Travelers 2001 Annual Report Download - page 5

The St. Paul Companies 2001 Annual Report 3
to our shareholders:
2001 was a challenging year for
The St. Paul Companies.
We reported a net loss of $1.09 billion for the year,
compared with net income of $993 million for 2000.
The 2001 result includes more than $600 million in
after-tax losses related to the September 11 terrorist
attack on the World Trade Center and Pentagon.
It also includes $612 million after-tax for reserve
strengthening, restructuring charges and the write-
down of goodwill, primarily related to our planned
exit of the medical malpractice business and most
of the company’s international operations. Our asset
management operation, The John Nuveen Company,
reported a seventh consecutive year of record earnings.
The St. Paul’s common shareholders’ equity fell to $5.06 billion,
or $24.35 per share, at the end of 2001, down from equity of
$7.18 billion, or $32.88 per share, a year earlier.
The financial losses incurred by The St. Paul on September 11,
however, pale in comparison to the scope of human tragedy
suffered by the thousands whose lives were lost or forever
changed on that day. I am proud of the efforts of our employees,
in New York and elsewhere, who showed courage, compassion
and professionalism under extraordinary circumstances.
In my first letter to you as chairman of The St. Paul I want
to outline how we intend to return this company to profitability
and build shareholder value.
Strategic Actions
In the fourth quarter of 2001 we undertook a comprehensive
review of the performance and prospects of each of our business
operations. We looked at the market dynamics, current financial
results and the prospects for appropriate future returns of each
business. Of particular concern were those operations that have
generated significant underwriting losses in recent years. Our
objective was to take actions by the end of 2001 that would best
position The St. Paul for success in 2002 and beyond.
As a result of this review, we announced in December a number
of steps to return our company to profitability:
• We began to exit the medical malpractice business. Medical
malpractice has been highly unprofitable for us in recent years
and is not likely to return to profitability.
• We plan to shut down most of our international underwriting
operations, with the exception of offices in locations where we
believe we have sufficient scale to be competitive and profitable:
the United Kingdom, Canada and Ireland. In addition, we remain
committed to our surety underwriting company in Mexico,
where we have a leading market share in that product line.
• We significantly reduced 2002 exposure and expenses in our
Reinsurance and Lloyd’s underwriting operations by exiting
unprofitable lines, eliminating duplicated lines of business
between the two organizations and sharply reducing the
number of reinsurance branch offices we maintain outside
the United States.
• We have begun to improve efficiency and shrink our cost
structure through staff and expense reductions. Our cost-
cutting efforts so far will result in $130 million of expense
savings in 2002. That’s approximately 10 percent of our total
2001 fixed expense. We are confident that we will achieve
additional savings during the year.
These actions will result in our exit from lines of business that
have little prospect of profitability. We recognize that these
actions impact the lives of many dedicated employees, and
they represent a marked change from the past for this company.
Nonetheless, they are the right actions for The St. Paul.