SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES --- EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended December 31, 1996 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from to ---------- ----------- Commission file number 0-3021 THE ST. PAUL COMPANIES, INC. (Exact name of Registrant as specified in its charter) Minnesota 41-0518860 ---------- ------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 385 Washington Street, Saint Paul, MN 55102 -------------------------------------- ------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 612-310-7911 ------------ Securities registered pursuant to Section 12(b) of the Act: Common Stock (without par value) New York Stock Exchange London Stock Exchange Stock Purchase Rights New York Stock Exchange --------------------- ------------------------------ (Title of class) (Name of each exchange on which registered) 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 X No --- ---- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (X) The aggregate market value of the outstanding Common Stock held by nonaffiliates of the Registrant on March 21, 1997, was $5,742,457,489. The number of shares of the Registrant's Common Stock, without par value, outstanding at March 21, 1997, was 83,516,157. An Exhibit Index is set forth at page 32 of this report. DOCUMENTS INCORPORATED BY REFERENCE ----------------------------------- Portions of the Registrant's 1996 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 6, 1997, are incorporated by reference into Parts III and IV of this report. Page 1 of 32 pages
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 comprise one of the oldest insurance organizations in the United States, dating back to 1853. The St. Paul is a management company principally engaged, through its subsidiaries, in property-liability insurance and reinsurance underwriting. The St. Paul also has a presence in the investment banking-asset management industry through its majority ownership of The John Nuveen Company. As a management company, The St. Paul oversees the operations of its subsidiaries and provides them with capital, management and administrative services. According to "Fortune" magazine's most recent rankings, The St. Paul was the 244th largest U. S. corporation, based on total 1995 revenues. At March 17, 1997, The St. Paul and its subsidiaries employed approximately 10,200 persons. In 1996, The St. Paul decided to exit the insurance brokerage business and to dispose of Minet, its brokerage operations. Discussions concerning a sale are ongoing, but there can be no assurance as to when or on what terms such a sale will occur. Minet had experienced operating losses for several years amid highly competitive conditions in worldwide brokerage markets. Minet was classified as a discontinued operation in 1996, and results for 1995 and 1994 were restated to be consistent with the 1996 classification. Note 13 on page 66 of The St. Paul's 1996 Annual Report to Shareholders, which contains additional information relating to The St. Paul's discontinued operations, is incorporated herein by reference. The St. Paul's underwriting segment accounted for 96% of consolidated revenues from continuing operations in 1996. The investment banking-asset management segment accounted for the remaining 4% of 1996 revenues. Note 16 on pages 67 and 68 of The St. Paul's 1996 Annual Report to Shareholders, which discloses revenues, income (loss) before income taxes and identifiable assets for The St. Paul's industry segments and by geographic areas for the last three years, is incorporated herein by reference. The following table lists the sources of The St. Paul's consolidated revenues from continuing operations for each of the last three years: Percentage of Consolidated Revenues 1996 1995 1994 ---- ---- ---- Underwriting: Worldwide Insurance Operations St. Paul Fire and Marine: Specialized Commercial 22.2% 24.3% 23.2% Commercial 15.0 11.6 11.4 Personal Insurance 12.4 13.0 14.2 Medical Services 10.5 12.0 14.6 ----- ----- ----- Total Fire and Marine 60.1 60.9 63.4 St. Paul International Underwriting 4.6 4.7 3.6 ----- ----- ----- Total Worldwide Insurance Operations 64.7 65.6 67.0 St. Paul Re 12.8 13.0 11.1 Net investment income 13.9 14.5 15.4 Realized investment gains 3.6 1.5 0.8 Other 0.8 0.6 0.7 ----- ----- ----- Total underwriting 95.8 95.2 95.0 Investment banking-asset management 4.1 4.7 5.0 Parent company and eliminations 0.1 0.1 - ----- ----- ----- Total 100.0% 100.0% 100.0% ===== ===== =====
UNDERWRITING Overview. The St. Paul's primary insurance underwriting business is conducted through its Worldwide Insurance Operations, which include St. Paul Fire and Marine (Fire and Marine) and St. Paul International Underwriting (International). Fire and Marine, The St. Paul's U.S. insurance operation, underwrites property and liability insurance and provides insurance-related products and services to commercial, professional and individual customers throughout the United States. International underwrites primary property-liability insurance coverages outside the United States. International also includes insurance written for foreign exposures of U.S.-based corporations and U.S. exposures of foreign-based companies. The St. Paul's reinsurance business operates under the name St. Paul Re, which underwrites reinsurance for leading property-liability insurance companies worldwide. The primary sources of the underwriting operations' revenues are premiums earned from insurance policies and reinsurance contracts, income earned from the investment portfolio and 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, The St. Paul's underwriting operations ranked 14th on the basis of 1995 written premiums. Principal Departments and Products The "Underwriting Results by Operation" table on page 22 of The St. Paul's 1996 Annual Report to Shareholders, which summarizes written premiums, underwriting results and combined ratios for each of its underwriting operations for the last three years, is incorporated herein by reference. The following discussion summarizes the business structure of The St. Paul's underwriting operations. WORLDWIDE INSURANCE OPERATIONS St. Paul Fire and Marine Fire and Marine underwrites insurance through the following business units: Specialized Commercial. Based on written premiums, this is the largest of Fire and Marine's operations. Specialized Commercial includes a number of individual underwriting operations which serve specific commercial customer segments or provide specialized products and services for targeted industry groups. Specialized Commercial, in general, provides coverage for damage to the customer's property (fire, inland marine and auto), liability for bodily injury or damage to the property of others (general liability, auto liability and excess), workers' compensation insurance, and various professional liability coverages. Operations serving specific customer segments consist of the following: Financial and Professional Services provides fidelity and property- liability coverages for depository institutions, and markets errors and omissions coverages for lawyers, insurance agents and other nonmedical professionals, including directors and officers. Ocean Marine provides a variety of property and liability insurance related to ocean and inland waterways traffic, including cargo and hull property protection. Public Sector Services markets insurance products and services, including professional liability insurance, to all levels of government entities. Surplus Lines underwrites products liability insurance, umbrella and excess liability coverages, property insurance for high-risk classes of business, and coverages for unique, sometimes one-of-a-kind risks. Based on 1995 written premiums, The St. Paul ranked as the eighth-largest U.S.-based surplus lines underwriter. Technology underwrites a range of specialized coverages for information technology firms, including manufacturers of electronics, synthetics, industrial machinery and medical equipment. The following operations provide products and services for targeted industry groups. Construction provides insurance to medium- and large-size general building contractors, highway contractors and specialty contractors. Large construction projects are insured during the life of the project. Surety underwrites surety bonds, primarily for construction contractors, which guarantee that third parties
will be indemnified against the nonperformance of contractual obligations. Based on 1995 written premiums, Fire and Marine's surety operation ranked as the sixth-largest underwriter of surety bonds in the United States. Manufacturing provides liability insurance and risk management products and services for large manufacturing operations. Service Industries provides large service-related businesses with insurance and risk management programs. Businesses served include retailers, wholesalers, insurance companies, and hospitality and entertainment firms. National Programs underwrites coverages for nationwide, multiple-policyholder programs through a single agency source. Transportation provides large motor carriers with customized insurance programs. Specialized Commercial also includes Fire and Marine's Special Property operation, which underwrites large property accounts, layered and excess property programs, large deductible accounts, stop-loss and loss limit programs and other customized property business. Fire and Marine's limited participation in insurance pools and associations, which provide specialized underwriting skills and risk management services for the classes of business that they write, is included in Specialized Commercial results. 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. Commercial. Fire and Marine's Commercial underwriting operation offers property and liability insurance to a broad range of small to midsize commercial enterprises. Business coverages marketed include package, general liability, umbrella and excess liability, commercial auto and fire, inland marine and workers' compensation. Commercial offers tailored coverages and insurance products for specific customer groups such as golf courses, museums, colleges and schools, multipurpose recreational facilities, manufacturers, wholesalers and processors. Coverages marketed to the small commercial customer include the Package Accounts for Commercial Enterprises (PACE) policy for offices, retailers and family restaurants. On July 31, 1996, Fire and Marine acquired Northbrook Holdings, Inc. (Northbrook) and its three commercial underwriting subsidiaries from Allstate Insurance Company. Northbrook underwrites various property- liability commercial insurance coverages throughout the United States. Northbrook accounted for $140 million of incremental written premiums in Fire and Marine's Commercial operations in 1996. Personal Insurance. This operation provides a broad portfolio of property and liability insurance products and services for individuals. Through a variety of monoline and package policies, individuals can acquire coverages to protect personal property such as homes, automobiles and boats, as well as to provide coverage for personal liability. Medical Services. Medical Services underwrites professional liability, property and general liability insurance for the health care delivery system. Products include coverages for health care professionals (physicians and surgeons, dental professionals and nurses); individual health care facilities (including hospitals, long-term care facilities and other facilities such as laboratories); and entire systems (hospital networks and managed care systems). Specialized claim and loss control services are vital components of Medical Services' insurance products and services. Fire and Marine is the largest medical liability insurer in the United States, with premium volume representing approximately 9% of the U.S. market in 1995 based on premium data published in "Best's Review." St. Paul International Underwriting St. Paul International Underwriting includes most primary insurance written outside the United States. International has a domestic presence as a licensed insurance company in several countries in Europe, Africa and Latin America, and in Canada. It also includes The St. Paul's participation in Lloyd's of London as an investor and as the owner of two managing agencies. International also includes insurance written for foreign operations of multinational corporations based in the United States, and insurance written to cover exposures in the United States for foreign-based companies. This operation offers a broad range of commercial and personal lines products and services tailored to meet the unique needs of customers in each of the indigenous markets which it serves.
ST. PAUL RE St. Paul Re underwrites reinsurance in both domestic and international insurance markets (referred to as "assumed reinsurance"). Reinsurance is an agreement through which one insurance company will transfer some of the risk it has underwritten to another insurer and will pay a premium in order to do so. 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 both treaty and facultative reinsurance for property, liability, ocean marine, surety and specialty coverages. According to data published by the Reinsurance Association of America, St. Paul Re ranked as the sixth largest U.S. reinsurance underwriter based on written premium volume for the first nine months of 1996. In December 1996, The St. Paul completed a $68.5 million securitized reinsurance transaction that will provide St. Paul Re with additional property catastrophe reinsurance capacity of $45.1 million for up to three years and up to $21.1 million in the subsequent seven years. A newly formed, single-purpose reinsurance company called George Town Re was organized in 1996 to reinsure only St. Paul Re. Collateral for claims is provided from the proceeds raised in a private placement. This reinsurance allows St. Paul Re to write more catastrophe-exposed property business without having to seek additional capital and without any impact on The St. Paul's consolidated balance sheet. In January 1997, St. Paul Re acquired the right to renew Constitution Reinsurance Corporation's approximately $20 million book of U.S. casualty facultative reinsurance business. Principal Markets and Methods of Distribution St. Paul Fire and Marine Insurance Company and its subsidiaries are licensed and transact business in all 50 states, the District of Columbia, Puerto Rico and the Virgin Islands. Fire and Marine's business is broadly distributed throughout the United States, with a particularly strong market presence in the Midwestern region. Five percent or more of Fire and Marine's 1996 property-liability written premiums were produced in each of Illinois, California, Minnesota, New York and Texas. Fire and Marine's business is produced primarily through approximately 6,500 independent insurance agencies and national insurance brokers. Fire and Marine maintains 12 regional offices in major cities throughout the United States and 90 additional service offices in the United States to respond to the needs of agents, brokers and policyholders. St. Paul Re produces business from its New York and London headquarters, as well as from its offices in Miami, Brussels, Munich, Singapore and Tokyo. St. Paul Re obtains business primarily through the broker or intermediary market. Approximately 45% of St. Paul Re's business in 1996 originated from outside the United States. St. Paul International Underwriting is headquartered in London and underwrites insurance through local operations in several markets outside the United States, including South Africa, Botswana, Lesotho, Argentina, Canada, the Netherlands, the Republic of Ireland, Spain and the United Kingdom. A portion of The St. Paul's property-liability insurance written premium volume originates with insurance brokers. In the first quarter of 1997, two large brokerage firms finalized their merger and two other large brokerage firms announced plans to merge. In January 1997, Aon Corporation finalized its acquisition of Alexander and Alexander Services Inc. In March 1997, Marsh & McLennan Companies, Inc. announced an agreement to acquire Johnson & Higgins. In 1996, approximately 15% of The St. Paul's underwriting operations' gross written premium volume originated with these four brokerage firms.
Reserves for Losses and Loss Adjustment Expenses General Information. When claims are made by or against policyholders, any amounts that The St. Paul's 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). The St. Paul establishes reserves that reflect the estimated unpaid total cost of these two items. The reserves for unpaid losses and LAE cover claims that were incurred not only in 1996 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 not discounted, but they are reduced for estimates of salvage and subrogation. Management continually reviews loss 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. Management believes that the reserves currently established for losses and LAE are adequate to cover their eventual costs. However, final claim payments may differ from these reserves, particularly when these payments may not take place for several years. Reserves established in prior years are adjusted 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. Ten-year Development. The table on page 8 presents a development of net loss and LAE reserve liabilities and payments for the years 1986 through 1996. The top line on the table shows the estimated liability for unpaid losses and LAE, net of reinsurance recoverable, recorded at the balance sheet date for each of the years indicated. Loss development data for The St. Paul's U.K.-based reinsurance and international underwriting operations are included in the table from 1988 to 1996, and the reinsurance operations are included on an underwriting year basis. The upper portion of the table, which shows the re-estimated amount relating to the previously recorded liability, is based upon experience as of the end of each succeeding year. This estimate is 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" 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 1986 reserve of $4,043 million developed up to $4,087 million, or a $44 million deficiency, by the end of 1987. By the end of 1996, the 1986 reserve had developed a redundancy of $30 million. The changes in the estimate of 1986 loss reserves were reflected in operations during the past ten years. In 1993, The St. Paul adopted the provisions of Statement of Financial Accounting Standards (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 1996), 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 The St. Paul's 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, 1996) and the related re-estimated reinsurance recoverable. The St. Paul 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 its 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, 1996, $3,634 million of the currently estimated $4,013 million of losses and LAE that have been incurred for the years up to and including 1986 have been paid. Thus, as of Dec. 31, 1996, it is estimated that $379 million of incurred losses and LAE have yet to be paid for the years up to and including 1986. Caution should be exercised in evaluating the information shown on 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 1995 reserves that relates to 1986 losses is included in the cumulative redundancy for the years 1986 through 1995. 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 6 on page 58 of the 1996 Annual Report to Shareholders, which includes a reconciliation of beginning and ending loss reserve liabilities for each of the last three years, is incorporated herein by reference. Additional information about The St. Paul's 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 through 36 of the 1996 Annual Report to Shareholders, which are incorporated herein by reference.
Analysis of Loss and Loss Adjustment Expense (LAE) Development (in millions) <TABLE> <CAPTION> Year ended December 31 1986 1987 1987 1989 1990 1991 1992 1993 1994 1995 1996 - ---------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- <S> Net liability for <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> unpaid losses and LAE $4,043 4,745 5,502 5,907 6,279 6,688 7,207 7,640 7,890 8,393 9,783 ===== ===== ===== ===== ===== ===== ===== ===== ===== ===== ===== Liability re-estimated as of: One year later 4,087 4,727 5,313 5,656 6,037 6,436 6,984 7,312 7,642 8,141 Two years later 4,078 4,489 4,914 5,338 5,787 6,260 6,703 7,027 7,330 Three years later 3,955 4,268 4,789 5,135 5,628 6,066 6,563 6,781 Four years later 3,874 4,226 4,731 5,027 5,490 6,063 6,384 Five years later 3,874 4,178 4,707 4,975 5,521 5,960 Six years later 3,885 4,180 4,682 5,058 5,472 Seven years later 3,914 4,169 4,796 5,038 Eight years later 3,951 4,163 4,798 Nine years later 3,983 4,183 Ten years later 4,013 Cumulative redundancy $ 30 562 704 869 807 728 823 859 560 252 ===== ==== ===== ===== ===== ===== ===== ===== ===== ===== Cumulative redundancy excluding foreign exchange (1) $ 30 562 713 848 805 733 814 851 553 239 ===== ===== ===== ===== ===== ===== ===== ===== ===== ===== Net liability for unpaid losses and LAE 7,207 7,640 7,890 8,393 9,783 Reinsurance recoverable on unpaid losses 1,606 1,545 1,533 1,854 1,890 ----- ----- ----- ------ ------ Gross liability 8,813 9,185 9,423 10,247 11,673 ===== ===== ===== ====== ====== Gross re-estimated liability: One year later 8,692 8,842 9,599 9,980 Two years later 8,389 8,934 9,273 Three years later 8,622 8,665 Four years later 8,426 Gross cumulative redundancy 387 520 150 267 === === === === Gross cumulative redundancy excluding foreign exchange(1) 346 493 108 246 === === === === Cumulative amount of net liability paid through: One year later 1,008 1,101 1,196 1,318 1,450 1,452 1,547 1,566 1,591 1,839 Two years later 1,787 1,884 2,044 2,209 2,361 2,493 2,576 2,608 2,751 Three years later 2,332 2,466 2,646 2,797 3,015 3,155 3,245 3,373 Four years later 2,732 2,869 3,043 3,216 3,442 3,584 3,745 Five years later 3,012 3,132 3,348 3,496 3,713 3,922 Six years later 3,205 3,322 3,554 3,674 3,942 Seven years later 3,343 3,453 3,691 3,846 Eight years later 3,447 3,573 3,819 Nine years later 3,551 3,666 Ten years later 3,634 Cumulative amount of gross liability paid through: One year later 1,935 1,872 1,958 2,160 Two years later 3,199 3,136 3,352 Three years later 4,047 4,065 Four years later 4,678 (1) The results of The St. Paul's U.K.-based operations translated from original currencies into U.S. dollars are included with The St. Paul's U.S. underwriting operations in this table from 1988 to 1996. The foreign currency translation impact on the cumulative redundancy arises from the difference between reserve developments translated at the exchange rates at the end of the year in which the liabilities were originally estimated, and the exchange rates at the end of the year in which the liabilities were re-estimated. </TABLE>
Ceded Reinsurance Through ceded reinsurance, other insurers and reinsurers agree to share certain risks that The St. Paul's 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. With respect to ceded reinsurance, The St. Paul strives to protect its assets from large individual risk and occurrence losses, and provide its respective underwriting operations with the capacity necessary to write large limits on accounts. The collectibility of reinsurance is subject to the solvency of reinsurers. The St. Paul's Reinsurance Security Committee, which has established financial standards to determine qualified, financially secure reinsurers, guides the placement of ceded reinsurance. Uncollectible reinsurance recoverables have not had a material adverse impact on The St. Paul's results of operations, liquidity or financial position. Note 14 on page 67 of the 1996 Annual Report to Shareholders, which provides a schedule of ceded reinsurance information, is incorporated herein by reference. INVESTMENT BANKING-ASSET MANAGEMENT The John Nuveen Company (Nuveen) is the St. Paul's investment banking-asset management subsidiary. The St. Paul and Fire and Marine hold a combined 78% interest in Nuveen. Nuveen is headquartered in Chicago and maintains regional sales offices in other cities across the United States. Through John Nuveen & Co. Incorporated, a wholly-owned subsidiary, Nuveen markets tax-free, open-end and closed-end (exchange-traded) managed funds. Nuveen also underwrites and trades municipal bonds and tax-free unit investment trusts (UITs). Nuveen markets its funds and UITs to individuals through registered representatives associated with unaffiliated national and regional broker-dealers and other financial organizations. Through its Municipal Finance Department, Nuveen also serves state and local governments and their authorities by financing community projects through both negotiated and competitive financings. Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp., wholly-owned subsidiaries of John Nuveen & Co. Incorporated, provide investment advice to and administer the business affairs of the Nuveen family of management investment companies. Nuveen Institutional Advisory Corp. also provides investment management services for individuals and public utility nuclear power plant decommissioning and postretirement benefits trust funds. In 1996, Nuveen purchased a minority ownership interest in Institutional Capital Corporation (ICAP), an institutional equity manager. ICAP served as subadviser to the Nuveen Growth and Income Stock Fund, which was introduced in 1996 and generated new assets under management of almost $500 million by year-end. As the leading sponsor of tax-free UITs, Nuveen currently sponsors trusts with assets at Dec. 31, 1996 of approximately $14 billion in 3,520 different national, state and insured portfolios. Nuveen also manages 21 tax-free, open-end mutual funds and money market funds with net assets of approximately $7 billion in national, state, insured and money market portfolios. In addition, Nuveen manages 57 exchange-traded funds with approximately $25 billion in net assets, which are traded on national stock exchanges. In 1996, Nuveen repurchased 3.8 million of its outstanding common shares for a total cost of $101 million. The repurchases were proportioned between The St. Paul and minority shareholders to maintain the combined 78% ownership interest in Nuveen held by The St. Paul and Fire and Marine. The St. Paul received proceeds of $74 million from Nuveen's share repurchases. In early 1997, Nuveen completed its acquisition of Flagship Resources Inc., a tax-exempt mutual fund and money management firm, which added $4.6 billion to assets under management.
INVESTMENTS Objectives. The St. Paul's board of directors approves the annual investment plans of the underwriting subsidiaries. The primary objectives of those plans are as follows: 1) to maintain a widely diversified fixed maturities portfolio structured to maximize investment income while minimizing credit risk through investments in high-quality instruments; 2) to provide for long-term growth in the market value of the investment portfolio through investments in certain other investment classes, such as equity securities, real estate and venture capital. The St. Paul has had limited involvement with derivative financial instruments for purposes of hedging against fluctuations in interest rates. The St. Paul has not participated in the derivatives market for trading or speculative purposes. Fixed Maturities. Fixed maturities constituted 83% of The St. Paul's investment portfolio at Dec. 31, 1996. The following table presents information about the fixed maturities portfolio for the last five years (dollars in millions). Weighted Weighted Amortized Market Pretax Net Average Average Cost at Value at Investment Pretax After-tax Year Year-end Year-end Income Yield Yield - ---- -------- -------- ---------- -------- --------- 1996 $11,485.0 $11,944.1 $738.4 7.0% 5.4% 1995 9,715.0 10,372.9 665.4 7.2% 5.6% 1994 8,913.4 8,828.7 626.3 7.4% 5.7% 1993 8,385.1 9,148.0 607.1 7.4% 5.9% 1992 7,731.2 8,236.3 605.2 8.0% 6.5% The St. Paul determines the mix of its investments in taxable and tax- exempt securities based on its current and projected tax position and the relationship between taxable and tax-exempt investment yields. Fixed maturity purchases in 1996 were comprised of intermediate-term, investment- grade taxable and tax-exempt securities. The acquisition of Northbrook in 1996 added $1.14 billion of fixed maturities to The St. Paul's portfolio, which accounted for $25 million of incremental investment income in 1996. The fixed maturities portfolio is carried on The St. Paul's balance sheet at estimated market value, with unrealized appreciation and depreciation (net of taxes) recorded in common shareholders' equity. At Dec. 31, 1996, pretax unrealized appreciation totaled $459 million. The fixed maturities portfolio is managed conservatively to provide reasonable return while limiting exposure to risks. Approximately 96% of the fixed maturities portfolio is rated at investment grade levels (BBB or better). Nonrated securities comprise the remainder of the portfolio. Most of these are nonrated municipal bonds which, in management's view, would be considered of investment-grade quality if rated. Equities. Equity securities comprised 6% of The St. Paul's investments at Dec. 31, 1996, and consist of a diversified portfolio of common stocks, which are held with the primary objective of achieving capital appreciation. This portfolio provided $129 million of pretax realized investment gains and $16 million of dividend income in 1996, and its carrying value at year-end included $186 million of unrealized appreciation. Real Estate. The St. Paul's real estate holdings, which comprised 5% of total investments at Dec. 31, 1996, consist primarily of a diversified portfolio of commercial office and warehouse buildings geographically distributed throughout the United States. This portfolio produced $36 million of pretax investment income in 1996. The St. Paul does not have a portfolio of real estate mortgage investments.
Venture Capital. Securities of small- to medium-size companies spanning a variety of industries comprised The St. Paul's investments in venture capital, which accounted for 4% of total investments at Dec. 31, 1996. These investments are in the form of limited partnership interests or direct equity investments. Sales of venture capital investments in 1996 generated pretax realized investment gains of $86 million. The carrying value of venture capital investments at year-end included $292 million of unrealized appreciation. Other Investments. The St. Paul's portfolio also includes short-term securities and other miscellaneous investments, which in the aggregate comprised 2% of total investments at Dec. 31, 1996. Notes 3, 4 and 5 on pages 56 through 58 of the 1996 Annual Report to Shareholders, and the "Investments" section of "Management's Discussion and Analysis" on pages 36 through 41 of said Annual Report, which provide additional information about The St. Paul's investment portfolio, are incorporated herein by reference. COMPETITION AND REGULATION The insurance underwriting and investment banking-asset management industries are both highly competitive. Underwriting. The St. Paul's 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. The St. Paul's subsidiaries compete principally by attempting to offer a combination of superior products, underwriting expertise and services at a competitive 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 its 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 approval of state regulatory authorities. During 1996, The St. Paul received from Fire and Marine $186.5 million of cash dividends, and a noncash dividend in the form of common shares of The John Nuveen Company with a carrying value of $30.8 million and a market value of $75.0 million. In 1997, up to $477.3 million in cash dividends can be paid by Fire and Marine to The St. Paul without regulatory approval. In addition, 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 such prior approval. The 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 state insurance commissioners. 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 the personal auto and workers' compensation insurance lines. 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 or by a combination of these. The freedom of The St. Paul's insurance underwriting subsidiaries to meet emerging adverse underwriting trends may be slowed, from time to time, by the effects of those state laws which require prior approval by insurance regulatory authorities of changes in policy forms and premium rates. Fire and Marine does business in all 50 states and the District of Columbia, Puerto Rico and the Virgin Islands. Many of these jurisdictions require prior approval of most or all premium rates. The St. Paul's insurance underwriting business in the United Kingdom is regulated by the Department of Trade and Industry (DTI). The DTI'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 St. Paul is also subject to regulations in the other countries and jurisdictions in which it writes insurance business. Investment Banking-Asset Management. 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 is a registered broker and dealer 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. Nuveen's other two subsidiaries are registered investment advisers under the Investment Advisers Act of 1940. As such, they are subject to regulation by the Securities and Exchange Commission. Item 2. Properties. - ------ ---------- St. Paul Fire and Marine Insurance Company owns its corporate headquarters buildings, located at 385 Washington Street and 130 West Sixth Street, Saint Paul, Minnesota. These buildings, which are adjacent to one another and connected by skyway, are also occupied by The St. Paul. These buildings consist of approximately 1.1 million square feet of gross floor space. St. Paul Fire and Marine Insurance Company also owns a building in Freeport, Illinois that houses a portion of its personal insurance operations. St. Paul International Insurance Company Ltd. owns its building in London, England which houses its operations. St. Paul Fire and Marine Insurance Company 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. The St. Paul's 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 11 on page 66 of the 1996 Annual Report to Shareholders, the "Legal Matters" section of "Management's Discussion and Analysis" on page 36 of said Annual Report, and the "Environmental and Asbestos Claims" section of "Management's Discussion and Analysis" on pages 34 through 36 of said Annual Report 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 1992 but has now also been placed in provisional insolvent liquidation. Weavers Underwriting Agency (Weavers), an LUI subsidiary, managed these insurers. The St. Paul's insurance brokerage operation, Minet, had brokered business to and from Weavers for many years. From 1973 through 1980, The St. Paul's UK-based underwriting operations, now called St. Paul International Insurance Company Limited (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 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. The proceedings are being vigorously contested by The St. Paul and it recognizes that the final outcome of these proceedings, if adverse to The St. Paul, may materially impact the results of operations in the period in which that outcome occurs, but believes it will not have a materially adverse effect on its 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, 1996. Executive Officers of the Registrant. 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 International Underwriting or St. Paul Re. There are no family relationships between any of The St. Paul's 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. All of the following officers except Paul J. Liska, Michael J. Conroy, Andrew I. Douglass, Greg A. Lee and James Hom have held executive 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. Paul J. Liska joined The St. Paul in January 1997. For three years prior to that date, Mr. Liska held various management positions with Specialty Foods Corporation, including the position of president and chief executive officer from January 1996 to January 1997. For six years prior to joining Specialty Foods Corporation, Mr. Liska held several executive positions with Kraft General Foods. Michael J. Conroy joined The St. Paul in August 1994. For three years prior to that date, Mr. Conroy served as executive vice president and chief administrative officer of The Home Insurance Company. For two years prior to that, Mr. Conroy held various other management positions with The Home Insurance Company. Andrew I. Douglass joined The St. Paul in August 1993. For more than five years prior to 1993, Mr. Douglass had been Executive Vice President and General Counsel of Heller International Corporation. Greg A. Lee joined The St. Paul in January 1993. For more than five years prior to that date, Mr. Lee held various human resources management positions with PepsiCo, Inc. and its subsidiaries. James Hom joined The St. Paul in October 1994. For two years prior to that date, Mr. Hom served as vice president-corporate claims and project management for The Home Insurance Company. Prior to that, Mr. Hom spent seven years managing insurance consulting groups for two large public accounting firms.
Positions Term of Office Presently and Period of Name Age Held Service - ---- --- --------- -------------- Douglas W. 60 Chairman, President Serving at the Leatherdale and Chief Executive pleasure of the Officer-The St. Paul Board from 5-90 Companies, Inc. Patrick A. Thiele 46 Executive Vice Serving at the President, President pleasure of the and Chief Executive Board from 5-96 Officer-Worldwide Insurance Operations Paul J. Liska 41 Executive Vice Serving at the President and pleasure of the Chief Financial Board from 1-97 Officer Michael J. Conroy 55 Executive Vice Serving at the President and pleasure of the Chief Administrative Board from 8-95 Officer-Fire and Marine James F. Duffy 53 President and Serving at the Chief Executive pleasure of the Officer- Board from 9-93 St. Paul Re Mark L. Pabst 50 President and Serving at the Chief Executive pleasure of the Officer-St. Paul Board from 2-95 International Underwriting Susan J. Albrecht 50 President- Serving at the Major Markets- pleasure of the Fire and Marine Board from 12-94 Stephen J. Klingel 46 President- Serving at the Personal pleasure of the Insurance- Board from 8-95 Fire and Marine Joseph B. Nardi 52 President- Serving at the Medical Services- pleasure of the Fire and Marine Board from 8-82 Janet R. Nelson 47 President- Serving at the Custom Markets- pleasure of the Fire and Marine Board from 5-94 James A. Schulte 47 President- Serving at the Commercial- pleasure of the Fire and Marine Board from 10-93
Howard E. Dalton 59 Senior Vice Serving at the President and pleasure of the Chief Accounting Board from 9-87 Officer Andrew I. Douglass 53 Senior Vice Serving at the President and pleasure of the General Counsel Board from 8-93 James Hom 41 Senior Vice Serving at the President- pleasure of the Corporate Planning Board from 10-94 Greg A. Lee 47 Senior Vice Serving at the President- pleasure of the Human Resources Board from 1-93 Bruce A. Backberg 48 Vice President Serving at the and Corporate pleasure of the Secretary Board from 5-92 James L. Boudreau 61 Vice President Serving at the and Treasurer pleasure of the Board from 11-90 Part II ------- Item 5. Market for the Registrant's Common Equity and - ------ Related Stockholder Matters. --------------------------- The "Stock Trading" and "Stock Price and Dividend Rate" portions of the "Shareholder Information" section on the inside back cover of The St. Paul's 1996 Annual Report to Shareholders are incorporated herein by reference. As partial consideration for the acquisition of the economic interest of Gravett & Tilling (Holdings) Limited, a United Kingdom corporation, The St. Paul, on Dec. 31, 1996, issued 28,748 shares of its common stock in an exempt transaction pursuant to Section 4(2) of the Securities Act of 1933, as amended (the "Act"). As part of this acquisition, The St. Paul, pursuant to the November 13, 1996 acquisition agreement, is also to issue, to the eleven former shareholders of Gravett & Tilling (Holdings) Limited, an additional number of shares, having a market value of approximately one million pounds sterling, on Dec. 31, 1997. In transactions that are also exempt from registration pursuant to Section 4(2) of the Act, during 1996 The St. Paul also entered into Deferred Stock Grant Agreements with seven non-U.S. based employees pursuant to which The St. Paul is to issue a total of 7,500 shares of common stock to the employees if they remain employed with The St. Paul for various periods of time. Item 6. Selected Financial Data. - ------ ----------------------- The "Eleven-year Summary of Selected Financial Data" section on pages 46 and 47 of the 1996 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" section on pages 16 to 45 of the 1996 Annual Report to Shareholders is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data. - ------ ------------------------------------------- The financial statements and supplementary data on pages 48 to 69 of the 1996 Annual Report to Shareholders are incorporated herein by reference. Item 9. Changes in and Disagreements With Accountants on - ------ Accounting and Financial Disclosure. ----------------------------------- None. Part III -------- Item 10. Directors and Executive Officers of the Registrant. - ------- -------------------------------------------------- The "Election of Directors - Nominees for Directors" section, which provides information regarding The St. Paul's directors, on pages 4 to 6 of The St. Paul's Proxy Statement relating to the annual meeting of shareholders to be held May 6, 1997, is incorporated herein by reference. Information regarding The St. Paul's executive officers is included in Part I of this report. Item 11. Executive Compensation. - ------- ---------------------- The "Executive Compensation" section on pages 17 to 27 and the "Election of Directors - Board of Directors Compensation" section on pages 7 to 9 of the Proxy Statement relating to the annual meeting of shareholders to be held May 6, 1997, 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 28 to 30 of the Proxy Statement relating to the annual meeting of shareholders to be held May 6, 1997, are incorporated herein by reference. Item 13. Certain Relationships and Related Transactions. - ------- ---------------------------------------------- None. 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 Income - Years Ended December 31, 1996, 1995 and 1994 Consolidated Balance Sheets - December 31, 1996 and 1995 Consolidated Statements of Shareholders' Equity - Years Ended December 31, 1996, 1995 and 1994 Consolidated Statements of Cash Flows - Years Ended December 31, 1996, 1995 and 1994 Notes to Consolidated Financial Statements
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 32 of this report. (3) The current articles of incorporation of The St. Paul are incorporated herein by reference to Form 10-Q for the quarter ended June 30, 1995. The current bylaws of The Paul are incorporated herein by reference to Form 10-Q for the quarter ended March 31, 1994. (4) A specimen certificate of The St. Paul's common stock is incorporated herein by reference to the Form 10-K for the year ended December 31, 1992. The Amended and Restated Shareholder Protection Rights Agreement is incorporated herein by reference to Form 10-Q for the quarter ended June 30, 1995. 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) The Deferred Management Incentive Awards Plan. The Directors' Deferred Compensation Plan. The Deferred Stock Grant Agreement with Mr. Mark L. Pabst is incorporated by reference to the Form 10-K for the year ended December 31, 1995. The Directors' Charitable Award Program is incorporated by reference to the Form 10-K for the year ended December 31, 1994. The Relocation Loan Payback Agreement with Mr. James F. Duffy is incorporated by reference to the Form 10-K for the year ended December 31, 1994. The Pension Service Agreement with Mr. Andrew I. Douglass is incorporated by reference to the Form 10-K for the year ended December 31, 1994. The 1994 Stock Incentive Plan is incorporated by reference to Form 10-Q for the quarter ended March 31, 1994.
The 1994 Annual Incentive Plan is incorporated by reference to Form 10-Q for the quarter ended March 31, 1994. The Long-Term Incentive Plan is incorporated by reference to Form 10-Q for the quarter ended March 31, 1994. The Non-Employee Director Stock Retainer Plan is incorporated by reference to Form 10-K for the year ended December 31, 1991. The summary description of the Outside Directors' Retirement Plan is incorporated by reference to the Proxy Statement relating to the annual meeting of shareholders to be held May 7, 1996. 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, 1990. The Restricted Stock Award Plan, as amended, is incorporated by reference to Form 10-K for the year ended December 31, 1989. The Benefit Equalization Plan and Special Severance Policy are incorporated by reference to Form 10-K for the year ended December 31, 1987. The Directors' Deferred Compensation Agreement - Prime Rate and the Directors' Deferred Compensation Agreement - Phantom Stock are incorporated by reference to Form 10-K for the year ended December 31, 1982. The Alternate Long-Term Incentive Plan is incorporated by reference to Form 10-Q for the quarter ended March 31, 1983. The summary descriptions of the Annual Incentive Plan (as in effect prior to 1994), Executive Post-Retirement Life Insurance Plan and Executive Excess Long-Term Disability Plan are incorporated by reference to the Proxy Statement relating to the annual meeting of shareholders which was held on May 5, 1992. (11) A statement regarding the computation of per share earnings. (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.
(13) The 1996 Annual Report to Shareholders. 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 Items in for the year ended this December 31, 1996 report ------------------------- ---------- 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 "Stock Trading" and "Stock Price and Dividend Rate" portions of "Shareholder Information" Item 5 Eleven-year Summary of Selected Financial Data Item 6 The complete 1996 Annual Report to Shareholders is furnished to the Commission in a paper format pursuant to Rule 14a-3(c). (21) List of subsidiaries of The St. Paul Companies, Inc. (23) Consent of independent auditors to incorporation by reference of certain reports into Registration Statements on Form S-8 (SEC File No. 2-69894, No. 33-15392, No. 33- 20516, No. 33-23446, No. 33-23948, No. 33-24220, No. 33- 24575, No. 33-26923, No. 33-49273, No. 33-56987, No. 333- 01065 and No. 333-22329) and Form S-3 (SEC File No. 33- 33931, No. 33-50115, No. 33-58491 and No. 333-06456). (24) Power of attorney. (27) Financial data schedule. (b) Reports on Form 8-K. A Form 8-K Current Report dated October 1, 1996, was filed relating to the announcement of the anticipated impact of weather related losses on The St. Paul's third-quarter 1996 operating results. A Form 8-K Current Report dated October 29, 1996 was filed relating to the announcement of The St. Paul's financial results for the quarter ended September 30, 1996. A Form 8-K Current Report dated January 27, 1997, was filed relating to the announcement of The St. Paul's financial results for the year ended December 31, 1996. A Form 8-K Current Report dated February 7, 1997, was filed relating to the announcement of The St. Paul's share repurchase and stock ownership plans.
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 25, 1997 By /s/ Bruce A. Backberg -------------- --------------------- Bruce A. Backberg 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 25, 1997 By /s/ Douglas W. Leatherdale -------------- -------------------------- Douglas W. Leatherdale, Director, Chairman of the Board, President and Chief Executive Officer Date March 25, 1997 By /s/ Patrick A. Thiele -------------- --------------------- Patrick A. Thiele, Director, Executive Vice President, President and Chief Executive Officer - Worldwide Insurance Operations Date March 25, 1997 By /s/ Paul J. Liska -------------- ----------------- Paul J. Liska, Executive Vice President and Chief Financial Officer Date March 25, 1997 By /s/ Howard E. Dalton -------------- -------------------- Howard E. Dalton, Senior Vice President and Chief Accounting Officer Date March 25, 1997 By /s/ Michael R. Bonsignore -------------- ------------------------- Michael R. Bonsignore*, Director Date March 25, 1997 By /s/ John H. Dasburg -------------- ------------------- John H. Dasburg*, Director Date March 25, 1997 By /s/ W. John Driscoll -------------- -------------------- W. John Driscoll*, Director Date March 25, 1997 By /s/ Pierson M. Grieve -------------- --------------------- Pierson M. Grieve*, Director Date March 25, 1997 By /s/ Ronald James -------------- ---------------- Ronald James*, Director Date March 25, 1997 By /s/ David G. John -------------- ----------------- David G. John*, Director Date March 25, 1997 By /s/ William H. Kling -------------- --------------------- William H. Kling*, Director
Date March 25, 1997 By /s/ Bruce K. MacLaury -------------- --------------------- Bruce K. MacLaury*, Director Date March 25, 1997 By /s/ Glen D. Nelson -------------- ------------------ Glen D. Nelson*, Director Date March 25, 1997 By /s/ Anita M. Pampusch -------------- --------------------- Anita M. Pampusch*, Director Date March 25, 1997 By /s/ Gordon M. Sprenger -------------- ---------------------- Gordon M. Sprenger*, Director Date March 25, 1997 *By /s/ Bruce A. Backberg -------------- --------------------- Bruce A. Backberg, Attorney- in-fact
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULES The Board of Directors and Shareholders The St. Paul Companies, Inc.: Under date of January 27, 1997, we reported on the consolidated balance sheets of The St. Paul Companies, Inc. and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 1996, as contained in the 1996 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 1996. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the related financial statement schedules 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, such financial statement schedules, 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. Minneapolis, Minnesota /s/ KPMG Peat Marwick LLP January 27, 1997 ------------------------- KPMG Peat Marwick LLP
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES SCHEDULE I - SUMMARY OF INVESTMENTS OTHER THAN INVESTMENTS IN RELATED PARTIES December 31, 1996 (In thousands) 1996 ------------------------------------- Amount at which shown in the Cost* Value* balance sheet ----------- --------- ------------ Type of investment: Fixed maturities: - ---------------- United States Government and government agencies and authorities $ 2,401,760 $ 2,444,966 $ 2,444,966 States, municipalities and political subdivisions 4,992,485 5,287,966 5,287,966 Foreign governments 1,077,869 1,125,606 1,125,606 Corporate securities 1,546,721 1,586,262 1,586,262 Mortgage-backed securities 1,466,168 1,499,285 1,499,285 ---------- ---------- ---------- Total fixed maturities 11,485,003 11,944,085 11,944,085 ---------- ========== ---------- Equity securities: - ----------------- Common stocks: Public utilities 12,213 15,902 15,902 Banks, trusts and insurance companies 65,639 87,155 87,155 Industrial, miscellaneous and all other 544,028 705,238 705,238 ---------- ---------- ---------- Total equity securities 621,880 808,295 808,295 ---------- ---------- ---------- Venture capital 293,837 $ 586,222 586,222 ---------- ========== ---------- Real estate 707,910** 693,910 Other investments 43,311 43,311 Short-term investments 289,793 289,793 ---------- ---------- Total investments $13,441,734 $14,365,616 ========== ========== * See Notes 1, 3, 4 and 5 to the consolidated financial statements included in The St. Paul's 1996 Annual Report to Shareholders. ** The cost of real estate represents the cost of properties before valuation provisions. (See Schedule V on page 31).
THE ST. PAUL COMPANIES, INC. (Parent Only) SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED BALANCE SHEET INFORMATION December 31, 1996 and 1995 (In thousands) Assets: 1996 1995 ---- ---- Investment in subsidiaries $4,533,106 $4,514,440 Investments: Fixed maturities 162,895 138,552 Equity securities 40,424 52,235 Short-term investments 25,271 40,130 Deferred income taxes 453,560 136,427 Other assets 102,280 89,283 --------- --------- Total assets $5,317,536 $4,971,067 ========= ========= Liabilities: Debt $1,090,477 $1,074,657 Dividends payable to shareholders 36,579 33,559 Other liabilities 186,660 132,730 --------- --------- Total liabilities 1,313,716 1,240,946 --------- --------- Shareholders' Equity: Preferred: Convertible preferred stock 142,131 144,165 Guaranteed obligation - PSOP (126,068) (133,293) --------- --------- Total preferred shareholders' equity 16,063 10,872 --------- --------- Common: Common stock, authorized 240,000 shares; issued 83,198 shares (83,976 in 1995) 475,710 460,458 Retained earnings 2,935,928 2,704,075 Guaranteed obligation - ESOP (20,353) (32,294) Unrealized appreciation of investments 616,968 627,791 Unrealized loss on foreign currency translation (20,496) (40,781) --------- --------- Total common shareholders' equity 3,987,757 3,719,249 --------- --------- Total shareholders' equity 4,003,820 3,730,121 --------- --------- Total liabilities and shareholders' equity $5,317,536 $4,971,067 ========= ========= See accompanying notes to condensed financial information.
THE ST. PAUL COMPANIES, INC. (Parent Only) SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED STATEMENT OF INCOME INFORMATION Years Ended December 31, 1996, 1995 and 1994 (In thousands) 1996 1995 1994 ---- ---- ---- Revenues: Net investment income $ 12,695 $ 9,165 $ 4,470 Realized investment gains 8,810 8,800 4,240 ------- ------- ------- Total revenues 21,505 17,965 8,710 ------- ------- ------- Expenses: Interest expense 75,409 63,744 48,457 Administrative and other 29,228 29,476 21,312 ------- ------- ------- Total expenses 104,637 93,220 69,769 ------- ------- ------- Loss before income tax benefit (83,132) (75,255) (61,059) Income tax benefit (46,462) (18,941) (22,608) ------- ------- ------- Net loss from continuing operations- parent only (36,670) (56,314) (38,451) ------- ------- ------- Income tax benefit - discontinued operations (291,493) - - ------- ------- ------- Net income (loss) - parent only 254,823 (56,314) (38,451) Equity in net income of subsidiaries and loss from discontinued operations 195,276 577,523 481,279 ------- ------- ------- Consolidated net income $450,099 $521,209 $442,828 ======= ======= ======= See accompanying notes to condensed financial information.
THE ST. PAUL COMPANIES, INC. (Parent Only) SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED STATEMENT OF CASH FLOWS INFORMATION Years Ended December 31, 1996, 1995 and 1994 (In thousands) 1996 1995 1994 ---- ---- ---- Operating Activities: Net income (loss) $ 254,823 $ (56,314) $ (38,451) Cash dividends from subsidiaries 200,648 206,118 210,523 Tax payments from subsidiaries 93,928 159,216 104,509 State and federal income tax payments (70,000) (103,000) (84,910) Adjustments to reconcile net loss to net cash provided by operating activities: Tax benefit - discontinued operations (291,493) - - Deferred tax benefit -operations (21,891) (1,077) (19,660) Realized investment gains (8,810) (8,800) (4,240) Other (3,951) (110) 1,897 ------- ------- ------- Cash provided by operating activities 153,254 196,033 169,668 ------- ------- ------- Investing Activities: Purchases of investments (104,322) (218,525) (93,601) Proceeds from sales and maturities of investments 109,958 93,919 84,337 Capital contributions to subsidiaries (55,922) (223,623) (53,466) Acquisitions - - (10,643) Other (268) (870) 14 ------- ------- ------- Cash used in investing activities (50,554) (349,099) (73,359) ------- ------- ------- Financing Activities: Dividends paid to shareholders (155,268) (144,662) (136,062) Proceeds from issuance of debt 53,000 455,028 87,721 Repayment of debt (17,711) (125,446) (20,350) Repurchase of common shares (74,217) (41,714) (34,150) Proceeds from Nuveen stock repurchase 73,966 - - Stock options exercised and other 17,530 9,860 6,532 ------- ------- ------- Cash provided by (used in) financing activities (102,700) 153,066 (96,309) ------- ------- ------- Change in cash - - - Cash at beginning of year - - - ------- ------- ------- Cash at end of year $ - $ - $ - ======= ======= ======= See accompanying notes to condensed financial information.
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 The St. Paul's 1996 Annual Report to Shareholders. 2. Debt consists of the following (in thousands): December 31, --------------------------- 1996 1995 ---- ---- Medium-term notes $ 430,427 $ 397,433 Convertible subordinated debentures (1) 262,026 262,026 Commercial paper 131,610 149,629 Guaranteed PSOP debt (1) 126,068 133,293 9-3/8% notes 99,994 99,982 Intercompany loan (1) 20,000 - Guaranteed ESOP debt 13,890 25,001 Guaranteed ESOP debt (1) 6,462 7,293 --------- --------- Total debt $1,090,477 $1,074,657 ========= ========= (1) Eliminated in consolidation. See Note 8 to the consolidated financial statements included in the 1996 Annual Report to Shareholders for further information on debt outstanding at Dec. 31, 1996. The amount of debt, other than debt eliminated in consolidation, that becomes due during each of the next five years is as follows: 1997, $111.1 million; 1998, $27.8 million; 1999, $20.0 million; 2000, $144.8 million; and 2001, $45.5 million.
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION (In thousands) At December 31, --------------------------------------------- Gross loss Deferred and loss Other policy policy adjustment Gross claims and acquisition expense unearned benefits expenses reserves premiums payable --------- ------------- --------- ---------- 1996 - ---- Property-Liability Insurance Underwriting: Worldwide Insurance Operations: Fire and Marine: Specialized Commercial $120,222 $3,345,102 $719,969 - Commercial 78,702 2,629,381 483,135 - Personal Insurance 59,803 483,414 303,658 - Medical Services 60,087 2,053,221 650,199 - ------- ---------- --------- ------ Total Fire and Marine 318,814 8,511,118 2,156,961 - International 17,700 1,122,397 138,029 - ------- ---------- --------- ------ Total Worldwide Insurance 336,514 9,633,515 2,294,990 St. Paul Re 65,254 2,039,633 271,561 - ------- ---------- --------- ------ Total $401,768 $11,673,148 $2,566,551 - ======= ========== ========= ====== 1995 - ---- Property-Liability Insurance Underwriting: Worldwide Insurance Operations: Fire and Marine: Specialized Commercial $119,150 $ 3,377,431 $ 753,479 - Commercial 60,561 1,399,928 290,475 - Personal Insurance 58,153 405,266 286,121 - Medical Services 58,777 2,129,471 647,878 - ------- ---------- --------- ------ Total Fire and Marine 296,641 7,312,096 1,977,953 - International 18,277 1,091,131 133,699 - ------- ---------- --------- ------ Total Worldwide Insurance 314,918 8,403,227 2,111,652 St. Paul Re 57,256 1,843,843 249,376 - ------- ---------- --------- ------ Total $372,174 $10,247,070 $2,361,028 - ======= ========== ========= ======
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION (In thousands) Insurance losses Amortization Net and loss of policy Other Premiums investment adjustment acquisition operating Premiums earned income expenses expenses expenses written --------- -------- --------- ---------- ------- -------- Worldwide Insurance Operations: Fire and Marine: Specialized Commercial $1,272,561 - $826,670 $303,206 $97,935 $1,278,814 Commercial 862,092 - 637,693 204,904 83,957 778,487 Personal Insurance 707,299 - 694,551 156,109 58,456 724,616 Medical Services 601,679 - 409,124 100,086 38,680 585,876 --------- ------- --------- ------- ------- ------- Total Fire and Marine 3,443,631 - 2,568,038 764,305 279,028 3,367,793 International 268,830 - 196,948 47,308 46,360 267,805 --------- ------- --------- ------- ------- --------- Total Worldwide Insurance 3,712,461 - 2,764,986 811,613 325,388 3,635,598 St. Paul Re 735,787 - 553,315 163,843 55,327 760,524 Net investment income - $794,901 - - - - Other - - - - 131,761 - --------- ------- --------- ------- ------- --------- Total $4,448,248 $794,901 $3,318,301 $975,456 $512,476 $4,396,122 ========= ======= ========= ======= ======= ========= 1995 - ---- Worldwide Insurance Operations: Fire and Marine: Specialized Commercial $1,230,790 - $ 961,801 $298,765 $ 98,328 $1,304,062 Commercial 587,016 - 378,754 155,125 57,580 617,767 Personal Insurance 655,347 - 486,275 145,547 56,524 673,347 Medical Services 605,468 - 387,716 97,695 44,557 673,980 --------- ------- --------- ------- ------- --------- Total Fire and Marine 3,078,621 - 2,214,546 697,132 256,989 3,269,156 International 237,727 - 188,728 27,326 44,857 260,582 --------- ------- --------- ------- ------- --------- Total Worldwide Insurance 3,316,348 - 2,403,274 724,458 301,846 3,529,738 St. Paul Re 654,981 - 461,033 132,521 56,936 713,475 Net investment income - $731,096 - - - - Other - - - - 82,130 - --------- ------- --------- ------- ------- --------- Total $3,971,329 $731,096 $2,864,307 $856,979 $440,912 $4,243,213 ========= ======= ========= ======= ======= ========= 1994 - ---- Worldwide Insurance Operations: Fire and Marine: Specialized Commercial $1,015,397 - $ 764,760 $252,577 $ 88,046 $1,085,514 Commercial 498,543 - 365,555 137,661 59,079 529,741 Personal Insurance 619,414 - 455,879 138,512 51,338 635,557 Medical Services 638,413 - 369,571 109,517 38,848 689,716 --------- ------- --------- ------- ------- --------- Total Fire and Marine 2,771,767 - 1,955,765 638,267 237,311 2,940,528 International 156,946 - 133,920 25,398 28,797 169,176 --------- ------- --------- ------- ------- --------- Total Worldwide Insurance 2,928,713 - 2,089,685 663,665 266,108 3,109,704 St. Paul Re 483,368 - 372,013 90,281 42,877 513,322 Net investment income - $674,818 - - - - Other - - - - 66,581 - --------- ------- --------- ------- ------- --------- Total $3,412,081 $674,818 $2,461,698 $753,946 $375,566 $3,623,026 ========= ======= ========= ======= ======= =========
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES SCHEDULE IV - REINSURANCE Years Ended December 31, 1996, 1995 and 1994 (In thousands) Percentage Property-liability Ceded to Assumed of amount insurance Gross other from other Net assumed to premiums earned: amount companies companies amount net --------- -------- --------- -------- --------- 1996 $4,001,384 528,409 975,273 4,448,248 21.9% ========= ======= ======= ========= 1995 $3,678,190 641,351 934,490 3,971,329 23.5% ========= ======= ======= ========= 1994 $3,296,215 594,121 709,987 3,412,081 20.8% ========= ======= ======= =========
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES SCHEDULE V - VALUATION AND QUALIFYING ACCOUNTS Years Ended December 31, 1996, 1995 and 1994 (In thousands) Additions --------------------- Balance at Charged to Charged to Balance beginning costs and other at end Description of year expenses accounts Deductions(1) of year - ----------- ---------- ---------- ---------- ---------- -------- 1996 - ---- Real estate valuation adjustment $34,000 - - 20,000 14,000 ====== ====== ===== ====== ====== Allowance for uncollectible: Agency loans $1,664 - - - 1,664 ====== ====== ===== ====== ====== Premiums receivable from underwriting activities $18,918 5,073 - 2,832 21,159 ====== ====== ===== ====== ====== Reinsurance $21,531 1,150 - - 22,681 ====== ====== ===== ====== ====== 1995 - ---- Real estate valuation adjustment $24,000 10,000 - - 34,000 ====== ====== ===== ====== ====== Allowance for uncollectible: Agency loans $ 1,664 - - - 1,664 ====== ====== ===== ====== ====== Premiums receivable from underwriting activities $20,938 4,192 - 6,212 18,918 ====== ====== ===== ====== ====== Reinsurance $25,823 - - 4,292 21,531 ====== ====== ===== ====== ====== 1994 - ---- Real estate valuation adjustment $14,000 10,000 - - 24,000 ====== ====== ===== ====== ====== Allowance for uncollectible: Agency loans $ 4,750 - - 3,086 1,664 ====== ====== ===== ====== ====== Premiums receivable from underwriting activities $22,218 2,373 - 3,653 20,938 ====== ====== ===== ====== ====== Reinsurance $26,202 492 - 871 25,823 ====== ====== ===== ====== ====== (1) Deductions include write-offs of amounts determined to be uncollectible, unrealized foreign exchange gains and losses and, for real estate, a reduction in the valuation allowance for properties sold during the year.
EXHIBIT INDEX* ------------- How Exhibit Filed (2) Plan of acquisition, reorganization, arrangement, liquidation, or succession**.............................. (3) Articles of incorporation and by-laws***.................. (4) Instruments defining the rights of security holders, including indentures (a) Specimen Common Stock Certificate***.................. (b) Amended and Restated Shareholder Protection Rights Agreement***........................ (9) Voting trust agreements**................................. (10) Material contracts (a) The Deferred Management Incentive Awards Plan.........(1) (b) The Directors' Deferred Compensation Plan.............(1) (c) The Deferred Stock Grant Agreement with Mr. Mark L. Pabst***............................ (d) The Directors' Charitable Award Program***............ (e) Relocation Loan Payback Agreement with Mr. James F. Duffy***........................... (f) Pension Service Agreement with Mr. Andrew I. Douglass***....................... (g) 1994 Stock Incentive Plan***.......................... (h) 1994 Annual Incentive Plan***......................... (i) Long-Term Incentive Plan***........................... (j) Non-Employee Director Stock Retainer Plan***.......... (k) Outside Directors' Retirement Plan***................. (l) Amended 1988 Stock Option Plan***..................... (m) Restricted Stock Award Plan***........................ (n) Benefit Equalization Plan***.......................... (o) Special Severance Policy***........................... (p) Directors' Deferred Compensation Agreement - Prime Rate***........................................ (q) Directors' Deferred Compensation Agreement - Phantom Stock***..................................... (r) Alternative Long-Term Incentive Plan***............... (s) Annual Incentive Plan***.............................. (t) Executive Post-Retirement Life Insurance Plan***...... (u) Executive Excess Long-Term Disability Plan***......... (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 Registrant..........................(1) (22) Published report regarding matters submitted to vote of security holders**.......................... (23) Consent of experts and counsel..........................(1) (24) Power of attorney.......................................(1) (27) Financial data schedule.................................(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 electronically.