Which company does this 10-K describe, and how large is it?

The filing is for The St. Paul Companies, Inc., not Travelers Companies. At year-end 1993 it had total assets of $17.1 billion, shareholders' equity of $3.0 billion, about 42.4 million shares outstanding, and roughly 12,900 employees. Fortune ranked it the 25th largest diversified financial company in the U.S. by total assets.

Why did earnings swing so dramatically from 1992 to 1993?

1992 included $305 million of catastrophe losses, including Hurricane Andrew, a $365 million goodwill write-down on Minet, and a $98 million gain from selling a Nuveen minority stake. 1993 had catastrophe losses of only $62 million, no write-down, and a $15 million benefit from the federal tax rate increase. Management estimated that excluding catastrophes and realized gains, pretax earnings improved by about $240 million.

What are the main risks to the loss reserves?

Reserves of $9.2 billion are established on an undiscounted basis, and 47% relate to incurred-but-not-reported claims, which makes them highly judgmental. Medical liability and workers' compensation claims settle over many years. The ten-year development table shows the 1983 reserve ultimately developed a $408 million deficiency, and the company is exposed to pollution claims, with reserves of about $75 million. The filing also notes that past development is not necessarily indicative of future results.

What is the company's capital and debt position, and is there a buyback?

Debt was $640 million at year-end 1993, about 18% of total capitalization, and the company had a $400 million credit facility supporting commercial paper, with none drawn. It had $288 million of unused shelf capacity under a $300 million SEC registration. In February 1994 it said it might repurchase up to one million common shares in 1994 to fund employee compensation programs, and it anticipated no major capital expenditures in 1994.

What legal matters could affect the company?

Two matters are highlighted. In the Berdella/Haste case, a homeowner's policy issued by subsidiary Economy is contested in a declaratory judgment action; Kemper Corporation has agreed to indemnify the company for losses. In the Arntz case, a California judgment against St. Paul Fire and Marine of $16.5 million in compensatory damages was partly reduced when the $100 million punitive award was vacated in January 1994, and both sides have appealed. Management believes neither will materially affect financial position. Proposition 103 rate rollback litigation in California also remains pending.

TRV 10-K FY1993 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 18, 1994. Cited figures are marked; the original filing is the authoritative source.

This filing is the 1993 Form 10-K of The St. Paul Companies, Inc. (NYSE: SPC), not Travelers Companies as the request stated.

The company is a Minnesota-based property-liability insurance holding company that also owns Minet Group (insurance brokerage, 100% owned) and a 74% stake in The John Nuveen Company (investment banking and asset management). Underwriting accounted for 88% of 1993 revenues, brokerage for 7%, and investment banking-asset management for 5%. Total revenues were $4.46 billion^a, roughly flat with 1992, and the company reported record net income of $427.6 million, or $9.47 per fully diluted share.

Pretax earnings were $523 million^b, compared with a pretax loss of $225 million in 1992, which was depressed by $305 million of catastrophe losses and a $365 million goodwill write-down on Minet. The improvement was driven mainly by a sharp reduction in catastrophe losses ($62 million in 1993 versus $305 million in 1992), corrective underwriting actions in Specialized Commercial and Business Insurance, and a $223 million reduction in prior-year loss reserves. Operating earnings, which exclude realized gains, were $386.6 million, or $8.55 per share, a 17.2% return on beginning equity.

Book value per share rose to $70.95^c from $52.37, and common shareholders' equity passed $3 billion for the first time, although about $500 million of that increase reflected the adoption of SFAS No. 115, which marked fixed-maturity holdings to market. Debt was $640 million, or about 18% of total capitalization.

Key risks include a loss reserve base of $9.2 billion^d, with 47% representing incurred-but-not-reported claims; a cumulative reserve deficiency of $408 million on the 1983 accyear as of 1993; pollution and environmental exposure; California Proposition 103 rate rollback litigation; and an investment yield that fell to 7.4% in 1993 from 8.0% in 1992. Management also restructured U.S. underwriting into three operations effective January 1, 1994, and announced a possible repurchase of up to one million shares.

02—Key points

Key Highlights

Record 1993 net income of $427.6 million ($9.47 fully diluted EPS), versus a net loss of $156.0 million in 1992, with pretax earnings of $522.6 million.
Catastrophe losses fell to $62 million in 1993 from $305 million in 1992, and the GAAP underwriting loss narrowed to $150 million from $567 million; the GAAP combined ratio improved to 104.5% from 117.8%.
Operating earnings of $386.6 million ($8.55 per share) produced a 17.2% return on beginning shareholders' equity; book value per share rose to $70.95 from $52.37.
Common shareholders' equity reached $3.0 billion, but about $500 million of the increase came from SFAS No. 115 mark-to-market of fixed maturities, not operations.
Prior-year loss reserves were reduced by $223 million, though the 1983 accident-year reserve shows a cumulative deficiency of $408 million.
The company is the largest U.S. medical liability insurer (about 12% market share) and the leading surety underwriter, and acquired Economy Fire & Casualty for about $395 million in August 1993.
Investment income was flat at $661 million, and the fixed-maturity portfolio yield declined to 7.4% from 8.0%, pressuring future income growth.

03—Questions

Frequently Asked Questions

Which company does this 10-K describe, and how large is it?
The filing is for The St. Paul Companies, Inc., not Travelers Companies. At year-end 1993 it had total assets of $17.1 billion, shareholders' equity of $3.0 billion, about 42.4 million shares outstanding, and roughly 12,900 employees. Fortune ranked it the 25th largest diversified financial company in the U.S. by total assets.
Why did earnings swing so dramatically from 1992 to 1993?
1992 included $305 million of catastrophe losses, including Hurricane Andrew, a $365 million goodwill write-down on Minet, and a $98 million gain from selling a Nuveen minority stake. 1993 had catastrophe losses of only $62 million, no write-down, and a $15 million benefit from the federal tax rate increase. Management estimated that excluding catastrophes and realized gains, pretax earnings improved by about $240 million.
What are the main risks to the loss reserves?
Reserves of $9.2 billion are established on an undiscounted basis, and 47% relate to incurred-but-not-reported claims, which makes them highly judgmental. Medical liability and workers' compensation claims settle over many years. The ten-year development table shows the 1983 reserve ultimately developed a $408 million deficiency, and the company is exposed to pollution claims, with reserves of about $75 million. The filing also notes that past development is not necessarily indicative of future results.
What is the company's capital and debt position, and is there a buyback?
Debt was $640 million at year-end 1993, about 18% of total capitalization, and the company had a $400 million credit facility supporting commercial paper, with none drawn. It had $288 million of unused shelf capacity under a $300 million SEC registration. In February 1994 it said it might repurchase up to one million common shares in 1994 to fund employee compensation programs, and it anticipated no major capital expenditures in 1994.
What legal matters could affect the company?
Two matters are highlighted. In the Berdella/Haste case, a homeowner's policy issued by subsidiary Economy is contested in a declaratory judgment action; Kemper Corporation has agreed to indemnify the company for losses. In the Arntz case, a California judgment against St. Paul Fire and Marine of $16.5 million in compensatory damages was partly reduced when the $100 million punitive award was vacated in January 1994, and both sides have appealed. Management believes neither will materially affect financial position. Proposition 103 rate rollback litigation in California also remains pending.

04—Continue

← View all 10-K filings