimated losses resulting from our participation in the insuring of the Lloyd's Central Fund, which is utilized if an individual member of Lloyd's is unable to pay its share of a syndicate's losses. At Dec. 31, 2001, we had not received notice of claims against the Central Fund.

WITHDRAWAL FROM CERTAIN LINES OF BUSINESS AND RELATED GOODWILL WRITE-DOWN

        In the fourth quarter of 2001, we announced our intention to withdraw from several businesses in our property-liability operations in a strategic effort to focus on those lines of business and market sectors that we believe offer the greatest potential for 2002 and thereafter. Beginning in January 2002, the operations listed below were placed in "runoff," which means that we have ceased or plan to cease underwriting new business in these operations as soon as possible. We are pursuing the sale of certain operations placed in runoff. We will continue to maintain appropriate levels of staff to administer the settlement of claims incurred in these runoff operations.

•

All coverages in our Health Care segment.



•

All underwriting operations in Germany, France, the Netherlands, Argentina, Mexico (excluding surety business, which will continue), Spain, Australia, New Zealand, Botswana and South Africa.



•

In the United Kingdom, all coverages offered to the construction industry. (Unionamerica, a United Kingdom medical liability underwriting entity that we acquired in 2000, was placed in runoff in late 2000, except for business we are contractually committed to underwrite through Lloyd's through 2004.)



•

At Lloyd's, casualty insurance and reinsurance, U.S. surplus lines business, non-marine reinsurance and, when our contractual commitment expires at the end of 2003, our participation in the insuring of the Lloyd's Central Fund.



•

In our reinsurance operations, most North American reinsurance business underwritten in the United Kingdom, all but traditional finite reinsurance business underwritten by St. Paul Re's Financial Solutions business center, bond and credit reinsurance, and aviation reinsurance.

        These operations collectively accounted for $1.61 billion, or 22%, of our net earned premiums, and generated negative underwriting results totaling $1.5 billion, in 2001 (an amount that does not include investment income from the assets maintained to support these operations). They do not qualify as "discontinued operations" for accounting purposes; therefore, results from these operations are included in their respective property-liability segment results discussed on pages 21 to 28 of this report, and will continue to be reported in those segments during the runoff periods.

        In connection with these strategic actions, we wrote off $73 million of goodwill in the fourth quarter of 2001 related to businesses to be exited. Approximately $56 million of the write-off related to MMI Companies, Inc. ("MMI"), $10 million related to operations at Lloyd's and the remainder related to our operations in Spain and Australia.

2001 RESTRUCTURING CHARGE

        In December 2001, in connection with our withdrawal from the foregoing businesses and as part of our overall plan to reduce company-wide expenses, we announced plans to terminate approximately 1,200 employee positions and reduce the amount of office space we lease. Of the total positions to be eliminated, approximately 650 are located in offices outside of the U.S. (most of which will be closed), approximately 300 are in our Health Care segment (which has been placed in runoff), and the remaining 250 positions are spread throughout our domestic operations. In connection with these actions, we recorded a pretax restructuring charge of $62 million in the fourth quarter of 2001. The charge included the following components.

•

$46 million of employee-related costs, representing severance and related benefits to be paid to, or incurred on behalf of, the estimated total of 800 employees expected to be terminated by the end of 2002. (Costs associated with the remaining 400 employees were not included in the restructuring charge because those employees will either be terminated after 2002, or are employed by one of the operations that may be sold.)

•

$9 million of occupancy-related costs, representing excess office space estimated to be created by the employee terminations.



•

$4 million of equipment costs, representing the net carrying value of computer and other equipment no longer necessary after terminating employees and vacating office space.



•

$3 million of legal costs, representing our estimated fees payable to outside counsel to obtain regulatory approval to exit certain states and countries.

        No payments were made related to these restructuring actions in 2001. These charges were recorded in our 2001 results as follows: $42 million in property-liability insurance operations and $20 million in "parent company and other operations."

        During 2002, we expect to incur additional employee-related expenses of approximately $9 million related to the 800 employee positions to be terminated in 2002 when we meet the requirements to accrue these expenses.

DISCONTINUED OPERATIONS

        In September 2001, we completed the sale of Fidelity and Guaranty Life Insurance Company ("F&G Life") to Old Mutual plc ("Old Mutual"), a London-based international financial services company. Also in September, we sold American Continental Life Insurance Company ("ACLIC"), a small life insurance company we had acquired in 2000 as part of our purchase of MMI, to CNA Financial Corporation ("CNA"). In May 2000, we completed the sale of our nonstandard auto insurance operations to Prudential Insurance Company of America ("Prudential"). In 1999, we sold our standard personal insurance operations to Metropolitan Property and Casualty Insurance Company ("Metropolitan"). Prior to 1999, we sold our insurance brokerage operation, Minet Holdings plc ("Minet"). The results of the operations sold are reflected as discontinued operations for all periods presented in this report.

        The following table presents the components of discontinued operations reported in our consolidated statement of operations for each of the last three years.

				Year ended December 31
				2001			2000			1999
				(In millions)
LIFE INSURANCE:
	Operating income, net of taxes			$	19		$	43		$	44
	Loss on disposal, net of taxes				(74	)		—			—
		Total life insurance			(55	)		43			44
NONSTANDARD AUTO INSURANCE:
	Operating income, net of taxes				—			—			13
	Loss on disposal, net of taxes				(5	)		(9	)		(83	)
		Total nonstandard auto insurance			(5	)		(9	)		(70	)
STANDARD PERSONAL INSURANCE:
	Operating loss, net of taxes				—			—			(22	)
	Gain (loss) on disposal, net of taxes				(13	)		(11	)		177
		Total standard personal insurance			(13	)		(11	)		155
MINET:
	Loss on disposal, net of taxes				(6	)		—			—
		Total Minet			(6	)		—			—
			Total Discontinued Operations	$	(79	)	$	23		$	129

        Life Insurance—Under terms of the F&G Life sale agreement, we received $335 million in cash and 190,356,631 ordinary shares of Old Mutual valued at $300 million based on the average closing price of Old Mutual shares on the London Stock Exchange for the ten consecutive trading days prior to Sept. 27, 2001. In accordance with the sale agreement, pretax sales proceeds were reduced by approximately $12 million, due to a decrease in the market value of certain securities in F&G Life's investment portfolio between March 31, 2001 and the closing date of Sept. 28, 2001.

        Pursuant to the sale agreement, we must hold the Old Mutual shares for one year from the closing date. The consideration is subject to possible adjustment, by means of a collar embedded in the sale agreement, based on the market value of our Old Mutual shares at the end of that one-year period. If the market value exceeds $330 million at that time, we will be required to remit to Old Mutual either cash or Old Mutual shares in the amount representing the excess over $330 million. If the market value is less than $300 million, we will receive cash or Old Mutual shares in the amount representing the deficit below $300 million, up to a maximum of $40 million. At Dec. 31, 2001, the market value of the Old Mutual shares was $242 million. The $58 million decline in market value was recorded as a component of unrealized appreciation of investments, net of tax, in shareholders' equity. The impact of this unrealized loss was mitigated by the collar, which was estimated to have a fair value of $17 million at Dec. 31, 2001. That amount was recorded in our statement of operations in discontinued operations.

        We realized a net after-tax loss of $73 million on the sale proceeds. When the sale agreement with Old Mutual was announced in April 2001, we expected to realize a modest pretax gain on the sale when proceeds were combined with F&G Life's operating results through the disposal date. However, a decline in the market value of certain F&G Life investments between the April announcement date and the September closing date, coupled with a change in the anticipated tax treatment of the sale, resulted in the net after-tax loss on the sale proceeds. That loss is combined with F&G Life's results of operations prior to sale for an after-tax loss of $54 million and is included in the reported loss from discontinued operations for the year ended Dec. 31, 2001.

        For the sale of ACLIC, we received cash proceeds of $21million from CNA, and we recorded a net after-tax loss on the sale of $1 million.

        Nonstandard Auto Insurance—Prudential purchased our nonstandard auto insurance business marketed under the Victoria Financial and Titan Auto brands for $175 million in cash (net of a $25 million dividend paid by these operations to our property-liability insurance operations prior to closing). We recorded an estimated after-tax loss of $83 million on the sale in 1999, representing the estimated excess of carrying value of these entities at closing date over proceeds to be received from the sale, plus estimated income through the disposal date. This excess primarily consisted of goodwill. We recorded an after-tax loss on disposal of $9 million in 2000, primarily representing additional losses incurred through the disposal date in May, and an additional after-tax loss on disposal of $5 million in 2001, primarily representing tax adjustments made to the sale transaction.

        Standard Personal Insurance—Metropolitan purchased our standard personal insurance business operated out of Economy Fire & Casualty Company and subsidiaries ("Economy"), and the rights and interests in those non-Economy policies constituting the remainder of our standard personal insurance operations. Those rights and interests were transferred to Metropolitan by way of a reinsurance and facility agreement. We guaranteed the adequacy of Economy's loss and loss expense reserves, and we remain liable for claims on non-Economy policies that result from losses occurring prior to the Sept. 30, 1999 closing date. Under the reserve guarantee, we will pay for any deficiencies in those reserves and will share in any redundancies that develop by Sept. 30, 2002. Any losses incurred by us under these agreements are reflected in discontinued operations in the period during which they are incurred. As of Dec. 31, 2001, our analysis indicated that we will owe Metropolitan approximately $7 million on these guarantees, and we recorded a pretax expense equal to that amount in 2001 discontinued operations. We also recorded a pretax loss of $14 million in 2001 related to pre-sale claims. We have no other contingent liabilities related to this sale.

        Minet—In 1997, we sold Minet to Aon Corporation. We recorded a $9 million pretax expense in discontinued operations in 2001 related to the Minet sale, representing additional funds due Aon pursuant to provisions of the 1997 sale agreement.

ELIMINATION OF ONE-QUARTER REPORTING LAGS

        In 2001, we eliminated the one-quarter reporting lag for our primary underwriting operations in foreign countries (not including our operations at Lloyd's), and now report the results of those operations on a current basis. As a result, our consolidated results for 2001 include their results for the fourth quarter of 2000 and all quarters of 2001. The incremental impact on our property-liability operations of eliminating the reporting lag, which consists of the results of these operations for the three months ended Dec. 31, 2001, was as follows.

	Year Ended December 31 2001
	(In Millions)
Net written premiums	$	71
Net earned premiums		86
GAAP underwriting loss		(45	)
Net investment income		14
Total pretax loss		(31	)

        In 2000, we eliminated the one-quarter reporting lag for our reinsurance operations based in the United Kingdom ("St. Paul Re—UK"). As a result, our consolidated results for 2000 include St. Paul Re—UK's results for the fourth quarter of 1999 and all of 2000. The incremental impact on our

operations of eliminating the reporting lag, which consists of St. Paul Re—UK's results for the three months ended Dec. 31, 2000, was as follows.

	Year Ended December 31 2000
	(In Millions)
Net written premiums	$	7
Net earned premiums		51
GAAP underwriting loss		(10	)
Net investment income		11
Total pretax income		1

ACQUISITIONS

        In December 2001, we purchased the right to seek to renew surety bond business previously underwritten by Fireman's Fund Insurance Company ("Fireman's Fund"), without assuming past liabilities. We paid Fireman's Fund $10 million in consideration, which we recorded as an intangible asset and which we expect to amortize over ten years. We may be obligated to make additional payments to Fireman's Fund in early 2003 based on the volume of business we ultimately renew in 2002, which would increase the intangible asset recorded.

        In January 2001, we acquired the right to seek to renew a book of municipality insurance business from Willis North America Inc. for a total consideration of $3.5 million. The cost was recorded as an intangible asset and is expected to be amortized over five years.

        In April 2000, we acquired MMI, an international health care risk services company that provides integrated products and services in operational consulting, clinical risk management, and insurance in the U.S. and London markets. The acquisition was accounted for as a purchase for a total cost of approximately $206 million in cash and the assumption of $165 million of MMI debt and preferred securities. Final purchase price adjustments resulted in an excess of purchase price over net tangible assets acquired of approximately $85 million. (Approximately $56 million of the $64 million remaining unamortized balance of that asset was written off in the fourth quarter of 2001 after our decision to exit the medical liability insurance market.) We recorded a pretax charge of $28 million related to the purchase, consisting of $24 million of occupancy-related costs for leased space to be vacated and $4 million of employee-related costs for the anticipated elimination of approximately 130 positions.

        The results of MMI's domestic U.S. operations are reported in our Health Care segment and the results of MMI's U.K.-based operation, Unionamerica Acquisition Company Limited ("Unionamerica"), are included in our Lloyd's and Other segment.

        In February 2000, we acquired Pacific Select Insurance Holdings, Inc. ("Pacific Select"), a California company that sells earthquake insurance coverages to homeowners in that state. We accounted for the acquisition as a purchase at a cost of approximately $37 million, of which approximately $11 million represented the excess of purchase price over net tangible assets acquired that we are amortizing over ten years. Pacific Select's results of operations from the date of acquisition are included in the Catastrophe Risk business center of our Specialty Commercial segment.

REVISIONS TO BUSINESS SEGMENT STRUCTURE

        In December 2001, following a strategic review of our businesses, we implemented a new segment reporting structure for our property-liability insurance business.

        The new structure is more closely aligned with the internal management of these businesses and is based on our definition of a "specialty commercial" business center as one that possesses dedicated underwriting, claims and risk control services requiring specialized expertise and focusing exclusively on the customers it serves. As a result, we have combined 11 business centers sharing those characteristics to form our Specialty Commercial reportable segment. None of these business centers alone meets the

quantitative threshold to qualify as a separate reportable segment; therefore they are combined based on the applicable aggregation criteria. The following summarizes the changes made to our reporting structure.

•

The Catastrophe Risk, Transportation and National Programs business centers, formerly components of our Commercial Lines Group segment, were designated specialty operations and are reported as components of the Specialty Commercial segment.



•

The Construction business center, formerly a component of the prior Other Specialty segment, was combined with our existing Surety segment to form a new Surety and Construction segment. The shared customer base and executive management of these operations, along with the similarity in expertise required, provided the basis for this combination.



•

The International Specialty business center, previously reported in our International segment, is now reported in our Specialty Commercial segment. The majority of these operations were placed in runoff at the end of 2001.



•

We no longer report a separate International segment, but rather report a Lloyd's and Other segment, which is comprised of our operations at Lloyd's, MMI's U.K.-based subsidiary, Unionamerica (placed in runoff in 2000 except for certain Lloyd's business that Unionamerica is contractually obligated to continue writing through 2004), and our involvement in the insuring of the Lloyd's Central Fund (to cease at the end of 2003 upon the expiration of current contractual commitments).



•

Discover Re, previously reported in our Reinsurance segment, is included in the Specialty Commercial segment. This business center serves the alternative risk transfer market, which consists primarily of sophisticated insureds who are financially able to assume a substantial portion of their own losses.

        The Health Care segment, placed in runoff at the end of 2001, remains a separate reportable segment. All data for 2000 and 1999 included in this report was restated to be consistent with the new reporting structure in 2001.

ENRON CORPORATION BANKRUPTCY

        In December 2001, we announced that our aggregate limits of net insurance exposure related to Enron Corporation's bankruptcy was approximately $83 million on an after-tax basis ($128 million on a pretax basis). Our net exposure is spread throughout our property-liability underwriting segments, but is concentrated in coverages for gas supply bonds in our Surety and Construction segment. We believe that our actual losses will be substantially less than our total exposure. Our underwriting results in 2001 included pretax incurred losses of $22 million related to the Enron bankruptcy. That amount included no provision for losses on the gas supply bonds.

        In addition, we hold in our investment portfolio Enron Corporate Senior Unsecured Debt with a par value of $23 million. Subsequent to Enron's declaration of bankruptcy, we recorded a $19 million write-down in the carrying value of these investments, which was recorded as a realized investment loss.

ADOPTION OF SFAS NO. 133

        On Jan. 1, 2001, we adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS Nos. 137 and 138. Provisions of SFAS No. 133 require the recognition of derivatives as either assets or liabilities on the balance sheet and the measurement of those instruments at fair value. We have limited involvement with derivative instruments, primarily for purposes of hedging against fluctuations in foreign currency exchange rates and interest rates. We also have entered into a variety of other financial instruments considered to be derivatives, but which are not designated as hedges, that we utilize to minimize the potential impact of market movements in certain investment portfolios. Our

adoption of SFAS No. 133, as amended, did not have a material impact on our financial position or results of continuing operations.

CUMULATIVE EFFECT OF ACCOUNTING CHANGE

        Our net income in 1999 included a pretax expense in continuing operations of $41 million ($27 million after-tax), representing the cumulative effect of adopting the AICPA's Statement of Position ("SOP") 97-3, "Accounting by Insurance and Other Enterprises for Insurance-Related Assessments." The SOP provides guidance for recognizing and measuring liabilities for guaranty and other insurance-related assessments. In the third quarter of 1999, the State of New York enacted a law that changed its assessment method from a loss-based method to a written premium-based method. As a result, we reduced our previously recorded pretax accrual by $12 million, which was recorded in income from continuing operations in 1999. The accrual is expected to be disbursed as assessed during a period of up to 30 years.

CRITICAL ACCOUNTING POLICIES

        Overview—The St. Paul Companies, Inc. is a holding company with subsidiaries operating in the property-liability insurance industry and the asset management industry. We combine our financial statements with those of our subsidiaries and present them on a consolidated basis in accordance with U.S. generally accepted accounting principles.

        We make estimates and assumptions that can have a significant effect on the amounts that we report in our financial statements. The most significant estimates relate to our reserves for property-liability insurance losses and loss adjustment expenses. We continually review and analyze our estimates, but actual results may turn out to be significantly different than we expected when the estimates were made.

        In our investment portfolio, we monitor the difference between our cost and the estimated fair value of investments. If any of these investments experience a decline in value that we believe is other than temporary, we write down the investment for the decline and record a realized loss on our statement of operations.

        Property-Liability Operations—Premiums on insurance policies we sell are our largest source of revenue, and we recognize the premiums as revenue evenly over the term of the policy. Our insurance reserves are our largest liability, and reflect our estimate of claims reported but not yet paid, and claims incurred but not yet reported to us. The costs related to writing a policy are amortized over the same period the related premiums are recognized as revenue.

        Reinsurance accounting is followed when risk transfer requirements have been met. These requirements involve significant assumptions being made related to the amount and timing of expected cash flows, as well as the interpretation of the underlying contract terms.

        Asset Management Operations—We are the 77% owner of The John Nuveen Company, which comprises our asset management segment. We consolidate 100% of Nuveen's revenues, expenses, assets and liabilities, with reductions on the statement of operations and balance sheet for minority shareholders' proportionate interest in Nuveen's earnings and equity.

        In the following pages we provide a detailed discussion of 2001 results produced by our six business segments that underwrite property-liability insurance and provide related services for particular market sectors. We also review the performance of our property-liability underwriting operations' investment segment. After the property-liability discussion, we discuss the results of our asset management segment.

        In the property-liability underwriting discussions, we sometimes use the term "prior-year loss development," (or similar terms) which refers to an increase or decrease in losses recorded in the current calendar year which relate to business underwritten in prior years. Similarly, we sometimes refer to "current-year loss development" or "current accident year loss activity," which refer to losses recorded on business written in the current year.

Property-liability Insurance Overview

Terrorist attack and reserve provisions lead to underwriting losses in excess of $2 billion; decision made to exit several businesses

Losses incurred from the terrorist attack on Sept. 11 and provisions to strengthen prior-year loss reserves, particularly in our Health Care segment, dominated our underwriting results in 2001. In addition, several businesses throughout our primary and reinsurance underwriting operations continued to underperform in 2001, prompting our decision to exit those businesses. Price increases in our U.S. underwriting operations averaged over 16% in 2001, and those increases accelerated in the fourth quarter in the aftermath of the terrorist attack.

WRITTEN PREMIUMS

        The following table summarizes our reported written premiums for the last three years.

	Year Ended December 31
	2001			2000			1999
	(Dollars in Millions)
Net written premiums	$	7,763		$	5,884		$	5,112
Percentage increase over prior year		32	%		15	%

        Our reported totals for these years included reductions of $128 million, $474 million and $273 million in 2001, 2000 and 1999, respectively, for premiums ceded under specific reinsurance treaties described in more detail below. In addition, the 2001 and 2000 totals included $71 million and $7 million, respectively, of incremental premiums from the elimination of the one-quarter lag in reporting certain international business discussed on pages 15 and 16 of this report. Excluding these factors, our adjusted premium total of $7.82 billion in 2001 was 23% higher than the 2000 adjusted total of $6.35 billion, and the adjusted 2000 total was 18% higher than the adjusted 1999 total of $5.38 billion. The increases in both 2001 and 2000 were driven by price increases and new business opportunities throughout most of our business segments. In addition, our acquisition of MMI in 2000 accounted for $197 million of the premium growth over 1999.

GAAP UNDERWRITING RESULT

        The GAAP underwriting result is a common measurement of a property-liability insurer's performance, representing premiums earned less losses incurred and underwriting expenses. The statutory combined ratio, representing the sum of the loss ratio and expense ratio, is also a common measure of underwriting performance. The lower the ratio, the better the result. The following table summarizes our reported underwriting results and combined ratios for the last three years.

		Year Ended December 31
		2001			2000			1999
		(Dollars in Millions)
GAAP underwriting result		$	(2,294	)	$	(309	)	$	(425	)
Loss and loss adjustment expense ratio			102.5			70.0			72.9
Underwriting expense ratio			28.1			34.8			35.0
	Statutory combined ratio		130.6			104.8			107.9

        Our reported underwriting result in 2001 was dominated by the $941 million in net pretax losses from the terrorist attack and a cumulative provision of $735 million to strengthen prior-year loss reserves in our Health Care segment. Underwriting results in all three years were affected by our participation in separate aggregate excess-of-loss reinsurance treaties that we entered into effective on Jan. 1 of each year (hereinafter referred to as the "corporate program"). Coverage under the corporate program treaties is triggered when our incurred insurance losses and loss adjustment expenses spanning all segments of our business exceed accident year attachment loss ratios specified in the treaty. In addition, our Reinsurance segment results benefited from a separate aggregate excess-of-loss

reinsurance treaty in each year, unrelated to the corporate program. All of these treaties are collectively referred to hereafter as the "reinsurance treaties."

        Under the terms of the reinsurance treaties, we transfer, or "cede," insurance losses and loss adjustment expenses to our reinsurers, along with the related written and earned premiums. For the corporate program, we paid the ceded earned premiums shortly after coverage under the treaties was invoked, which negatively impacts our investment income in future periods because we will not recover the ceded losses and loss adjustment expenses from our reinsurer until we settle the related claims, a process that may occur over several years. For the separate Reinsurance segment treaties, we remit the premiums ceded (plus accrued interest) to our counterparty when the related losses and loss adjustment expenses are settled.

        The following table describes the combined impact of these cessions under the reinsurance treaties on our property-liability underwriting operations in each of the last three years.

			Year Ended December 31
			2001			2000		1999
			(In Millions)
CORPORATE PROGRAM:
	Ceded written premiums		$	9		$	419	$	211
	Ceded losses and loss adjustment expenses			(25	)		709		384
	Ceded earned premiums			9			419		211
		Net pretax benefit (detriment)		(34	)		290		173
REINSURANCE SEGMENT TREATY:
	Ceded written premiums			119			55		62
	Ceded losses and loss adjustment expenses			278			122		150
	Ceded earned premiums			119			55		62
		Net pretax benefit		159			67		88
COMBINED TOTAL:
	Ceded written premiums			128			474		273
	Ceded losses and loss adjustment expenses			253			831		534
	Ceded earned premiums			128			474		273
		Net pretax benefit	$	125		$	357	$	261

        We did not cede any losses to the corporate program in 2001. The $9 million written and earned premiums ceded in 2001 represent the initial premium paid to our reinsurer. Our primary purpose in entering into the corporate reinsurance treaty was to reduce the volatility in our reported earnings over time. Because of the magnitude of losses associated with the Sept. 11 terrorist attack, that purpose could not be fulfilled had the treaty been invoked to its full capacity in 2001. In addition, our actuarial analysis concluded that there would be little, if any, economic value to The St. Paul in ceding any losses under the treaty. As a result, in early 2002, we mutually agreed with our reinsurer to commute the 2001 corporate treaty for consideration to the reinsurer equaling the $9 million initial premium paid.

        The $25 million of negative ceded losses and loss adjustment expenses in 2001 in the above table represented the results of a change in estimate for losses ceded under our 2000 corporate treaty. Deterioration in our 2000 accident year loss experience in 2001 caused our expectations of the payout patterns of our reinsurer to change and led us to conclude that losses originally ceded in 2000 would exceed an economic limit prescribed in the 2000 treaty.

        The combined pretax benefit (detriment) of the reinsurance treaties was allocated to our business segments as follows.

		Year Ended December 31
		2001			2000			1999
		(In Millions)
Specialty Commercial		$	(11	)	$	107		$	32
Commercial Lines Group			40			(24	)		45
Surety and Construction			15			45			21
Health Care			(1	)		43			—
Lloyd's and Other			(18	)		59			—
	Total Primary Insurance		25			230			98
Reinsurance			100			127			163
	Total Property-Liability Insurance	$	125		$	357		$	261

        Amounts shown for 2001 include not only the allocation of the $34 million detriment from the corporate treaty described above, but also the reallocation among segments of benefits originally recorded in 2000 and 1999 related to the corporate treaties in those years. The reallocation of benefits had no net impact on reported underwriting results in 2001, but was necessary to reflect the impact of differences between actual 2001 experience on losses ceded in 2000 and 1999, by segment, and the anticipated experience on those losses in 2000 and 1999 when the initial segment allocation was made. All allocations shown for 2000 and 1999 have been reclassified among segments to be consistent with our new segment reporting structure implemented in 2001.

        The terrorist attack, reinsurance treaties and several other factors had a significant impact on our reported loss and expense ratios, as detailed in the following discussion.

        Loss Ratio—The loss ratio measures insurance losses and loss adjustment expenses incurred as a percentage of earned premiums. The following table summarizes major factors impacting our reported loss ratio in each of the last three years. The adjusted loss ratio excludes the impact of those factors and is shown to provide a clearer understanding of our underlying performance.

		Year Ended December 31
		2001		2000		1999
Reported loss ratio		102.5		70.0		72.9
	Adjustments:
	Terrorist attack	(13.9	)	—		—
	Other catastrophe losses	(2.2	)	(3.0	)	(5.0	)
	Health Care prior-year reserve provisions	(10.0	)	(4.0	)	—
	Excess-of-loss reinsurance treaties	1.6		8.2		6.2
	Adjusted loss ratio	78.0		71.2		74.1

        Catastrophe losses totaled $1.27 billion in 2001, of which $1.11 billion was due to the Sept. 11 terrorist attack. Most of the other $160 million of catastrophe losses were the result of a variety of storms throughout the year in the U.S. and the explosion of a chemical manufacturing plant in Toulouse, France. In 2000 and 1999, catastrophe losses totaled $165 million and $257 million, respectively. Additional loss development arising from severe windstorms that struck portions of Europe in late 1999 and severe flooding in the United Kingdom drove the 2000 total. Major events contributing to the 1999 total included Hurricane Floyd, earthquakes in Taiwan and Turkey, and European windstorms.

        The prior-year reserve provisions in the Health Care segment of $735 million in 2001 and $225 million in 2000 were prompted by the continuing escalation of jury awards in professional liability lawsuits against our policyholders. The decline in the impact of the reinsurance treaties in 2001

compared with the preceding two years was due to our decision not to cede losses under the 2001 corporate treaty, as discussed on page 19 of this report.

        The 6.8-point deterioration in the 2001 adjusted loss ratio compared with 2000 primarily resulted from prior-year reserve strengthening in our Surety and Construction segment in response to current economic conditions, and a reduction in favorable prior-year loss development in our Commercial Lines Group segment. In 2000, the 2.9-point improvement in the adjusted loss ratio over 1999 was primarily due to the impact of price increases and corrective underwriting initiatives in our Commercial Lines Group segment.

        Expense Ratio—The expense ratio measures underwriting expenses as a percentage of premiums written. The following table summarizes major factors impacting our reported expense ratio in each of the last three years. The adjusted expense ratio excludes the effect of those factors and is shown to provide a clearer understanding of our underlying performance.

		Year Ended December 31
		2001		2000		1999
Reported expense ratio		28.1		34.8		35.0
Adjustments:
	Terrorist attack	1.5		—		—
	Excess-of-loss reinsurance treaties	(0.5	)	(2.6	)	(1.7	)
	Adjusted expense ratio	29.1		32.2		33.3

        The 1.5-point adjustment related to the terrorist attack in our reported expense ratio represented the impact of reducing contingent commission expense by $91 million in our Reinsurance segment. The commissions, which were payable contingent on the loss experience on the reinsurance treaties to which they related, had been accrued prior to Sept. 11; however, the magnitude of our reinsurance losses from the terrorist attack resulted in the reversal of that expense accrual.

        No underwriting expenses were ceded under the reinsurance treaties; however, our reported expense ratios in all three years included effects of written premiums ceded under the reinsurance treaties. The improvement in our adjusted expense ratios in both 2001 and 2000 reflected the combined effect of significant premium growth in both years, as well as efficiencies realized throughout our underwriting operations as a result of our expense reduction initiatives over the last three years.

        Expense reduction efforts included those related to the integration of USF&G Corporation and The St. Paul subsequent to the merger of the two organizations in 1998; the restructuring of our Commercial Lines Group and Specialty Commercial segments later in 1998; and our 1999 cost reduction program. These efforts involved the consolidation of field office locations, the streamlining of our claim organization, and the combined elimination of approximately 3,300 employee positions in total, the majority of which were in our underwriting operations.

UNDERWRITING OPERATIONS' OUTLOOK FOR 2002

        We expect significant improvement in our underwriting results in 2002, due to continuing price increases and our renewed focus on opportunities emerging in the U.S. commercial insurance marketplace. We are making progress on the profit improvement strategies we announced at the end of 2001, and the business centers that form the foundation of our future are performing well. We are increasing our investment in our small commercial insurance line of business and other standard commercial lines of business that offer superior opportunities for profit. We believe our broad underwriting expertise, strong financial ratings and solid agent relationships will enable us to reap the benefits of a hardening commercial insurance market. Further, an increase in customer appreciation for risk management products and services is expanding opportunities for us to capitalize on our strengths in the marketplace.

UNDERWRITING RESULTS BY SEGMENT

        The following table summarizes written premiums, underwriting results, combined ratios and adjusted combined ratios (as described in footnote to table) for each of our property-liability underwriting business segments for the last three years. All data for 2000 and 1999 were reclassified to conform to our new segment reporting format implemented in 2001. Following the table are detailed analyses of our 2001 results and a look ahead to 2002 for each segment.

			Year Ended December 31
		% of 2001 Written Premiums
			2001			2000			1999
			(Dollars in Millions)
PRIMARY INSURANCE OPERATIONS:
Specialty Commercial
	Written premiums	27%	$	2,109		$	1,563		$	1,322
	Underwriting result		$	(181	)	$	(10	)	$	(191	)
	Combined ratio			108.6			97.9			113.6
	Adjusted combined ratio*			103.4			105.7			115.7
Commercial Lines Group
	Written premiums	20%	$	1,604		$	1,436		$	1,303
	Underwriting result		$	4		$	74		$	(189	)
	Combined ratio			98.2			94.7			113.3
	Adjusted combined ratio*			94.2			92.9			115.9
Surety and Construction
	Written premiums	13%	$	991		$	859		$	826
	Underwriting result		$	(33	)	$	68		$	(27	)
	Combined ratio			102.7			88.8			100.1
	Adjusted combined ratio*			104.0			95.1			102.8
Health Care
	Written premiums	10%	$	770		$	599		$	545
	Underwriting result		$	(985	)	$	(241	)	$	(70	)
	Combined ratio			222.9			139.5			114.8
	Adjusted combined ratio*			221.2			142.2			—
Lloyd's and Other
	Written premiums	8%	$	608		$	351		$	201
	Underwriting result		$	(374	)	$	(86	)	$	(23	)
	Combined ratio			164.2			123.1			112.2
	Adjusted combined ratio*			129.9			132.7			—
TOTAL PRIMARY INSURANCE
Written premiums		78%	$	6,082		$	4,808		$	4,197
Underwriting result			$	(1,569	)	$	(195	)	$	(500	)
Combined ratio				126.5			103.1			111.2
Adjusted combined ratio*				119.7			107.7			113.2
Reinsurance
	Written premiums	22%	$	1,681		$	1,076		$	915
	Underwriting result		$	(725	)	$	(114	)	$	75
	Combined ratio			145.6			112.0			92.2
	Adjusted combined ratio*			117.5			120.7			109.1
TOTAL PROPERTY-LIABILITY INSURANCE
Written premiums		100%	$	7,763		$	5,884		$	5,112
Underwriting result			$	(2,294	)	$	(309	)	$	(425	)
Statutory combined ratio:
	Loss and loss expense ratio			102.5			70.0			72.9
	Underwriting expense ratio			28.1			34.8			35.0
	Combined ratio			130.6			104.8			107.9
	Adjusted combined ratio*			119.3			110.4			112.4

*

For purposes of meaningful comparison, adjusted combined ratios in all three years exclude the impact of the reinsurance treaties described on pages 18 and 19 of this report, and in 2001, the impact of the Sept. 11, 2001 terrorist attack.

PROPERTY-LIABILITY INSURANCE

Primary Insurance Operations

        Our primary insurance underwriting operations consist of five business segments that underwrite property-liability insurance and provide insurance-related products and services to commercial and professional customers. We utilize a network of more than 5,000 independent insurance agents and brokers to distribute the majority of our insurance products.

        To provide a more meaningful analysis of the underlying performance of our property-liability business segments, the following discussion of segment results excludes the impact of the terrorist attack in 2001 and the reinsurance treaties in all three years. The impact of the terrorist attack on individual segment results was discussed on page 13 of this report, and the impact of the reinsurance treaties was discussed on pages 18 and 19 of this report.

PRIMARY INSURANCE OPERATIONS
SPECIALTY COMMERCIAL

The business centers comprising this segment are designated specialty commercial operations because each provides dedicated underwriting, claim and risk control services that require specialized expertise, and each focuses exclusively on the respective customer group each serves. Those business centers are as follows.

Technology offers a comprehensive portfolio of specialty products and services to companies involved in telecommunications, information technology, medical technology, biotechnology and electronics manufacturing. Financial and Professional Services ("FPS") provides coverages for financial institutions, including property, liability, professional liability and management liability coverages; financial products coverages for corporations and nonprofit organizations; and errors' and omissions' coverages for a variety of professionals such as lawyers, insurance agents and real estate agents. Public Sector Services markets insurance products and services to cities, counties, townships and special governmental districts. Discover Re serves retail brokers and insureds who are committed to the alternative risk transfer market, which is typically utilized by sophisticated insureds that are financially able to assume a substantial portion of their own losses.

Catastrophe Risk underwrites commercial property coverages for major U.S. corporations and personal property coverages in certain states exposed to earthquakes and hurricanes. Ocean Marine provides insurance coverage internationally for ocean and inland waterways traffic. Umbrella/Excess & Surplus Lines underwrites liability insurance, umbrella and excess liability coverages, and coverages for unique risks. Oil & Gas provides specialized property and casualty products for customers involved in the exploration and production of oil and gas. Transportation offers a broad range of coverage options for the trucking industry. National Programs underwrites comprehensive insurance programs that are national in scope. The International Specialty business center is comprised of specialty insurance business in several foreign countries that is managed on a regional basis.

        The following table summarizes results for this segment for the last three years. Data for all three years exclude the impact of the corporate reinsurance program, and data for 2001 also exclude losses from the terrorist attack. Data including these factors is presented on page 21 of this report.

		Year Ended December 31
		2001			2000			1999
		(Dollars in Millions)
Written premiums		$	2,131		$	1,715		$	1,361
	Percentage increase over prior year		24	%		26	%
GAAP underwriting result		$	(81	)	$	(117	)	$	(223	)
Loss and loss adjustment expense ratio			78.1			78.6			83.4
Underwriting expense ratio			25.3			27.1			32.3
	Combined ratio		103.4			105.7			115.7

        2001 vs. 2000—The following discussion analyzes the results of the respective business centers comprising the Specialty Commercial segment.

•

Financial & Professional Services—Premium volume of $446 million in 2001 was 14% higher than 2000 written premiums of $390 million. The increase was driven by price increases that averaged 13% for the year, new business in both domestic and international markets and an incremental $12 million impact related to our elimination of the one-quarter reporting lag. The GAAP underwriting loss of $18 million in 2001 improved over the comparable 2000 loss of $34 million, primarily due to a reduction in prior-year loss reserves that was partially offset by an incremental $5 million loss related to our elimination of the one-quarter reporting lag.

•

Technology—Written premiums of $427 million in 2001 grew 24% over comparable 2000 volume of $346 million. The increase was primarily the result of new business, price increases averaging 13% for the year and strong renewal retention rates. The 2001 GAAP underwriting profit of $37 million was nearly twice the comparable 2000 profit of $19 million, due to an improvement in current-year loss experience.

•

International Specialty—In 2001, written premiums of $319 million grew 40% over 2000 premiums of $228 million. The elimination of the one-quarter reporting lag for a portion of this business center contributed $38 million of incremental written premiums in 2001. The remaining growth was centered in Europe and Canada and was primarily due to price increases. The GAAP underwriting loss of $97 million in 2001 included $23 million of additional losses resulting from the quarter-lag reporting change. Underwriting losses were $94 million in 2000. At the end of 2001, we announced our intention to withdraw from the majority of foreign operations that comprise this business center based on our conclusion that we were unlikely to achieve competitive scale in those geographic locations. We intend to continue underwriting business in the United Kingdom, Canada and Ireland.

•

Public Sector Services—Written premiums totaled $227 million in 2001, 29% higher than 2000 premiums of $176 million. In early 2001, we acquired the right to seek to renew a book of municipality insurance business from Willis North America Inc., which was the primary contributor to premium growth in 2001. In addition, price increases averaged 11% in this business center in 2001. The GAAP underwriting profit of $10 million in 2001 was much improved over the comparable 2000 loss of $10 million, primarily due to favorable prior-year loss development.

•

Umbrella/Excess & Surplus Lines—Written premiums of $144 million in 2001 grew 47% over comparable 2000 premium volume of $98 million. The launch of a new umbrella facility for retail agents and brokers was the primary contributor to premium growth in 2001. The GAAP underwriting loss of $36 million was worse than the 2000 loss of $25 million, primarily due to adverse prior-year loss development.

•

Discover Re—Gross written premiums increased 64% to $712 million in 2001, and net written premiums of $127 million grew 33% over 2000 net premium volume of $96 million. Price increases averaged approximately 25% in 2001, while client retention ratios exceeded 80%. The GAAP underwriting profit of $9 million in 2001 was slightly improved over the comparable 2000 profit of $8 million.

•

National Programs—Premium volume of $106 million in 2001 was 15% higher than 2000 written premiums of $92 million. Price increases averaged 19% in 2001, accounting for the majority of premium growth for the year. The 2001 GAAP underwriting loss of $25 million deteriorated slightly from the comparable 2000 loss of $22 million, primarily due to adverse prior-year loss development on selected accounts. Current-year loss experience improved significantly over comparable 2000 results.

•

Oil & Gas—Written premiums of $105 million in 2001 grew 82% over 2000 written premiums of $58 million. The increase was due to price increases, averaging 24% for the year, and new business. The GAAP underwriting profit of $1 million in 2001 was much improved over the 2000 loss of $4 million, primarily due to an improvement in prior-year loss experience.

•

Ocean Marine—Written premiums grew 8% in 2001 to $104 million, driven by price increases averaging 11% during the year. We continued to improve our book of marine business in 2001 through the non-renewal of poorly performing and inadequately priced accounts. The GAAP underwriting profit of $19 million in 2001 was a marked improvement over the 2000 profit of $1 million and resulted from favorable loss experience on both current and prior-year business.

•

Catastrophe Risk—Gross written premiums increased 24% to $192 million in 2001 while net written premiums of $72 million were 26% below total 2000 net premiums of $96 million due to a significant increase in reinsurance purchases. The GAAP underwriting profit declined to $44 million in 2001 from the profit of $74 million recorded in 2000, due to the decline in earned premiums associated with the increased reinsurance cessions in 2001.

•

Transportation—Written premiums of $54 million in 2001 grew 33% over the 2000 premium total of $41 million, driven primarily by price increases that averaged 24% during the year. The GAAP underwriting loss of $25 million in 2001 was slightly better than the 2000 loss of $30 million, primarily the result of an improvement in prior-year loss experience.

        The decline in segment expense ratios in both 2001 and 2000 reflected the strong increase in premium volume in both years and the success of our aggressive expense control efforts in recent years that have enhanced the efficiency of our underwriting, risk control and claim operations throughout all business centers comprising the Specialty Commercial segment.

        2000 vs. 1999—Virtually every business center in the Specialty Commercial segment contributed to the 26% growth in written premiums over 1999, but the most significant increases occurred in our Technology and FPS business centers. Technology written premiums of $346 million were 52% ahead of the comparable 1999 total, driven by substantial new business volume, price increases averaging 9.5% and a strong renewal retention rate.

        In FPS, a significant increase in non-U.S. business pushed 2000 written premiums to $390 million, 41% higher than 1999's total of $277 million. Early in 2000, our underwriting subsidiary in the United Kingdom was appointed by the Law Society of England and Wales to be one of its professional indemnity insurance providers. By year-end 2000, we had generated $65 million of FPS written premiums from this business.

        The Ocean Marine business center was the most significant contributor to the improvement in results over 1999, recording an underwriting loss that was $59 million less than 1999. The improvement was largely the result of our late-1999 withdrawal from unprofitable river transportation business in the Midwest. The Technology business center posted an underwriting profit of $19 million, $23 million better than the comparable 1999 result. Favorable current and prior-year loss experience accounted for 2000's profitable performance. The FPS underwriting loss was $43 million worse than 1999, primarily due to adverse prior-year loss development in our U.S. operations and an increase in losses in our international operations.

        2002 Outlook—Profitable growth and prudent risk selection will be our priorities in 2002 in the Specialty Commercial segment. With our withdrawal from most international markets announced at the end of 2001, we enter 2002 with a renewed focus on the U.S. domestic commercial marketplace. Our specialty focus in recent years has built a platform from which we can respond quickly to emerging customer needs in that marketplace. We intend to underwrite only that business priced at levels commensurate with our return on equity targets.

PRIMARY INSURANCE OPERATIONS
COMMERCIAL LINES GROUP

The Commercial Lines Group segment includes the Small Commercial business center, which serves small businesses, such as retailers, wholesalers, service companies, professional offices, manufacturers and contractors; the Middle Market Commercial business center, which provides comprehensive property and liability insurance for a wide variety of commercial manufacturing, distributing, retailing and property ownership enterprises where annual insurance costs range from $75,000 to $1 million; and our Large Accounts business center, which offers insurance programs to larger commercial businesses who are willing to share in their insurance risk through significant deductibles and self-insured retentions. The Commercial Lines Group segment also includes the results of our limited involvement in insurance pools.

        The following table summarizes key financial data for each of the last three years in the Commercial Lines Group segment excluding losses resulting from the terrorist attack in 2001 and excluding the impact of the corporate reinsurance program in all three years. Data including these factors is presented on page 21 of this report.

		Year Ended December 31
		2001			2000			1999
		(Dollars in Millions)
Written premiums		$	1,687		$	1,418		$	1,358
	Percentage increase over prior year		19	%		4	%
GAAP underwriting result		$	71		$	98		$	(234	)
Loss and loss adjustment expense ratio			64.0			58.7			80.2
Underwriting expense ratio			30.2			34.2			35.7
	Combined ratio		94.2			92.9			115.9

        2001 vs. 2000—Premium growth in 2001 was driven by price increases, strong renewal retention rates and new business throughout the segment. Price increases averaged 14% in 2001, and the pace of those increases accelerated as the year progressed. Middle Market Commercial premiums totaled $971 million in 2001, 16% higher than 2000 premiums of $836 million. In the Small Commercial business center, premium volume of $579 million grew 19% over the comparable 2000 total of $485 million. In July 2001, we established a new service center in Atlanta, which contributed to premium growth in our Small Commercial operation by providing agents and brokers in the southeastern U.S. with a more efficient and cost-effective platform for placing small commercial business with us.

        Each of the three business centers in this segment experienced an improvement in current accident year results, despite a $38 million increase in catastrophe losses in 2001. However, the magnitude of favorable prior-year development declined compared with 2000 levels, accounting for the deterioration in reported underwriting results. Results in 2001 benefited from a $128 million reduction in prior-year loss reserves, of which $93 million related to business written prior to 1988. In 2000, prior-year reserve reductions of approximately $260 million included $80 million for various general liability reserves, $69 million for workers' compensation reserves and $50 million for business written prior to 1988. Underwriting results in the Large Accounts business center were $31 million better than comparable 2000 results, driven by improvement in both current and prior-year loss experience.

        The improvement in the expense ratio in 2001 reflected the combined impact of significant premium growth and a reduction in fixed expenses. Over the last three years, we have successfully implemented aggressive initiatives to reduce expenses and improve efficiency in this segment.

        2000 vs. 1999—The 4% increase in premium volume in 2000 was driven by significant price increases throughout the segment, the impact of which was partially offset by a targeted reduction in business volume in our Large Accounts business center, and a decline in premiums generated through our participation in insurance pools. Total written premiums in our Small Commercial and Middle Market Commercial business centers increased a combined 7% over 1999, largely due to price increases

that averaged 9% for the year. The $332 million improvement in underwriting results in 2000 was centered in our Small Commercial and Middle Market Commercial operations, and reflected the impact of significant prior-year reserve reductions, as well as price increases and tightened underwriting standards aimed at eliminating underperforming accounts from our book of business.

        2002 Outlook—We believe the aggressive initiatives undertaken in recent years to reduce expenses, solidify our agency relationships and streamline our claim organization have positioned us well to capitalize on new opportunities emerging in the standard commercial marketplace. We will focus on further strengthening our pricing structure, while managing our renewal retentions, new business growth and portfolio mix. We will continue to build our small commercial platform to better serve our agents, brokers and insureds. Quality risk selection and aggressive expense management will remain our highest priorities in 2002, as we pursue profitable growth in our Commercial Lines Group segment.

PRIMARY INSURANCE OPERATIONS
Surety and Construction

The Surety business center underwrites predominantly contract surety bonds, which guarantee that third parties will be indemnified against the nonperformance of contractual obligations. The Surety business center includes our subsidiary Afianzadora Insurgentes, the largest surety bond underwriter in Mexico. Based on 2000 premium volume, our surety operations are the largest in North America, and the largest in the world. The Construction business center delivers value-added products and services, including traditional insurance and financial and risk management solutions, to a broad range of contractors and owners of construction projects.

        The following table summarizes results for this segment for the last three years. Results presented for all three years exclude the impact of the corporate reinsurance program, and results for 2001 also exclude losses resulting from the terrorist attack. Data including these factors is presented on page 21 of this report.

		Year Ended December 31
		2001			2000			1999
		(Dollars in Millions)
Written premiums		$	1,024		$	925		$	852
	Percentage increase over prior year		11	%		9	%
GAAP underwriting result		$	(47	)	$	23		$	(49	)
Loss and loss adjustment expense ratio			68.2			55.1			62.6
Underwriting expense ratio			35.8			40.0			40.2
	Combined ratio		104.0			95.1			102.8

        2001 vs. 2000—The 11% increase in premium volume in 2001 was primarily due to price increases in the Construction business center, which averaged 18% for the year. Construction premiums totaled $609 million in 2001, compared with $472 million in 2000. Surety premiums of $415 million declined 8% compared with 2000, reflecting the impact of tightened underwriting standards we began to implement near the end of 1999 in anticipation of an economic slowdown in both the United States and Mexico. As that slowdown materialized in 2001, our tightened standards had produced a more conservative risk profile of our commercial surety exposures. An increase in reinsurance costs was also a factor in the decline in Surety's net written premiums in 2001.

        Both business centers contributed to the deterioration in underwriting results compared with 2000. The Surety underwriting profit of $11 million declined from the comparable 2000 profit of $34 million, reflecting an increase in losses amid the economic downturn in the U.S. Also included in the 2001 Surety result was a $10 million provision for losses associated with Enron Corporation's bankruptcy filing late in the year.

        The Construction underwriting loss of $58 million in 2001 deteriorated from 2000's comparable loss of $11 million, driven by adverse loss development on prior-year business that prompted a $24 million provision to strengthen reserves. Current accident year loss experience in 2001 was much improved over 2000, reflecting the impact of aggressive underwriting initiatives implemented over the

last three years. Construction's 2000 underwriting result included the benefit of prior-year reserve reductions totaling $57 million, including $33 million of workers' compensation loss reserves. The strong improvement in the segment expense ratio over 2000 reflected the combined effect of Construction's written premium growth and active management of expenses in both business centers.

        2000 vs. 1999—Both business centers achieved written premium growth in 2000. Surety premiums of $453 million grew 8% over 1999, and Construction premiums of $472 million were 9% higher than the 1999 total. The increases reflected strong economic conditions in both the U.S. and Mexico, which fueled growth in the construction industry and, in turn, the demand for contract surety products. Price increases averaging 15% in the Construction business center were also a significant factor contributing to premium growth in 2000. Construction's underwriting result improved by $78 million over 1999, due to favorable prior-year loss development, which included the $33 million reduction in workers' compensation reserves. Surety's underwriting profit of $34 million was $6 million less than the comparable 1999 profit, due to increased claim activity on two large accounts in Mexico.

        2002 Outlook—In early 2002, we expect to close on our purchase of London Guarantee Insurance Company, a specialty property-liability insurance company focused on providing surety products, and management liability, bond, and professional indemnity products. London Guarantee, headquartered in Toronto, generated approximately $53 million (Canadian) in surety net written premiums in 2001. In addition, late in 2001, our Surety operation acquired the right to seek to renew surety bond business underwritten by Fireman's Fund Insurance Company, without assuming any past liabilities. This transaction is expected to enhance our position in 2002 as the largest surety underwriter in the U.S. by increasing our market penetration in western states. In the current economic environment, we will maintain a conservative underwriting profile in our Surety and Construction operations while continuing to aggressively seek additional price increases. The anticipated higher cost and limited availability of surety reinsurance in 2002 is expected to further tighten underwriting standards for certain types of surety bonds and will likely result in significant price increases for the surety customer.

PRIMARY INSURANCE OPERATIONS
Health Care

The Health Care segment historically has provided a wide range of insurance products and services throughout the entire health care delivery system, including individual physicians and other health care providers, physician groups, hospitals, managed care organizations and long-term care facilities. In the fourth quarter of 2001, we announced our intention to exit the medical liability insurance market subject to applicable regulatory requirements.

        The following table summarizes key financial data for each of the last three years in this segment. Data for all years exclude the impact of the corporate reinsurance program, and data for 2001 exclude losses resulting from the terrorist attack. Data including these factors is presented on page 21 of this report.

		Year Ended December 31
		2001			2000			1999
		(Dollars in Millions)
Written premiums		$	776		$	659		$	545
	Percentage increase over prior year		18	%		21	%
GAAP underwriting result		$	(979	)	$	(284	)	$	(70	)
Loss and loss adjustment expense ratio			197.9			116.5			87.8
Underwriting expense ratio			23.3			25.7			27.0
	Combined ratio		221.2			142.2			114.8

        2001 vs. 2000—Price increases averaging 27% in 2001 were the primary factor in the 18% growth in written premiums over 2000. In addition, a full year of business volume generated by MMI, acquired in April 2000, contributed to premium growth in 2001. However, we significantly curtailed the amount of new Health Care business in 2001, due to an unfavorable pricing environment and unacceptable loss experience in most of the lines of business and geographic locations where we offered our products.

        The nearly $1 billion underwriting loss in 2001 was driven by provisions to strengthen loss reserves for prior accident years, particularly the years 1997 through 1999. The prior-year reserve increases, which totaled $735 million for the year, culminated in a $540 million provision in December that coincided with our announcement that we would exit the medical liability market. The 2001 reserve increases followed $225 million of increases recorded in 2000 that primarily related to our long-term care and major accounts lines of business. The reserve increases in 2000 were prompted by an increase in the severity of losses driven by the rapidly escalating amounts that were awarded by juries in professional liability lawsuits.

        Through the first nine months of 2001, our actuarial analyses indicated that prior-year reserve actions were necessary, as we determined that claim severity on the specific lines of business identified in 2000 was continuing to increase at a very high rate. We also determined that the worsening severity was not limited solely to those lines. As a result, we recorded additional prior-year reserve provisions totaling $195 million in the first nine months of the year. In the fourth quarter, as loss severity continued to escalate, we performed a comprehensive re-evaluation of the underlying assumptions and projections supporting our reserve positions. We concluded that a significant additional provision to prior-year medical liability loss reserves was necessary, and announced our intent to fully withdraw from this market segment due to minimal prospects for future profitability.

        As part of the strategic review that led to our decision to exit the medical liability business, our analysis of the unamortized goodwill asset of $64 million related to the MMI acquisition indicated that approximately $56 million of that goodwill was not recoverable, and that amount was written off in the fourth quarter of 2001. The remaining goodwill deemed recoverable was related to that portion of MMI's ongoing consulting business that was not placed in runoff.

        2000 vs. 1999—Health Care premium volume in 2000 included $98 million of premiums from MMI's domestic operations. In 1999, the written premium total included a one-time premium of

$37 million recorded on one three-year policy. Excluding that premium and MMI's incremental contribution in 2000, premium volume in 2000 was 11% higher than 1999. The increase was driven by price increases, new business in selected coverages and higher renewal retention ratios on accounts targeted for renewal. The significant deterioration in underwriting results compared with 1999 was driven by losses incurred in our long-term care and major accounts books of business, including but not limited to business acquired in the MMI transaction. Sharp increases in the amounts awarded in jury verdicts against the large entities served by the major accounts business center caused us to strengthen previously established loss reserves for these coverages. MMI accounted for $256 million of the Health Care underwriting loss in 2000, a substantial portion of which resulted from losses in its major accounts business.

        2002 Outlook—Our focus in 2002 will be on the efficient runoff of our Health Care business. As of Jan. 23, 2002, we had not renewed or had given notice of our intention not to renew business that accounted for approximately 80% of the Health Care segment's premium volume in 2001. The remaining 20% represented business in states where we are awaiting regulatory approval to withdraw from the market. We anticipate approximately $400 million of domestic Health Care written premium volume in 2002, 50% of which is expected to result from reporting endorsements on business being exited. We expect underwriting losses to decline significantly in 2002.

PRIMARY INSURANCE OPERATIONS
Lloyd's and Other

This business segment consists of the following components: our operations at Lloyd's, where we provide capital to five underwriting syndicates and own a managing agency; our participation in the insuring of the Lloyd's Central Fund, which would be utilized if an individual member of Lloyd's were to be unable to pay its share of a syndicate's losses; and results from MMI's London-based insurance operation, Unionamerica, placed in runoff in 2000 except for certain business it is contractually obligated to continue writing through 2004. As discussed on pages 13 and 14 of this report, we announced in late 2001 that we would cease underwriting certain business through Lloyd's beginning in 2002, and would, when current contractual commitments expire in 2003, end our involvement in the insuring of the Lloyd's Central Fund.

        The following table summarizes results for this segment for the last three years. Data for 2001 exclude losses from the terrorist attack, and data for all three years exclude the impact of the corporate reinsurance program. Data including these factors is presented on page 21 of this report.

		Year Ended December 31
		2001			2000			1999
		(Dollars in Millions)
Written premiums		$	599		$	430		$	201
	Percentage increase over prior year		39	%		114	%
GAAP underwriting result		$	(173	)	$	(144	)	$	(23	)
Loss and loss adjustment expense ratio			101.7			102.5			84.2
Underwriting expense ratio			28.2			30.2			28.0
	Combined ratio		129.9			132.7			112.2

        2001 vs. 2000—Premium growth in 2001 was primarily due to new business resulting from our increased capacity in several syndicates at Lloyd's. Our Lloyd's premium volume totaled $500 million in 2001, compared with $331 million in 2000. In addition, price increases in our operations at Lloyd's averaged nearly 20% for the year, and began to accelerate further after the Sept. 11 terrorist attack. Unionamerica generated $99 million of written premiums in each of 2001 and 2000. Although we ceased new business activity at Unionamerica late in 2000, we are contractually obligated to continue underwriting business in certain Unionamerica syndicates at Lloyd's through 2004.

        The deterioration in underwriting results compared with 2000 was the result of adverse prior-year loss development in several Lloyd's syndicates, particularly those associated with North American

liability coverages. In addition, poor prior-year loss experience and the write-off of uncollectible reinsurance receivables in our financial and professional services syndicate contributed to the increase in underwriting losses in 2001. Unionamerica generated an underwriting loss of $61 million in 2001, compared with $63 million in 2000. The majority of Unionamerica's losses in both years were the result of adverse development on business written in prior years.

        2000 vs. 1999—The addition of Unionamerica accounted for $99 million of written premium volume in 2000. Excluding Unionamerica, the 65% increase in premiums over 1999 was driven by growth in our Lloyd's operations, where we expanded our investment in several specialty underwriting syndicates. Premiums generated at Lloyd's in 2000 totaled $331 million, compared with $201 million in 1999. Underwriting results in 2000 suffered from significant adverse prior-year loss development at Unionamerica and deterioration in several syndicates' results at Lloyd's. Subsequent to our acquisition of MMI, we strengthened Unionamerica's loss reserves and ceased writing new business in that entity, except where contractually required. At Lloyd's, underwriting losses were centered in a syndicate specializing in financial and professional liability coverage and in an aviation syndicate, which incurred significant losses from a number of airline accidents.

        2002 Outlook—In 2002, we will limit our operations at Lloyd's to the following types of coverage which we believe offer the greatest potential for profitable growth: aviation, marine, financial and professional services, property, kidnap and ransom, accident and health, creditor, specialist London market reinsurance, and other personal specialty products. We anticipate additional significant price increases on business written through Lloyd's, as worldwide insurance markets continue to harden in the aftermath of the Sept. 11 terrorist attack.

REINSURANCE
St. Paul Re

Our Reinsurance segment, St. Paul Re, underwrites traditional treaty and facultative reinsurance for property, liability, ocean marine, surety and certain specialty classes of coverage for leading property-liability insurance companies worldwide. St. Paul Re also underwrites certain types of "non-traditional" reinsurance, which provides limited traditional underwriting risk combined with financial risk protection. As discussed on page 14 of this report, we announced in late 2001 that we would cease underwriting certain types of reinsurance coverages in 2002.

        The following table summarizes results for this segment for the last three years. Data for all three years exclude the impact of the reinsurance treaties, and data for 2001 exclude the impact of the terrorist attack. Data including these factors is presented on page 21 of this report.

		Year Ended December 31
		2001			2000			1999
		(Dollars in Millions)
Written premiums		$	1,593		$	1,211		$	1,068
	Percentage increase over prior year		32	%		13	%
GAAP underwriting result		$	(268	)	$	(242	)	$	(87	)
Loss and loss adjustment expense ratio			85.3			85.4			79.1
Underwriting expense ratio			32.2			35.3			30.0
	Combined ratio		117.5			120.7			109.1

        2001 vs. 2000—The increase in written premiums in 2001 was driven by new business growth in St. Paul Re's North American casualty and property lines and strong price increases across virtually all lines of business. The pace of price increases continued to grow in 2001, and those increases accelerated in the fourth quarter in the aftermath of the terrorist attack. The deterioration in underwriting results in 2001 occurred throughout our reinsurance operations. In our North American casualty business, losses were concentrated in large commercial program reinsurance. For North American property business, an increase in the frequency and severity of losses was the primary factor driving the deterioration from 2000. We also experienced deterioration in satellite and aviation loss

experience in 2001. Catastrophe losses (excluding the terrorist attack) totaled $66 million in the Reinsurance segment in 2001, driven by losses from the explosion of a chemical plant in Toulouse, France and Tropical Storm Allison in the U.S. Reinsurance catastrophe losses in 2000 totaled $135 million.

        2000 vs. 1999—Premium growth in 2000 was driven by new business opportunities in the non-traditional reinsurance market and significant price increases across virtually all lines of traditional reinsurance coverages. Non-traditional business accounted for $142 million of St. Paul Re's premium growth over 1999. In addition, price increases and new business fueled an $84 million increase in North American casualty premium volume in 2000.

        The deterioration in underwriting results was due to significant adverse loss development from years prior to 2000. Catastrophe losses incurred in 2000 totaled $135 million, of which $115 million represented additional losses on events occurring in 1999 and prior years. Flooding in the United Kingdom, which accounted for $20 million in losses, was the only major event in 2000 contributing to the 2000 catastrophe total. Adverse prior-year loss development on retrocessional business written in St. Paul Re's London operations also played a significant role in 2000's underwriting loss. In addition, our North American casualty business accounted for $130 million of underwriting losses in 2000.

        During 2000, St. Paul Re reduced its estimate of ultimate losses on certain non-traditional reinsurance business by $56 million, and made a corresponding increase in its estimate of reserves for contingent commissions by $66 million. Although these changes in estimate did not have a significant impact on underwriting results for the year, they did distort the components of the combined ratio in the table above. Excluding these changes, the loss ratio would have been 89.8, and the expense ratio would have been 29.8 (both excluding the benefits of the reinsurance treaties).

        2002 Outlook—In December 2001, we announced plans to restructure our reinsurance segment. We intend to reduce the scale of our business to lessen the volatility in our reported results, and focus on established lines of business in which we have a consistently successful track record. We will close branch offices in several foreign locations. We will continue to write the following lines of business: property catastrophe; excess-of-loss casualty; marine; and certain non-traditional reinsurance. In addition, we will write selected other classes of business on an opportunistic basis when we believe pricing and terms to be acceptable. Price increases on reinsurance coverages continue to accelerate. Most of the reinsurance business we underwrite renews on Jan. 1, and the business we recorded on Jan. 1, 2002 renewals reflected average price increases of 35%. We believe improving market conditions in 2002 provide the opportunity for profitable growth in those lines of business where we are focusing our efforts.

PROPERTY-LIABILITY INSURANCE
Investment Operations

        Our investment operations' primary objective is to maximize investment returns and generate sufficient liquidity to fund our cash requirements, primarily consisting of insurance claim payments. The funds we invest are generated by underwriting cash flows, consisting of premiums collected less losses and expenses paid, and by investment cash flows, consisting of income received on existing investments and proceeds from sales and maturities of investments.

        The majority of funds available for investment are deployed in a widely diversified portfolio of predominantly investment-grade fixed maturities, consisting primarily of government-issued securities and corporate bonds. We also invest lesser amounts in equity securities, venture capital and real estate with the goal of producing long-term growth in the value of our invested asset base and ultimately enhancing shareholder value. The latter three investment classes have the potential for higher returns but also involve a greater degree of risk, including less stable rates of return and less liquidity.

        The following table summarizes the composition and carrying value of our property-liability investment segment's portfolio at the end of 2001 and 2000. More information on each investment class follows the table.

		December 31
		2001		2000
		(In Millions)
CARRYING VALUE
Fixed maturities		$	15,756	$	14,584
Equities			1,110		1,396
Real estate and mortgage loans			972		1,025
Venture capital			859		1,064
Securities on loan			775		1,207
Short-term investments			2,043		2,223
Other investments			67		183
	Total investments	$	21,582	$	21,682

        Fixed Maturities—Our fixed maturities portfolio is primarily composed of high-quality, intermediate-term taxable U.S. government, corporate and mortgage-backed bonds, and tax-exempt U.S. municipal bonds. We manage our bond portfolio conservatively, investing almost exclusively in investment-grade (BBB- or better) securities. At Dec. 31, 2001, approximately 95% of our portfolio was rated investment grade, with the remaining 5% split between high-yield and nonrated securities, most of which we believe would be considered investment-grade if rated.

        We participate in a securities lending program whereby certain fixed maturities from our portfolio are loaned to other institutions for short periods of time. We receive a fee from the borrower in return. We require collateral equal to 102% of the fair value of the loaned securities, and we record the cash collateral received as a liability. The collateral is invested in short-term investments and reported as such on our balance sheet. The market value of the securities on loan is reclassified out of fixed maturities and shown as a separate investment asset on our balance sheet. We continue to earn interest on the securities on loan, and earn a portion of the interest related to the short-term investments.

        The amortized cost of our fixed maturities portfolio at the end of 2001 was $15.2 billion, $1 billion higher than the comparable total of $14.2 billion at the end of 2000. The increase was partially due to the $432 million decline in securities on loan. Our level of fixed maturity invested assets benefited near the end of the year from the investment of $335 million in cash proceeds from the sale of F&G Life in September, and the investment of proceeds from our issuance of preferred securities in November. We ultimately contributed $500 million of the net proceeds of the issue to the policyholders' surplus of our primary domestic insurance underwriting subsidiary, St. Paul Fire and Marine Insurance Company, which subsequently invested the funds in taxable fixed maturities. These investments more than offset the decline in our fixed maturity portfolio through the first nine months of 2001 which had resulted from net sales of investments to fund operational cash requirements (primarily insurance claim payments).

        We carry bonds on our balance sheet at market value, with the corresponding appreciation or depreciation recorded in shareholders' equity, net of taxes. The market values of our bonds fluctuate with changes in market interest rates and changes in yield differentials between fixed-maturity asset classes. If we believe a decline in value of any of our bonds is other than temporary, we write down the asset for the decline and record a realized loss on our statement of operations.

        At the end of 2001, the pretax unrealized appreciation of our bond portfolio was $563 million, compared with unrealized appreciation of $380 million at the end of 2000. The significant decline in interest rates during 2001 was the primary factor in the increase in unrealized appreciation. The Federal Reserve reduced short-term rates 11 times in 2001 for a cumulative total of 4.75% in response to the economic slowdown in the United States. The increase in unrealized appreciation was not as large as might have been expected given the magnitude of interest rate declines in 2001, as the market

value of our holdings began to increase significantly prior to the end of 2000 in anticipation of the Federal Reserve actions to reduce rates.

        Our decision whether to purchase taxable or tax-exempt securities is driven by corporate tax considerations, and the relationship between taxable and tax-exempt yields at the time of purchase. In each of the last three years, a significant majority of our new fixed maturity purchases consisted of taxable bonds. The average yield on taxable bonds purchased in 2001 was 6.5%, compared with 7.7% in 2000 and 7.2% in 1999. The decline in 2001 reflected the impact of the Federal Reserve rate actions. Taxable bonds accounted for 70% of our fixed maturity portfolio at year-end 2001. The bond portfolio in total carried a weighted average pretax yield of 6.6% at Dec. 31, 2001, compared with 6.8% at the end of 2000.

        Reported pretax investment income generated from our fixed maturities portfolio in 2001 totaled $1.11 billion, down 5% from comparable 2000 investment income of $1.16 billion. Investment income in 2001 and 2000 included $14 million and $11 million, respectively, from the elimination of one-quarter reporting lags in each year for portions of our foreign operations. The decline in investment income in 2001 reflected the lower level of fixed maturity invested assets during much of 2001 and the decline in yields on new investments. In 2000, excluding the incremental impact of the MMI acquisition and the elimination of the one-quarter reporting lag, fixed maturities investment income was approximately 5% below comparable 1999 investment income, due to net sales of investments to fund operational cash needs. Funds available for investment in the last three years were also reduced by cumulative premium payments of $639 million related to our corporate reinsurance program.

        Equities—Our equity holdings consist of a diversified portfolio of common stocks, which accounted for 5% of total investments (at cost) at Dec. 31, 2001. Equity markets in the United States in 2001 suffered from the economic slowdown and the Sept. 11 terrorist attack. The total return on our equity portfolio in 2001 (encompassing dividend income, realized gains and losses, and the change in unrealized appreciation) was (20.7%), and our five-year return through 2001 was approximately 10.5%. Despite the negative return in 2001, the $1.10 billion market value of our portfolio at Dec. 31, 2001 still exceeded its cost by $52 million. At the end of 2000, the pretax unrealized appreciation included in the $1.40 billion carrying value totaled $326 million.

        Real Estate and Mortgage Loans—Real estate ($838 million carrying value) and mortgage loans ($134 million carrying value) comprised 5% of our total property-liability investments at the end of 2001. Our real estate holdings primarily consist of commercial office and warehouse properties that we own directly or in which we have a partial interest through joint ventures. Our properties are geographically distributed throughout the United States and had an occupancy rate of 95% at year-end 2001. These investments produced pretax income of $97 million in 2001 and $63 million in 2000, and generated cash flows totaling $138 million in 2001 and $90 million in 2000. The increase in investment income and cash flows in 2001 was primarily due to earnings from a Southern California residential land development. We did not make any significant real estate purchases in 2001 or 2000.

        We acquired the portfolio of mortgage loans in the 1998 merger with USF&G. The loans, which are collateralized by income-producing real estate, produced investment income of $18 million in 2001 and $27 million in 2000. Net pay downs and repayments of the loans totaled $51 million in 2001 and $204 million in 2000. We did not originate any new loans in either of the last two years.

        Venture Capital—Venture capital comprised 4% of our invested assets (at cost) at the end of 2001. These private investments span a variety of industries but are concentrated in information technology, health care and consumer products. In 2001, we invested $289 million in this asset class, compared with $296 million in 2000. Our total return on average net venture capital investments (encompassing dividend income, realized gains and losses, and the change in unrealized appreciation) was (41.5%) in 2001. The negative return in 2001 was driven by a significant decline in the unrealized appreciation of our investments in the difficult market environment that characterized the year. Much of this appreciation had accumulated during favorable market conditions in recent years. In 2000, our portfolio produced a total pretax return on average net assets of 52%, primarily the result of pretax realized

gains totaling $554 million for the year. The carrying value of the venture capital portfolio at year-end 2001 and 2000 included unrealized appreciation of $93 million and $406 million, respectively.

        Realized Investment Gains and Losses—The following table summarizes our property-liability operations' pretax realized gains and losses by investment class for each of the last three years.

		Year Ended December 31
		2001			2000			1999
		(In Millions)
PRETAX REALIZED INVESTMENT GAINS (LOSSES)
Fixed maturities		$	(77	)	$	(29	)	$	(19	)
Equities			(4	)		87			118
Real estate and mortgage loans			4			4			18
Venture capital			(43	)		554			158
Other investments			(6	)		8			(1	)
	Total	$	(126	)	$	624		$	274

        Pretax realized losses in the fixed maturities category in 2001 were driven by write-downs in the carrying value of certain of our bond holdings. These write-downs included a $20 million write-down of various Argentina government and corporate bonds following economic upheaval in that country, and a $19 million write-down in Enron Corporation bonds following that company's bankruptcy filing. The remaining carrying values of our Argentina and Enron investments at Dec. 31, 2001 totaled $21 million and $5 million, respectively. Venture capital realized losses in 2001 primarily resulted from the sale of several of our direct investments.

        Venture capital realized gains in 2000 and 1999 were primarily driven by sales of and distributions from investments in technology-related companies. The single largest gain in 2000, $117 million, resulted from the sale of our direct investment in Flycast Communications Corp., a leading provider of Internet direct response solutions.

        2002 Investment Outlook—We do not anticipate investment income growth in 2002. Although underwriting cash flow in 2002 is expected to improve due to price increases realized in our continuing operations, that improvement will be diminished by the anticipated cash payments associated with the runoff of reserves in businesses that we are exiting and other cash payments, including claim payments resulting from the terrorist attack. In addition, yields on new fixed maturities investments in 2002 are expected to be lower than those on maturing securities.

        With funds provided from maturing investments in 2002, new investment purchases will be concentrated in taxable, investment-grade bonds, with additional capital allocated to our other asset classes as market conditions warrant. We anticipate improving economic conditions will improve equity valuations in 2002, but we expect to realize only modest gains in our venture capital portfolio.

PROPERTY-LIABILITY UNDERWRITING
Loss and Loss Adjustment Expense Reserves

        Our loss reserves reflect estimates of total losses and loss adjustment expenses we will ultimately have to pay under insurance and reinsurance policies. These include losses that have been reported but not settled, and losses that have been incurred but not reported to us ("IBNR"). Loss reserves for certain workers' compensation business and certain assumed reinsurance contracts are discounted to present value. We reduce our loss reserves for estimates of salvage and subrogation.

        For reported losses, we establish reserves on a "case" basis within the parameters of coverage provided in the insurance policy or reinsurance agreement. For IBNR losses, we estimate reserves using established actuarial methods. Our case and IBNR reserve estimates consider such variables as past loss experience, changes in legislative conditions, changes in judicial interpretation of legal liability and

policy coverages, and inflation. We consider not only monetary increases in the cost of what we insure, but also changes in societal factors that influence jury verdicts and case law and, in turn, claim costs.

        Because many of the coverages we offer involve claims that may not ultimately be settled for many years after they are incurred, subjective judgments as to our ultimate exposure to losses are an integral and necessary component of our loss reserving process. We record our reserves by considering a range of estimates bounded by a high and low point. Within that range, we record our best estimate. We continually review our reserves, using a variety of statistical and actuarial techniques to analyze current claim costs, frequency and severity data, and prevailing economic, social and legal factors. We adjust reserves established in prior years as loss experience develops and new information becomes available. Adjustments to previously estimated reserves are reflected in our financial results in the periods in which they are made.

        While our reported reserves make a reasonable provision for all of our unpaid loss and loss adjustment expense obligations, it should be noted that the process of estimating required reserves does, by its very nature, involve uncertainty. The level of uncertainty can be influenced by such things as the existence of coverages with long duration payment patterns and changes in claim handling practices. Many of the insurance subsidiaries within The St. Paul's group have written coverages with long duration payment patterns such as medical professional liability, large deductible workers' compensation and assumed reinsurance. In addition, claim handling practices change and evolve over the years. For example, new initiatives are commenced, claim offices are reorganized and relocated, claim handling responsibilities of individual adjusters are changed, use of a call center is increased, use of technology is increased, caseload issues and case reserving practices are monitored more frequently, etc. However, these are sources of uncertainty that we have recognized in establishing our reserves.

        Note 9 to the financial statements includes a reconciliation of our beginning and ending loss and loss adjustment expense reserves for each of the years 2001, 2000 and 1999. That reconciliation shows that we recorded an increase in the loss provision from continuing operations for claims incurred in prior years totaling $577 million in 2001, compared with reductions in prior-year incurred losses of $265 million and $208 million in 2000 and 1999, respectively.

        The increase in prior-year loss provisions in 2001 was driven by additional losses emerging in our Health Care segment. In 2000, loss trends in this segment had indicated an increase in the severity of claims incurred in the 1995 through 1997 accident years; accordingly, we recorded a provision for prior-year losses. In 2001, loss activity continued to increase not only for the years 1995 through 1997, but also 1998, and early activity on claims incurred in the years 1999 through 2001 indicated an increase in severity for those years. Those developments led us to a much different view of loss development in this segment, which in turn caused us to record provisions for prior-year losses totaling $735 million in this segment in 2001. At the end of the year, we announced our intention to withdraw fully from the medical liability insurance market.

        A reduction in prior-year losses was recorded in 2000 and 1999. In 2000, the favorable prior-year loss development was widespread across lines of business with the exception of the Health Care segment. In 1999, favorable prior-year loss development in several lines of business, including workers' compensation and assumed reinsurance, was partially offset by adverse development in our Ocean Marine operation and certain commercial business centers.

PROPERTY-LIABILITY UNDERWRITING
Environmental and Asbestos Claims

        We continue to receive claims alleging injury or damage from environmental pollution or seeking payment for the cost to clean up polluted sites. We also receive asbestos injury claims tendered under general liability policies. The vast majority of these claims arise from policies written many years ago. Significant legal issues, primarily pertaining to the scope of coverage, complicate our alleged liability for both environmental and asbestos claims. In our opinion, court decisions in certain jurisdictions have tended to broaden insurance coverage beyond the intent of original insurance policies.

        Our ultimate liability for environmental claims is difficult to estimate because of these legal issues. Insured parties have submitted claims for losses that in our view are not covered in their respective insurance policies, and the final resolution of these claims may be subject to lengthy litigation, making it difficult to estimate our potential liability. In addition, variables such as the length of time necessary to clean up a polluted site, and controversies surrounding the identity of the responsible party and the degree of remediation deemed necessary, make it difficult to estimate the total cost of an environmental claim.

        Estimating our ultimate liability for asbestos claims is also very difficult. The primary factors influencing our estimate of the total cost of these claims are case law and a history of prior claim development, both of which are still developing.

        The following table represents a reconciliation of total gross and net environmental reserve development for each of the years in the three-year period ended Dec. 31, 2001. Amounts in the "net" column are reduced by reinsurance recoverables.

	2001						2000						1999
	Gross			Net			Gross			Net			Gross			Net
	(In Millions)
ENVIRONMENTAL
Beginning reserves	$	665		$	563		$	698		$	599		$	783		$	645
Incurred losses		1			18			25			14			(33	)		1
Paid losses		(84	)		(74	)		(58	)		(50	)		(52	)		(47	)
Ending reserves	$	582		$	507		$	665		$	563		$	698		$	599

        The following table represents a reconciliation of total gross and net reserve development for asbestos claims for each of the years in the three-year period ended Dec. 31, 2001. Amounts in the "net" column are reduced by reinsurance recoverables.

	2001						2000						1999
	Gross			Net			Gross			Net			Gross			Net
	(In Millions)
ASBESTOS
Beginning reserves	$	397		$	299		$	398		$	298		$	402		$	277
Incurred losses		133			110			41			33			28			51
Paid losses		(52	)		(42	)		(42	)		(32	)		(32	)		(30	)
Ending reserves	$	478		$	367		$	397		$	299		$	398		$	298

        Our reserves for environmental and asbestos losses at Dec. 31, 2001 represent our estimate of our ultimate liability for such losses, based on all information currently available to us. Because of the inherent difficulty in estimating such losses, however, we cannot give assurances that our ultimate liability for environmental and asbestos losses will, in fact, match our current reserves. We continue to evaluate new information and developing loss patterns. We believe any future additional loss provisions for, or settlement of, environmental and asbestos claims will not materially impact our financial position, but may materially impact our results of operations or liquidity in the period in which such provisions or settlements occur.

        In 2001, we completed a periodic analysis of environmental and asbestos reserves at one of our subsidiaries in the United Kingdom. The analysis was based on a policy-by-policy review of our known and unknown exposure to damages arising from environmental pollution and asbestos litigation. The analysis concluded that loss experience for environmental exposures was developing more favorably than anticipated, while loss experience for asbestos exposures was developing less favorably than anticipated. The divergence in loss experience had an offsetting impact on respective reserves for environmental and asbestos exposures; as a result, we recorded a $48 million reduction in net incurred environmental losses in 2001, and an increase in net incurred asbestos losses for the same amount.

        Total gross environmental and asbestos reserves at Dec. 31, 2001 of $1.06 billion represented approximately 5% of gross consolidated reserves of $22.1 billion.

Record sales and strong asset growth lead to Nuveen's seventh consecutive year of record earnings

ASSET MANAGEMENT
The John Nuveen Company

We hold a 77% interest in The John Nuveen Company ("Nuveen"), which constitutes our asset management segment. Nuveen's core businesses are asset management, and the development, marketing and distribution of investment products and services for the affluent, high net worth and institutional market segments. Nuveen distributes its investment products and services, including mutual funds, exchange-traded funds, defined portfolios and individually managed accounts, to the affluent and high net worth market segments through unaffiliated intermediary firms including broker-dealers, commercial banks, affiliates of insurance providers, financial planners, accountants, consultants and investment advisors. Nuveen provides investment products and services directly to the institutional market. The Company markets its capabilities under three distinct brands: Nuveen, a leader in tax-free investments; Rittenhouse, a retail managed account service platform; and Symphony, a leading institutional manager of market-neutral and other investment portfolios. Nuveen is listed on the New York Stock Exchange, trading under the symbol "JNC."

        The following table summarizes Nuveen's key financial data for the last three years.

		Year Ended December 31
		2001			2000			1999
		(In Millions)
Revenues		$	378		$	376		$	353
Expenses			190			201			193
	Pretax income		188			175			160
Minority interest			(46	)		(40	)		(37	)
	The St. Paul's share of pretax income	$	142		$	135		$	123
Assets under management		$	68,485		$	62,011		$	59,784

        Nuveen provides consultative services to financial advisors on managed assets for fee-based customers, and structured investment services for transaction-based advisors. These activities generate three principal sources of revenue: (1) ongoing advisory fees earned on assets under management, including individually managed accounts, mutual funds and exchange-traded funds; (2) distribution revenues earned upon the sale of defined portfolio and mutual fund products and (3) fees earned on certain institutional accounts based on the performance of such accounts.

        In July 2001, Nuveen acquired Symphony Asset Management LLC ("Symphony"), an institutional investment manager based in San Francisco with approximately $4 billion in assets under management. As a result of the acquisition, Nuveen's product offerings were expanded to include managed accounts and funds designed to reduce risk through market-neutral and other strategies in several equity and fixed-income asset classes for institutional investors.

        In 2001, gross sales of investment products increased 32% to $14.2 billion, driven by continuing success with exchange-traded funds. Nuveen launched 20 new municipal funds, as well as a REIT-based fund, issuing approximately $2.8 billion of new municipal exchange-traded fund common shares and $1.2 billion in MuniPreferred™ shares. Reflecting the strength of Nuveen's consultative platform, managed account sales were very strong, growing 39% for the year. Mutual fund sales grew 22% mainly as a result of an increase in municipal fund sales. Nuveen's strong sales in exchange-traded funds, managed accounts and mutual funds were partially offset by lower equity defined portfolio sales as a result of equity market volatility, particularly in the technology sector. Nuveen's net flows (equal to the

sum of sales, reinvestments and exchanges, less redemptions) totaled $7.7 billion in 2001, a 64% increase over net flows of $4.7 billion in 2000.

        Total assets under management grew 10% to $68.5 billion at the end of 2001, compared with $62.0 billion a year earlier. The increase was due to the addition of Symphony and Nuveen's strong net flows for the year. At the end of 2001, managed assets consisted of $32.0 billion of exchange-traded funds, $24.7 billion of managed accounts, and $11.8 billion of mutual funds. Municipal securities accounted for 70% of assets under management at Dec. 31, 2001. Including defined portfolios, Nuveen managed or oversaw approximately $76 billion in assets at Dec. 31, 2001.

        Operating revenues totaled $371 million in 2001, an increase of 4% over 2000. Growth in advisory fees of 6%, which occurred as a result of an increase in average assets under management, was offset slightly by a decline in distribution revenue related to lower defined portfolio sales.

        Operating expenses for the year declined 4%. Excluding the impact of the Symphony acquisition, operating expenses declined 9%. The decline from 2000 was largely due to a reduction in advertising and promotional spending, which had been higher in 2000 due to Nuveen's brand awareness campaign.

        During 2001, Nuveen utilized a portion of its $250 million revolving line of credit for general corporate purposes, including day-to-day cash requirements, share repurchases and funding a portion of the $208 million acquisition of Symphony. At the end of 2001, $183 million was outstanding under the line of credit, and that entire amount is included in The St. Paul's reported consolidated debt outstanding at Dec. 31, 2001.

        Nuveen repurchased common shares from minority shareholders in 2001, 2000 and 1999 for total costs of $172 million, $51 million and $36 million, respectively. No shares were repurchased from The St. Paul in those years; however, our percentage ownership fell from 78% in 2000 to 77% at the end of 2001 due to Nuveen's issuance of additional shares under various stock option and incentive plans and the issuance of common shares upon the conversion of a portion of its preferred stock. As part of an ongoing repurchase program, Nuveen had authority from its board of directors at Dec. 31, 2001 to repurchase up to approximately 2.4 million additional common shares.

        On August 9, 2001, Nuveen announced a 3-for-2 split of its common stock. The stock split was effected as a dividend to shareholders of record as of Sept. 20, 2001. Shareholders received one additional share of Nuveen common stock for every two shares they owned as of the record date.

        2000 vs. 1999—In 2000, Nuveen's 7% revenue growth over 1999 was driven by a significant increase in distribution revenues resulting from strong sales of defined investment portfolios. In addition, advisory fees increased over 1999 due to the 4% growth in assets under management. Gross sales of investment products of $10.8 billion in 2000 were 23% below the comparable 1999 total of $14.1 billion, primarily due to a decline in managed account sales in a volatile market environment. That decline was partially offset, however, by strong growth in defined portfolio sales. The 4% increase in expenses over 1999 was primarily due to advertising expenses associated with Nuveen's brand awareness campaign. Nuveen's consolidated net flows totaled $4.7 billion in 2000, compared with $9.6 billion in 1999.

        2002 Outlook—Nuveen's positioning as a premier investment management firm with a specialty focus on risk management and tax-sensitivity in equity and fixed-income holdings is expected to serve its advisor customers and institutional investors well in 2002. Nuveen will continue to strengthen its customer relationships, build on and extend its premium brands, and leverage its proven distribution and service platforms.

Capital structure remains solid, conservative despite record net loss in 2001

THE ST. PAUL COMPANIES
Capital Resources

        Capital resources consist of funds deployed or available to be deployed to support our business operations. The following table summarizes the components of our capital resources at the end of each of the last three years.

				December 31
				2001			2000			1999
				(In Millions)
Shareholders' equity:
	Common equity:
		Common stock and retained earnings		$	4,692		$	6,481		$	5,906
		Unrealized appreciation of investments and other			364			697			542
			Total common shareholders' equity		5,056			7,178			6,448
	Preferred shareholders' equity				58			49			24
			Total shareholders' equity		5,114			7,227			6,472
Debt					2,130			1,647			1,466
Company-obligated mandatorily redeemable preferred securities of trusts holding solely subordinated debentures of the company					893			337			425
			Total capitalization	$	8,137		$	9,211		$	8,363
Ratio of debt to total capitalization					26	%		18	%		18	%

        Common Equity—Our net loss of $1.09 billion in 2001 was the primary factor in the 30% decline in common shareholders' equity since the end of 2000. In 2000, the 11% increase in common equity was driven by net income of nearly $1 billion for the year. The following summarizes other major factors impacting our common shareholders' equity in the last three years.

•

Common share repurchases. In 2001, we repurchased and retired 13.0 million of our common shares for a total cost of $589 million, or approximately $45 per share. The share repurchases in 2001 occurred prior to Sept. 11 and represented 6% of our total shares outstanding at the beginning of the year. In 2000, we repurchased and retired 17.9 million of our common shares for a total cost of $536 million (approximately $30 per share), and in 1999, we repurchased 11.1 million shares for a total cost of $356 million (approximately $32 per share). The share repurchases in each year were financed through a combination of internally-generated funds and new debt issuances. Since our issuance of 66.5 million shares in April 1998 to consummate our merger with USF&G Corporation, we had repurchased and retired 45.8 million shares for a total cost of $1.62 billion through Dec. 31, 2001.



•

Common dividends. We declared common dividends totaling $235 million in 2001, $232 million in 2000 and $235 million in 1999. In February 2002, The St. Paul's board of directors declared a quarterly dividend of $0.29 per share, a 3.6% increase over the 2001 quarterly dividend of $0.28 per share. We have paid dividends in every year since 1872. During those 130 years of uninterrupted dividend payments, our dividend rate has increased in 70 of those years, including the last 16 consecutive years.



•

Conversion of preferred securities. In 2000, our wholly-owned subsidiary, St. Paul Capital LLC, exercised its right to cause the conversion rights of the owners of its $207 million, 6% Convertible Monthly Income Preferred Securities ("MIPS") to expire. Each of the 4,140,000 MIPS outstanding was convertible into 1.695 shares of our common stock. The MIPS were classified on our balance sheet as "Company-obligated mandatorily redeemable preferred securities of trusts holding solely subordinated debentures of the Company," as a separate line

between liabilities and shareholders' equity. Prior to the expiration date, almost all of the MIPS holders exercised their conversion rights, resulting in the issuance of 7.0 million of our common shares, and an increase to our common equity of $207 million. The remaining MIPS were redeemed for cash at $50 per security, plus accumulated dividends.

        Preferred Equity—Preferred shareholders' equity consisted of the par value of the Series B preferred shares we issued to our Stock Ownership Plan (SOP) Trust, less the remaining principal balance of the SOP Trust debt. During 2001 and 2000, we made principal payments of $14 million and $37 million, respectively, on the Trust debt.

        Debt—Consolidated debt outstanding at the end of the last three years consisted of the following components.

		December 31
		2001			2000			1999
		(In Millions)
Commercial paper		$	606		$	138		$	400
Medium-term notes			571			617			617
7.875% senior notes			249			249			—
8.125% senior notes			249			249			—
Nuveen line of credit borrowings			183			—			—
Zero coupon convertible notes			103			98			94
7.125% senior notes			80			80			80
Variable rate borrowings			64			64			64
Real estate mortgages			2			2			15
8.375% senior notes			—			150			150
Floating rate notes			—			—			46
	Total debt obligations		2,107			1,647			1,466
Fair value of interest rate swap agreements			23			—			—
	Total reported debt	$	2,130		$	1,647		$	1,466
Debt as a percentage of total capitalization			26	%		18	%		18	%

        2001 vs. 2000—Proceeds from the net issuance of $468 million of additional commercial paper in 2001 were used to fund a portion of operational cash requirements, common stock repurchases, and debt maturing during the year, including our $150 million, 8.375% senior notes that matured in June and $46 million of medium-term notes that matured throughout the year. During 2001, Nuveen utilized a portion of its $250 million revolving line of credit for general corporate purposes, including funding a portion of its acquisition of Symphony Asset Management LLC, and the repurchase of its common shares. At year-end 2001, $183 million, bearing a weighted average interest rate of approximately 3.1%, was outstanding under Nuveen's line of credit agreement.

        At the end of 2001, we were party to a number of interest rate swap agreements related to several of our debt securities outstanding. The notional amount of these swaps totaled $230 million, and their aggregate fair value at Dec. 31, 2001 was $23 million. Upon our adoption of SFAS No. 133, as amended, on Jan. 1, 2001, we began recording the fair value of the swap agreements as an asset, with a corresponding increase to reported debt.

        2000 vs. 1999—During 2000, we issued $500 million of senior notes, the proceeds of which were used to repay commercial paper and for other general corporate purposes. Of the $500 million issued, $250 million bears an interest rate of 7.875% and is due in April 2005, and $250 million bears an interest rate of 8.125% and is due in April 2010. Commercial paper borrowings declined from $400 million at the end of 1999 to $138 million at Dec. 31, 2000. In addition, we repaid $46 million of floating rate notes in 2000 that had been issued by a fully-consolidated special purpose offshore reinsurance entity we created in 1999. We also repaid $13 million of mortgage debt associated with two of our real estate investments in 2000.

        Our total net interest expense related to debt was $110 million in 2001, $115 million in 2000 and $96 million in 1999.

        Company-obligated Mandatorily Redeemable Preferred Securities of Trusts Holding Solely Subordinated Debentures of the Company—These securities were issued by five business trusts wholly-owned by The St. Paul. Each trust was formed for the sole purpose of issuing the preferred securities. St. Paul Capital Trust I was established in November 2001 and issued $575 million of preferred securities that make preferred distributions at a rate of 7.6%. These securities have a mandatory redemption date of Oct.15, 2050, but we can redeem them on or after Nov. 13, 2006. The proceeds received from the sale of these securities were used by the issuer to purchase our subordinated debentures, and $500 million of the net proceeds were ultimately contributed to the policyholders' surplus of one of our insurance subsidiaries.

        MMI Capital Trust I was acquired in our purchase of MMI in 2000. In 1997, the trust issued $125 million of 30-year redeemable preferred securities. The securities make preferred distributions at a rate of 7.625% and have a mandatory redemption date of Dec.15, 2027.

        The remaining three trusts, acquired in the USF&G merger, each issued $100 million of preferred securities making preferred distributions at rates of 8.5%, 8.47% and 8.312%, respectively. In 2001, we repurchased and retired $20 million of securities of the 8.5% trust. In 1999, we repurchased and retired securities of these three trusts with an aggregate liquidation value of $79 million, comprised of the following components: $27 million of the 8.5% securities; $22 million of the 8.47% securities; and $30 million of the 8.312% securities. The repurchases were made in open market transactions and were primarily funded through commercial paper borrowings.

        Our total preferred distribution expense related to the preferred securities was $33 million in 2001, $31 million in 2000, and $36 million in 1999.

        Independent Financial Ratings—In the aftermath of the Sept. 11 terrorist attack, certain of the major independent rating organizations placed our financial ratings under review. The scope of their respective reviews was subsequently broadened to encompass the rating implications of the strategic decisions that we announced in December 2001 regarding our planned exit from certain businesses and our intent to record significant provisions to strengthen loss reserves. The rating agencies concluded their reviews in mid-December concurrent with our strategic announcements and announced updates to certain ratings. As of Jan. 23, 2002, none of the major rating agencies has any of our financial ratings under review.

        We continue to have ready access to liquidity through the capital markets, including the largest and most liquid sector of the commercial papermarket.

        Acquisitions and Divestitures—In September 2001, we sold our life insurance subsidiary, F&G Life, to Old Mutual plc, for $335 million in cash and 190.4 million Old Mutual ordinary shares (valued at $300 million at closing). The cash proceeds received were used for general corporate purposes. We are required to hold the Old Mutual common shares for one year after the closing date of the sale. These shares had a market value of $242 million on Dec. 31, 2001. The sale proceeds may be adjusted based on the market value of the shares one year after the closing date of the sale as described on page 15 of this report. We also sold ACLIC, MMI's life insurance subsidiary, to CNA for $21 million in cash.

        We purchased MMI in April 2000 for approximately $206 million in cash, and the assumption of $165 million of short-term debt and preferred securities. The short-term debt of $45 million was retired subsequent to the acquisition. The cash portion of this transaction and the repayment of debt was financed with internally-generated funds. In addition, our purchase of Pacific Select in February 2000 for approximately $37 million in cash was financed with internally-generated funds.

        In May 2000, we completed the sale of our nonstandard auto operations for a total cash consideration of approximately $175 million (net of a $25 million dividend paid by these operations to our property-liability operations prior to closing). In September 1999, we completed the sale of our

standard personal insurance operations to Metropolitan for net proceeds of approximately $272 million. Proceeds from both transactions were used for general corporate purposes.

        Capital Commitments—Capital expenditures that we might consider in 2002 include acquisitions of existing businesses consistent with our commercial insurance focus, and repurchases of our common stock. As of year-end 2001 and through Jan. 23, 2002, we had the authorization to make up to $89 million of common share repurchases under a repurchase program approved by our board of directors in February 2001. We repurchase our shares on the open market and through private transactions when we deem such repurchases to be a prudent use of capital. We made no major capital improvements during any of the last three years.

THE ST. PAUL COMPANIES
Liquidity

        Liquidity is a measure of our ability to generate sufficient cash flows to meet the short- and long-term cash requirements of our business operations. Our underwriting operations' short-term cash needs primarily consist of paying insurance loss and loss adjustment expenses and day-to-day operating expenses. Those needs are met through cash receipts from operations, which consist primarily of insurance premiums collected and investment income. Our investment portfolio is also a source of additional liquidity, through the sale of readily marketable fixed maturities, equity securities and short-term investments, as well as longer-term investments such as real estate and venture capital holdings. After satisfying our cash requirements, excess cash flows from these underwriting and investment activities are used to build the investment portfolio and thereby increase future investment income.

        Cash flows from continuing operations totaled $884 million in 2001, compared with cash outflows of $588 million in 2000 and cash flows of $147 million in 1999. The strong improvement in 2001 was the result of several factors. In our property-liability operations, written premiums of $7.76 billion were 32% higher than in 2000, significantly outpacing the 9% increase in insurance losses and loss adjustment expenses paid. Our net paid losses and loss adjustment expenses totaled $5.57 billion in 2001. Premium payments we made related to our corporate reinsurance program in 2001 totaled $165 million, down significantly from payments of $345 million in 2000. In addition, we received net federal tax refunds of $54 million in 2001, compared with net federal tax payments of $161 million in 2000. Our asset management segment also contributed approximately $82 million to the improvement in consolidated operational cash flows in 2001.

        The deterioration in 2000 operational cash flows compared with 1999 was primarily due to significant loss payments in our Reinsurance, Health Care and Lloyd's and Other business segments, and premium payments totaling $345 million related to our corporate reinsurance program. Our underwriting cash flows in 1999 were negatively impacted by the reductions in written premium volume and investment receipts in our property-liability operations. Also in 1999, we made premium payments totaling $129 million related to our corporate reinsurance program. The sale of fixed-maturity investments to fund operational cash flow requirements resulted in lower levels of investment cash flows in each of the last three years.

        We expect our operational cash flows will be negatively impacted in 2002 by the magnitude of insurance losses and loss adjustment expenses payable as a result of the Sept.11 terrorist attack, as well as losses payable related to businesses we are exiting, particularly the medical liability business. Excluding those factors, however, we expect further improvement in operational cash flows in 2002, reflecting the benefit of corrective pricing and underwriting actions in our property-liability operations and expense reduction initiatives implemented throughout our operations in recent years. We believe our financial position is strong and debt level conservative, which provide us with the flexibility and capacity to obtain funds externally through debt or equity financings on both a short-term and long-term basis.

        We do not anticipate receiving any cash dividends from our insurance underwriting subsidiaries in 2002. We have sufficient resources available at the parent company to fund common and preferred shareholder dividends, interest payments and distributions on debt and preferred securities, respectively, and other administrative expenses.

        We are not aware of any current recommendations by regulatory authorities that, if implemented, might have a material impact on our liquidity, capital resources or operations.

THE ST. PAUL COMPANIES
Exposures to Market Risk

        Market risk can be described as the risk of change in fair value of a financial instrument due to changes in interest rates, equity prices, creditworthiness, foreign exchange rates or other factors. We seek to mitigate that risk by a number of actions, as described below. Our exposure to these risks, and our policies to address these risks, were unchanged from the previous year.

        Interest Rate Risk—Our exposure to market risk for changes in interest rates is concentrated in our investment portfolio, and to a lesser extent, our debt obligations. However, changes in investment values attributable to interest rate changes are mitigated by corresponding and partially offsetting changes in the economic value of our insurance reserves and debt obligations. We monitor this exposure through periodic reviews of our asset and liability positions. Our estimates of cash flows, as well as the impact of interest rate fluctuations relating to our investment portfolio and insurance reserves, are modeled and reviewed quarterly.

        The following table provides principal cash flow estimates by year for our Dec. 31, 2001 and 2000 inventories of interest-sensitive investment assets considered to be other than trading. Also provided are the weighted average interest rates associated with each year's cash flows. Principal cash flow projections for collateralized mortgage obligations were prepared using third-party prepayment analyses. Cash flow estimates for mortgage passthroughs were prepared using average prepayment rates for the prior three months. Principal cash flow estimates for callable bonds are either to maturity or to the next call date depending on whether the call was projected to be "in-the-money" assuming no change in interest rates. No projection of the impact of reinvesting the estimated cash flows is included in the table, regardless of whether the cash flow source is a short-term or long-term fixed maturity security. Principal cash flow projections include securities on loan.

		December 31, 2001				December 31, 2000
Period From Balance Sheet Date		Principal Cash Flows		Weighted Average Interest Rate		Principal Cash Flows		Weighted Average Interest Rate
		(In Millions)
FIXED MATURITIES, SHORT-TERM INVESTMENTS AND MORTGAGE LOANS
One year		$	4,416	4.4	%	$	4,002	5.6	%
Two year			2,017	6.6	%		1,698	7.1	%
Three years			1,616	7.5	%		1,710	7.3	%
Four years			1,454	6.5	%		1,538	7.8	%
Five years			1,562	6.4	%		1,428	6.3	%
Thereafter			7,547	6.2	%		7,428	6.4	%
	Total	$	18,612			$	17,804
Fair Value		$	18,198			$	17,222

        The following table provides principal runoff estimates by year for our Dec. 31, 2001 and 2000 inventories of interest-sensitive debt obligations and related weighted average interest rates by stated maturity dates.

		December 31, 2001				December 31, 2000
Period From Balance Sheet Date		Principal Cash Flows		Weighted Average Interest Rate		Principal Cash Flows		Weighted Average Interest Rate
		(In Millions)
MEDIUM-TERM NOTES, ZERO COUPON NOTES AND SENIOR NOTES
One year		$	49	7.5	%	$	195	8.1	%
Two year			67	6.5	%		49	7.5	%
Three years			54	7.1	%		67	6.5	%
Four years			429	7.5	%		55	7.1	%
Five years			59	7.0	%		428	7.5	%
Thereafter			635	6.8	%		694	6.8	%
	Total	$	1,293			$	1,488
Fair Value		$	1,330			$	1,475

        To mitigate a portion of the interest rate risk related to $230 million notional amount of certain of our fixed rate medium-term and senior notes, we have entered into a number of pay-floating, receive-fixed interest rate swap agreements. Of the total notional amount of the swaps, $80 million matures in 2005 and $150 million matures in 2008, with a weighted average pay rate of 1.26% and a weighted average receive rate of 6.64%. These swaps had a fair value of $23 million at Dec. 31, 2001.

        The company also has liability for payment under "company- obligated mandatorily redeemable preferred securities of trusts holding solely subordinated debentures of the company" that mature at various times, the earliest of which is 2027. The principal amounts due under these obligations were $901 million and $346 million at Dec. 31, 2001 and 2000, respectively, with weighted average preferred distribution rates of 7.8% and 8.1%, respectively. The fair value of these securities was $893 million and $327 million as of Dec. 31, 2001 and 2000, respectively. Approximately $575 million of the securities are callable at the company's option after Nov. 13, 2006. An additional $78 million are callable at the company's option between 2007 and their maturity.

        Credit Risk—Our portfolios of fixed maturities, mortgage loans and to a lesser extent short-term investments are subject to credit risk. This risk is defined as the potential loss in market value resulting from adverse changes in the borrower's ability to repay the debt. Our objective is to earn competitive returns by investing in a diversified portfolio of securities. We manage this risk by up-front, stringent underwriting analysis, reviews by a credit committee and regular meetings to review credit developments. Watchlists are maintained for exposures requiring additional review, and all credit exposures are reviewed at least annually. At Dec. 31, 2001, approximately 95% of our property-liability fixed maturity portfolio was rated investment grade.

        We also have other receivable amounts subject to credit risk. The most significant of these are reinsurance recoverables. To mitigate credit risk related to these counterparties, we establish business and financial standards for reinsurer approval, incorporating ratings by major rating agencies and considering current market information, and obtain letters of credit where deemed necessary.

        Foreign Currency Exposure—Our exposure to market risk for changes in foreign exchange rates is concentrated in our invested assets, and insurance reserves, denominated in foreign currencies. Cash flows from our foreign operations are the primary source of funds for our purchase of investments denominated in foreign currencies. We purchase these investments primarily to hedge insurance reserves and other liabilities denominated in the same currency, effectively reducing our foreign currency exchange rate exposure. For those foreign insurance operations that were identified at the end of 2001 as business to be exited, we intend to continue to closely match the foreign currency-

denominated liabilities with assets in the same currency. At Dec. 31, 2001 and 2000, respectively, approximately 11% and 9% of our invested assets were denominated in foreign currencies. Invested assets denominated in the British Pound Sterling comprised approximately 5% of our total invested assets at Dec. 31, 2001. We have determined that a hypothetical 10% reduction in the value of the Pound Sterling would have an approximate $100 million reduction in the value of our assets, although there would be a similar hypothetical change in the value of the related insurance reserves. No other individual foreign currency accounts for more than 3% of our invested assets.

        We have also entered into foreign currency forwards with a U.S. dollar equivalent notional amount of $128 million as of Dec. 31, 2001 to hedge our foreign currency exposure on certain contracts. Of this total, 76% are denominated in British Pound Sterling, 14% are denominated in the Australian dollar, and 10% are denominated in the Canadian dollar.

        Equity Price Risk—Our portfolio of marketable equity securities, which we carry on our balance sheet at market value, has exposure to price risk. This risk is defined as the potential loss in market value resulting from an adverse change in prices. Our objective is to earn competitive returns by investing in a diverse portfolio of high-quality, liquid securities. Portfolio characteristics are analyzed regularly and market risk is actively managed through a variety of modeling techniques. Our holdings are diversified across industries, and concentrations in any one company or industry are limited by parameters established by senior management as well as by statutory requirements.

        Included in our equity portfolio at Dec. 31, 2001 was our investment in Old Mutual plc, received as partial consideration in our sale of F&G Life. We are prohibited from selling this for one year from the Sept. 28, 2001 sale date. To mitigate our exposure to price risk on this investment, we entered into a collar (embedded in the sale agreement), as discussed in more detail on page 15 of this report. During the one-year holding period, changes in the fair value of the Old Mutual stock will be reflected in unrealized appreciation of investments, net of tax, in shareholders' equity. Changes in the fair value of the collar will be reflected in discontinued operations, net of tax.

        Our portfolio of venture capital investments also has exposure to market risks, primarily relating to the viability of the various entities in which we have invested. These investments, primarily in early-stage companies, involve more risk than other investments related to downturns in the economy and equity markets, and we actively manage our market risk in a variety of ways. First, we allocate a comparatively small amount of funds to venture capital. At the end of 2001, the cost of these investments accounted for only 4% of total invested assets. Second, the investments are diversified to avoid concentration of risk in a particular industry. Third, we perform extensive research prior to investing in a new venture to gauge prospects for success. Fourth, we regularly monitor the operational results of the entities in which we have invested. Finally, we generally sell our holdings in these firms soon after they become publicly traded and when we are legally able to do so, thereby reducing exposure to further market risk.

        At Dec. 31, 2001, our marketable equity securities were recorded at their fair value of $1.41 billion. A hypothetical 10% decline in each stock's price would have resulted in a $141 million impact on fair value.

        At Dec. 31, 2001, our venture capital investments were recorded at their fair value of $859 million. A hypothetical 10% decline in each investment's fair value would have resulted in an $86 million impact on fair value.

        Catastrophe Risk—We manage and monitor our aggregate property catastrophe exposure through various methods, including purchasing catastrophe reinsurance, establishing underwriting restrictions and applying a dedicated catastrophe-pricing model.

THE ST. PAUL COMPANIES
Impact of Accounting Pronouncements to Be Adopted in the Future

        In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 142, "Goodwill and Other Intangible Assets," which establishes financial accounting and reporting for acquired

goodwill and other intangible assets. It addresses how intangible assets that are acquired individually or with a group of other assets (but not those acquired in a business combination) should be accounted for in financial statements upon their acquisition. It also addresses how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements. The statement changes current accounting in the way intangible items with indefinite useful lives, including goodwill, are tested for impairment on an annual basis. Generally, it also requires that those assets meeting the criteria for classification as intangible with estimable useful lives will be amortized, while intangible assets with indefinite useful lives and goodwill will not be amortized. Previously, all goodwill was required to be amortized over the estimated useful life, not to exceed 40 years. The statement is effective for fiscal years beginning after December 15, 2001. We intend to implement SFAS No. 142 in the period during which its provisions become effective. We expect our adoption of this statement to result in a reduction of approximately $30 million in the amount of our goodwill amortization in 2002, compared with 2001 amortization. We have not yet determined if we will be required to recognize an impairment loss on implementation, as a cumulative effect of a change in accounting principle.

        Also in June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations," which establishes financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. It requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are to be capitalized as part of the carrying amount of the long-lived asset. This statement is effective for fiscal years beginning after June 15, 2002. We do not expect the adoption of SFAS No. 143 to have a material impact on our financial statements.

        In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This statement supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual or Infrequently Occurring Events and Transactions," for the disposal of a segment of a business. SFAS No. 144 establishes a single accounting model, based on the framework established in SFAS No. 121, for long-lived assets to be disposed of by sale. It also resolves significant implementation issues related to SFAS No. 121. This statement is effective for fiscal years beginning after December 15, 2001. We have not yet determined the impact of adopting this statement.

Six-Year Summary of Selected Financial Data

THE ST. PAUL COMPANIES

		2001			2000			1999			1998			1997			1996
		(In Millions, Except Ratios and Per Share Data)
CONSOLIDATED
Revenues from continuing operations		$	8,943		$	7,972		$	7,149		$	7,315		$	7,904		$	7,536
After-tax income (loss) from continuing operations			(1,009	)		970			705			187			1,011			1,054
INVESTMENT ACTIVITY
Net investment income			1,217			1,262			1,259			1,295			1,320			1,240
Pretax realized investment gains (losses)			(94	)		632			286			203			409			205
OTHER SELECTED FINANCIAL DATA (as of December 31)
Total assets			38,321			35,502			33,418			33,211			32,735			30,971
Debt			2,130			1,647			1,466			1,260			1,304			1,171
Redeemable preferred securities			893			337			425			503			503			307
Common shareholders' equity			5,056			7,178			6,448			6,621			6,591			5,631
Common shares outstanding			207.6			218.3			224.8			233.7			233.1			230.9
PER COMMON SHARE DATA
Income (loss) from continuing operations			(4.84	)		4.14			2.89			0.73			4.02			4.09
Year-end book value			24.35			32.88			28.68			28.32			28.27			24.39
Year-end market price			43.97			54.31			33.69			34.81			41.03			29.31
Cash dividends declared			1.12			1.08			1.04			1.00			0.94			0.88
PROPERTY-LIABILITY INSURANCE
Written premiums			7,763			5,884			5,112			5,276			5,682			5,683
Pretax income (loss) from continuing operations			(1,400	)		1,467			971			298			1,488			1,257
GAAP underwriting result			(2,294	)		(309	)		(425	)		(881	)		(139	)		(35	)
Statutory combined ratio:
	Loss and loss adjustment expense ratio		102.5			70.0			72.9			82.2			69.8			68.9
	Underwriting expense ratio		28.1			34.8			35.0			35.2			33.5			31.9
	Combined ratio		130.6			104.8			107.9			117.4			103.3			100.8

Independent Auditors' Report

THE BOARD OF DIRECTORS AND SHAREHOLDERS
THE ST. PAUL COMPANIES, INC.:

        We have audited the accompanying consolidated balance sheets of The St. Paul Companies, Inc. and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of operations, shareholders' equity, comprehensive income and cash flows for each of the years in the three-year period ended December 31, 2001. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

        We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of The St. Paul Companies, Inc. and subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America.

        As discussed in Notes 1 and 8 to the consolidated financial statements, in 2001 the Company adopted the provisions of the Statement of Financial Accounting Standards No.133, "Accounting for Derivative Instruments and Hedging Activities" and, as also described in Note 1, in 1999 the Company adopted the provisions of Statement of Position No. 97-3, "Accounting by Insurance and Other Enterprises for Insurance-Related Assessments."

KPMG LLP

KPMG LLP
Minneapolis, Minnesota
January 23, 2002

Management's Responsibility for Financial Statements

        Scope of Responsibility—Management prepares the accompanying financial statements and related information and is responsible for their integrity and objectivity. The statements were prepared in conformity with United States generally accepted accounting principles. These financial statements include amounts that are based on management's estimates and judgments, particularly our reserves for losses and loss adjustment expenses. We believe that these statements present fairly the company's financial position and results of operations and that the other information contained in the annual report is consistent with the financial statements.

        Internal Controls—We maintain and rely on systems of internal accounting controls designed to provide reasonable assurance that assets are safeguarded and transactions are properly authorized and recorded. We continually monitor these internal accounting controls, modifying and improving them as business conditions and operations change. Our internal audit department also independently reviews and evaluates these controls. We recognize the inherent limitations in all internal control systems and believe that our systems provide an appropriate balance between the costs and benefits desired. We believe our systems of internal accounting controls provide reasonable assurance that errors or irregularities that would be material to the financial statements are prevented or detected in the normal course of business.

        Independent Auditors—Our independent auditors, KPMG LLP, have audited the consolidated financial statements. Their audit was conducted in accordance with auditing standards generally accepted in the United States of America, which includes the consideration of our internal controls to the extent necessary to form an independent opinion on the consolidated financial statements prepared by management.

        Audit Committee—The audit committee of the board of directors, composed solely of outside directors, assists the board of directors in overseeing management's discharge of its financial reporting responsibilities. The committee meets with management, our director of internal audit and representatives of KPMG LLP to discuss significant changes to financial reporting principles and policies and internal controls and procedures proposed or contemplated by management, our internal auditors or KPMG LLP. Additionally, the committee assists the board of directors in the selection, evaluation and, if applicable, replacement of our independent auditors; and in the evaluation of the independence of the independent auditors. Both internal audit and KPMG LLP have access to the audit committee without management's presence.

        Code of Conduct—We recognize our responsibility for maintaining a strong ethical climate. This responsibility is addressed in the company's written code of conduct.

JAY S. FISHMAN Jay S. Fishman
Chairman, President and Chief Executive
    Officer
THOMAS A. BRADLEY Thomas A. Bradley
Chief Financial Officer

Consolidated Statements of Operations

THE ST. PAUL COMPANIES

			Year Ended December 31
			2001			2000			1999
			(In Millions, Except Per Share Data)
REVENUES
Premiums earned			$	7,296		$	5,592		$	5,103
Net investment income				1,217			1,262			1,259
Asset management				359			356			340
Realized investment gains (losses)				(94	)		632			286
Other				165			130			161
		Total revenues		8,943			7,972			7,149
EXPENSES
Insurance losses and loss adjustment expenses				7,479			3,913			3,720
Policy acquisition expenses				1,589			1,396			1,321
Operating and administrative expenses				1,306			1,262			1,157
		Total expenses		10,374			6,571			6,198
		Income (loss) from continuing operations before income taxes		(1,431	)		1,401			951
Income tax expense (benefit)				(422	)		431			219
		Income (loss) from continuing operations before cumulative effect of accounting change		(1,009	)		970			732
Cumulative effect of accounting change, net of taxes				—			—			(27	)
		Income (loss) from continuing operations		(1,009	)		970			705
Discontinued operations:
	Operating income, net of taxes			19			43			35
	Gain (loss) on disposal, net of taxes			(98	)		(20	)		94
		Gain (loss) from discontinued operations		(79	)		23			129
		Net Income (Loss)	$	(1,088	)	$	993		$	834
BASIC EARNINGS (LOSS) PER COMMON SHARE
Income (loss) from continuing operations before cumulative effect			$	(4.84	)	$	4.39		$	3.16
Cumulative effect of accounting change, net of taxes				—			—			(0.12	)
Gain (loss) from discontinued operations, net of taxes				(0.38	)		0.11			0.57
		Net Income (Loss)	$	(5.22	)	$	4.50		$	3.61
DILUTED EARNINGS (LOSS) PER COMMON SHARE
Income (loss) from continuing operations before cumulative effect			$	(4.84	)	$	4.14		$	3.00
Cumulative effect of accounting change, net of taxes				—			—			(0.11	)
Gain (loss) from discontinued operations, net of taxes				(0.38	)		0.10			0.52
		Net Income (Loss)	$	(5.22	)	$	4.24		$	3.41

See notes to consolidated financial statements.

Consolidated Balance Sheets

THE ST. PAUL COMPANIES

				December 31
				2001			2000
				(In Millions)
ASSETS
Investments:
	Fixed maturities			$	15,911		$	14,730
	Equities				1,410			1,466
	Real estate and mortgage loans				972			1,025
	Venture capital				859			1,064
	Securities on loan				775			1,207
	Short-term investments				2,153			2,331
	Other investments				98			229
			Total investments		22,178			22,052
Cash					151			52
Reinsurance recoverables:
	Unpaid losses				6,848			4,651
	Paid losses				351			324
Ceded unearned premiums					667			814
Receivables:
	Underwriting premiums				3,123			2,937
	Interest and dividends				260			277
	Other				247			181
Deferred policy acquisition costs					628			576
Deferred income taxes					1,248			930
Office properties and equipment					486			492
Goodwill and intangible assets					690			510
Other assets					1,444			1,706
			Total Assets	$	38,321		$	35,502
LIABILITIES
Insurance reserves:
	Losses and loss adjustment expenses			$	22,101		$	18,196
	Unearned premiums				3,957			3,648
			Total insurance reserves		26,058			21,844
Debt					2,130			1,647
Payables:
	Reinsurance premiums				943			1,060
	Income taxes				—			170
	Accrued expenses and other				1,036			1,031
Securities lending collateral					790			1,231
Other liabilities					1,357			955
			Total Liabilities		32,314			27,938
Company-obligated mandatorily redeemable preferred securities of trusts holding solely subordinated debentures of the company					893			337
SHAREHOLDERS' EQUITY
Preferred:
	SOP convertible preferred stock				111			117
	Guaranteed obligation—SOP				(53	)		(68	)
			Total Preferred Shareholders' Equity		58			49
Common:
	Common stock				2,192			2,238
	Retained earnings				2,500			4,243
	Accumulated other comprehensive income, net of taxes:
		Unrealized appreciation on investments			442			765
		Unrealized loss on foreign currency translation			(76	)		(68	)
		Unrealized loss on derivatives			(2	)		—
			Total accumulated other comprehensive income		364			697
			Total Common Shareholders' Equity		5,056			7,178
			Total Shareholders' Equity		5,114			7,227
			Total Liabilities, Redeemable Preferred Securities and Shareholders' Equity	$	38,321		$	35,502

See notes to consolidated financial statements.

Consolidated Statements of Shareholders' Equity

THE ST. PAUL COMPANIES

			Year Ended December 31
			2001			2000			1999
			(In Millions)
PREFERRED SHAREHOLDERS' EQUITY
SOP convertible preferred stock:
	Beginning of year		$	117		$	129		$	134
	Redemptions during the year			(6	)		(12	)		(5	)
		End of year		111			117			129
Guaranteed obligation—SOP:
	Beginning of year			(68	)		(105	)		(119	)
	Principal payments			15			37			14
		End of year		(53	)		(68	)		(105	)
		Total Preferred Shareholders' Equity		58			49			24
COMMON SHAREHOLDERS' EQUITY
Common stock:
	Beginning of year			2,238			2,079			2,128
	Stock issued:
		Stock incentive plans		67			95			37
		Preferred shares redeemed		13			23			9
		Conversion of company-obligated preferred securities		—			207			—
	Reacquired common shares			(135	)		(170	)		(102	)
	Other			9			4			7
		End of year		2,192			2,238			2,079
Retained earnings:
	Beginning of year			4,243			3,827			3,480
	Net income (loss)			(1,088	)		993			834
	Dividends declared on common stock			(235	)		(232	)		(235	)
	Dividends declared on preferred stock, net of taxes			(9	)		(8	)		(8	)
	Reacquired common shares			(454	)		(366	)		(254	)
	Other changes			43			29			10
		End of year		2,500			4,243			3,827
Unrealized appreciation on investments, net of taxes:
	Beginning of year			765			568			1,027
	Change for the year			(323	)		197			(459	)
		End of year		442			765			568
Unrealized loss on foreign currency translation, net of taxes:
	Beginning of year			(68	)		(26	)		(14	)
	Currency translation adjustments			(8	)		(42	)		(12	)
		End of year		(76	)		(68	)		(26	)
Unrealized loss on derivatives, net of taxes:
	Beginning of year			—			—			—
	Change during the period			(2	)		—			—
		End of year		(2	)		—			—
		Total Common Shareholders' Equity		5,056			7,178			6,448
		Total Shareholders' Equity	$	5,114		$	7,227		$	6,472

See notes to consolidated financial statements.

Consolidated Statements of Comprehensive Income

THE ST. PAUL COMPANIES

		Year Ended December 31
		2001			2000			1999
		(In Millions)
Net income (loss)		$	(1,088	)	$	993		$	834
Other comprehensive income (loss), net of taxes:
	Change in unrealized appreciation on investments		(323	)		197			(459	)
	Change in unrealized loss on foreign currency translation		(8	)		(42	)		(12	)
	Change in unrealized loss on derivatives		(2	)		—			—
	Other comprehensive income (loss)		(333	)		155			(471	)
	Comprehensive income (loss)	$	(1,421	)	$	1,148		$	363

See notes to consolidated financial statements.

Consolidated Statements of Cash Flows

THE ST. PAUL COMPANIES

			Year Ended December 31
			2001			2000			1999
			(In Millions)
OPERATING ACTIVITIES
Net income (loss)			$	(1,088	)	$	993		$	834
Adjustments:
	Loss (income) from discontinued operations			79			(23	)		(129	)
	Change in property-liability insurance reserves			4,399			(34	)		(82	)
	Change in reinsurance balances			(2,109	)		(807	)		(502	)
	Realized investment losses (gains)			94			(632	)		(286	)
	Change in deferred acquisition costs			(53	)		(45	)		123
	Change in insurance premiums receivable			(198	)		(450	)		(290	)
	Change in accounts payable and accrued expenses			(87	)		29			145
	Change in income taxes payable/refundable			(212	)		(3	)		26
	Provision for federal deferred tax expense (benefit)			(81	)		372			102
	Depreciation, amortization and goodwill writeoff			180			105			118
	Cumulative effect of accounting change			—			—			30
	Other			(40	)		(93	)		58
		Net Cash Provided (Used) by Continuing Operations		884			(588	)		147
		Net Cash Provided (Used) by Discontinued Operations		103			25			(197	)
		Net Cash Provided (Used) by Operating Activities		987			(563	)		(50	)
INVESTING ACTIVITIES
Purchases of investments				(7,033	)		(5,154	)		(4,578	)
Proceeds from sales and maturities of investments				6,281			6,290			5,472
Sales (purchases) of short-term investments				(256	)		199			(466	)
Net proceeds from sale of subsidiaries				362			201			251
Change in open security transactions				177			7			(47	)
Venture capital partnership distributions				52			57			63
Purchase of office property and equipment				(70	)		(88	)		(153	)
Sales of office property and equipment				9			10			70
Acquisitions, net of cash acquired				(218	)		(212	)		—
Other				(15	)		4			(19	)
		Net Cash Provided (Used) by Continuing Operations		(711	)		1,314			593
		Net Cash Used by Discontinued Operations		(583	)		(632	)		(894	)
Net Cash Provided (Used) by Investing Activities				(1,294	)		682			(301	)
FINANCING ACTIVITIES
Dividends paid on common and preferred stock				(245	)		(241	)		(246	)
Proceeds from issuance of debt				650			498			250
Proceeds from issuance of redeemable preferred securities				575			—			—
Repayment of debt				(196	)		(363	)		(52	)
Repurchase of common shares				(589	)		(536	)		(356	)
Subsidiary's repurchase of common shares				(172	)		(51	)		(36	)
Retirement of preferred securities				(40	)		—			(79	)
Stock options exercised and other				84			73			7
		Net Cash Provided (Used) by Continuing Operations		67			(620	)		(512	)
		Net Cash Provided by Discontinued Operations		343			448			873
		Net Cash Provided (Used) by Financing Activities		410			(172	)		361
Effect of exchange rate changes on cash				(4	)		—			—
		Increase (Decrease) in Cash		99			(53	)		10
Cash at beginning of year				52			105			95
		Cash at End of Year	$	151		$	52		$	105

See notes to consolidated financial statements.

Notes to Consolidated Financial Statements

THE ST. PAUL COMPANIES

1      Summary of Significant Accounting Policies

        Accounting Principles—We prepare our financial statements in accordance with United States generally accepted accounting principles ("GAAP"). We follow the accounting standards established by the Financial Accounting Standards Board ("FASB") and the American Institute of Certified Public Accountants ("AICPA").

        Consolidation—We combine our financial statements with those of our subsidiaries and present them on a consolidated basis. The consolidated financial statements do not include the results of material transactions between us and our subsidiaries or among our subsidiaries. Certain of our foreign underwriting operations' results are recorded on a one-month to one-quarter lag due to time constraints in obtaining and analyzing such results for inclusion in our consolidated financial statements on a current basis. In the event that significant events occur in these operations during the lag period, the impact is included in the current period results.

        During 2001, we eliminated the one-quarter reporting lag for certain of our primary underwriting operations in foreign countries. The effect of reporting these operations on a current basis was a $31 million increase to our pretax loss on continuing operations.

        Related Party Transactions—The following summarizes our related party transactions.

        Indebtedness of Management—We have made loans to certain executive officers for their purchase of our common stock in the open market. These are full-recourse loans, further secured by a pledge of the stock purchased with the proceeds. The loans accrue interest at the applicable federal rate for loans of such maturity. The total amount receivable under this program, included in "Other Assets" was $10 million at Dec. 31, 2001 and $13 million at Dec. 31, 2000.

        Indebtedness of Venture Capital Management—We have made loans to certain members of management of our Venture Capital investment operation. The loans are secured by each individual's ownership interest in the Venture Capital LLCs, and accrue interest at the applicable federal rate for loans of such maturity. The total amount receivable under this program, included in "Other Assets" at Dec. 31, 2001 and 2000, was $6 million and $3 million, respectively.

        Discontinued Operations—In 2001, we sold our life insurance operations; in 2000, we sold our nonstandard auto business; and in 1999, we sold our standard personal insurance business. Accordingly, the results of operations for all years presented reflect the results for these businesses as discontinued operations. At Dec. 31, 2000, our consolidated balance sheet reflected the $587 million in net assets of our life insurance operations in "Other Assets."

        Reclassifications—We reclassified certain amounts in our 2000 and 1999 financial statements and notes to conform with the 2001 presentation. These reclassifications had no effect on net income, or common or preferred shareholders' equity, as previously reported for those years.

        Use of Estimates—We make estimates and assumptions that have an effect on the amounts that we report in our financial statements. Our most significant estimates are those relating to our reserves for property-liability losses and loss adjustment expenses. We continually review our estimates and make adjustments as necessary, but actual results could turn out to be significantly different from what we expected when we made these estimates.

ACCOUNTING FOR OUR PROPERTY-LIABILITY
UNDERWRITING OPERATIONS

        Premiums Earned—Premiums on insurance policies are our largest source of revenue. We recognize the premiums as revenues evenly over the policy terms using the daily pro rata method or, in

the case of our Lloyd's business, the one-eighths method. Lloyd's premiums are compiled from quarterly reports. To "earn" these written premiums we assume that they are written at the middle of each quarter, which results in eight earning periods in each year.

        We record the premiums that we have not yet recognized as revenues as unearned premiums on our balance sheet. Assumed reinsurance premiums are recognized as revenues proportionately over the contract period. Premiums earned are recorded in our statement of operations, net of our cost to purchase reinsurance.

        Insurance Losses and Loss Adjustment Expenses—Losses represent the amounts we paid or expect to pay to claimants for events that have occurred. The costs of investigating, resolving and processing these claims are known as loss adjustment expenses ("LAE"). We record these items on our statement of operations net of reinsurance, meaning that we reduce our gross losses and loss adjustment expenses incurred by the amounts we have recovered or expect to recover under reinsurance contracts.

        Reinsurance—Written premiums, earned premiums and incurred insurance losses and LAE all reflect the net effects of assumed and ceded reinsurance transactions. Assumed reinsurance refers to our acceptance of certain insurance risks that other insurance companies have underwritten. Ceded reinsurance means other insurance companies have agreed to share certain risks with us. Reinsurance accounting is followed for assumed and ceded transactions when risk transfer requirements have been met. These requirements involve significant assumptions being made related to the amount and timing of expected cash flows, as well as the interpretation of underlying contract terms.

        Insurance Reserves—We establish reserves for the estimated total unpaid cost of losses and LAE, which cover events that occurred in 2001 and prior years. These reserves reflect our estimates of the total cost of claims that were reported to us, but not yet paid, and the cost of claims incurred but not yet reported to us ("IBNR"). We reduce our loss reserves for estimated amounts of salvage and subrogation recoveries. Estimated amounts recoverable from reinsurers on unpaid losses and LAE are reflected as assets.

        For reported losses, we establish reserves on a "case" basis within the parameters of coverage provided in the insurance policy or reinsurance agreement. For IBNR losses, we estimate reserves using established actuarial methods. Our case and IBNR reserve estimates consider such variables as past loss experience, changes in legislative conditions, changes in judicial interpretation of legal liability and policy coverages, and inflation. We consider not only monetary increases in the cost of what we insure, but also changes in societal factors that influence jury verdicts and case law and, in turn, claim costs.

        Because many of the coverages we offer involve claims that may not ultimately be settled for many years after they are incurred, subjective judgments as to our ultimate exposure to losses are an integral and necessary component of our loss reserving process. We record our reserves by considering a range of estimates bounded by a high and low point. Within that range, we record our best estimate. We continually review our reserves, using a variety of statistical and actuarial techniques to analyze current claim costs, frequency and severity data, and prevailing economic, social and legal factors. We adjust reserves established in prior years as loss experience develops and new information becomes available. Adjustments to previously estimated reserves are reflected in our financial results in the periods in which they are made.

        While our reported reserves make a reasonable provision for our unpaid loss and LAE obligations, it should be noted that the process of estimating required reserves does, by its very nature, involve uncertainty. The level of uncertainty can be influenced by factors such as the existence of coverage with long duration payment patterns and changes in claim handling practices, as well as the factors noted above. Ultimate actual payments for claims and LAE could turn out to be significantly different from our estimates.

        Our liabilities for unpaid losses and LAE related to tabular workers' compensation and certain assumed reinsurance coverage are discounted to the present value of estimated future payments. Prior to discounting, these liabilities totaled $948 million and $890 million at Dec. 31, 2001 and 2000, respectively. The total discounted liability reflected on our balance sheet was $768 million and $681 million at Dec. 31, 2001 and 2000, respectively. The liability for workers' compensation was discounted using rates of up to 3.5%, based on state-prescribed rates. The liability for certain assumed reinsurance coverage was discounted using rates up to 7.5%, based on our return on invested assets or, in many cases, on yields contractually guaranteed to us on funds held by the ceding company, as permitted by the state of domicile.

        Lloyd's—We participate in Lloyd's as an investor in underwriting syndicates and as the owner of a managing agency. We record our pro rata share of syndicate assets, liabilities, revenues and expenses, after making adjustments to convert Lloyd's accounting to U.S. GAAP. The most significant U.S. GAAP adjustments relate to income recognition. Lloyd's syndicates determine underwriting results by year of account at the end of three years. We record adjustments to recognize underwriting results as incurred, including the expected ultimate cost of losses incurred. These adjustments to losses are based on actuarial analysis of syndicate accounts, including forecasts of expected ultimate losses provided by the syndicates. The results of our operations at Lloyd's are recorded on a one-quarter lag due to time constraints in obtaining and analyzing such results for inclusion in our consolidated financial statements on a current basis.

        Policy Acquisition Expenses—The costs directly related to writing an insurance policy are referred to as policy acquisition expenses and consist of commissions, state premium taxes and other direct underwriting expenses. Although these expenses are incurred when we issue a policy, we defer and amortize them over the same period as the corresponding premiums are recorded as revenues.

        On a regular basis, we perform a recoverability analysis of the deferred policy acquisition costs in relation to the expected recognition of revenues, including anticipated investment income, and reflect adjustments, if any, as period costs. Should the analysis indicate that the acquisition costs are unrecoverable, further analyses are performed to determine if a reserve is required to provide for losses which may exceed the related unearned premiums.

        Guarantee Fund and Other Insurance-Related Assessments—Effective Jan. 1, 1999, we adopted the provisions of the AICPA Statement of Position ("SOP") 97-3, "Accounting by Insurance and Other Enterprises for Insurance-Related Assessments." As a result, we established an accrual related to estimated future guarantee fund payments based on a three-year average of paid assessments. We also accrue for specific known events and insolvencies. An asset is recorded related to future premium tax offsets for those states in which we are able to take a premium tax credit. We recorded in income from continuing operations a pretax expense of $41 million ($27 million after-tax) in the first quarter of 1999 representing the cumulative effect of adopting the provisions of this SOP related to our property-liability insurance business. The accrual is expected to be disbursed as assessed during a period of up to 30 years.

ACCOUNTING FOR OUR ASSET MANAGEMENT OPERATIONS

        The results of The John Nuveen Company ("Nuveen") are reflected as our asset management segment. We held a 77% and 78% interest in Nuveen on Dec. 31, 2001 and 2000, respectively. Nuveen sponsors and markets open-end and closed-end (exchange-traded) managed funds, defined portfolios (unit investment trusts) and individual managed accounts. Nuveen's core businesses are asset management, and the development, marketing and distribution of investment products and services for advisors to the affluent, high net worth and institutional market segments. Nuveen distributes its retail investment products and services, including mutual funds, exchange-traded funds, defined portfolios and individual managed accounts, to the affluent and high net worth market segments through unaffiliated

intermediary firms including broker-dealers, commercial banks, affiliates of insurance providers, financial planners, accountants, consultants and investment advisors. Nuveen provides investment products and services directly to the institutional market.

        In July 2001, Nuveen acquired Symphony Asset Management, LLC ("Symphony"), an institutional money manager, with approximately $4 billion in assets under management. As a result of the acquisition, Nuveen's product offerings were expanded to include managed accounts and funds designed to reduce risk through market-neutral and other strategies in several equity and fixed-income asset classes for institutional investors.

        Nuveen regularly purchases and holds for resale municipal securities and defined portfolio units. The level of inventory maintained by Nuveen will fluctuate daily and is dependent upon the need to support on-going sales. These inventory securities are carried at market value. Prior to the sale of its investment banking operation in the third quarter of 1999, Nuveen also underwrote and traded municipal bonds and maintained inventories of such securities in connection with that business.

        Nuveen's principal sources of revenue are investment advisory fees, revenues from the distribution of defined portfolio and mutual fund products, and fees earned on certain institutional accounts based on their performance.

        We consolidate 100% of Nuveen's assets, liabilities, revenues and expenses, with reductions on the balance sheet and statement of operations for the minority shareholders' proportionate interest in Nuveen's equity and earnings. Minority interest of $93 million and $88 million was recorded in other liabilities at the end of 2001 and 2000, respectively.

        Nuveen repurchased and retired 4.1 million and 1.2 million of its common shares from minority shareholders in 2001 and 2000, respectively, for a total cost of $172 million in 2001 and $51 million in 2000. No shares were repurchased from The St. Paul in those years; however our percentage ownership fell from 78% at Dec. 31, 2000, to 77% at Dec. 31, 2001, due to Nuveen's issuance of additional shares under various stock option and incentive plans and the issuance of common shares upon the conversion of a portion of its preferred stock. During 2001, Nuveen completed a 3-for-2 stock split of its common stock, effected as a dividend to shareholders of record as of Sept. 20, 2001.

ACCOUNTING FOR OUR INVESTMENTS

        Fixed Maturities—Our fixed maturity portfolio is composed primarily of high-quality, intermediate-term taxable U.S. government, corporate and mortgage-backed bonds, and tax-exempt U.S. municipal bonds. Our entire fixed maturity investment portfolio is classified as available-for-sale. Accordingly, we carry that portfolio on our balance sheet at estimated fair value. Fair values are based on quoted market prices, where available, from a third-party pricing service. If quoted market prices are not available, fair values are estimated using values obtained from independent pricing services or a cash flow estimate is used.

        Equities—Our equity securities are also classified as available-for-sale and carried at estimated fair value, which is based on quoted market prices obtained from a third-party pricing service.

        Real Estate and Mortgage Loans—Our real estate investments include warehouses and office buildings and other commercial land and properties that we own directly or in which we have a partial interest through joint ventures with other investors. Our mortgage loan investments consist of fixed-rate loans collateralized by apartment, warehouse and office properties.

        For direct real estate investments, we carry land at cost and buildings at cost less accumulated depreciation and valuation adjustments. We depreciate real estate assets on a straight-line basis over 40 years. Tenant improvements are amortized over the term of the corresponding lease. The

accumulated depreciation of our real estate investments was $153 million and $133 million at Dec. 31, 2001 and 2000, respectively.

        We use the equity method of accounting for our real estate joint ventures, which means we carry these investments at cost, adjusted for our share of earnings or losses, and reduced by cash distributions from the joint ventures and valuation adjustments. Due to time constraints in obtaining financial results, the results of these operations are recorded on a one-month lag. If events occur during the lag period which are significant to our consolidated results, the impact is included in the current period results.

        We carry our mortgage loans at the unpaid principal balances less any valuation adjustments, which approximates fair value. Valuation allowances are recognized for loans with deterioration in collateral performance that is deemed other than temporary. The estimated fair value of mortgage loans was $134 million and $185 million at Dec. 31, 2001 and 2000 respectively.

        Venture Capital—Our venture capital investments represent ownership interests in small- to medium-sized companies. These investments are made through limited partnerships or direct ownership. The limited partnerships are carried at our equity in the estimated market value of the investments held by these limited partnerships. The investments we own directly are carried at estimated fair value. Fair values are based on quoted market prices obtained from third-party pricing services for publicly traded stock, or an estimate of value as determined by an internal management committee for privately-held securities. Certain publicly traded securities may be carried at a discount of 10-35% of the quoted market price, due to the impact of various restrictions which limit our ability to sell the stock. Due to time constraints in obtaining financial results, the operations of the limited partnerships are recorded on a one-quarter lag. If security-specific events occur during the lag period that are significant to our consolidated results, the impact is included in the current period results.

        Securities on Loan—We participate in a securities lending program whereby certain securities from our portfolio are loaned to other institutions for short periods of time. We receive a fee from the borrower in return. Our policy is to require collateral equal to 102 percent of the fair value of the loaned securities. We maintain full ownership rights to the securities loaned, and continue to earn interest on them. In addition, we have the ability to sell the securities while they are on loan. We have an indemnification agreement with the lending agents in the event a borrower becomes insolvent or fails to return securities. We record securities lending collateral as a liability. The proceeds from the collateral are invested in short-term investments and are reported on the balance sheet. We share a portion of the interest earned on these short-term investments with the borrower. The fair value of the securities on loan is reclassified as a securities lending asset.

        Realized Investment Gains and Losses—We record the cost of each individual investment so that when we sell an investment, we are able to identify and record that transaction's gain or loss on our statement of operations.

        We monitor the difference between the cost and estimated fair value of our investments. If any of our investments experience a decline in value that we believe is other than temporary, we write down the asset for the decline and record a realized loss on the statement of operations.

        Unrealized Appreciation or Depreciation on Investments—For investments we carry at estimated fair value, including those related to discontinued operations at Dec. 31, 2000, we record the difference between cost and fair value, net of deferred taxes, as a part of common shareholders' equity. This difference is referred to as unrealized appreciation or depreciation on investments. The change in unrealized appreciation or depreciation during the year is a component of other comprehensive income.

DERIVATIVE FINANCIAL INSTRUMENTS

        In June 1998, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," which establishes accounting and reporting standards for derivative instruments and hedging activities. This statement required all derivatives to be recorded at fair value on the balance sheet and established new accounting rules for hedging. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities—Deferral of the Effective Date of SFAS No. 133," which amended SFAS No. 133 to make it effective for all quarters of fiscal years beginning after June 15, 2000. In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities," as an additional amendment to SFAS No. 133, to address a limited number of issues causing implementation difficulties. Effective Jan. 1, 2001, we adopted the provisions of SFAS No. 133, as amended. See Note 8 for further information regarding the impact of the adoption on our financial statements.

        In accordance with SFAS No. 133, our policy as of January 1, 2001 is to record all derivatives on our balance sheet at fair value. The accounting for the gain or loss due to changes in the fair value of these instruments is dependent on whether the derivative qualifies as a hedge. If the derivative does not qualify as a hedge, the gains or losses are reported in earnings when they occur. If the derivative does qualify as a hedge, the accounting varies based on the type of risk being hedged. Generally, however, the portion of the hedge deemed effective is recorded on the balance sheet, and the portion deemed ineffective is recorded in the statement of operations.

        Fair value for our derivatives is based on quoted market rates obtained from third party pricing services or, in the case of an embedded collar, on a Black Scholes valuation.

        Prior to our adoption of SFAS No. 133 in 2001, related to our use of forward contracts to hedge the foreign currency exposure to our net investment in our foreign operations, we reflected the movements of foreign currency exchange rates as unrealized gains or losses, net of tax, as part of our common shareholders' equity. If unrealized gains or losses on the foreign currency hedge exceeded the offsetting currency translation gain or loss on the investments in the foreign operations, they were included in the statement of operations. Prior to 2001, our interest rate swap agreements were not recorded on our balance sheet.

CASH RESTRICTIONS

        Lloyd's solvency requirements call for certain of our funds to be held in trust in amounts sufficient to meet claims. These funds amounted to $76 million and $102 million at Dec. 31, 2001 and 2000, respectively.

GOODWILL AND INTANGIBLE ASSETS

        Goodwill is the excess of the amount we paid to acquire a company over the fair value of its net assets, reduced by amortization and any subsequent valuation adjustments. Intangible assets arise from the purchase from another entity of contractual or other legal rights, or an asset capable of being separated and sold. We amortize goodwill and intangible assets over periods of up to 40 years, generally on a straight-line basis. The accumulated amortization of goodwill and intangible assets was $257 million and $216 million at Dec. 31, 2001 and 2000, respectively.

        In June 2001, the FASB issued SFAS No. 141, "Business Combinations," which established financial accounting and reporting standards for business combinations. It required all business combinations initiated subsequent to June 30, 2001 to be accounted for under the purchase method of accounting. In addition, this statement required that intangible assets that can be identified and meet certain criteria be recognized as assets apart from goodwill. We adopted the provisions of SFAS

No. 141 via Nuveen's 2001 acquisition of Symphony. Nuveen recorded an intangible asset estimated to be in the amount of $53 million related to the purchase, which is expected to be amortized over a weighted average of ten years, and goodwill estimated to be in the amount of $151 million, which will not be amortized, but will be evaluated for possible impairment on an annual basis. (Goodwill acquired in a business combination completed after the adoption of SFAS No. 141, but before the adoption of SFAS No. 142, "Goodwill and Other Intangible Assets," is not amortized.)

IMPAIRMENTS OF LONG-LIVED ASSETS AND INTANGIBLES

        We monitor the recoverability of the value of our long-lived assets to be held and used based on our estimate of the future cash flows (undiscounted and without interest charges) expected to result from the use of the asset and its eventual disposition considering any events or changes in circumstances which indicate that the carrying value of an asset may not be recoverable. We monitor the value of our goodwill based on our estimates of discounted future earnings. If either estimate is less than the carrying amount of the asset, we reduce the carrying value to fair value with a corresponding charge to expenses. We monitor the value of our long-lived assets, and certain identifiable intangibles, to be disposed of and report them at the lower of carrying value or fair value less our estimated cost to sell.

OFFICE PROPERTIES AND EQUIPMENT

        We carry office properties and equipment at depreciated cost. We depreciate these assets on a straight-line basis over the estimated useful lives of the assets. The accumulated depreciation for office properties and equipment was $483 million and $452 million at the end of 2001 and 2000, respectively.

INTERNALLY DEVELOPED SOFTWARE COSTS

        We capitalize certain internally developed software costs incurred during the application development stage of a project. These costs include external direct costs associated with the project and payroll and related costs for employees who devote time to the project. We begin to amortize costs once the software is ready for its intended use, and amortize them over the software's expected useful life, generally five years.

        At Dec. 31, 2001 and 2000, respectively, we had $50 million and $42 million of unamortized internally developed computer software costs and recorded $7 million and $3 million of amortization expense during 2001 and 2000, respectively.

FOREIGN CURRENCY TRANSLATION

        We assign functional currencies to our foreign operations, which are generally the currencies of the local operating environment. Foreign currency amounts are remeasured to the functional currency, and the resulting foreign exchange gains or losses are reflected in the statement of operations. Functional currency amounts are then translated into U.S. dollars. The unrealized gain or loss from this translation, net of tax, is recorded as a part of common shareholders' equity. The change in unrealized foreign currency translation gain or loss during the year, net of tax, is a component of comprehensive income. Both the remeasurement and translation are calculated using current exchange rates for the balance sheets and average exchange rates for the statements of operations.

SUPPLEMENTAL CASH FLOW INFORMATION

        Interest and Income Taxes Paid—We paid interest on debt and distributions on redeemable preferred securities of trusts of $133 million in 2001, $134 million in 2000 and $128 million in 1999. We received net federal income tax refunds of $54 million in 2001, and paid federal income taxes of $161 million in 2000 and $73 million in 1999.

        Non-cash Investing and Financing Activities—In September 2001, related to the sale of our life insurance subsidiary to Old Mutual plc, we received approximately 190 million shares of Old Mutual common stock as partial consideration. The shares were valued at $300 million at the time of closing. In August 2000, we issued 7,006,954 common shares in connection with the conversion of over 99% of the $207 million of 6% Convertible Monthly Income Preferred Securities issued by St. Paul Capital LLC (our wholly-owned subsidiary).

2      September 11, 2001 Terrorist Attack

        On September 11, 2001, terrorists hijacked four commercial passenger jets in the United States. Two of the jets were flown into the World Trade Center towers in New York, N.Y., causing their collapse. The third jet was flown into the Pentagon building in Washington, D.C., causing severe damage, and the fourth jet crashed in rural Pennsylvania. This terrorist attack caused significant loss of life and resulted in unprecedented losses for the property-liability insurance industry.

        Our estimated gross pretax losses and loss adjustment expenses incurred as a result of the terrorist attack totaled $2.3 billion. The estimated net pretax operating loss of $941 million from that event included an estimated benefit of $1.2 billion from cessions made under various reinsurance agreements, a $47 million provision for uncollectible reinsurance, a net $83 million benefit from additional and reinstatement premiums, and a $91 million reduction in contingent commission expenses in our Reinsurance segment.

        Our estimated losses were based on a variety of actuarial techniques, coverage interpretation and claims estimation methodologies, and included an estimate of losses incurred but not reported, as well as estimated costs related to the settlement of claims. Our estimate of losses is also based on our belief that property-liability insurance losses from the terrorist attack will total between $30 billion and $35 billion for the insurance industry. Our estimate of industry losses is subject to significant uncertainties and may change over time as additional information becomes available. A material increase in our estimate of industry losses would likely cause us to make a corresponding material increase to our provision for losses related to the attack.

        Our estimated after-tax loss of $612 million ($941 million pretax) is recorded in our 2001 statement of operations in the following line items. The tax benefit has been calculated at the statutory rate of 35%.

		(In Millions)
Premiums earned		$	83
Insurance losses and loss adjustment expenses			(1,115	)
Operating and administrative expenses			91
	Loss from continuing operations, before income taxes		(941	)
Income tax benefit			329
Loss from continuing operations		$	(612	)

        The estimated net pretax loss of $941 million was distributed among our property-liability business segments as follows.

		(In Millions)
Specialty Commercial		$	89
Commercial Lines Group			108
Surety & Construction			2
Health Care			5
Lloyd's & Other			181
	Total Primary Insurance		385
Reinsurance			556
	Total Property-Liability Insurance	$	941

3      December 2001 Strategic Review

        In October 2001, we announced that we were undertaking a thorough review of each of our business operations under the direction of our new chief executive officer. On completion of that

review in December 2001, we announced a series of actions designed to improve our profitability, summarized as follows.

•

We will exit, on a global basis, all business underwritten in our Health Care segment through ceasing to write new business and the non-renewal of business upon policy expiration, in accordance with regulatory requirements.



•

We will narrow the product offerings and geographic presence of our reinsurance operation. We will no longer underwrite aviation or bond and credit reinsurance, or offer certain financial risk and capital markets reinsurance products. We will also substantially reduce the North American business we underwrite in London. Our reinsurance operation will focus on several areas, including property catastrophe reinsurance, excess-of-loss casualty reinsurance, and marine and traditional finite reinsurance.



•

At Lloyd's, we will exit most of our casualty insurance and reinsurance business, in addition to U.S. surplus lines and certain non-marine reinsurance lines. We will continue to underwrite aviation, marine, financial and professional services, property insurance, kidnap and ransom, accident and health, creditor and other personal specialty products.



•

We will also exit those countries where we are not likely to achieve competitive scale, and are pursuing the sale of certain of these international operations. We will continue to underwrite business through our offices in Canada, the United Kingdom and Ireland, and we will continue to underwrite surety business in Mexico through our subsidiary, Afianzadora Insurgentes.



•

We will reduce corporate overhead expenses, primarily through staff reductions.

        The following table presents the premiums earned and underwriting results for 2001, 2000 and 1999 for the businesses to be exited under these actions.

	2001			2000			1999
	(In Millions)
Premiums earned	$	1,609		$	1,277		$	857
Underwriting results		(1,515	)		(433	)		(241	)

        In connection with these actions, we wrote off $73 million of goodwill related to businesses to be exited, of which $56 million related to our Health Care segment and $10 million related to our operations at Lloyd's. The remaining goodwill written off was related to our operations in Spain and Australia. In addition, we recorded a $62 million pretax restructuring charge related to the termination of employees and other costs to exit these businesses. See Note 16 for a discussion of this charge.

4      Acquisitions

        Fireman's Fund Surety Business—In December 2001, we purchased the right to seek to renew surety bond business previously underwritten by Fireman's Fund Insurance Company ("Fireman's Fund"). We paid Fireman's Fund $10 million in 2001 for this right, which was recorded as an intangible asset and is expected to be amortized over ten years. Based on the volume of business renewed, we may be obligated to make an additional payment to Fireman's Fund in early 2003 (see Note 15).

        Penco—In January 2001, we acquired the right to seek to renew a book of municipality insurance business from Penco, a program administrator for Willis North America Inc., for total consideration of $3.5 million. We recorded that amount as an intangible asset and expect to amortize it over five years.

        MMI—In April 2000, we closed on our acquisition of MMI Companies, Inc. ("MMI"), a Deerfield, IL-based provider of medical services-related insurance products and consulting services. The transaction was accounted for as a purchase, with a total purchase price of approximately $206 million, in addition to the assumption of $165 million in preferred securities and debt. The final purchase price adjustments resulted in an excess of purchase price over net tangible assets acquired of approximately $85 million, which we expected to amortize on a straight-line basis over 15 years.

        Prior to the acquisition, MMI recorded a $93 million provision to strengthen their loss reserves, with $77 million reflected in their domestic operations and $16 million reflected in Unionamerica, their U.K.-based international operations.

        As part of the strategic review discussed in Note 3, we decided to exit the Health Care liability insurance business, including that obtained through the MMI acquisition. Accordingly, in December 2001, we wrote off $56 million in goodwill associated with the underwriting operations of MMI. As of Dec.31, 2001, the remaining $8 million of unamortized goodwill related to the consulting business obtained in the purchase.

        Pacific Select—In February 2000, we closed on our acquisition of Pacific Select Insurance Holdings, Inc. and its wholly-owned subsidiary Pacific Select Property Insurance Co. (together, "Pacific Select"), a California insurer that sells earthquake coverage to California homeowners. The transaction was accounted for as a purchase, at a cost of approximately $37 million. We recorded goodwill of approximately $11 million, which we are amortizing on a straight-line basis over ten years. Pacific Select's results of operations from the date of purchase are included in our 2000 consolidated results.

5      Earnings Per Common Share

			Year Ended December 31
			2001			2000			1999
			(In Millions)
EARNINGS
Basic
Net income (loss), as reported			$	(1,088	)	$	993		$	834
Preferred stock dividends, net of taxes				(9	)		(8	)		(8	)
Premium on preferred shares redeemed				(8	)		(11	)		(4	)
	Net income (loss) available to common shareholders		$	(1,105	)	$	974		$	822
Diluted
Net income (loss) available to common shareholders			$	(1,105	)	$	974		$	822
Effect of dilutive securities:
	Convertible preferred stock			—			6			6
	Zero coupon convertible notes			—			3			3
	Convertible monthly income preferred securities			—			5			8
	Net income (loss) available to common shareholders		$	(1,105	)	$	988		$	839
COMMON SHARES
Basic
Weighted average common shares outstanding				212			217			228
Diluted
Weighted average common shares outstanding				212			217			228
Weighted average effects of dilutive securities:
	Stock options			—			3			2
	Convertible preferred stock			—			7			7
	Zero coupon convertible notes			—			2			2
	Convertible monthly income preferred securities			—			4			7
		Total		212			233			246
EARNINGS (LOSS) PER COMMON SHARE
Basic			$	(5.22	)	$	4.50		$	3.61
Diluted			$	(5.22	)	$	4.24		$	3.41

        The assumed conversion of preferred stock and zero coupon notes are each anti-dilutive to our net loss per share for the year ended Dec. 31, 2001, and therefore not included in the EPS calculation. The convertible monthly income preferred securities were fully converted or redeemed during 2000.

6      Investments

        Valuation of Investments—The following presents the cost, gross unrealized appreciation and depreciation, and estimated fair value of our investments in fixed maturities, equities, venture capital and securities on loan.

			December 31, 2001
			Cost		Gross Unrealized Appreciation		Gross Unrealized Depreciation			Estimated Fair Value
			(In Millions)
Fixed maturities:
	U.S. government		$	1,197	$	74	$	(1	)	$	1,270
	State and political subdivisions			4,720		231		(3	)		4,948
	Foreign governments			1,168		44		(11	)		1,201
	Corporate securities			5,654		220		(50	)		5,824
	Asset-backed securities			115		4		(3	)		116
	Mortgage-backed securities			2,493		65		(6	)		2,552
		Total fixed maturities		15,347		638		(74	)		15,911
Equities				1,415		107		(112	)		1,410
Venture capital				766		210		(117	)		859
Securities on loan				739		40		(4	)		775
		Total	$	18,267	$	995	$	(307	)	$	18,955

			December 31, 2000
			Cost		Gross Unrealized Appreciation		Gross Unrealized Depreciation			Estimated Fair Value
			(In Millions)
Fixed maturities:
	U.S. government		$	818	$	35	$	(1	)	$	852
	State and political subdivisions			5,089		258		(1	)		5,346
	Foreign governments			999		37		(7	)		1,029
	Corporate securities			5,021		113		(74	)		5,060
	Asset-backed securities			117		2		(9	)		110
	Mortgage-backed securities			2,309		38		(14	)		2,333
		Total fixed maturities		14,353		483		(106	)		14,730
Equities				1,124		418		(76	)		1,466
Venture capital				657		438		(31	)		1,064
Securities on loan				1,157		65		(15	)		1,207
		Total	$	17,291	$	1,404	$	(228	)	$	18,467

        Statutory Deposits—At Dec. 31, 2001, our property-liability operation had investments in fixed maturities with an estimated fair value of $852 million on deposit with regulatory authorities as required by law.

        Restricted Investments—Our subsidiaries Unionamerica and St. Paul Re-U.K. are required, as accredited U.S. reinsurers, to hold certain investments in trust in the United States. These trust funds had a fair value of $514 million at Dec. 31, 2001. Additionally, Unionamerica has funds deposited with

third parties to be used as collateral to secure various liabilities on behalf of insureds, cedants and other creditors. These funds had a fair value of $53 million at Dec. 31, 2001.

        Fixed Maturities by Maturity Date—The following table presents the breakdown of our fixed maturities by years to stated maturity. Actual maturities may differ from those stated as a result of calls and prepayments.

		December 31, 2001
		Amortized Cost		Estimated Fair Value
		(In Millions)
One year or less		$	971	$	986
Over one year through five years			4,586		4,801
Over five years through 10 years			3,457		3,567
Over 10 years			3,725		3,889
Asset-backed securities with various maturities			115		116
Mortgage-backed securities with various maturities			2,493		2,552
	Total	$	15,347	$	15,911

7      Investment Transactions

        Investment Activity—Following is a summary of our investment purchases, sales and maturities.

		Year Ended December 31
		2001		2000			1999
		(In Millions)
PURCHASES
Fixed maturities		$	4,959	$	2,489		$	2,818
Equities			1,737		2,168			1,403
Real estate and mortgage loans			27		3			130
Venture capital			287		446			218
Other investments			23		48			9
	Total purchases		7,033		5,154			4,578
PROCEEDS FROM SALES AND MATURITIES
Fixed maturities:
	Sales		2,035		1,739			1,726
	Maturities and redemptions		2,200		1,406			1,858
Equities			1,732		2,183			1,438
Real estate and mortgage loans			100		265			133
Venture capital			50		663			283
Other investments			164		34			34
	Total sales and maturities		6,281		6,290			5,472
	Net purchases (sales)	$	752	$	(1,136	)	$	(894	)

        Net Investment Income—Following is a summary of our net investment income.

		Year Ended December 31
		2001			2000			1999
		(In Millions)
Fixed maturities		$	1,069		$	1,090		$	1,104
Equities			16			16			17
Real estate and mortgage loans			115			91			86
Venture capital			(4	)		(1	)		(1	)
Securities on loan			2			2			2
Other investments			3			4			10
Short-term investments			55			83			66
	Total		1,256			1,285			1,284
Investment expenses			(39	)		(23	)		(25	)
	Net investment income	$	1,217		$	1,262		$	1,259

        Realized and Unrealized Investment Gains (Losses)—The following summarizes our pretax realized investment gains and losses, and the change in unrealized appreciation of investments recorded in common shareholders' equity and in comprehensive income.

			Year Ended December 31
			2001			2000			1999
			(In Millions)
PRETAX REALIZED INVESTMENTS
GAINS (LOSSES)
Fixed maturities:
	Gross realized gains		$	28		$	29		$	10
	Gross realized losses			(105	)		(58	)		(29	)
		Total fixed maturities		(77	)		(29	)		(19	)
Equities:
	Gross realized gains			276			296			224
	Gross realized losses			(280	)		(201	)		(97	)
		Total equities		(4	)		95			127
Real estate and mortgage loans				12			4			18
Venture capital				(43	)		554			158
Other investments				18			8			2
		Total pretax realized investment gains (losses)	$	(94	)	$	632		$	286
CHANGE IN UNREALIZED APPRECIATION
Fixed maturities			$	187		$	457		$	(997	)
Equities				(347	)		(199	)		223
Venture capital net of minority interest				(314	)		(61	)		286
Other				(80	)		47			(44	)
		Total change in pretax unrealized appreciation on continuing operations		(554	)		244			(532	)
Change in deferred taxes				214			(88	)		185
		Total change in unrealized appreciation on continuing operations, net of taxes		(340	)		156			(347	)
Change in pretax unrealized appreciation on discontinued operations				26			63			(173	)
Change in deferred taxes				(9	)		(22	)		61
		Total change in unrealized appreciation on discontinued operations, net of taxes		17			41			(112	)
		Total change in unrealized appreciation, net of taxes	$	(323	)	$	197		$	(459	)

8      Derivative Financial Instruments

        Derivative financial instruments include futures, forward, swap and option contracts and other financial instruments with similar characteristics. We have had limited involvement with these instruments, primarily for purposes of hedging against fluctuations in foreign currency exchange rates, interest rates and movement in the price of a particular investment. All investments, including derivative instruments, have some degree of market and credit risk associated with them. However, the market risk on our derivatives substantially offsets the market risk associated with fluctuations in interest rates, foreign currency exchange rates and market prices. We seek to reduce our credit risk exposure by conducting derivative transactions only with reputable, investment-grade counterparties.

        Effective Jan. 1, 2001, we adopted the provisions of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended ("SFAS No. 133"). The statement requires the recognition of all derivatives as either assets or liabilities on the balance sheet, carried at fair value. In accordance with the statement, derivatives are specifically designated into one of three categories based

on their intended use, and the applicable category dictates the accounting for each derivative. We have held the following derivatives, by category.

        Fair Value Hedges—We have several pay-floating, receive-fixed interest rate swaps, totaling $230 million notional amount, that are designated as fair value hedges of a portion of our medium-term and senior notes, that we have entered into for the purpose of managing the effect of interest rate fluctuations on this debt. The terms of the swaps match those of the debt instruments, and the swaps are therefore considered 100% effective. The transitional impact of adopting SFAS No. 133 for the fair value of the hedges was $15 million, which was recorded in "Other Assets" on the balance sheet with an equivalent liability recorded in debt. The related statement of operations impacts were offsetting; as a result, there was no transitional statement of operations impact of adopting SFAS No. 133 for fair value hedges. The impact related to the 2001 movement in interest rates was an $8 million increase in the fair value of the swaps and the related debt on the balance sheet, with the statement of operations impacts again offsetting.

        Cash Flow Hedges—We have purchased foreign currency forward contracts that are designated as cash flow hedges. They are utilized to minimize our exposure to fluctuations in foreign currency values that result from forecasted foreign currency payments, as well as from foreign currency payables and receivables. The transitional impact of adopting SFAS No. 133 for cash flow hedges was a gain of less than $1 million, which was included in Other Comprehensive Income ("OCI"). During 2001, we recognized a $2 million loss on the cash flow hedges, which is also included in OCI. The amounts included in OCI will be reclassified into earnings concurrent with the timing of the hedged cash flows, which is not expected to occur within the next twelve months. During 2001 we recognized a loss in the statement of operations of less than $1 million representing the portion of the forward contracts deemed ineffective.

        Non-Hedge Derivatives—We have entered into a variety of other financial instruments that are considered to be derivatives, but which are not designated as hedges, that we utilize to minimize the potential impact of market movements in certain investment portfolios. These include our investment in an embedded collar on Old Mutual common stock received as partial consideration from the sale of our life insurance business (see Note 15), foreign currency put options on British Pounds Sterling to hedge currency risk associated with our position in Old Mutual stock and stock warrants in our venture capital business. There was no transition adjustment related to the adoption of SFAS No. 133, and we recorded $3 million of income in continuing operations during 2001 relating to the change in the market value of these derivatives during the period. For the same period we also recorded $17 million of income in discontinued operations relating to non-hedge derivatives associated with the sale of our life insurance business.

        Derivative-type Instruments Accounted for Under EITF 99-2—We have also offered insurance products that are accounted for as weather derivatives. These derivatives are accounted for under EITF99-2, "Accounting for Weather Derivatives," which provides for accounting similar to that for SFAS No. 133 derivatives. The net impact to our statement of operations of these insurance products in 2001 was a $2 million loss, with no impact in 2000. At Dec. 31, 2001, we had two contracts outstanding, with total maximum exposure of $15 million. As part of our December 2001 strategic review, we determined that we would no longer issue this type of product.

9      Reserves for Losses and Loss Adjustment Expenses

        Reconciliation of Loss Reserves—The following table represents a reconciliation of beginning and ending consolidated property-liability insurance loss and loss adjustment expense ("LAE") reserves for each of the last three years.

			Year Ended December 31
			2001			2000			1999
			(In Millions)
Loss and LAE reserves at beginning of year, as reported			$	18,196		$	17,720		$	18,012
Less reinsurance recoverables on unpaid losses at beginning of year				(4,651	)		(3,678	)		(3,199	)
	Net loss and LAE reserves at beginning of year			13,545			14,042			14,813
Activity on reserves of discontinued operations:
	Losses incurred			17			(4	)		279
	Losses paid			(131	)		(141	)		(473	)
		Net activity		(114	)		(145	)		(194	)
Net reserves of acquired companies				—			984			—
Provision for losses and LAE for claims incurred on continuing operations:
	Current year			6,902			4,178			3,928
	Prior years			577			(265	)		(208	)
		Total incurred		7,479			3,913			3,720
Losses and LAE payments for claims incurred on continuing operations:
	Current year			(1,125	)		(970	)		(959	)
	Prior years			(4,443	)		(4,138	)		(3,411	)
		Total paid		(5,568	)		(5,108	)		(4,370	)
Unrealized foreign exchange loss (gain)				(89	)		(141	)		73
	Net loss and LAE reserves at end of year			15,253			13,545			14,042
Plus reinsurance recoverables on unpaid losses at end of year				6,848			4,651			3,678
Loss and LAE reserves at end of year, as reported			$	22,101		$	18,196		$	17,720

        During 2001, we recorded significant prior-year loss provisions for our Health Care segment. In 2000, loss trends in this segment had indicated an increase in the severity of claims incurred in the 1995 through 1997 accident years; accordingly, we recorded a provision for prior-year losses. In 2001, loss activity continued to increase not only for the years 1995 through 1997, but also 1998, and early activity on claims incurred in 1999 through 2001 indicated an increase in severity for those years. Those developments led us to a much different view of loss development in this segment which in turn caused us to record provisions for prior year losses totaling $735 million in this segment in 2001. Excluding this specific increase, the change in prior-year provision was a reduction of $158 million. At the end of the year, we announced our intention to exit, on a global basis, all business underwritten in our Health Care segment through ceasing to write new business and the non-renewal of business upon policy expiration, in accordance with regulatory requirements.

        A reduction in prior-year losses was recorded in 2000 and 1999. In 2000, the favorable prior-year loss development was widespread across all lines of business with the exception of the Health Care segment. In 1999, favorable prior-year loss development in several lines of business, including workers compensation and assumed reinsurance, was partially offset by adverse development in our Ocean Marine operation and certain commercial business centers.

        The "activity on reserves of discontinued operations" represents certain activity related to the 1999 sale of our standard personal insurance business. The reserve balances associated with certain portions of the business sold are included in our total reserves, but the related incurred losses are excluded from

continuing operations in our statements of operations for all periods presented, and included in discontinued operations. See Note 15 for a discussion of reserve guarantees we made related to this sale.

        In 1996, we acquired Northbrook Holdings, Inc. and its three insurance subsidiaries ("Northbrook") from Allstate Insurance Company. In the Northbrook purchase agreement, we agreed to pay Allstate additional consideration of up to $50 million in the event a redundancy developed on the acquired Northbrook reserves between the purchase date and July 31, 2000. During 2000, we made a payment to Allstate in the amount of $50 million under this agreement.

        Environmental and Asbestos Reserves—Our underwriting operations continue to receive claims under policies written many years ago alleging injury or damage from environmental pollution or seeking payment for the cost to clean up polluted sites. We have also received asbestos injury claims tendered under general liability policies.

        The following table summarizes the environmental and asbestos reserves reflected in our consolidated balance sheet at Dec. 31, 2001 and 2000. Amounts in the "net" column are reduced by reinsurance.

		December 31
		2001				2000
		Gross		Net		Gross		Net
		(In Millions)
Environmental		$	582	$	507	$	665	$	563
Asbestos			478		367		397		299
	Total environmental and asbestos reserves	$	1,060	$	874	$	1,062	$	862

10    Income Taxes

        Method for Computing Income Tax Expense (Benefit)—We compute our income tax expense under the liability method. This means deferred income taxes reflect what we estimate we will pay or receive in future years. A current tax liability, or asset, is recognized for the estimated taxes payable, or recoverable, for the current year.

        Income Tax Expense (Benefit)—Income tax expense or benefits are recorded in various places in our financial statements. A summary of the amounts and places follows.

		Year Ended December 31
		2001			2000			1999
		(In Millions)
STATEMENTS OF OPERATIONS
Expense (benefit) on continuing operations		$	(422	)	$	431		$	219
Benefit on operating loss of discontinued operations			—			10			15
Expense (benefit) on gain or loss on disposal of discontinued operations			37			(6	)		90
	Total income tax expense (benefit) included in statements of operations		(385	)		435			324
COMMON SHAREHOLDERS' EQUITY
Expense (benefit) relating to stock-based compensation and the change in unrealized appreciation and unrealized foreign exchange			(218	)		86			(253	)
	Total income tax expense (benefit) included in financial statements	$	(603	)	$	521		$	71

        Components of Income Tax Expense (Benefit)—The components of income tax expense (benefit) on continuing operations are as follows.

			Year Ended December 31
			2001			2000		1999
			(In Millions)
Federal current tax expense (benefit)			$	(303	)	$	19	$	104
Federal deferred tax expense (benefit)				(81	)		372		102
	Total federal income tax expense (benefit)			(384	)		391		206
Foreign income tax expense (benefit)				(48	)		26		2
State income tax expense				10			14		11
		Total income tax expense (benefit) on continuing operations	$	(422	)	$	431	$	219

        Our Tax Rate is Different from the Statutory Rate—Our total income tax expense on income from continuing operations differs from the statutory rate of 35% of income from continuing operations before income taxes as shown in the following table.

			Year Ended December 31
			2001			2000			1999
			(In Millions)
Federal income tax expense (benefit) at statutory rate			$	(501	)	$	490		$	333
Increase (decrease) attributable to:
	Nontaxable investment income			(85	)		(95	)		(103	)
	Valuation allowance			74			—			2
	Foreign underwriting operations			44			18			4
	Goodwill			30			4			5
	Other			16			14			(22	)
		Total income tax expense (benefit) on continuing operations	$	(422	)	$	431		$	219
Effective tax rate on continuing operations				29.5	%		30.7	%		23.0	%

        Major Components of Deferred Income Taxes on Our Balance Sheet—Differences between the tax basis of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years are called temporary differences. The tax effects of temporary differences that give rise to the deferred tax assets and deferred tax liabilities are presented in the following table.

		December 31
		2001			2000
		(In Millions)
DEFERRED TAX ASSETS
Loss reserves		$	792		$	800
Unearned premium reserves			193			160
Alternative minimum tax credit carryforwards			124			265
Net operating loss carryforwards			496			136
Deferred compensation			113			121
Other			612			549
	Total gross deferred tax assets		2,330			2,031
Less valuation allowance			(106	)		(32	)
	Net deferred tax assets		2,224			1,999
DEFERRED TAX LIABILITIES
Unrealized appreciation of investments			218			426
Deferred acquisition costs			218			183
Real estate			132			123
Prepaid compensation			92			88
Other			316			249
	Total gross deferred tax liabilities		976			1,069
	Deferred income taxes	$	1,248		$	930

        If we believe that all of our deferred tax assets will not result in future tax benefits, we must establish a valuation allowance for the portion of these assets that we think will not be realized. The net change in the valuation allowance for deferred tax assets was an increase of $74 million in 2001, and an increase of $24 million in 2000, both relating to our foreign underwriting operations. The

increase in 2000 was related to our purchase of MMI. Based predominantly upon a review of our anticipated future earnings, but also including all other available evidence, both positive and negative, we have concluded it is "more likely than not" that our net deferred tax assets will be realized.

        Net Operating Loss ("NOL") and Foreign Tax Credit ("FTC") Carryforwards—For tax return purposes, as of Dec. 31, 2001, we had NOL carryforwards that expire, if unused, in 2005-2021 and FTC carryforwards that expire, if unused, in 2005-2006. The amount and timing of realizing the benefits of NOL and FTC carryforwards depends on future taxable income and limitations imposed by tax laws. The approximate amounts of those NOLs on a regular tax basis and an alternative minimum tax ("AMT") basis were $1.4 billion and $366 million, respectively. The approximate amounts of the FTCs both on a regular tax basis and an AMT basis were $11 million. The benefits of the NOL and FTC carryforwards have been recognized in our financial statements.

        Undistributed Earnings of Subsidiaries—U.S. income taxes have not been provided on $72 million of our foreign operations' undistributed earnings as of Dec. 31, 2001, as such earnings are intended to be permanently reinvested in those operations. Furthermore, any taxes paid to foreign governments on these earnings may be used as credits against the U.S. tax on any dividend distributions from such earnings.

        We have not provided taxes on approximately $336 million of undistributed earnings related to our majority ownership of The John Nuveen Company as of Dec. 31, 2001, because we currently do not expect those earnings to become taxable to us.

        IRS Examinations—During 1998, The St. Paul merged with USF&G Corporation ("USF&G"). The IRS is currently examining USF&G's pre-merger consolidated returns for the years 1992 through 1997. The IRS has examined The St. Paul's pre-merger consolidated returns through 1997 and is currently examining the years 1998 through 2000. We believe that any additional taxes assessed as a result of these examinations would not materially affect our overall financial position, results of operations or liquidity.

11    Capital Structure

        The following summarizes our capital structure, including debt, preferred securities, and equity instruments.

		December 31
		2001			2000
		(In Millions)
Debt		$	2,130		$	1,647
Company-obligated mandatorily redeemable preferred securities of trusts holding solely subordinated debentures of the Company			893			337
Preferred shareholders' equity			58			49
Common shareholders' equity			5,056			7,178
	Total capital	$	8,137		$	9,211
Ratio of debt to total capital			26	%		18	%

DEBT

        Debt consists of the following.

		December 31
		2001				2000
		Book Value		Fair Value		Book Value		Fair Value
		(In Millions)
Commercial paper		$	606	$	606	$	138	$	138
Medium-term notes			571		596		617		619
77/8% senior notes			249		269		249		261
81/8% senior notes			249		275		249		267
Nuveen line of credit borrowings			183		183		—		—
Zero coupon convertible notes			103		106		98		95
71/8% senior notes			80		84		80		82
Variable rate borrowings			64		64		64		64
Real estate mortgages			2		2		2		2
83/8% senior notes			—		—		150		151
	Total debt obligations	$	2,107	$	2,185	$	1,647	$	1,679
	Fair value of interest rate swap agreements	$	23	$	23
	Total debt reported on balance sheet	$	2,130	$	2,208

        Compliance—We were in compliance with all provisions of our debt covenants as of Dec. 31, 2001 and 2000.

        Fair Value of Debt Obligations—The fair values of our commercial paper and a portion of Nuveen's line of credit borrowings approximated their book values because of their short-term nature. The fair value of our variable rate borrowings approximated their book values due to the floating interest rates of these instruments. For our other debt, which has longer terms and fixed interest rates, our fair value estimate was based on current interest rates available on debt securities in the market that have terms similar to ours.

        Medium-Term Notes—The medium-term notes bear interest rates ranging from 5.9% to 8.4%, with a weighted average rate of 6.8%. Maturities range from five to 15 years after the issuance dates.

        7⁷/8% Senior Notes—In April 2000, we issued $250 million of senior notes due April 15, 2005. Proceeds were used to repay commercial paper debt and for general corporate purposes.

        8¹/8% Senior Notes—Also in April 2000, we issued $250 million of senior notes due April 15, 2010. Proceeds were used to repay commercial paper debt and for general corporate purposes.

        Nuveen Line of Credit Borrowings—In 2001, our asset management subsidiary, The John Nuveen Company, entered into a $250 million revolving line of credit that extends through August 2003. The line is divided into two equal facilities, one of which has a three year term, the other is renewable in 364 days. At Dec. 31, 2001, Nuveen had two borrowings under this facility, including $125 million under the three-year facility and $58 million under the 364-day facility. The majority of the amount outstanding was used to finance a portion of Nuveen's acquisition of Symphony Asset Management LLC. At Dec. 31, 2001, the weighted average interest rate under these facilities was approximately 3.1%.

        Commercial Paper—Our commercial paper is supported by a $400 million credit agreement that expires in 2002 and by a $200 million portfolio of high quality, highly liquid fixed maturity securities.

        Interest rates on commercial paper issued in 2001 ranged from 1.1% to 6.7%; in 2000 the range was 5.5% to 6.7%; and in 1999 the range was 4.6% to 6.6%.

        Zero Coupon Convertible Notes—The zero coupon convertible notes mature in 2009, but were redeemable beginning in 1999 for an amount equal to the original issue price plus accreted original issue discount. In addition, on March 3, 1999 and March 3, 2004, the holders of the zero coupon convertible notes had/have the right to require us to purchase their notes for the price of $640.82 and $800.51, respectively, per $1,000 of principal amount due at maturity. In March 1999, we repurchased approximately $34 million face amount of the zero coupon convertible notes, for a total cash consideration of $21 million.

        7¹/8% Senior Notes—The 7¹/8% senior notes mature in 2005.

        Variable Rate Borrowings—A number of our real estate entities are parties to variable rate loan agreements aggregating $64 million. The borrowings mature in the year 2030, with principal paydowns starting in the year 2006. The interest rate is set weekly by a third party, and was 2.7% at Dec. 31, 2001.

        Real Estate Mortgage—The real estate mortgage represents a portion of the purchase price of one of our investments. The mortgage bears a fixed rate of 8.1% and matures in February 2002. During 2000, we repaid $13 million of mortgage debt associated with two of our real estate investments.

        Interest Rate Swap Agreements—At Dec. 31, 2001, we were party to a number of interest rate swap agreements related to several of our debt securities outstanding. The net effect of the swaps was a $7 million reduction in our 2001 interest expense. The notional amount of these swaps totaled $230 million, and their aggregate fair value at Dec. 31, 2001 was an asset of $23 million. Prior to our adoption of SFAS No. 133, as amended, on Jan. 1, 2001, the fair value of these swap agreements was not recorded on our balance sheet. Upon adoption, we reflected the fair value of these swap agreements as an increase to other assets and a corresponding increase to debt on our balance sheet, with the statement of operations impacts of recording the swaps offsetting.

        8³/8% Senior Notes—In June 2001, our $150 million of 8³/8% senior notes matured. The repayment of these notes was funded through a combination of internally generated funds and the issuance of commercial paper.

        Interest Expense—Our interest expense on debt was $110 million in 2001, $115 million in 2000 and $96 million in 1999.

        Maturities—The amount of debt obligations, other than commercial paper, that become due in each of the next five years is as follows: 2002, $108 million; 2003, $67 million; 2004, $180 million; 2005, $428 million; and 2006, $59 million.

COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES OF TRUSTS HOLDING SOLELY SUBORDINATED DEBENTURES OF THE COMPANY

        In November 2001, St. Paul Capital Trust I issued 23,000,000 Trust Preferred Securities, generating gross proceeds of $575 million. St.Paul Capital Trust I had been formed for the sole purpose of issuing these securities. The proceeds were used to buy The St.Paul's junior subordinated debentures. The Trust Preferred Securities pay a quarterly distribution at an annual rate of 7.6% of each security's liquidation amount of $25. The St. Paul's debentures have a mandatory redemption date of Oct. 15, 2050, but we can redeem them on or after Nov. 13, 2006. The proceeds of such redemptions will be used to redeem a like amount of Trust Preferred Securities.

        In 1995, we issued, through St. Paul Capital LLC (SPCLLC), 4,140,000 company-obligated mandatorily redeemable preferred securities, generating gross proceeds of $207 million. These securities were also known as convertible monthly income preferred securities ("MIPS"). The MIPS paid a

monthly distribution at an annual rate of 6% of the liquidation preference of $50 per security. During 2000, SPCLLC provided notice to the holders of the MIPS that it was exercising its right to cause the conversion rights of the owners of the MIPS to expire. The MIPS were convertible into 1.6950 shares of our common stock (equivalent to a conversion price of $29.50 per share). Prior to the expiration date, holders of over 99% of the MIPS exercised their conversion rights and, in August 2000, we issued 7,006,954 common shares in connection with the conversion. The remaining MIPS were redeemed for cash at $50 per security, plus accumulated preferred distributions.

        In connection with our purchase of MMI in April 2000, we assumed all obligations under their preferred securities. In December 1997, MMI issued $125 million of 30-year mandatorily redeemable preferred securities through MMI Capital Trust I, formed for the sole purpose of issuing the securities. The preferred securities pay a preferred distribution of 7⁵/8% semi-annually in arrears, and have a mandatory redemption date of Dec. 15, 2027.

        In 1997 and 1996, USF&G issued three series of preferred securities. After consummation of the merger with USF&G in 1998, The St. Paul assumed all obligations relating to these preferred securities. These Series A, Series B and Series C Capital Securities were issued through separate wholly-owned business trusts ("USF&G Capital I," "USF&G Capital II," and "USF&G Capital III," respectively) formed for the sole purpose of issuing the securities. We have effectively fully and unconditionally guaranteed all obligations of the three business trusts.

        In December 1996, USF&G Capital I issued 100,000 shares of 8.5% Series A Capital Securities, generating gross proceeds of $100 million. The proceeds were used to purchase $100 million of USF&G Corporation 8.5% Series A subordinated debentures, which mature on Dec. 15, 2045. The debentures are redeemable under certain circumstances related to tax events at a price of $1,000 per debenture. The proceeds of such redemptions will be used to redeem a like amount of the Series A Capital Securities.

        In January 1997, USF&G Capital II issued 100,000 shares of 8.47% Series B Capital Securities, generating gross proceeds of $100 million. The proceeds were used to purchase $100 million of USF&G Corporation 8.47% Series B subordinated debentures, which mature on Jan. 10, 2027. The debentures are redeemable at our option at any time beginning in January 2007 at scheduled redemption prices ranging from $1,042 to $1,000 per debenture. The debentures are also redeemable prior to January 2007 under certain circumstances related to tax and other special events. The proceeds of such redemptions will be used to redeem a like amount of the Series B Capital Securities.

        In July 1997, USF&G Capital III issued 100,000 shares of 8.312% Series C Capital Securities, generating gross proceeds of $100 million. The proceeds were used to purchase $100 million of USF&G Corporation 8.312% Series C subordinated debentures, which mature on July 1, 2046. The debentures are redeemable under certain circumstances related to tax events at a price of $1,000 per debenture. The proceeds of such redemptions will be used to redeem a like amount of the Series C Capital Securities.

        Under certain circumstances related to tax events, we have the right to shorten the maturity dates of the Series A, Series B and Series C debentures to no earlier than June 24, 2016, July 10, 2016 and Apri18, 2012, respectively, in which case the stated maturities of the related Capital Securities will likewise be shortened.

        In 2001, we repurchased and retired $20 million of USF&G Capital I securities. In 1999, we repurchased and retired a total of $79 million of USF&G Capital I, II and III securities. Purchases in both years were done in open market transactions. The amount retired in 1999 included $27 million of 8.5% Capital I, $22 million of 8.47% Capital II, and $30 million of 8.312% Capital III securities.

PREFERRED SHAREHOLDERS' EQUITY

        The preferred shareholders' equity on our balance sheet represents the par value of preferred shares outstanding that we issued to our Stock Ownership Plan ("SOP") Trust, less the remaining principal balance on the SOP Trust debt. The SOP Trust borrowed funds from a U.S. underwriting subsidiary to finance the purchase of the preferred shares, and we guaranteed the SOP debt.

        The SOP Trust may at any time convert any or all of the preferred shares into shares of our common stock at a rate of eight shares of common stock for each preferred share. Our board of directors has reserved a sufficient number of our authorized common shares to satisfy the conversion of all preferred shares issued to the SOP Trust and the redemption of preferred shares to meet employee distribution requirements. Upon the redemption of preferred shares, we will issue shares of our common stock to the trust to fulfill the redemption obligations.

COMMON SHAREHOLDERS' EQUITY

        Common Stock and Reacquired Shares—We are governed by the Minnesota Business Corporation Act. All authorized shares of voting common stock have no par value. Shares of common stock reacquired are considered unissued shares. The number of authorized shares of the company is 480 million.

        We reacquired some of our common shares in 2001, 2000 and 1999 for total costs of $589 million, $536 million and $356 million, respectively. We reduced our capital stock account and retained earnings for the cost of these repurchases.

        A summary of our common stock activity for the last three years is as follows.

		Year Ended December 31
		2001		2000		1999
		(Shares)
Outstanding at beginning of year		218,308,016		224,830,894		233,749,778
Shares issued:
	Stock incentive plans and other	2,012,533		3,686,827		1,896,229
	Conversion of preferred stock	287,442		661,523		287,951
	Conversion of MIPS	—		7,006,954		—
	Acquisition	—		—		27,936
Reacquired shares		(12,983,616	)	(17,878,182	)	(11,131,000	)
Outstanding at end of year		207,624,375		218,308,016		224,830,894

        Undesignated Shares—Our articles of incorporation allow us to issue five million undesignated shares. The board of directors may designate the type of shares and set the terms thereof. The board designated 1,450,000 shares as Series B Convertible Preferred Stock in connection with the formation of our Stock Ownership Plan.

        Dividend Restrictions—We primarily depend on dividends from our subsidiaries to pay dividends to our shareholders, service our debt and pay expenses. Various state laws and regulations limit the amount of dividends we may receive from our U.S. property-liability underwriting subsidiaries. Although $414 million will be available for dividends in 2002, business and regulatory considerations may impact the amount of dividends actually paid. We do not anticipate the receipt of any dividends from our domestic underwriting subsidiaries in 2002. We have sufficient resources available at the parent company to fund common and preferred shareholder dividends, interest payments and distributions on debt and preferred securities, respectively, and other administrative expenses. During 2001, we received dividends in the form of cash and securities of $827 million from our U.S. underwriting subsidiaries.

12    Retirement Plans

        During 2000, employees hired prior to May 2000 were given the choice of remaining subject to our traditional pension formula and traditional postretirement health care benefits plan, or switching to a new cash balance pension formula and/or cash balance retiree health formula. Employees choosing to switch to the cash balance formula(s) were credited with opening balances effective Jan. 1, 2001. Employees hired after Dec. 31, 2000 are automatically subject to the cash balance formulas.

        Defined Benefit Pension Plans—We maintain funded defined benefit pension plans for most of our employees. For those employees who have elected to remain subject to the traditional pension formula, benefits are based on years of service and the employee's compensation while employed by the company. Pension benefits generally vest after five years of service.

        For those employees covered under the cash balance pension formula, we maintain a cash balance pension account to measure the amount of benefits payable to an employee. For each plan year an employee is an active participant, the cash balance pension account is increased for pay credits and interest credits. Pay credits are calculated based on age, vesting service and actual pensionable earnings, and added to the account on the first day of the next plan year. Interest credits are added at the end of each calendar quarter.

        These benefits vest after five years of service. If an employee is vested under the cash balance formula when their employment with us ends, they are eligible to receive the formula amount in their cash balance pension account.

        Our pension plans are noncontributory. This means that employees do not pay anything into the plans. Our funding policy is to contribute amounts sufficient to meet the minimum funding requirements of the Employee Retirement Income Security Act and any additional amounts that may be necessary. This may result in no contribution being made in a particular year.

        Plan assets are invested primarily in equities and fixed maturities, and included 804,035 shares of our common stock with a market value of $35 million and $44 million at Dec. 31, 2001 and 2000, respectively.

        We maintain noncontributory, unfunded pension plans to provide certain company employees with pension benefits in excess of limits imposed by federal tax law.

        Postretirement Benefits Other Than Pension—We provide certain health care and life insurance benefits for retired employees (and their eligible dependents), who have elected to remain subject to the traditional formula. We currently anticipate that most covered employees will become eligible for these benefits if they retire while working for us. The cost of these benefits is shared with the retiree. The benefits are generally provided through our employee benefits trust, to which periodic contributions are made to cover benefits paid during the year. We accrue postretirement benefits expense during the period of the employee's service.

        A health care inflation rate of 10.00% was assumed to change to 9.00% in 2002; decrease one percentage point annually to 5.00% in 2006; and then remain at that level. A one-percentage-point change in assumed health care cost trend rates would have the following effects.

	1-Percentage- Point Increase		1-Percentage- Point Decrease
	(In Millions)
Effect on total of service and interest cost components	$	2	$	(2	)
Effect on postretirement benefit obligation		27		(22	)

        For those employees covered under the cash balance retiree health formula, we maintain a cash balance retiree health account ("health account") to measure the amount of benefits payable to an

employee. For each plan year an employee is an active participant, the health account is increased for pay credits and interest credits. Pay credits are calculated based on pensionable earnings up to the taxable wage base for the plan year and added to the health account on the first day of the next plan year. Interest credits are added at the end of each calendar quarter.

        These benefits vest after five years of service. If an employee is vested under the cash balance formula when their employment with us ends, they are eligible to receive the amount in their health account. Our obligations under this plan are accounted for under, and included in the 2001 results of, the defined benefit pension plan.

        All Plans—The following tables provide a reconciliation of the changes in the plans' benefit obligations and fair value of assets over the two-year period ended Dec. 31, 2001, and a statement of the funded status as of Dec. 31, of 2001 and 2000.

	Pension Benefits						Postretirement Benefits
	2001			2000			2001			2000
	(In Millions)
Change in benefit obligation:
Benefit obligation at beginning of year	$	961		$	777		$	221		$	189
Service cost		34			27			4			5
Interest cost		65			61			15			14
Plan amendment		3			—			—			—
Actuarial (gain) loss		(45	)		129			11			27
Foreign currency exchange rate change		—			(1	)		—			—
Acquisition		—			14			—			—
Benefits paid		(63	)		(46	)		(16	)		(14	)
Curtailment loss (gain)		24			—			(24	)		—
Benefit obligation at end of year	$	979		$	961		$	211		$	221
Change in plan assets:
Fair value of plan assets at beginning of year	$	1,206		$	1,226		$	23		$	20
Actual return on plan assets		(124	)		8			1			3
Foreign currency exchange rate change		—			(2	)		—			—
Acquisition		—			19			—			—
Employer contribution		1			1			16			14
Benefits paid		(63	)		(46	)		(16	)		(14	)
Fair value of plan assets at end of year	$	1,020		$	1,206		$	24		$	23
Funded status	$	41		$	245		$	(187	)	$	(198	)
Unrecognized transition asset		—			(2	)		—			—
Unrecognized prior service cost		1			(4	)		2			9
Unrecognized net actuarial loss		241			36			16			4
Prepaid (accrued) benefit cost	$	283		$	275		$	(169	)	$	(185	)

	Pension Benefits				Postretirement Benefits
	2001		2000		2001		2000
Weighted average assumptions as of December 31:
Discount rate	7.00	%	6.75	%	7.00	%	7.25	%
Expected return on plan assets	10.00	%	10.00	%	7.00	%	7.00	%
Rate of compensation increase	4.00	%	4.00	%	4.00	%	4.00	%

        The following table provides the components of our net periodic benefit cost for the years 2001, 2000 and 1999. For the year ended Dec. 31, 1999, the plans' benefit cost include the impact of curtailment gains related to employee terminations under the third quarter 1999 cost reduction action and the sale of standard personal insurance.

	Pension Benefits									Postretirement Benefits
	2001			2000			1999			2001			2000			1999
	(In Millions)
Components of net periodic benefit cost:
Service cost	$	34		$	27		$	38		$	4		$	5		$	8
Interest cost		65			61			60			15			14			14
Expected return on plan assets		(119	)		(123	)		(114	)		(2	)		(2	)		(2	)
Amortization of transition asset		(1	)		(2	)		(1	)		—			—			—
Amortization of prior service cost		(3	)		(3	)		(4	)		—			1			1
Recognized net actuarial loss (gain)		—			(2	)		—			—			—			—
Net periodic pension cost (income)		(24	)		(42	)		(21	)		17			18			21
Curtailment loss (gain)		17			—			(32	)		(17	)		—			(15	)
Net periodic benefit cost (income) after curtailment	$	(7	)	$	(42	)	$	(53	)	$	—		$	18		$	6

STOCK OWNERSHIP PLAN

        As of Jan. 1, 1998, our Preferred Stock Ownership Plan ("PSOP") and Employee Stock Ownership Plan ("ESOP") were merged into The St. Paul Companies, Inc. Stock Ownership Plan ("SOP"). The plan allocates preferred shares semiannually to those employees participating in our Savings Plus Plan. Under the SOP, we match 100% of employees' contributions up to a maximum of 4% of their salary. We also allocate preferred shares equal to the value of dividends on previously allocated shares. Additionally, this plan now provides an opportunity for an annual allocation to qualified U.S. employees based on company performance.

        To finance the preferred stock purchase for future allocation to qualified employees, the SOP (formerly the PSOP) borrowed $150 million at 9.4% from our primary U.S. underwriting subsidiary. As the principal and interest of the trust's loan is paid, a pro rata amount of our preferred stock is released for allocation to participating employees. Each share of preferred stock pays a dividend of $11.72 annually and is currently convertible into eight shares of our common stock. Preferred stock dividends on all shares held by the trust are used to pay a portion of this SOP obligation. In addition to dividends paid to the trust, we make additional cash contributions to the SOP as necessary in order to meet the SOP's debt obligation.

        The SOP (formerly the ESOP) borrowed funds to finance the purchase of common stock for future allocation to qualified participating U.S. employees. The final principal payment on the trust's loan was made in 1998. As the principal of the trust loan was paid, a pro rata amount of our common stock was released for allocation to eligible participants. Common stock dividends on shares allocated under the former ESOP are paid directly to participants.

        All common shares and the common stock equivalent of all preferred shares held by the SOP are considered outstanding for diluted EPS computations and dividends paid on all shares are charged to retained earnings.

        We follow the provisions of Statement of Position 76-3, "Accounting Practices for Certain Employee Stock Ownership Plans," and related interpretations in accounting for this plan. We recorded expense of $.5 million, $14 million and $26 million for the years 2001, 2000 and 1999, respectively.

        The following table details the shares held in the SOP.

		December 31
		2001		2000
		Common	Preferred	Common	Preferred
		(Shares)
Allocated		5,144,640	492,252	5,546,251	448,819
Committed to be released		—	25,885	—	49,646
Unallocated		—	254,085	—	309,663
	Total	5,144,640	772,222	5,546,251	808,128

        The SOP allocated 55,578 preferred shares in 2001, 83,585 preferred shares in 2000 and 183,884 preferred shares in 1999. Unallocated preferred shares had a fair market value of $90 million and $135 million at Dec. 31, 2001 and 2000, respectively. The remaining unallocated preferred shares at Dec. 31, 2001, will be released for allocation annually through Jan. 31, 2005.

13    Stock Incentive Plans

        We have made fixed stock option grants to certain U.S.-based employees, certain employees of our non-U.S. operations, and outside directors. These were considered "fixed" grants because the measurement date for determining compensation costs was fixed on the date of grant. We have also made variable stock option grants to certain company executives. These were considered "variable" grants because the measurement date was contingent upon future increases in the market price of our common stock.

        We follow the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," FASB Interpretation 44, "Accounting for Certain Transactions involving Stock Compensation (an interpretation of APB Opinion No. 25)," and other related interpretations in accounting for our stock option plans. We also follow the disclosure provisions of SFAS No. 123, "Accounting for Stock-Based Compensation" for our option plans. SFAS No. 123 requires pro forma net income and earnings per share information, which is calculated assuming we had accounted for our stock option plans under the "fair value" method described in that Statement.

        Since the exercise price of our fixed options equals the market price of our stock on the day the options are granted, there generally is no related compensation expense for financial reporting purposes. However, during 2001, certain executives' outstanding options became subject to accelerated vesting and an extended life, under the terms of the Senior Executive Severance Policy or other employment agreements, and we recorded $16 million of compensation cost in 2001. We have also recorded compensation cost/(income) associated with our variable options, restricted stock awards and the former USF&G's Long-Term Incentive Program, of $(8) million, $28 million and $8 million in 2001, 2000 and 1999, respectively.

FIXED OPTION GRANTS

        U.S.-Based Plans—Our fixed option grants for certain U.S.-based employees and outside directors give these individuals the right to buy our stock at the market price on the day the options were granted. Fixed stock options granted under the stock incentive plan adopted by our shareholders in May 1994 (as subsequently amended) become exercisable no less than one year after the date of grant and may be exercised up to ten years after grant date. Options granted under our option plan in effect prior to May 1994 may be exercised at any time up to ten years after the grant date. At the end of 2001, approximately 14,300,000 shares remained available for grant under our stock incentive plan.

        Non-U.S. Plans—We also have separate stock option plans for certain employees of our non-U.S. operations. The options granted under these plans were priced at the market price of our common stock on the grant date. Generally, they can be exercised from three to 10 years after the grant date. Approximately 250,000 option shares were available at Dec. 31, 2001 for future grants under our non-U.S. plans.

        Global Stock Option Plan ("GSOP")—We have a separate fixed stock option plan for employees who are not eligible to participate in the U.S. and non-U.S. plans previously described. Options granted to eligible employees under the GSOP are contingent upon the company achieving threshold levels of profitability, and the number of options granted is determined by the level of profitability achieved. Generally, options granted under this plan can be exercised from three to 10 years after the grant date. At Dec. 31, 2001, approximately 1,300,000 option shares were available for future grants under the GSOP.

        The following table summarizes the activity for our fixed option plans for the last three years. All grants were made at the market price on the date of grant.

	Option Shares		Weighted Average Exercise Price
Outstanding Jan. 1, 1999	11,143,892		$	30.78
Granted	3,531,418			30.16
Exercised	(1,578,903	)		22.63
Canceled	(1,033,435	)		39.07
Outstanding Dec. 31, 1999	12,062,972			30.96
Granted	6,539,436			33.94
Exercised	(3,372,916	)		26.42
Canceled	(919,110	)		36.41
Outstanding Dec. 31, 2000	14,310,382			33.04
Granted	7,333,445			47.29
Exercised	(1,545,214	)		31.22
Canceled	(1,824,580	)		38.56
Outstanding Dec. 31, 2001	18,274,033		$	38.36

        The following table summarizes the options exercisable at the end of the last three years and the weighted average fair value of options granted during those years. The fair value of options is estimated on the date of grant using the Black-Scholes option-pricing model, with the following weighted average assumptions used for grants in 2001, 2000 and 1999, respectively: dividend yield of 3.0%, 3.0% and 2.8%; expected volatility of 46.3%, 41.0% and 23.8%; risk-free interest rates of 5.0%, 6.5% and 5.3%; and an expected life of 6.8 years, 6.5 years and 6.5 years.

	2001		2000		1999
Options exercisable at year-end		5,982,799		5,751,780		7,940,793
Weighted average fair value of options granted during the year	$	19.00	$	12.96	$	7.59

        The following tables summarize the status of fixed stock options outstanding and exercisable at Dec. 31, 2001.

	Options Outstanding
Range of Exercise Prices	Number of Options	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price
$13.29 - 29.31	3,051,475	5.0 years	$	26.35
29.63 - 35.00	2,742,399	6.8 years		31.02
35.25	3,648,221	8.3 years		35.25
35.31 - 45.10	2,897,707	7.2 years		42.78
45.67 - 48.04	2,038,650	9.7 years		46.17
48.39 - 50.44	3,895,581	9.1 years		48.46
$13.29 - 50.44	18,274,033	7.7 years	$	38.36

	Options Exercisable
Range of Exercise Prices	Number of Options	Weighted Average Exercise Price
$13.29 - 29.31	2,096,892	$	25.01
29.63 - 35.00	1,510,667		31.52
35.25	487,266		35.25
35.31 - 45.10	1,868,599		43.02
45.67 - 48.04	—		—
48.39 - 50.44	19,375		50.44
$13.29 - 50.44	5,982,799	$	33.20

VARIABLE STOCK OPTION GRANT

        In 1999, we made a variable option grant of 375,000 shares form our 1994 stock incentive plan to one of our key executives. This was in addition to 1,966,800 variable option shares granted to executives prior to 1999. The exercise price of each option was equal to the market price of our stock on the grant date. One-half of the options vested when the market price of our stock reached a 20-consecutive-trading-day average of $50 per share, which occurred in November 2000. The remaining options were to vest when our stock price reached a 20-consecutive-trading-day average of $55 per share, which did not occur. Any of these options not exercised prior to Dec. 1, 2001 expired on that date.

        The following table summarizes the activity for our variable option grants for the last three years.

	Option Shares		Weighted Average Exercise Price
Outstanding Jan. 1, 1999	1,498,200		$	30.26
Granted	375,000			29.63
Canceled	(152,400	)		29.38
Outstanding Dec. 31, 1999	1,720,800			30.20
Exercised	(290,975	)		30.41
Canceled	(437,850	)		29.59
Outstanding Dec. 31, 2000	991,975			30.15
Exercised	(290,500	)		29.74
Canceled	(701,475	)		30.32
Outstanding Dec. 31, 2001	—			—

        The weighted average fair value of options granted during 1999 was $2.66 per option. The fair value of the variable options was estimated on the date of grant using a variable option-pricing model with the following weighted average assumptions: dividend yield of 2.8%; expected volatility of 22.9%; risk-free interest rate of 4.7%; and an expected life of 2.8 years.

RESTRICTED STOCK AND DEFERRED STOCK AWARDS

        Up to 20% of the 33.4 million shares authorized under our 1994 stock incentive plan may be granted as restricted stock awards. The stock for this type of award is restricted because recipients receive the stock only upon completing a specified objective or period of employment, generally one to five years. The shares are considered issued when awarded, but the recipient does not own and cannot sell the shares during the restriction period. During the restriction period, the recipient receives compensation in an amount equivalent to the dividends paid on such shares. Up to 5,600,000 shares were available for restricted stock awards at Dec. 31, 2001.

        We also have a Deferred Stock Award Plan for stock awards to non-U.S. employees. Deferred stock awards are the same as restricted stock awards, except that shares granted under the deferred plan are not issued until the vesting conditions specified in the award are fulfilled. Up to 21,000 shares were available for deferred stock awards at Dec. 31, 2001.

PRO FORMA INFORMATION

        Had we calculated compensation expense on a combined basis for our stock option grants based on the "fair value" method described in SFAS No. 123, our net income and earnings per share would have been reduced to the pro forma amounts as indicated.

	Year Ended December 31
	2001			2000		1999
	(In Millions, Except Per Share Data)
NET INCOME
As reported	$	(1,088	)	$	993	$	834
Pro forma		(1,123	)		986		825
BASIC EARNINGS PER SHARE
As reported		(5.22	)		4.50		3.61
Pro forma		(5.44	)		4.46		3.57
DILUTED EARNINGS PER SHARE
As reported		(5.22	)		4.24		3.41
Pro forma		(5.44	)		4.23		3.38

14    Discontinued Operations

        Life Insurance—On September 28, 2001, our subsidiary, St. Paul Fire and Marine Insurance Company ("Fire and Marine"), closed on the sale of its life insurance subsidiary, Fidelity and Guaranty Life Insurance Company ("F&G Life") to Old Mutual plc ("Old Mutual") for $335 million in cash and $300 million in shares of Old Mutual stock. In accordance with the sale agreement, the sale proceeds were reduced by $11.7 million, on a pretax basis, related to a decrease in the market value of certain securities within F&G Life's Investment portfolio between March 31, 2001 and the closing date.

        Pursuant to the sale agreement, we are required to hold the Old Mutual stock received for one year after the closing of the transaction. The consideration received is subject to possible additional adjustment based on the market price of Old Mutual's stock at the end of that one-year period, as described in greater detail in Note 15.

        When the sale was announced in April 2001, we expected to realize a modest gain on the sale of F&G Life, when proceeds were combined with F&G Life's operating results through the disposal date. However, a decline in the market value of certain of F&G Life's investments subsequent to April, coupled with a change in the anticipated tax treatment of the sale, resulted in an after-tax loss of $73 million on the sale proceeds. That loss is combined with F&G Life's results of operations for a year-to-date after-tax loss of $54 million and is included in the reported loss from discontinued operations for the year ended Dec. 31, 2001.

        Also in September 2001, we sold American Continental Life Insurance Company, a small life insurance company we had acquired as part of our MMI purchase, to CNA Financial Corporation. We received cash proceeds of $21 million, and recorded a net after-tax loss on the sale of $1 million.

        Standard Personal Insurance Business—In June 1999, we made a decision to sell our standard personal insurance business and, on July 12, 1999, reached an agreement to sell this business to Metropolitan Property and Casualty Insurance Company ("Metropolitan"). On Sept. 30, 1999, we completed the sale of this business to Metropolitan. As a result, the standard personal insurance operations through June 1999 have been accounted for as discontinued operations for all periods

presented herein, and the results of operations subsequent to that period have been included in the gain on sale of discontinued operations.

        Metropolitan purchased Economy Fire & Casualty Company and its subsidiaries ("Economy"), as well as the rights and interests in those non-Economy policies constituting our remaining standard personal insurance operations. Those rights and interests were transferred to Metropolitan by way of a reinsurance and facility agreement ("Reinsurance Agreement").

        The Reinsurance Agreement relates solely to the non-Economy standard personal insurance policies, and was entered into solely as a means of accommodating Metropolitan through a transition period. The Reinsurance Agreement allows Metropolitan to write non-Economy business on our policy forms while Metropolitan obtains the regulatory license, form and rate approvals necessary to write non-Economy business through their own insurance subsidiaries. Any business written on our policy forms during this transition period is then fully ceded to Metropolitan under the Reinsurance Agreement. We recognized no gain or loss on the inception of the Reinsurance Agreement and will not incur any net revenues or expenses related to the Reinsurance Agreement. All economic risk of post-sale activities related to the Reinsurance Agreement has been transferred to Metropolitan. We anticipate that Metropolitan will pay all claims incurred related to this Reinsurance Agreement. In the event that Metropolitan is unable to honor their obligations to us, we will pay these amounts.

        As part of the sale to Metropolitan, we guaranteed the adequacy of Economy's loss and loss expense reserves. Under that guarantee, we will pay for any deficiencies in those reserves and will share in any redundancies that develop by Sept. 30, 2002. We remain liable for claims on non-Economy policies that result from losses occurring prior to closing. By agreement, Metropolitan will adjust those claims and share in redundancies in related reserves that may develop. As of Dec. 31, 2001, we have estimated that we will owe Metropolitan $7 million on these guarantees, and have included that amount in discontinued operations. We have no other contingent liabilities related to the sale.

        As a result of the sale, approximately 1,600 standard personal insurance employees of The St. Paul effectively transferred to Metropolitan on Oct. 1, 1999.

        We received gross proceeds on the sale of $597 million, less the payment of the reinsurance premium of $325 million, for net proceeds of $272 million. We recognized, in discontinued operations, a pretax gain on disposal of $130 million, after adjusting for a $26 million pension and postretirement curtailment gain and disposition costs of $32 million. The gain on disposal combined with a $128 million pretax gain on discontinued operations (subsequent to our decision to sell), resulting in a total pretax gain of $258 million. Included in the pretax gain on discontinued operations was a $145 million reduction in loss and loss adjustment expense reserves. In the third quarter of 1999, based on favorable trends noted in the standard personal insurance reserve analysis, and considering the pending sale and its economic consequences, we concluded that this reserve reduction was appropriate.

        The $26 million pretax curtailment gain represented the impact of a reduced number of employees in the pension and post-retirement plans due to the sale of the standard personal insurance business.

        The $32 million pretax disposition costs netted against the gain represented costs directly associated with the decision to dispose of the standard personal insurance segment and included $14 million of employee-related costs, $8 million of occupancy-related costs, $7 million of transaction costs, $2 million of record separation costs and $1 million of equipment charges. The employee-related costs related to the expected termination of 385 employees due to the sale of the personal insurance segment. Approximately 350 employees were terminated related to this action. In 2000, we reduced the employee-related reserve by $3 million due to a number of voluntary terminations, which reduced the expected severance to be paid. In 2001, we reduced the occupancy-related reserve by $2 million due to a lease buyout.

        The following presents a rollforward of 2001 activity related to this charge.

		Pretax Charge		Reserve at Dec. 31, 2000		Payments			Adjustments			Reserve at Dec. 31, 2001
		(In Millions)
Charges to earnings:
Employee-related		$	14	$	—	$	—		$	—		$	—
Occupancy-related			8		7		(3	)		(2	)		2
Transaction costs			7		—		—			—			—
Record separation costs			2		—		—			—			—
Equipment charges			1		—		—			—			—
	Total	$	32	$	7	$	(3	)	$	(2	)	$	2

        Nonstandard Auto Business—In December 1999, we decided to sell our nonstandard auto business marketed under the Victoria Financial and Titan Auto brands. On Jan. 4, 2000, we announced an agreement to sell this business to The Prudential Insurance Company of America ("Prudential") for $200 million in cash, subject to certain adjustments based on the balance sheet as of the closing date. As a result, the nonstandard auto business results of operations were accounted for as discontinued operations for the year ended Dec. 31, 1999. Included in "Discontinued operations—gain (loss) on disposal, net of tax" in our 1999 statement of operations was an estimated loss on the sale of approximately $83 million, which included the estimated results of operations through the disposal date. All prior period results of nonstandard auto have been reclassified to discontinued operations.

        On May 1, 2000, we closed on the sale of our nonstandard auto business to Prudential, receiving total cash consideration of approximately $175 million (net of a $25 million dividend paid to our property-liability operations prior to closing).

        The following table summarizes our discontinued operations, including our life insurance business, our standard personal insurance business, our nonstandard auto business and our insurance brokerage business, Minet (sold in 1997), for the three-year period ended Dec. 31, 2001.

		Year Ended December 31
		2001			2000			1999
		(In Millions)
Operating income, before income taxes		$	19		$	53		$	48
Income tax expense			—			10			13
	Operating income, net of taxes		19			43			35
Gain (loss) on disposal, before income taxes			(61	)		(25	)		184
Income tax expense (benefit)			37			(5	)		90
	Gain (loss) on disposal, net of taxes		(98	)		(20	)		94
	Gain (loss) from discontinued operations	$	(79	)	$	23		$	129

        The following table summarizes our total gain (loss) from discontinued operations, for each operation sold, for the three-year period ended Dec. 31, 2001.

		Year Ended December 31
		2001			2000			1999
		(In Millions)
Life insurance		$	(55	)	$	43		$	44
Standard personal insurance			(13	)		(11	)		155
Nonstandard auto insurance			(5	)		(9	)		(70	)
Insurance brokerage			(6	)		—			—
	Gain/(loss) from discontinued operations	$	(79	)	$	23		$	129

15    Commitments and Contingencies

        Investment Commitments—We have long-term commitments to fund venture capital investments totaling $1.2 billion as of Dec. 31, 2001, estimated to be paid as follows: $302 million in 2002; $290 million in 2003; $299 million in 2004; $275 million in 2005; and $9 million thereafter.

        Financial Guarantees—We are contingently liable for a financial guarantee issued by our reinsurance operation in the form of a credit enhancement, with total exposure of approximately $15 million as of Dec. 31, 2001.

        In the normal course of business, we enter into letters of credit as collateral, as required in certain of our operations. As of Dec. 31, 2001, we had entered into letters of credit with an aggregate amount of $984 million.

        Lease Commitments—A portion of our business activities is conducted in rented premises. We also enter into leases for equipment, such as office machines and computers. Our total rental expense was $83 million in 2001, $83 million in 2000 and $82 million in 1999.

        Certain leases are noncancelable, and we would remain responsible for payment even if we stopped using the space or equipment. On Dec. 31, 2001, the minimum rents for which we are liable under these types of leases were as follows: $137 million in 2002, $126 million in 2003, $88 million in 2004, $71 million in 2005, $60 million in 2006 and $203 million thereafter.

        We are also the lessor under various subleases on our office facilities. The minimum rentals to be received under noncancelable subleases are as follows: $22 million in 2002, $20 million in 2003, $17 million in 2004, $16 million in 2005, $15 million in 2006 and $37 million thereafter.

        Reserve Guarantees—As part of the sale of our standard personal insurance business to Metropolitan (see Note 14), we guaranteed the adequacy of Economy's loss and loss expense reserves. Under that guarantee, we will pay for any deficiencies in those reserves and will share in any redundancies that develop by Sept. 30, 2002. We remain liable for claims on non-Economy policies that result from losses occurring prior to closing. By agreement, Metropolitan will adjust those claims and share in redundancies in related reserves that may develop. As of Dec. 31, 2001, we estimated that we will owe Metropolitan $7 million on these guarantees, and recorded that amount in discontinued operations.

        Contingent Liabilities—Most of the contracts relating to the various acquisitions and sales of subsidiaries that we have made in recent years include indemnifications and other provisions that could require us to make payments to the other parties to the contracts in certain circumstances, and in some cases we have contingent liabilities related to businesses we have sold. Except as specifically noted, we do not expect there to be a reasonable likelihood that we will be required to make material payments related to those provisions. The following summarizes our contingent liabilities.

Sale of F&G Life—On Sept. 28, 2001, we closed on the sale of F&G Life to Old Mutual (see Note 14). Under the terms of the agreement, we received Old Mutual common shares valued at

$300 million, which we are required to hold for one year following the closing. The proceeds from the sale of F&G Life are subject to possible adjustment, by means of a collar embedded in the sale agreement, based on the movement of the market price of Old Mutual's stock at the end of the one-year period. If the market value of the Old Mutual stock exceeds $330 million at the end of the one-year period, we are required to remit to Old Mutual either cash or Old Mutual shares in the amount representing the excess over $330 million. If the market value of the Old Mutual shares is less than $300 million at the end of the one-year period, we will receive either cash or Old Mutual shares in the amount representing the deficit below $300 million, up to $40 million. At Dec. 31, 2001, the market value of the Old Mutual shares was $242 million. The $58 million decline in market value was recorded as a component of unrealized appreciation of investments, net of tax, in shareholders' equity. The impact of this unrealized loss has been mitigated by the collar, which was estimated to have a fair value of $17 million at Dec. 31, 2001, which is recorded in our statement of operations in discontinued operations.

Sale of Minet—In May 1997, we completed the sale of our insurance brokerage operation, Minet, to Aon Corporation. We agreed to indemnify Aon against any future claims for professional liability and other specified events that occurred or existed prior to the sale. We monitor our exposure under these claims on a regular basis. We believe reserves for reported claims are adequate, but we do not have information on unreported claims to estimate a range of additional liability. We purchased insurance to cover a portion of our exposure to such claims.

        Under the sale agreement, we also committed to pay Aon commissions representing a minimum level of annual reinsurance brokerage business through 2012. We also have commitments under lease agreements through 2015 for vacated space (included in our lease commitment totals above), as well as a commitment to make payments to a former Minet executive.

        Acquisitions—We may be required to make an additional payment of up to $20 million related to our purchase of the right to seek to renew Fireman's Fund surety business, based on the volume of business renewed within one year of purchase. Our asset management subsidiary, Nuveen, may be required to make additional payments of up to $180 million related to their acquisition of Symphony, based on reaching specified performance and growth targets.

Joint Ventures—Our subsidiary, Fire and Marine, is a party to five separate joint ventures, in each of which Fire and Marine is a 50% owner of various real estate holdings and does not exercise control over the joint ventures, financed by non-recourse mortgage notes. Because we own only 50% of the holdings, we do not consolidate these entities and the joint venture debt does not appear on our balance sheet. Our maximum exposure under each of these joint ventures, in the event of foreclosure of a property, is represented by our carrying value in the joint venture, ranging individually from $7 million to $31 million, and cumulatively totaling $65 million at Dec. 31, 2001.

        Municipal Trusts—We have purchased interests in certain unconsolidated trusts holding highly rated municipal securities that were formed for the purpose of executing corporate tax strategies. Related to our interests, we are contingently liable for a portion of the interest rate risk of the municipal securities we sold to the trust. As of Dec. 31, 2001, our contingent liability was less than $1 million.

        Legal Matters—In the ordinary course of conducting business, we, and some of our subsidiaries, have been named as defendants in various lawsuits. Some of these lawsuits attempt to establish liability under insurance contracts issued by our underwriting operations. Plaintiffs in these lawsuits are asking for money damages or to have the court direct the activities of our operations in certain ways.

        It is possible that the settlement of these lawsuits may be material to our results of operations and liquidity in the period in which they occur. However, we believe the total amounts that we, and our subsidiaries, will ultimately have to pay in these matters will have no material effect on our overall financial position.

16    Restructuring and Other Charges

        Fourth-Quarter 2001 Strategic Review—In December 2001, we announced the results of a strategic review of all of our operations, which included a decision to exit a number of businesses and countries, as discussed in Note 3. Related to this strategic review, we recorded a pretax charge of $62 million, including $46 million of employee-related costs, $9 million of occupancy-related costs, $4 million of equipment charges and $3 million of legal costs. The charge was included in "Operating and administrative expenses" in the 2001 statement of operations; with $42 million included in "Property-liability insurance—other" and $20 million included in "Parent company, other operations and consolidating eliminations" in the table titled "Income (Loss) from Continuing Operations Before Income Taxes and Cumulative Effect of Accounting Change" in Note 19.

        The employee-related costs represent severance and related benefits such as outplacement services to be paid to, or incurred on behalf of, employees to be terminated by the end of 2002. We estimated that a total of approximately 1,200 employee positions would ultimately be terminated under this action, with approximately 800 expected to be terminated by the end of 2002. The remaining 400 employees were not included in the restructuring charge since they will either be terminated after 2002 or are part of one of the operations that may be sold. Of the total, approximately 650 work in offices outside the U.S. (many of which are closing), approximately 300 are in our Health Care business (which is being exited), and the remaining 250 are spread throughout our domestic operations.

        The occupancy-related cost represents excess space created by the terminations, calculated by determining the anticipated excess space, by location, as a result of the terminations. The percentage of excess space in relation to the total leased space was then applied to the current lease costs over the remaining lease period. The amounts payable under the existing leases were not discounted, and sublease income was included in the calculation only for those locations where sublease agreements were in place. The equipment costs represent the net book value of computer and other equipment that will no longer be used following the termination of employees and closing of offices. The legal costs represent our estimate of fees to be paid to outside legal counsel to obtain regulatory approval to exit certain states or countries.

        No payments were made in 2001 related to this action.

        MMI Acquisition—Related to our April 2000 purchase of MMI (see Note 4), we recorded a charge of $28 million, including $4 million of employee-related costs and $24 million of occupancy-related costs. The employee-related costs represented severance and related benefits such as outplacement counseling to be paid to, or incurred on behalf of, terminated employees. We estimated that approximately 130 employee positions would be eliminated, at all levels throughout MMI, and 119 employees were terminated. The occupancy-related cost represented excess space created by the terminations, calculated by determining the percentage of anticipated excess space, by location, and the current lease costs over the remaining lease period. The amounts payable under the existing leases were not discounted, and sublease income was included in the calculation only for those locations where sublease agreements were in place.

        The charge was included in "Operating and administrative expenses" in the 2000 statement of operations and in "Property-liability insurance—other" in the table titled "Income (Loss) from Continuing Operations Before Income Taxes and Cumulative Effect of Accounting Change" in Note 19.

        The following presents a rollforward of 2001 activity related to this charge.

		Pretax Charge		Reserve at Dec. 31, 2000		2001 Payments			2001 Adjustments			Reserve at Dec. 31, 2001
		(In Millions)
Charges to earnings:
Employee-related		$	4	$	1	$	(1	)	$	—		$	—
Occupancy-related			24		23		(8	)		(7	)		8
	Total	$	28	$	24	$	(9	)		(7	)	$	8

        During 2001, we reduced the occupancy-related reserve by a net amount of $7 million. We entered into a lease buyout related to a portion of the space, and reduced the reserve by $8 million of lease payments we were no longer obligated to make. This amount was offset by a $1 million adjustment related to sublease recoveries.

        Other Restructuring Charges—Since 1997, we have recorded in continuing operations three other restructuring charges related to actions taken to improve our operations. (Also see Note 14 for a discussion of the charge related to the sale of our standard personal insurance business, which was included in discontinued operations in 1999.)

        In August 1999, we announced a cost reduction program designed to enhance our efficiency and effectiveness in a highly competitive environment. In the third quarter of 1999, we recorded a pretax charge of $60 million related to this program, including $25 million in employee-related charges related to the termination of approximately 590 employees, $33 million in occupancy-related charges and $2 million in equipment charges. The charge was included in "Operating and administrative expenses" in the 1999 statement of operations and in "Property-liability insurance—other" in the table titled "Income (Loss) from Continuing Operations Before Income Taxes and Cumulative Effect of Accounting Change" in Note 19.

        Late in the fourth quarter of 1998, we recorded a pretax restructuring charge of $34 million. The majority of the charge, $26 million, related to the termination of approximately 500 employees, primarily in our commercial insurance operations. The remaining charge of $8 million related to costs to be incurred to exit lease obligations.

        In connection with our merger with USF&G, in the second quarter of 1998 we recorded a pretax charge to net income of $292 million, primarily consisting of severance and other employee-related costs related to the termination of approximately 2,200 positions, facilities exit costs, asset impairments and transaction costs.

        All actions have been taken and all obligations have been met regarding these three charges, with the exception of certain remaining lease commitments. The lease commitment charges related to excess space created by the cost reduction actions. The charge was calculated by determining the percentage of anticipated excess space, by location, and the current lease costs over the remaining lease period. The amounts payable under the existing leases were not discounted, and sublease income was included in the calculation only for those locations where sublease agreements were in place.

        During 2001, we reduced the remaining reserve by $1 million related to sublease and buyout activity, which reduced our estimated remaining lease commitments. We expect to be obligated under certain lease commitments for at least seven years.

        The following presents a rollforward of 2001 activity related to these commitments.

	Pretax Charge		Reserve at Dec. 31, 2000		2001 Payments			2001 Adjustments			Reserve at Dec. 31, 2001
	(In Millions)
Lease commitments previously charged to earnings	$	75	$	43	$	(11	)	$	(1	)	$	31

17    Reinsurance

        The primary purpose of our ceded reinsurance program, including the aggregate excess-of-loss coverages discussed below, is to protect us from potential losses in excess of what we are prepared to accept. We expect the companies to which we have ceded reinsurance to honor their obligations. In the event these companies are unable to honor their obligations to us, we will pay these amounts. We have established allowances for possible nonpayment of amounts due to us. As described in Note 2, we increased our provision for uncollectible reinsurance by $47 million after the 2001 terrorist attack.

        We report balances pertaining to reinsurance transactions "gross" on the balance sheet, meaning that reinsurance recoverables on unpaid losses and ceded unearned premiums are not deducted from insurance reserves but are recorded as assets.

        The largest concentration of our total reinsurance recoverables and ceded unearned premiums at Dec. 31, 2001 was with General Reinsurance Corporation ("Gen Re"). Gen Re (with approximately 22% of our recoverables) is rated "A+ +" by A.M. Best, "Aaa" by Moody's and "AAA" by Standard & Poor's for its financial strength.

        During each of the years 2001, 2000 and 1999, we entered into two aggregate excess-of-loss reinsurance treaties. One of these treaties in each year was corporate-wide, with coverage triggered when our insurance losses and LAE across all lines of business reached a certain level, as prescribed by terms of the treaty (the "corporate program"). Additionally, our Reinsurance segment benefited from cessions made under a separate treaty in each year unrelated to the corporate treaty. The combined impact of these treaties (together, the "reinsurance treaties") is included in the table that follows.

			Year Ended December 31
			2001			2000		1999
			(In Millions)
Corporate program:
	Ceded written premiums		$	9		$	419	$	211
	Ceded losses and loss adjustment expenses			(25	)		709		384
	Ceded earned premiums			9			419		211
		Net pretax benefit (detriment)		(34	)		290		173
Reinsurance segment treaty:
	Ceded written premiums			119			55		62
	Ceded losses and loss adjustment expenses			278			122		150
	Ceded earned premiums			119			55		62
		Net pretax benefit		159			67		88
Combined total:
	Ceded written premiums			128			474		273
	Ceded losses and loss adjustment expenses			253			831		534
	Ceded earned premiums			128			474		273
		Net pretax benefit	$	125		$	357	$	261

        Under the 1999 and 2000 corporate treaties, we ceded losses to the reinsurer when our corporate-wide incurred insurance losses and LAE exceeded accident year attachment loss ratios specified in the contract. We paid the ceded earned premiums shortly after the coverage under the treaties was invoked. We will recover the ceded losses and LAE from our reinsurer as we settle the related claims, which may occur over several years. For the separate Reinsurance segment treaties, for all three years, we remit the premiums ceded (plus accrued interest) to our counterparty when the related losses and LAE are settled.

        During 2001, we did not cede losses to the corporate treaty. The $9 million written and earned premiums ceded in 2001 represented the initial premium paid to our reinsurer. Our primary purpose in entering into the corporate reinsurance treaty was to reduce the volatility in our reported earnings over time. Because of the magnitude of losses associated with the Sept. 11 terrorist attack, that purpose could not be fulfilled had the treaty been invoked to its full capacity in 2001. In addition, our actuarial analysis concluded that there would be little, if any, economic value to us in ceding any losses under the treaty. As a result, in early 2002, we mutually agreed with our reinsurer to commute the 2001 corporate treaty for consideration to the reinsurer equaling the $9 million initial premium paid.

        The $25 million change in our estimate of ceded losses and LAE in 2001 in the table above represented an adjustment for losses ceded under our 2000 corporate treaty. Deterioration in our 2000 accident year loss experience in 2001 caused our expectations of the payout patterns of our reinsurer to change and resulted in our conclusion that losses originally ceded in 2000 would exceed an economic limit prescribed in the 2000 treaty.

        The effect of assumed and ceded reinsurance on premiums written, premiums earned and insurance losses and loss adjustment expenses is as follows (including the impact of the reinsurance treaties).

		Year Ended December 31
		2001			2000			1999
		(In Millions)
PREMIUMS WRITTEN
Direct		$	7,135		$	6,219		$	4,622
Assumed			2,700			2,064			1,645
Ceded			(2,072	)		(2,399	)		(1,155	)
	Net premiums written	$	7,763		$	5,884		$	5,112
PREMIUMS EARNED
Direct		$	6,656		$	5,819		$	4,621
Assumed			2,685			2,019			1,537
Ceded			(2,045	)		(2,246	)		(1,055	)
	Total premiums earned	$	7,296		$	5,592		$	5,103
INSURANCE LOSSES AND LOSS ADJUSTMENT EXPENSES
Direct		$	6,876		$	4,068		$	3,532
Assumed			3,952			1,798			1,124
Ceded			(3,349	)		(1,953	)		(936	)
	Total net insurance losses and loss adjustment expenses	$	7,479		$	3,913		$	3,720

18    Statutory Accounting Practices

        Our underwriting operations are required to file financial statements with state and foreign regulatory authorities. The accounting principles used to prepare these statutory financial statements follow prescribed or permitted accounting principles, which differ from GAAP. Prescribed statutory accounting practices include state laws, regulations and general administrative rules issued by the state of domicile as well as a variety of publications and manuals of the National Association of Insurance Commissioners ("NAIC"). Permitted statutory accounting practices encompass all accounting practices not so prescribed, but allowed by the state of domicile. During 2001, Fire and Marine was granted a permitted practice regarding the valuation of certain investments in affiliated limited liability companies, allowing it to value these investments at their audited GAAP equity. Since these investments were not required to be valued on a statutory basis, Fire and Marine is not able to determine the impact on statutory surplus.

        On a statutory accounting basis, our property-liability underwriting operations reported a net loss of $873 million in 2001, and net income of $1.2 billion in 2000 and $945 million in 1999. Statutory

surplus (shareholder's equity) of our property-liability underwriting operations was $4.5 billion and $6.3 billion as of Dec. 31, 2001 and 2000, respectively.

        The NAIC published revised statutory accounting practices in connection with its codification project, which became effective Jan. 1, 2001. The cumulative effect to our property-liability insurance operations of the adoption of these practices was to increase statutory surplus by $165 million, primarily related to the treatment of deferred taxes.

19    Segment Information

        We have seven reportable segments in our insurance operations, which consist of Specialty Commercial, Commercial Lines Group, Health Care, Surety and Construction, Lloyd's and Other, Reinsurance, and Property-Liability Investment Operations. The insurance operations are managed separately because each targets different customers and requires different marketing strategies. We also have an Asset Management segment, consisting of our majority ownership in The John Nuveen Company.

        The accounting policies of the segments are the same as those described in the summary of significant accounting policies. We evaluate performance based on underwriting results for our property-liability insurance segments, investment income and realized gains for our investment operations, and on pretax operating results for the asset management segment. Property-liability underwriting assets are reviewed in total by management for purposes of decision-making. We do not allocate assets to these specific underwriting segments. Assets are specifically identified for our asset management segment.

        Geographic Areas—The following summary presents financial data of our continuing operations based on their location.

		Year Ended December 31
		2001		2000		1999
		(In Millions)
REVENUES
U.S.		$	7,161	$	6,792	$	6,342
Non-U.S.			1,782		1,180		807
	Total revenues	$	8,943	$	7,972	$	7,149

        Segment Information—In the fourth quarter of 2001, we implemented a new segment reporting structure for our property-liability insurance business following the completion of a strategic review of all of our businesses (see Note 3). At the same time, we further defined what we consider to be "specialty" business. We determined that for a business center to be considered a specialty, it must possess dedicated underwriting, claims and risk control services that require specialized expertise and focus exclusively on the customers served by that business center.

        Under our new segment structure, our Specialty Commercial segment includes Financial & Professional Services, Technology, Public Sector Services, Umbrella/Excess & Surplus Lines, Ocean Marine, Discover Re, National Programs, Oil & Gas, Transportation, and Catastrophe Risk, as well as our International Specialties. We have aggregated these business centers because they meet our specialty definition, as well as the aggregation criteria for external segment reporting.

        Our Commercial Lines Group segment includes Small Commercial, Middle Market Commercial and Large Accounts, which have common underwriting, claim and risk control functions. Commercial Lines Group also includes our participation in voluntary and involuntary pools, referred to as Pools and Other.

        Our Surety and Construction operations, under common leadership, have been combined into one reporting segment due to the significance of their shared customer base. Due to its size and specialized nature, our Health Care business will continue to be reported as a separate segment, although we are

exiting that business (see Note 3). Our Lloyd's and Other segment includes our operations at Lloyd's, our participation in the insuring of Lloyd's Central Fund, and Unionamerica, MMI's international subsidiary. Although we ceased new business activity at Unionamerica late in 2000, we are contractually obligated to continue underwriting business in certain Unionamerica syndicates at Lloyd's through 2004. The foregoing segments are all included in our Primary Insurance Operations. Our Reinsurance segment includes all reinsurance business written by our reinsurance subsidiary, out of New York and London. All periods presented have been revised to reflect these reclassifications.

        In 2001, we sold our life insurance operations; in 2000, we sold our nonstandard auto business; and in 1999, we sold our standard personal insurance business. These operations have been accounted for as discontinued operations for all periods presented and are not included in our segment data.

        The summary below presents revenues and pretax income from continuing operations for our reportable segments. The revenues of our asset management segment include investment income and

realized investment gains. The table also presents identifiable assets for our property-liability underwriting operation in total, and our asset management segment.

			Year Ended December 31
			2001			2000			1999
			(In Millions)
REVENUES FROM CONTINUING OPERATIONS
Underwriting:
	Specialty Commercial		$	1,924		$	1,338		$	1,274
	Commercial Lines Group			1,470			1,368			1,363
	Surety and Construction			940			791			789
	Health Care			791			624			645
	Lloyd's and Other			574			347			154
		Total primary insurance operations		5,699			4,468			4,225
	Reinsurance			1,597			1,124			878
		Total underwriting		7,296			5,592			5,103
Investment operations:
	Net investment income			1,199			1,247			1,256
	Realized investment gains (losses)			(126	)		624			274
		Total investment operations		1,073			1,871			1,530
Other				143			95			130
		Total property-liability insurance		8,512			7,558			6,763
Asset management				378			376			353
		Total reportable segments		8,890			7,934			7,116
Parent company, other operations and consolidating eliminations				53			38			33
		Total revenues from continuing operations	$	8,943		$	7,972		$	7,149
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE
Underwriting:
	Specialty Commercial		$	(181	)	$	(10	)	$	(191	)
	Commercial Lines Group			4			74			(189	)
	Surety and Construction			(33	)		68			(27	)
	Health Care			(985	)		(241	)		(70	)
	Lloyd's and Other			(374	)		(86	)		(23	)
		Total primary insurance operations		(1,569	)		(195	)		(500	)
Reinsurance				(725	)		(114	)		75
		Total underwriting		(2,294	)		(309	)		(425	)
Investment operations:
	Net investment income			1,199			1,247			1,256
	Realized investment gains (losses)			(126	)		624			274
		Total investment operations		1,073			1,871			1,530
Other				(179	)		(95	)		(134	)
		Total property-liability insurance		(1,400	)		1,467			971
Asset management				142			135			123
		Total reportable segments		(1,258	)		1,602			1,094
Parent company, other operations and consolidating eliminations				(173	)		(201	)		(143	)
		Total income (loss) from continuing operations before income taxes and cumulative effect of accounting change	$	(1,431	)	$	1,401		$	951

		December 31
		2001		2000
		(In Millions)
IDENTIFIABLE ASSETS
Property-liability insurance		$	36,490	$	33,708
Asset management			855		650
	Total reportable segments		37,345		34,358
Parent company, other operations, consolidating eliminations and discontinued operations			976		1,144
	Total assets	$	38,321	$	35,502

        Note 16, "Restructuring and Other Charges," describes charges we recorded during 2001, 2000 and 1999 and where they are included in the foregoing tables.

20    Other Comprehensive Income

        Other comprehensive income is defined as any change in our equity from transactions and other events originating from non-owner sources. In our case, those changes are comprised of our reported net income, changes in unrealized appreciation and changes in unrealized foreign currency translation adjustments. The following summaries present the components of our other comprehensive income, other than net income, for the last three years.

			Year Ended December 31, 2001
			Pretax			Income Tax Effect			After-Tax
			(In Millions)
Unrealized depreciation arising during period			$	(652	)	$	(248	)	$	(404	)
Less: reclassification adjustment for realized losses included in net loss				(124	)		(43	)		(81	)
	Net change in unrealized appreciation on investments			(528	)		(205	)		(323	)
	Net change in unrealized loss on foreign currency translation			(12	)		(4	)		(8	)
	Net change in unrealized loss on derivatives			(2	)		—			(2	)
		Total other comprehensive loss	$	(542	)	$	(209	)	$	(333	)

			Year Ended December 31, 2000
			Pretax			Income Tax Effect		After-Tax
			(In Millions)
Unrealized appreciation arising during period			$	902		$	318	$	584
Less: reclassification adjustment for realized gains included in net income				595			208		387
	Net change in unrealized appreciation on investments			307			110		197
	Net change in unrealized loss on foreign currency translation			(41	)		1		(42	)
		Total other comprehensive income	$	266		$	111	$	155

			Year Ended December 31, 1999
			Pretax			Income Tax Effect			After-Tax
			(In Millions)
Unrealized depreciation arising during period			$	(457	)	$	(159	)	$	(298	)
Less: reclassification adjustment for realized gains included in net income				248			87			161
	Net change in unrealized appreciation on investments			(705	)		(246	)		(459	)
	Net change in unrealized loss on foreign currency translation			(10	)		2			(12	)
		Total other comprehensive loss	$	(715	)	$	(244	)	$	(471	)

21    Quarterly Results of Operations (Unaudited)

        The following is an unaudited summary of our quarterly results for the last two years.

				2001
				First Quarter			Second Quarter		Third Quarter			Fourth Quarter
				(In Millions, Except Per Share Data)
Revenues				$	2,162		$	2,163	$	2,230		$	2,388
Income (loss) from continuing operations					209			96		(595	)		(719	)
Discontinued operations					(7	)		8		(64	)		(16	)
Net income (loss)					202			104		(659	)		(735	)
Earnings per common share:
	Basic:
		Income (loss) from continuing operations			0.95			0.43		(2.86	)		(3.49	)
		Discontinued operations			(0.04	)		0.04		(0.30	)		(0.08	)
			Net income (loss)		0.91			0.47		(3.16	)		(3.57	)
	Diluted:
		Income (loss) from continuing operations			0.90			0.41		(2.86	)		(3.49	)
		Discontinued operations			(0.03	)		0.04		(0.30	)		(0.08	)
			Net income (loss)		0.87			0.45		(3.16	)		(3.57	)

				2000
				First Quarter		Second Quarter			Third Quarter		Fourth Quarter
				(In Millions, Except Per Share Data)
Revenues				$	2,143	$	1,967		$	1,861	$	2,001
Income from continuing operations					349		217			219		185
Discontinued operations					9		(5	)		12		7
Net income					358		212			231		192
Earnings per common share:
	Basic:
		Income from continuing operations			1.56		1.00			0.98		0.83
		Discontinued operations			0.04		(0.02	)		0.06		0.04
			Net income		1.60		0.98			1.04		0.87
	Diluted:
		Income from continuing operations			1.47		0.94			0.93		0.80
		Discontinued operations			0.04		(0.02	)		0.05		0.03
			Net income		1.51		0.92			0.98		0.83

        Included in our fourth-quarter 2001 pretax results were $750 million in provisions to strengthen loss reserves, a $73 million goodwill writedown (see Note 3), and a $62 million restructuring charge (see Note 16). The reserve strengthening included $600 million related to our Health Care segment (see Note 9 for a discussion of Health Care reserves), $75 million related to the Sept. 11 terrorist attack (included in the $941 million total pretax loss discussed in Note 2) and $75 million related to other lines of business. The fourth quarter also included the impact of eliminating the one-quarter reporting lag for certain of our primary insurance operations in foreign countries, which resulted in a $31 million increase to our pretax loss from continuing operations. Also impacting the quarter were $71 million of tax benefits we were not able to recognize related to underwriting losses in international operations.

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Exhibit 13

Management's Discussion and Analysis
Six-Year Summary of Selected Financial Data THE ST. PAUL COMPANIES

Independent Auditors' Report

Management's Responsibility for Financial Statements
Consolidated Statements of Operations THE ST. PAUL COMPANIES
Consolidated Balance Sheets THE ST. PAUL COMPANIES
Consolidated Statements of Shareholders' Equity THE ST. PAUL COMPANIES
Consolidated Statements of Comprehensive Income THE ST. PAUL COMPANIES
Consolidated Statements of Cash Flows THE ST. PAUL COMPANIES

EX-21

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EXHIBIT 21

Subsidiaries of The St. Paul Companies, Inc.

Name				State or Other Jurisdiction of Incorporation
(1)	St. Paul Fire and Marine Insurance Company Subsidiaries:			Minnesota
	(i)	St. Paul Mercury Insurance Co.		Minnesota
	(ii)	St. Paul Guardian Insurance Co.		Minnesota
	(iii)	The St. Paul Insurance Co. of Illinois		Illinois
	(iv)	St. Paul Fire and Casualty Insurance Co.		Wisconsin
	(v)	St. Paul Property and Casualty Insurance Co.		Nebraska
	(vi)	Seaboard Surety Company Subsidiary:		New York
		(a)	Northern Indemnity, Inc.	Canada
	(vii)	St. Paul Insurance Co. of North Dakota		North Dakota
	(viii)	St. Paul Specialty Underwriting, Inc. Subsidiaries:		Delaware
		(a)	St. Paul Surplus Lines Insurance Co.	Delaware
		(b)	Athena Assurance Co.	Minnesota
		(c)	St. Paul Medical Liability Insurance Co.	Minnesota
	(ix)	Northbrook Holdings, Inc. Subsidiaries:		Delaware
		(a)	Discover Property & Casualty Insurance Co.	Illinois
		(b)	Northbrook Property and Casualty Insurance Co.	Illinois
	(x)	St. Paul Venture Capital IV, L.L.C.		Delaware
	(xi)	St. Paul Venture Capital V, L.L.C.		Delaware
	(xii)	St. Paul Properties, Inc. Subsidiaries:		Delaware
		(a)	350 Market Street, Inc.	Minnesota
	(xiii)	United States Fidelity and Guaranty Co. Subsidiaries:		Maryland
		(a)	Fidelity and Guaranty Insurance Underwriters, Inc.	Wisconsin
		(b)	Fidelity and Guaranty Insurance Co.	Iowa
		(c)	USF&G Insurance Company of Mississippi	Mississippi
		(d)	Discover Specialty Insurance Company	Illinois
		(e)	USF&G Specialty Insurance Co.	Maryland
		(f)	USF&G Family Insurance Co.	Maryland
		(g)	GeoVera Insurance Co.	Maryland
		(h)	Afianzadora Insurgentes, S.A. De C.V.	Mexico
		(i)	F&G Specialty Insurance Services, Inc.	California
		(j)	Discover Re Managers, Inc. Subsidiaries:	Delaware
			(i) Discovery Reinsurance Co.	Indiana
			(ii) Discovery Managers, Ltd.	Indiana
	(xiv)	American Continental Insurance Company		Missouri
	(xv)	Unionamerica Holdings plc		United Kingdom
(2)	The John Nuveen Company* Subsidiaries:			Delaware
	(i)	Nuveen Investments		Delaware
	(ii)	Nuveen Advisory Corp.		Delaware
	(iii)	Nuveen Institutional Advisory Corp.		Delaware
	(iv)	Nuveen Asset Management, Inc.		Delaware
	(v)	Rittenhouse Financial Services, Inc.		Delaware
	(vi)	Nuveen Senior Loan Asset Management, Inc.		Delaware
	(vii)	Symphony Asset Management LLC		California
	(viii)	Nuveen Asia Investments, Inc.		Delaware
	(ix)	Nuveen Investments Holdings, Inc.		Delaware

(3)	St. Paul Re, Inc.			New York
(4)	Camperdown Corporation			Delaware
(5)	St. Paul Venture Capital, Inc.			Delaware
(6)	St. Paul London Properties, Inc.			Minnesota
(7)	Octagon Risk Services, Inc.			Minnesota
(8)	St. Paul Multinational Holdings, Inc. Subsidiaries:			Delaware
	(i)	St. Paul Insurance Company (S.A.) Limited		South Africa
	(ii)	Seguros St. Paul de Mexico, S.A. de C.V.		Mexico
	(iii)	Botswana Insurance Company Limited		Botswana
	(iv)	St. Paul Argentina Compania De Seguros S.A.		Argentina
(9)	SPC Insurance Agency, Inc.			Minnesota
(10)	St. Paul Bermuda Holdings, Inc. Subsidiaries:			Delaware
	(i)	St. Paul (Bermuda), Ltd.		Bermuda
	(ii)	St. Paul Re (Bermuda), Ltd.		Bermuda
	(iii)	Captiva, Ltd.		Bermuda
(11)	St. Paul Holdings Limited Subsidiaries:			United Kingdom
	(i)	St. Paul Reinsurance Company Limited		United Kingdom
	(ii)	St. Paul International Insurance Company Limited		United Kingdom
	(iii)	St. Paul Insurance Espana Seguros Y Reaseguros, S.A.		Spain
	(iv)	New World Insurance Company Ltd.		Guernsey
	(v)	Lesotho National Insurance Holdings Limited		Lesotho
	(vi)	St. Paul Syndicate Holdings, Ltd. Subsidiary:		United Kingdom
		(i)	F&G Overseas, Ltd.	Cayman Islands
(12)	Camperdown UK Limited			United Kingdom
(13)	USF&G Financial Services Corporation			Maryland
(14)	Mountain Ridge Insurance Co.			Vermont
(15)	St. Paul Aviation Inc.			Minnesota

*

The John Nuveen Company is a majority-owned subsidiary jointly owned by The St. Paul, which holds a 64% interest, and Fire and Marine, which holds a 13% interest. The remaining 23% is publicly held.

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EXHIBIT 21

EX-23.(A)

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EXHIBIT 23(a)

CONSENT OF INDEPENDENT AUDITORS

The Board of Directors
The St. Paul Companies, Inc.:

        We consent to incorporation by reference in the Registration Statements on Form S-8 (SEC File No. 33-15392, No. 33-23446, No. 33-23948, No. 33-24220, No. 33-24575, No. 33-26923, No. 33-49273, No. 33-56987, No. 333-01065, No. 333-22329, No. 333-25203, No. 333-28915, No. 333-48121, No. 333-50941, No. 333-50943, No. 333-67983, No. 333-63114, No. 333-63118, No. 333-65726 and No. 333-65728), and Form S-3 (SEC File No. 333-73848, No. 333-73848-01 and No. 333-44122) of The St. Paul Companies, Inc. and the related prospectuses, of our reports dated January 23, 2002, with respect to the consolidated balance sheets of The St. Paul Companies, Inc. and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of operations, shareholders' equity, comprehensive income and cash flows for each of the years in the three-year period ended December 31, 2001, and related schedules I through V, which reports appear or are incorporated by reference in the December 31, 2001 annual report on Form 10-K of The St. Paul Companies, Inc. Our reports refer to changes in the Company's methods of accounting for derivative instruments and hedging activities and insurance-related assessments.

KPMG LLP                        
KPMG LLP

Minneapolis, Minnesota
March 29, 2002

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EXHIBIT 23(a)

EX-24

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EXHIBIT 24

POWER OF ATTORNEY

        KNOW ALL MEN BY THESE PRESENTS, That I, the undersigned, a director of The St. Paul Companies, Inc., a Minnesota corporation ("The St. Paul"), do hereby make, nominate and appoint John A. MacColl and Bruce A. Backberg, or either of them, to be my attorney-in-fact, with full power and authority to sign on my behalf a Form 10-K for the year ended December 31, 2001, to be filed by The St. Paul with the Securities and Exchange Commission, and any amendments thereto, and shall have the same force and effect as though I had manually signed the Form 10-K or amendments.

Dated: March 5, 2002	Signature:	H. FURLONG BALDWIN
	Name:	H. Furlong Baldwin
Dated: March 5, 2002	Signature:	CAROLYN H. BYRD
	Name:	Carolyn H. Byrd
Dated: March 5, 2002	Signature:	JOHN H. DASBURG
	Name:	John H. Dasburg
Dated: March 5, 2002	Signature:	JANET M. DOLAN
	Name:	Janet M. Dolan
Dated: March 5, 2002	Signature:	KENNETH M. DUBERSTEIN
	Name:	Kenneth M. Duberstein
Dated: March 5, 2002	Signature:	PIERSON M. GRIEVE
	Name:	Pierson M. Grieve
Dated: March 5, 2002	Signature:	THOMAS R. HODGSON
	Name:	Thomas R. Hodgson
Dated: March 5, 2002	Signature:	DAVID G. JOHN
	Name:	David G. John
Dated: March 5, 2002	Signature:	WILLIAM H. KLING
	Name:	William H. Kling
Dated: March 5, 2002	Signature:	DOUGLAS W. LEATHERDALE
	Name:	Douglas W. Leatherdale
Dated: March 5, 2002	Signature:	BRUCE K. MACLAURY
	Name:	Bruce K. MacLaury
Dated: March 5, 2002	Signature:	GLEN D. NELSON
	Name:	Glen D. Nelson
Dated: March 5, 2002	Signature:	GORDON M. SPRENGER
	Name:	Gordon M. Sprenger

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EXHIBIT 24

POWER OF ATTORNEY