SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
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Date of Report (Date of earliest
event reported): December 4, 2001
THE ST. PAUL COMPANIES, INC.
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(Exact name of Registrant as specified in its charter)
Minnesota 001-10898 41-0518860
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(State of (Commission File (I.R.S. Employer
Incorporation) Number) Identification No.)
385 Washington St., St. Paul, MN 55102
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(Address of principal executive offices) (Zip Code)
(651) 310-7911
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(Registrant's telephone number,
including area code)
N/A
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(Former name or former address, if changed since last
report)
Item 5. Other Events and Regulation FD Disclosure
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The following information was derived primarily from
press releases and other public disclosures by The St. Paul
Companies, Inc. (hereinafter referred to as "The St. Paul"
or the "company") on December 4 and December 12, 2001:
On December 4, 2001, The St. Paul announced that its
aggregate limits of insurance exposure, net of reinsurance,
on an after-tax basis related to the Enron Corporation is
approximately $85 million. In addition, the company also
reported that it holds approximately $23 million aggregate
principal amount of Enron Corporation senior unsecured debt.
On December 12, 2001, The St. Paul announced a series
of actions intended to improve profitability. The company
will:
- Exit its medical malpractice business;
- Exit certain reinsurance lines;
- Exit countries where the company is not likely to
achieve competitive scale;
- Reduce corporate overhead expenses, including staff
reductions.
The company expects to record a fourth-quarter 2001
pretax provision estimated to total approximately $900
million. This includes a $600 million increase in medical
malpractice reserves for both current as well as prior
years' development, $75 million of increased reserves for
other insurance lines, a $75 million reserve increase
associated with the Sept. 11, 2001 terrorist attack, a $75
million write-down of goodwill related to the exited
businesses, and a restructuring charge of approximately $75
million related principally to severance.
Global Healthcare
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The St. Paul indicated that it will exit the medical
malpractice business on a global basis through non-renewal
upon policy expirations, in accordance with regulatory
requirements. The traditional property-casualty operations
of the company's Global Healthcare segment - property,
workers' compensation and commercial auto insurance for
healthcare professionals and facilities - will continue to
be underwritten by the company's standard commercial
underwriting operation.
The company expects to take a restructuring charge of
approximately $20 million in the fourth quarter of 2001
associated with its actions in Global Healthcare.
Reinsurance
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The St. Paul's reinsurance operation will narrow its
product offerings and geographic presence. The reinsurance
operation will focus on several core areas, including
property catastrophe reinsurance, excess-of-loss casualty
reinsurance, marine and traditional finite reinsurance, and
significantly rationalize its reinsurance branch office
structure.
The unit will no longer underwrite aviation
reinsurance, bond and credit reinsurance or offer financial
risk and capital markets reinsurance products, and it will
substantially reduce the North American business it
underwrites in London.
The actions to reposition the reinsurance segment are
expected to result in a restructuring charge of
approximately $25 million in the fourth quarter of 2001.
The St. Paul at Lloyd's
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The St. Paul at Lloyd's will exit most of its casualty
insurance and reinsurance business, U.S. surplus lines and
certain non-marine reinsurance lines. This operation will
continue to underwrite aviation, marine, financial and
professional services, property, kidnap and ransom, accident
and health, creditor and other personal specialty products.
International
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St. Paul International will exit its medical
malpractice business and will continue to exit other
unprofitable lines. International offices in Canada, the
United Kingdom and Ireland will continue to underwrite
specialty commercial property-liability products. The St.
Paul will also continue to underwrite surety business in
Mexico through its subsidiary, Afianzadora Insurgentes, the
largest surety bond underwriter in Mexico.
The company believes that many of the other
International offices are unlikely to achieve competitive
scale. Consequently, the company will work with regulators
in the affected countries to develop appropriate exit
strategies.
The company expects to take a fourth-quarter 2001
restructuring charge of approximately $20 million in
connection with these actions.
Pro Forma Impact on Net Written Premiums and Underwriting
Losses for the Nine Months Ended Sept. 30, 2001
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The St. Paul reported consolidated net written premiums
of $5.68 billion and consolidated GAAP underwriting losses
of $404.6 million (both excluding the impact of the Sept.
11, 2001 terrorist attack) for the nine months ended Sept.
30, 2001. On a pro forma basis, assuming the business exits
described herein had occurred on Jan. 1, 2001, the company
currently estimates that consolidated net written premiums
for the nine months ended Sept. 30, 2001 would have totaled
approximately $4.5 billion, and consolidated GAAP
underwriting losses would have totaled approximately $58.8
million (both excluding the impact of the Sept. 11, 2001
terrorist attack).
Expense Reductions
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The St. Paul plans to reduce its run-rate of annual
expenses by $50 million through staff reductions and
tightened expense controls. These expenses reflect
corporate overhead absorbed by businesses the company
intends to exit. The St. Paul expects to incur a fourth-
quarter 2001 restructuring charge of $10 million for these
actions.
Certain statements made by the company in this release
may constitute forward-looking statements. Actual results
may differ materially from those projected in the forward-
looking statements. These forward-looking statements involve
risks and uncertainties including, but not limited to, the
following: our ability to successfully implement the
initiatives discussed above, including risks relating to our
ability to achieve expense reductions; competitive
considerations, including the ability to implement price
increases; the frequency and severity of catastrophic
events; changes in the demand for, pricing of, or supply of
reinsurance or insurance; increased competitive pressure;
the loss of significant customers; worse than anticipated
loss developments from business written in prior years;
losses due to foreign currency exchange rate fluctuations;
the potential impact of Federal solutions to make available
insurance coverage for acts of terrorism; general economic
conditions, including changing interest rates, rates of
inflation and the performance of the financial markets;
judicial decisions and rulings; changes in domestic and
foreign laws, regulations and taxes; effects of acquisitions
and divestitures; and various other factors. 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.
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
THE ST. PAUL COMPANIES, INC.
By: Bruce A. Backberg
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Bruce A. Backberg
Senior Vice President
Date: December 19, 2001