Travelers 2001 Annual Report Download - page 68

The St. Paul Companies 2001 Annual Report66
Year ended December 31 2001 2000 1999
(In millions)
Operating income, before income taxes $19$53$48
Income tax expense —10 13
Operating income, net of taxes 19 43 35
Gain (loss) on disposal, before
income taxes (61) (25) 184
Income tax expense (benefit) 37 (5) 90
Gain (loss) on disposal,
net of taxes (98) (20) 94
Gain (loss) from discontinued
operations $(79)$23$129
The following table summarizes our total gain (loss) from
discontinued operations, for each operation sold, for the three-year
period ended Dec. 31, 2001.
Year ended December 31 2001 2000 1999
(In millions)
Life insurance $ (55) $43$44
Standard personal insurance (13) (11) 155
Nonstandard auto insurance (5) (9) (70)
Insurance brokerage (6) ——
Gain/(loss) from discontinued
operations $(79)$23$129
15
Commitments and Contingencies
Investment Commitments — We have long-term commitments to
fund venture capital investments totaling $1.2 billion as of Dec. 31,
2001, estimated to be paid as follows: $302 million in 2002; $290
million in 2003; $299 million in 2004; $275 million in 2005; and
$9 million thereafter.
Financial Guarantees — We are contingently liable for a financial
guarantee issued by our reinsurance operation in the form of a credit
enhancement, with total exposure of approximately $15 million as
of Dec. 31, 2001.
In the normal course of business, we enter into letters of credit as
collateral, as required in certain of our operations. As of Dec. 31, 2001,
we had entered into letters of credit with an aggregate amount of
$984 million.
Lease Commitments — A portion of our business activities is
conducted in rented premises. We also enter into leases for
equipment, such as office machines and computers. Our total
rental expense was $83 million in 2001, $83 million in 2000 and
$82 million in 1999.
Certain leases are noncancelable, and we would remain responsible
for payment even if we stopped using the space or equipment.
On Dec. 31, 2001, the minimum rents for which we are liable under
these types of leases were as follows: $137 million in 2002,
$126 million in 2003, $88 million in 2004, $71 million in 2005,
$60 million in 2006 and $203 million thereafter.
We are also the lessor under various subleases on our office
facilities. The minimum rentals to be received under noncancelable
subleases are as follows: $22 million in 2002, $20 million in 2003,
$17 million in 2004, $16 million in 2005, $15 million in 2006 and
$37 million thereafter.
Reserve Guarantees — As part of the sale of our standard personal
insurance business to Metropolitan (see Note 14), we guaranteed
the adequacy of Economy’s loss and loss expense reserves. Under
that guarantee, we will pay for any deficiencies in those reserves
and will share in any redundancies that develop by Sept. 30, 2002.
We remain liable for claims on non-Economy policies that result
from losses occurring prior to closing. By agreement, Metropolitan
will adjust those claims and share in redundancies in related
reserves that may develop. As of Dec. 31, 2001, we estimated that
we will owe Metropolitan $7 million on these guarantees, and
recorded that amount in discontinued operations.
Contingent Liabilities — Most of the contracts relating to the various
acquisitions and sales of subsidiaries that we have made in recent
years include indemnifications and other provisions that could
require us to make payments to the other parties to the contracts
in certain circumstances, and in some cases we have contingent
liabilities related to businesses we have sold. Except as specifically
noted, we do not expect there to be a reasonable likelihood that we
will be required to make material payments related to those
provisions. The following summarizes our contingent liabilities.
Sale of F&G Life — On Sept. 28, 2001, we closed on the sale of
F&G Life to Old Mutual (see Note 14). Under the terms of the
agreement, we received Old Mutual common shares valued at
$300 million, which we are required to hold for one year following
the closing. The proceeds from the sale of F&G Life are subject
to possible adjustment, by means of a collar embedded in the
sale agreement, based on the movement of the market price of
Old Mutual’s stock at the end of the one-year period. If the market
value of the Old Mutual stock exceeds $330 million at the end of
the one-year period, we are required to remit to Old Mutual either
cash or Old Mutual shares in the amount representing the excess
over $330 million. If the market value of the Old Mutual shares
is less than $300 million at the end of the one-year period, we
will receive either cash or Old Mutual shares in the amount
representing the deficit below $300 million, up to $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 has been mitigated by the collar, which was estimated to have
a fair value of $17 million at Dec. 31, 2001, which is recorded in our
statement of operations in discontinued operations.
Sale of Minet — In May 1997, we completed the sale of our
insurance brokerage operation, Minet, to Aon Corporation. We
agreed to indemnify Aon against any future claims for professional
liability and other specified events that occurred or existed prior to
the sale. We monitor our exposure under these claims on a regular
basis. We believe reserves for reported claims are adequate, but
we do not have information on unreported claims to estimate a