Travelers 2001 Annual Report Download - page 17

Life Insurance – Under terms of the F&G Life sale agreement, we
received $335 million in cash and 190,356,631 ordinary shares of
Old Mutual valued at $300 million based on the average closing
price of Old Mutual shares on the London Stock Exchange for the
ten consecutive trading days prior to Sept. 27, 2001. In accordance
with the sale agreement, pretax sales proceeds were reduced by
approximately $12 million, due to a decrease in the market value of
certain securities in F&G Life’s investment portfolio between March
31, 2001 and the closing date of Sept. 28, 2001.
Pursuant to the sale agreement, we must hold the Old Mutual
shares for one year from the closing date. The consideration is sub-
ject to possible adjustment, by means of a collar embedded in the
sale agreement, based on the market value of our Old Mutual
shares at the end of that one-year period. If the market value
exceeds $330 million at that time, we will be required to remit to
Old Mutual either cash or Old Mutual shares in the amount repre-
senting the excess over $330 million. If the market value is less than
$300 million, we will receive cash or Old Mutual shares in the
amount representing the deficit below $300 million, up to a maxi-
mum of $40 million. At Dec. 31, 2001, the market value of the Old
Mutual shares was $242 million. The $58 million decline in market
value was recorded as a component of unrealized appreciation of
investments, net of tax, in shareholders’ equity. The impact of this
unrealized loss was mitigated by the collar, which was estimated to
have a fair value of $17 million at Dec. 31, 2001. That amount was
recorded in our statement of operations in discontinued operations.
We realized a net after-tax loss of $73 million on the sale proceeds.
When the sale agreement with Old Mutual was announced in April
2001, we expected to realize a modest pretax gain on the sale when
proceeds were combined with F&G Life’s operating results through
the disposal date. However, a decline in the market value of certain
F&G Life investments between the April announcement date and
the September closing date, coupled with a change in the antici-
pated tax treatment of the sale, resulted in the net after-tax loss on
the sale proceeds. That loss is combined with F&G Life’s results of
operations prior to sale for an after-tax loss of $54 million and is
included in the reported loss from discontinued operations for the
year ended Dec. 31, 2001.
For the sale of ACLIC, we received cash proceeds of $21 million from
CNA, and we recorded a net after-tax loss on the sale of $1 million.
Nonstandard Auto Insurance – Prudential purchased our nonstan-
dard auto insurance business marketed under the Victoria Financial
and Titan Auto brands for $175 million in cash (net of a $25 million
dividend paid by these operations to our property-liability insur-
ance operations prior to closing). We recorded an estimated
after-tax loss of $83 million on the sale in 1999, representing the
estimated excess of carrying value of these entities at closing date
over proceeds to be received from the sale, plus estimated income
through the disposal date. This excess primarily consisted of good-
will. We recorded an after-tax loss on disposal of $9 million in 2000,
primarily representing additional losses incurred through the dis-
posal date in May, and an additional after-tax loss on disposal of
$5 million in 2001, primarily representing tax adjustments made to
the sale transaction.
Standard Personal Insurance – Metropolitan purchased our stan-
dard personal insurance business operated out of Economy Fire &
Casualty Company and subsidiaries (“Economy”), and the rights
and interests in those non-Economy policies constituting the
remainder of our standard personal insurance operations. Those
rights and interests were transferred to Metropolitan by way of a
reinsurance and facility agreement. We guaranteed the adequacy
of Economy’s loss and loss expense reserves, and we remain liable
for claims on non-Economy policies that result from losses occur-
ring prior to the Sept. 30, 1999 closing date. Under the reserve
guarantee, we will pay for any deficiencies in those reserves and
will share in any redundancies that develop by Sept. 30, 2002. Any
losses incurred by us under these agreements are reflected in dis-
continued operations in the period during which they are incurred.
As of Dec. 31, 2001, our analysis indicated that we will owe
Metropolitan approximately $7 million on these guarantees, and
we recorded a pretax expense equal to that amount in 2001 dis-
continued operations. We also recorded a pretax loss of $14 million
in 2001 related to pre-sale claims. We have no other contingent
liabilities related to this sale.
Minet – In 1997, we sold Minet to Aon Corporation. We recorded a
$9 million pretax expense in discontinued operations in 2001
related to the Minet sale, representing additional funds due Aon
pursuant to provisions of the 1997 sale agreement.
elimination of one-quarter reporting lags
In 2001, we eliminated the one-quarter reporting lag for our primary
underwriting operations in foreign countries (not including our
operations at Lloyd’s), and now report the results of those opera-
tions on a current basis. As a result, our consolidated results for
2001 include their results for the fourth quarter of 2000 and all
quarters of 2001. The incremental impact on our property-liability
operations of eliminating the reporting lag, which consists of the
results of these operations for the three months ended Dec. 31,
2001, was as follows.
Year ended December 31 2001
(In millions)
Net written premiums $71
Net earned premiums 86
GAAP underwriting loss (45)
Net investment income 14
Total pretax loss (31)
The St. Paul Companies 2001 Annual Report 15