Travelers 2004 Annual Report Download

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2004 Annual Report to Shareholders

Table of contents

  • Page 1
    2004 Annual Report to Shareholders

  • Page 2
    Contents 1 2 5 6 7 8 Letter from the Chairman and President & CEO Financial Highlights Management Team Board of Directors St. Paul Travelers at a Glance Shareholders' Information Financial Section

  • Page 3
    ... year 2004 was one of real progress for St. Paul Travelers. Immediately upon the closing of our merger on April 1, we went to work combining two companies into a new entity - a best-in-class franchise, well positioned for the future. We brought together our Commercial, Specialty and Personal product...

  • Page 4
    ... accounts of The St. Paul Companies, Inc., and Travelers Property Casualty Corp. for the subsequent nine months ended Dec. 31, 2004. 2. The financial information presented for 2003 reflects financial information for Travelers Property Casualty Corp. only, except for the total number of employees...

  • Page 5
    ...investigations of the insurance industry trade practices, the Office of the Attorney General of the State of New York, the Securities and Exchange Commission and other government agencies have issued subpoenas to a number of companies in the industry, including St. Paul Travelers. We are cooperating...

  • Page 6
    ...of Directors for their service to this company. The value of their advice and counsel is immeasurable. When we completed the merger, we brought together the members of each of the predecessor boards into a new board for St. Paul Travelers, bringing the number of board members to 23. We knew the time...

  • Page 7
    ... A. Backberg Senior Vice President & Corporate Secretary William A. Bloom Senior Vice President & Chief Information Officer John P. Clifford Senior Vice President Human Resources Timothy R. Schwertfeger Chairman & Chief Executive Officer Nuveen Investments St. Paul Travelers 2004 Annual Report 5

  • Page 8
    ...CEO, St. Paul Travelers Lawrence G. Graev* President and CEO, The GlenRock Group and Of Counsel, King & Spalding LLP Meryl D. Hartzband Senior Principal and Investment Director, MMC Capital, Inc., subsidiary of Marsh & McLennan Companies, Inc. Thomas R. Hodgson* Retired President and Chief Operating...

  • Page 9
    ... number of institutional clients. Nuveen Investments is listed on The New York Stock Exchange and trades under the symbol "JNC." For more information about St. Paul Travelers and its products and services, visit the company's Web site, www.stpaultravelers.com. St. Paul Travelers 2004 Annual Report...

  • Page 10
    ..., payable on May 14, 2004, to shareholders of record as of the close of business on March 26, 2004. CEO and CFO Certification St. Paul Travelers has filed with the SEC as Exhibits 31.1 and 31.2 to its 2004 Annual Report on Form 10-K the certifications of the company's Chief Executive Officer and...

  • Page 11
    ... class Name of each exchange on which registered Common stock, without par value Guarantee with respect to the 7.6% Trust Preferred Securities of St. Paul Travelers Capital Trust I Equity Units 4.5% Convertible Junior Subordinated Notes due 2032 New York Stock Exchange New York Stock Exchange New...

  • Page 12
    ... of Equity Securities ...Selected Financial Data ...Management's Discussion and Analysis of Financial Condition and Results of Operations ...Quantitative and Qualitative Disclosures About Market Risk ...Financial Statements and Supplementary Data ...Changes in and Disagreements With Accountants on...

  • Page 13
    ... asset management industry through its 79% majority ownership of Nuveen Investments, Inc. (Nuveen Investments). The Company, known as The St. Paul Companies, Inc. (SPC) prior to its merger with Travelers Property Casualty Corp. (TPC), is incorporated as a general business corporation under the laws...

  • Page 14
    .... Select Accounts serves small businesses and offers property, liability, commercial auto and workers' compensation insurance. National Accounts provides casualty products and services to large companies, with particular emphasis on workers' compensation, general liability and automobile liability...

  • Page 15
    ...National Accounts customers require insurance-related services in addition to or in lieu of pure risk coverage, primarily for workers' compensation and, to a lesser extent, general liability and commercial automobile exposures. These types of services include risk management services, such as claims...

  • Page 16
    ... rated or a guaranteed cost insurance policy. Through a network of field offices, the Company's underwriting specialists work closely with national and regional brokers to tailor insurance programs to meet clients' needs. Workers' compensation accounted for approximately 76% of sales to National...

  • Page 17
    ... workers' compensation assigned risk market. The Company is one of only two servicing carriers that operate nationally. Assigned risk plan contracts generated approximately $212 million in fee income in 2004. Commercial Other includes the Special Liability Group (which manages the Company's asbestos...

  • Page 18
    ... injured employee's early return to work, cost-effective quality care, and customer service in this market. The Company offers the following three types of workers' compensation products: • • guaranteed cost insurance products, in which policy premium charges are fixed for the period of coverage...

  • Page 19
    ... with TPC's Bond and Construction operations, which were included in TPC's Commercial segment prior to the merger. The Specialty segment provides a full range of standard and specialized insurance coverages and services through dedicated underwriting, claims handling and risk management groups. In...

  • Page 20
    ... information technology, medical technology and electronics manufacturing. These products include property, commercial auto, general liability, workers' compensation, umbrella, internet liability, technology errors and omissions coverages and global companion products. Public Sector Services markets...

  • Page 21
    ...and risk management services to several specialty customer groups, including those in the technology, public services, and financial and professional services industry sectors. The Company's international operations primarily underwrite employers' liability (similar to workers' compensation coverage...

  • Page 22
    ... with its operating and marketing plans. Once an agency or broker is appointed, Specialty carefully monitors its performance. Specialty also distributes property and casualty products through selected wholesalers using surplus lines paper, both on a brokerage and managing general underwriting basis...

  • Page 23
    ... other performance bonds. This product line includes surety business written in the Company's St. Paul Guarantee (Canada) and Afianzadora Insurgentes (Mexico) subsidiaries. Workers' Compensation provides coverage for employers for specified benefits payable under state or federal law for workplace...

  • Page 24
    ... ...New York ...Florida ...Illinois ...Pennsylvania ...Massachusetts ...New Jersey ...All Others (1) ...Total ... 15.1% 7.8 7.6 6.1 4.2 3.8 3.2 3.1 49.1 100.0% (1) No other single state accounted for 3.0% or more of the total direct written premiums written in 2004 by the Company. PERSONAL Personal...

  • Page 25
    .... Personal's product managers establish strict underwriting guidelines integrated with its filed pricing and rating plans, which enable Personal to streamline its risk selection and pricing processes. Pricing for personal automobile insurance is driven by changes in the frequency of claims and...

  • Page 26
    ...with the Company management on business plan development, marketing, and overall growth and profitability. Channel-specific production and claim information is used to analyze results and identify problems and opportunities. Product Lines The primary coverages in Personal are personal automobile and...

  • Page 27
    ... its investment products and services, including individually managed accounts, closed-end exchange-traded funds and mutual funds, to the affluent and high-networth market segments through unaffiliated intermediary firms including broker/dealers, commercial banks, affiliates of insurance providers...

  • Page 28
    ..., information technology, advanced management information and data analysis, training, financial reporting and control, and human resources strategy. In addition to the field teams, claim staff is dedicated to each of Personal's single state companies in Florida, Massachusetts and New Jersey...

  • Page 29
    ... glass repair providers and enables the Company to effectively and efficiently meet its customers' automobile glass repair needs. Another strategic advantage is TravCompSM, a workers' compensation claim resolution and medical management program that assists adjusters in the prompt investigation and...

  • Page 30
    ... million per policy. For third party liability, National Accounts limits its exposure by utilizing facultative reinsurance. Reinsurance is also used to limit the net retained amount per risk to $15 million for Commercial and Specialty property. For surety protection, the Company generally retains up...

  • Page 31
    ... primarily funded by premiums from insurance companies that write residential property business in Florida and, if insufficient, assessments on insurance companies that write other property and casualty insurance, excluding workers' compensation and medical malpractice. FHCF's resources are limited...

  • Page 32
    ... actuary employed by the Company. For additional information on the process of estimating reserves and a discussion of underlying variables and risk factors, see "Item 7- Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Estimates." The process...

  • Page 33
    ...above, and the use of retrospectively rated insurance policies. For example, workers' compensation indemnity reserves (tabular reserves) are discounted to reflect the time value of money. Apparent deficiencies will continue to occur as the discount on these workers' compensation reserves is accreted...

  • Page 34
    ... reserves of The Northland Company and its subsidiaries and Commercial Guaranty Lloyds Insurance Company which were acquired from Citigroup on October 1, 2001. Also includes reserves of Commercial Guaranty Casualty Insurance Company, which was contributed to TPC by Citigroup on October 3, 2001. At...

  • Page 35
    ... just on its own capital and surplus. Travelers Casualty and Surety Company of America (Travelers C&S of America), which is dedicated to the Bond business, does not participate in any of the pools. The Personal single state companies and Commercial Guaranty Casualty Insurance Company (see Ratings...

  • Page 36
    ...of Gulf Insurance Group to A- from A with a stable outlook. On July 23, 2004, A.M. Best, Moody's, S&P and Fitch announced the following rating actions with respect to the Company. • A.M. Best affirmed the financial strength rating of Travelers Property Casualty Pool (A+), St. Paul Insurance Group...

  • Page 37
    ... from under review with developing implications. St. Paul Guarantee Insurance Company was assigned a rating outlook of stable. These actions followed the January 1, 2005 completion of the amalgamation of St. Paul Guarantee Insurance Company and Travelers Casualty and Surety Company of Canada. In...

  • Page 38
    ... Company, The Travelers Home and Marine Insurance Company, Travelers Personal Security Insurance Company, Travelers Personal Insurance Company (formerly Travelers Property Casualty Insurance Company of Illinois) and Travelers Excess and Surplus Lines Company. (b) The St. Paul Insurance Group...

  • Page 39
    ...'s total net written premiums in 2003. Several property and casualty insurers writing commercial lines of business, including the Company, offer products for alternative forms of risk protection in addition to traditional insurance products. These products, including large deductible programs and...

  • Page 40
    ...regional brokers. Insurance companies compete in this market based on price, product offerings, claim and loss prevention services, managed care cost containment and risk management information systems. National Accounts also offers a large nationwide network of localized claim service centers which...

  • Page 41
    ... agents and brokers. Competitors in this industry include both national property casualty insurance companies and regional insurance companies. Companies compete on price, coverage offerings, claim and loss prevention services, managed care cost containment and risk management information systems...

  • Page 42
    ... of products by marketing to sponsoring organizations, including employee and affinity groups, and through joint marketing arrangements with other insurers. Personal believes that its continued focus on expense management practices, underwriting and pricing segmentation, and claim settlement...

  • Page 43
    ... case of Minnesota, net income excludes realized investment gains for purposes of the calculation of the 10% threshold.) This declaration or payment is further limited by adjusted unassigned surplus, as determined in accordance with statutory accounting practices. The insurance holding company laws...

  • Page 44
    ... by state agencies of any change in control of an insurance company that is domiciled, or, in some cases, having substantial business that it is deemed to be commercially domiciled, in that state. The Company owns, directly or indirectly, all of the shares of stock of property and casualty insurance...

  • Page 45
    ... with predominately shorter term investments and investments in tax-exempt securities. In 2003, most of the Company's insurance subsidiaries in the Travelers Property Casualty pool had results outside the usual range for the two-year reserve development to surplus ratio and the estimated current...

  • Page 46
    ... on new investments. Gulf Underwriters Insurance Company also had a gross written premiums to surplus ratio of 1235%, which exceeded the usual result of 900% or lower due to increases in premiums written on core specialty lines and the effect of the companies' removal from the Travelers Property...

  • Page 47
    ... property and casualty insurance subsidiaries had total adjusted capital in excess of amounts requiring company or regulatory action at any prescribed RBC action level. Asset Management Regulation One of Nuveen Investments' subsidiaries is registered as a broker/dealer under the Securities Exchange...

  • Page 48
    ... the SEC and other governmental entities which have arisen in connection with widely publicized regulatory violations by industry participants. These information requests have addressed a number of subjects, including market timing, late trading, pricing of portfolio securities, selective disclosure...

  • Page 49
    ... resulting therefrom. It includes, but is not limited to, employers' liability, workers' compensation, public liability, automobile liability, personal liability and aviation liability insurance. It excludes certain types of losses that by law or custom are considered as being exclusively within the...

  • Page 50
    ... 100% generally indicates an underwriting loss. Commercial lines ...The various kinds of property and casualty insurance that are written for businesses. Commercial multi-peril policies ...Refers to policies which cover both property and third-party liability exposures. Commutation agreement ...An...

  • Page 51
    ...of funds by an employee. Surety is a three-party agreement in which the insurer agrees to pay a second party or make complete an obligation in response to the default, acts or omissions of an insured. Guaranteed cost products ...An insurance policy where the premiums charged will not be adjusted for...

  • Page 52
    ... investors. The investors are grouped together into syndicates that provide capital to insure the risks. Loss ...An occurrence that is the basis for submission and/or payment of a claim. Losses may be covered, limited or excluded from coverage, depending on the terms of the policy. Loss adjustment...

  • Page 53
    ...average equity excluding net unrealized gains or losses on investment securities, net of tax. Personal lines ...The various kinds of property and casualty insurance that are written for individuals or families. Pool ...An organization of insurers or reinsurers through which particular types of risks...

  • Page 54
    ... the case of workers' compensation. The costs of the residual market are usually charged back to the direct insurance carriers in proportion to the carriers' voluntary market shares for the type of coverage involved. Retention ...The amount of exposure a policyholder company retains on any one risk...

  • Page 55
    ... risk retained by a person for its own account. Servicing carrier ...An insurance company that provides, for a fee, various services including policy issuance, claims adjusting and customer service for insureds in a reinsurance pool. Specialty lines ...The various kinds of specialized property and...

  • Page 56
    ... does not deal directly with the insurance consumer. The wholesaler deals with the retail agent or broker. Workers' compensation ...A system (established under state and federal laws) under which employers provide insurance for benefit payments to their employees for work-related injuries, deaths...

  • Page 57
    ... and real estate funds. Included in this portfolio are four office buildings in which the Company holds a 50% ownership interest located in New York, New York, which collectively accounted for approximately 13% of the carrying value of the property portfolio at December 31, 2004. In the opinion of...

  • Page 58
    ... in unfair trade practices by inappropriately handling and settling asbestos claims. The plaintiffs seek to reopen large numbers of settled asbestos claims and to impose liability for damages, including punitive damages, directly on insurers. Lawsuits similar to Wise were filed in Massachusetts...

  • Page 59
    ... settlements described above, has numerous defenses in all of the direct action cases asserting Common Law Claims that are pending against it. Many of these defenses have been raised in initial motions to dismiss filed by SPC and other insurers. There have been favorable rulings during 2003 and 2004...

  • Page 60
    ...re St. Paul Travelers Securities Litigation described above. In Clark v. Fishman, et al. (Nov. 18, 2004), the plaintiff shareholder alleges state law claims, including breach of fiduciary duty, based on the Company's alleged mismanagement of and failure to make disclosure relating to the practice of...

  • Page 61
    ... similar, and generally alleged that the defendants conspired to collect excessive or improper premiums on loss-sensitive workers' compensation insurance policies in violation of state insurance laws, antitrust laws, and state unfair trade practices laws. The plaintiffs in the actions do not specify...

  • Page 62
    ...; (xxi) State of West Virginia Office of Attorney General; and (xxii) the United States Securities and Exchange Commission. The Company is cooperating fully with these subpoenas and requests for information. In addition, the Company is currently undertaking its own review of the matters addressed by...

  • Page 63
    ... PURCHASES OF EQUITY SECURITIES The Company's common stock is traded on the New York Stock Exchange, where it is assigned the symbol "STA." Prior to the merger of SPC and TPC, SPC's common stock traded on the New York Stock Exchange under the symbol "SPC." The number of holders of record, including...

  • Page 64
    ... effect of changes in accounting principles, net of tax(2) ...Net income (loss) ...Total investments ...Total assets ...Claims and claim adjustment expense reserves ...Total debt ...Total liabilities(3) ...Company-obligated mandatorily redeemable securities of subsidiary trusts holding solely junior...

  • Page 65
    ...following is a discussion and analysis of the financial condition and results of operations of The St. Paul Travelers Companies, Inc. (together with its subsidiaries, the Company). On April 1, 2004, Travelers Property Casualty Corp. (TPC) merged with a subsidiary of The St. Paul Companies, Inc. (SPC...

  • Page 66
    ... total investments Total debt of $6.62 billion, including $3.98 billion assumed in the merger Shareholders' equity of $21.20 billion, equivalent to book value per common share of $31.35 CONSOLIDATED OVERVIEW The Company provides a wide range of property and casualty insurance products and services...

  • Page 67
    ... southeastern United States in the third quarter. The rate environment continued to moderate in 2004 due to more aggressive pricing in the marketplace. Customer retention levels remained stable throughout the Company's insurance underwriting operations; however, new business volume in 2004 declined...

  • Page 68
    ... Company's private equity investments. These factors were partially offset by higher returns in arbitrage fund investments. Fee income increased $105 million, or 23%, in 2003, as both new business and pricing levels in the Company's National Accounts business increased and more workers' compensation...

  • Page 69
    ... certain commercial property, construction and surety risks and certain personal lines business in the Company's operations at Lloyd's also negatively impacted premium volume in 2004. Personal net written premiums increased 17% in 2004 over 2003, due to strong organic growth, new business resulting...

  • Page 70
    ...300 million of net unfavorable prior year reserve development related to Specialty's construction and surety reserves, respectively, acquired in the merger. Upon having access to each company's detailed policyholder information, including underwriting, claim, and actuarial files on April 1, 2004, in...

  • Page 71
    ... commercial lines national accounts, middle market and marine businesses, and standard and preferred personal lines businesses. Also during the third quarter of 2003, TPC purchased from Atlantic Mutual, an unaffiliated insurer, the renewal rights to the majority of Atlantic Mutual's commercial lines...

  • Page 72
    ... and the holding company for the Gulf Insurance Group (Gulf), completed a transaction with a group of outside investors and senior employees of Gulf. Capital investments made by the investors and employees included 9.7 million shares of mandatorily convertible preferred stock for a purchase price of...

  • Page 73
    ... investments. National Accounts is the primary source of fee income due to its service businesses, which include claim and loss prevention services to large companies that choose to self-insure a portion of their insurance risks, and claims and policy management services to workers' compensation...

  • Page 74
    ... the Company's private equity investments; partially offset by higher returns in arbitrage fund investments. The $99 million, or 22%, increase in fee income in 2003 over 2002 reflected higher new business levels, price increases and more workers' compensation business being written by state residual...

  • Page 75
    ...mid single-digits. Retention and growth were strongest in smaller, high transaction volume accounts, reflecting the Company's competitive advantage in agency automation, product offerings and service to agents. The 13% increase in National Accounts' premium volume in 2004 reflected new business from...

  • Page 76
    ... for small commercial business handled through the Company's Service Centers, while premium growth was centered in the commercial multi-peril and property product lines. National Accounts net written premiums in 2003 increased $190 million, or 30%, over 2002, primarily due to the continued benefit...

  • Page 77
    ... reserves using TPC's long-established practices that includes evaluating exposures by type of claim (e.g. construction defect, construction wrap up, other), by type of coverage, (e.g. guaranteed cost, loss responsive, other) and by detailed line of business (general liability, commercial auto, etc...

  • Page 78
    ... using specialists to implement additional forecasting, cash management, and reporting procedures, on both a project-by-project and consolidated level. Based upon this second quarter change to a workout plan and the detailed financial analysis that was able to be performed, the Company increased...

  • Page 79
    ... the impact of price increases, higher new business volumes and controlled expense growth. Specialty net written premiums by market were as follows: (for the year ended December 31, in millions) 2004 2003 2002 Bond ...Construction ...Financial and Professional Services ...Other ...Total Domestic...

  • Page 80
    ... the rate of renewal price change increases moderated to the low-single digit levels. The Company continued to focus on retaining its profitable book of existing international specialty business. At Lloyd's, premium volume was negatively impacted by the planned non-renewal of certain personal lines...

  • Page 81
    ... rate environment in both automobile and property, increased business volumes and a continued moderation in the increase in loss costs. Earned premiums increased $468 million, or 11%, in 2003, primarily due to higher rates, growth in new business volumes and strong retention levels. Net investment...

  • Page 82
    ... was due to renewal price increases that exceeded loss cost trends, continued reduced levels of non-catastrophe property claim frequency and higher favorable prior year reserve development, partially offset by higher catastrophes. Personal net written premiums by product line were as follows: (for...

  • Page 83
    ... exchange-traded funds and $1.23 billion of mutual funds. Nuveen Investments' positive net flows (equal to the sum of sales, reinvestments and exchanges, less redemptions) totaled $11.23 billion during the nine months ended December 31, 2004. Net flows were positive across all product lines in 2004...

  • Page 84
    ... of any umbrella or excess insurance the Company has issued to the policyholder; limits and deductibles; an analysis of each policyholder's potential liability; the jurisdictions involved; past and anticipated future claim activity and loss development on pending claims; past settlement values of...

  • Page 85
    ...2004 includes international exposures acquired in merger The policyholders with settlement agreements category includes structured agreements, coverage in place arrangements and, with respect to TPC, Wellington accounts and the settlement of the Statutory and Hawaii Actions and the Common Law Claims...

  • Page 86
    ... exposure, number of reported claims, products/completed operations and potential "non-product" exposures, size of policyholder and geographic distribution of products or services sold by the policyholder. During 2004, there were 285 policyholders added to the home office review. The acquisition of...

  • Page 87
    ... to undertake their own remedial action. Liability under CERCLA may be joint and several with other responsible parties. The Company has been, and continues to be, involved in litigation involving insurance coverage issues pertaining to environmental claims. The Company believes that some court...

  • Page 88
    .... This form of settlement is commonly referred to as a "buy-back" of policies for future environmental liability. In addition, many of the agreements have also extinguished any insurance obligation which the Company may have for other claims, including but not limited to asbestos and other...

  • Page 89
    ... These policyholders generally present smaller exposures, have fewer sites and are lower tier defendants. Further, regulatory agencies are utilizing risk-based analysis and more efficient clean-up technologies. However, the Company has experienced an increase in the anticipated settlement amounts of...

  • Page 90
    ... portfolio is to fund future claims payments, the Company employs a conservative investment philosophy. The Company's fixed maturity portfolio at December 31, 2004 totaled $54.26 billion, comprising $53.93 billion of publicly traded fixed maturities and $328 million of private fixed maturities. The...

  • Page 91
    ... process generally favors securities that control this risk within expected interest rate ranges. The Company does invest in other types of CMO tranches if a careful assessment indicates a favorable risk/return tradeoff. The Company does not purchase residual interests in CMOs. At December 31, 2004...

  • Page 92
    ... change in product). Eight of the holdings were impaired due to the impending sale, liquidation or shutdown of the entity. The Company continues to evaluate current developments in the market that have the potential to affect the valuation of the Company's investments. $10 million in its real estate...

  • Page 93
    ... and auto loss costs), asbestos-related developments and rising reinsurance and litigation costs. The Company expects market conditions in the property casualty insurance sector to continue to be quite competitive throughout 2005. Commercial pricing at the end of 2004 had declined to the low single...

  • Page 94
    ...'s Commercial and Specialty policies already included such coverage, although exclusions were added to higher-risk policyholders after September 11, 2001. For those risks considered higherrisk, such as landmark buildings or high concentrations of employees in one location, the Company will continue...

  • Page 95
    ... of the Company's business have been met primarily by funds generated from operations, asset maturities and income received on investments. Cash provided from these sources is used primarily for claims and claim adjustment expense payments and operating expenses. Catastrophe claims, the timing and...

  • Page 96
    ... the Company's Board of Directors declared a quarterly dividend of $0.22 per share, payable March 31, 2005 to shareholders of record on March 10, 2005. In 2004 and 2003, the Company acquired 0.4 million and 0.8 million shares (as adjusted for the merger), respectively, of common stock from employees...

  • Page 97
    ... at the time of the merger. In accordance with purchase accounting, the carrying value of the SPC debt acquired was adjusted to market value as of April 1, 2004 using the effective interest rate method, which resulted in a $301 million adjustment to increase the amount of the Company's consolidated...

  • Page 98
    .... If the Company elects to defer interest payments on the notes, it will not be permitted, with limited exceptions, to pay dividends on its common stock during a deferral period. In February 2002, TPC paid a dividend of $1.00 billion to Citigroup in the form of a non-interest bearing note payable on...

  • Page 99
    ... annual distributions on the equity units are at the rate of 9.00%, consisting of interest on the note at a rate of 5.25% and fee payments under the forward contract of 3.75%. The forward contract requires the investor to purchase, for $50, a variable number of shares of the Company's common stock...

  • Page 100
    ...of Credit and STA 364-Day Line of Credit, supporting the Company's commercial paper program, the Company must maintain an excess of consolidated net worth over goodwill and other intangible assets of not less than $10 billion at all times. The Company must also maintain a ratio of total consolidated...

  • Page 101
    ... and services including office supplies, archival services, etc. (6) Represents estimated timing for fulfilling unfunded commitments for investments in real estate partnerships, private equities and hedge funds. The Company is not required to make any contributions to its qualified pension plan in...

  • Page 102
    ...'s balance sheet to extent that deposit values in the balance sheet have been discounted using deposit accounting. The above table does not include an analysis of liabilities reported for structured settlements for which the Company has purchased annuities and remains contingently liable in the...

  • Page 103
    ... case of Minnesota, net income excludes realized investment gains for purposes of the calculation of the 10% threshold). This declaration or payment is further limited by adjusted unassigned surplus, as determined in accordance with statutory accounting practices. The insurance holding company laws...

  • Page 104
    ...and Environmental Claims and Litigation. As described earlier, the Company acquired SPC's runoff health care reserves in the merger, which are included in the General Liability product line in the table below. SPC decided to exit this market at the end of 2001 and ceased underwriting new business as...

  • Page 105
    ... General liability ...Property ...Commercial multi-peril ...Commercial automobile ...Workers' compensation ...Fidelity and surety ...Personal automobile ...Homeowners and personal-other ...International and other ...Property-casualty ...Accident and health ...Claims and claim adjustment expense...

  • Page 106
    ...be comparable across companies. In addition, potential interactions among the different estimation assumptions for different product lines make the aggregation of individual ranges a highly judgmental and inexact process. Property casualty insurance policies are either written on a claims made or on...

  • Page 107
    ... liability that is different from that being estimated currently. Some risk factors will affect more than one product line. Examples include changes in claim department practices, changes in settlement patterns, regulatory and legislative actions, court actions, timeliness of claim reporting, state...

  • Page 108
    ... that the change should be reflected in the Company's estimated claim liabilities. The final estimate selected by management in a reporting period is a function of these detailed analyses of past data, adjusted to reflect any new actionable information. Discussion of Product Lines The following...

  • Page 109
    ... covering directors and officers or professional liability) are typically insured on a "claims-made" basis. General liability reserves are generally analyzed as two components: primary and excess/umbrella, with the primary component generally analyzed separately for bodily injury and property damage...

  • Page 110
    ... in claim adjuster office structure (causing distortions in the data) Changes in settlement patterns (e.g. medical malpractice) General liability book of business risk factors Changes in policy provisions (e.g., deductibles, policy limits, endorsements) Changes in underwriting standards Product mix...

  • Page 111
    Property book of business risk factors Policy provisions mix (e.g., deductibles, policy limits, endorsements) Changes in underwriting standards Commercial Multi-Peril Commercial multi-peril provides a combination of property and liability coverage typically for small businesses and, therefore, ...

  • Page 112
    Commercial automobile book of business risk factors Changes in policy provisions (e.g., deductibles, policy limits, endorsements, etc.) Changes in mix of insured vehicles (e.g., long haul trucks versus local and smaller vehicles, fleet risks versus non-fleets) Changes in underwriting standards ...

  • Page 113
    ... type mix Changes in underwriting standards General workers' compensation risk factors Frequency of claim reopenings on claims previously closed Mortality trends of injured workers with lifetime benefits and medical treatment Degree of cost shifting between workers' compensation and health insurance...

  • Page 114
    ..., policy limits, endorsements, etc.) Changes in underwriting standards Homeowners and Personal Lines Other Homeowners is generally considered a short tail coverage. Most payments are related to the property portion of the policy, where the claim reporting and settlement process is generally...

  • Page 115
    ... leading to short-term material increases in building material costs Homeowners book of business risk factors Policy provisions mix (e.g., deductibles, policy limits, endorsements, etc.) Degree of concentration of policyholders Changes in underwriting standards International and other International...

  • Page 116
    ... Changes in tort law Changes in claim adjuster office structure (causing distortions in the data) International and other book of business risk factors Changes in policy provisions (e.g., deductibles, policy limits, endorsements, "claims made" language) Changes in underwriting standards Product...

  • Page 117
    ... continuing market of Lloyd's, which is rated A (third highest of 16 ratings) by A.M. Best. During the first quarter of 2004, TPC entered into an agreement to settle all current and future reinsurance claims against certain underwriters at Lloyd's reinsured by Equitas. Under terms of this settlement...

  • Page 118
    ... that the Company will not recover its cost over the expected holding period. Public equity investments (i.e., common stocks) trading at a price that is less than 80% of cost for more than one quarter are reviewed for impairment. Investments accounted for using the equity method of accounting are...

  • Page 119
    ..., which are generally non-publicly traded instruments, consisting of early-stage companies and, historically, having a holding period of four to seven years. These investments have primarily been made in the health care, software and computer services, and networking and information technologies...

  • Page 120
    ...-publicly traded investments, such as venture capital investments, private equity limited partnerships, joint ventures, other limited partnerships, and certain fixed income securities. Venture capital investments owned directly are consolidated in the Company's financial statements. The Company uses...

  • Page 121
    ... restricted common stock awards. OTHER UNCERTAINTIES For a discussion of other risks and uncertainties that could impact the Company's results of operations or financial condition, see note 17 of notes to the Company's consolidated financial statements. FUTURE APPLICATION OF ACCOUNTING STANDARDS See...

  • Page 122
    ... rates, foreign currency exchange rates, and other relevant market rate or price changes. Market risk is directly influenced by the volatility and liquidity in the markets in which the related underlying assets are traded. The following is a discussion of the Company's primary market risk exposures...

  • Page 123
    ... of Management's Discussion and Analysis. As a result of the merger, changes in the Company's exposure to foreign exchange risk have occurred since December 31, 2003. This market risk exposure is concentrated in the Company's invested assets, and insurance reserves, denominated in foreign currencies...

  • Page 124
    ... sheet, which if included in the sensitivity analysis model, would mitigate the impact of the loss in fair value associated with a 100 basis point increase in interest rates. Foreign Currency Exchange Rate Risk The Company uses fair values of investment securities to measure its potential loss from...

  • Page 125
    ...'s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the...

  • Page 126
    THE ST. PAUL TRAVELERS COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (LOSS) (in millions, except per share data) For the year ended December 31, 2004 2003 2002 Revenues Premiums ...Net investment income ...Fee income ...Asset management ...Net realized investment gains (losses) ...

  • Page 127
    ... Payables for securities lending and repurchase agreements ...- 711 Other liabilities ...7,128 4,291 Total liabilities ...Shareholders' equity Preferred stock: Stock Ownership Plan-convertible preferred stock (0.6 shares issued and outstanding) ...Guaranteed obligation-Stock Ownership Plan ...Common...

  • Page 128
    ... ...Common stock assumed at merger ...Shares issued in Initial Public Offering ...Net shares issued under employee stock-based compensation plans ...Treasury stock acquired ...Balance, end of year ...Summary of changes in equity from nonowner sources Net income (loss) ...Other changes in equity from...

  • Page 129
    ... Real estate ...(22) - (1) Short-term securities, (purchases) sales, net ...(1,974) 2,910 (1,731) Other investments, net ...826 60 245 Securities transactions in course of settlement ...(1,108) (2,946) 2,623 Net cash acquired in merger ...166 - - Other ...29 - - Net cash used in investing activities...

  • Page 130
    ... ACCOUNTING POLICIES Basis of Presentation The consolidated financial statements include the accounts of The St. Paul Travelers Companies, Inc. (together with its subsidiaries, the Company). On April 1, 2004, Travelers Property Casualty Corp. (TPC) merged with a subsidiary of The St. Paul Companies...

  • Page 131
    ... 15, 2003. Application by public companies for all other types of entities is required for periods ending after March 15, 2004. The Company adopted FIN 46R effective December 31, 2003. The Company holds significant interests in hedge fund investments that are accounted for under the equity method of...

  • Page 132
    ... SIGNIFICANT ACCOUNTING POLICIES, Continued There are various purposes for the Company's involvement in these funds, including but not limited to the following: • to seek capital appreciation by investing and trading in securities including, without limitation, investments in common stock, bonds...

  • Page 133
    ... in net periodic postretirement benefit cost for the year ended December 31, 2004. Accounting for Stock-Based Compensation Effective January 1, 2003, the Company adopted the fair value method of accounting for its employee stockbased compensation plans as defined in FASB Statement of Financial...

  • Page 134
    .... Accounting Policies Investments Fixed maturities include bonds, notes and redeemable preferred stocks. Fixed maturities are valued based upon quoted market prices or dealer quotes, or if quoted market prices or dealer quotes are not available, discounted expected cash flows using market rates...

  • Page 135
    ... statements. The Company uses the equity method of accounting for joint ventures, limited partnerships and certain private equity securities. Undistributed income is reported in net investment income. Trading securities are marked to market with the change in fair value recognized in net investment...

  • Page 136
    ... investment income attributable to related premiums is taken into account in measuring the recoverability of the carrying value of this asset. All other acquisition expenses are charged to operations as incurred. Contractholder Receivables and Payables Under certain workers' compensation insurance...

  • Page 137
    ...respectively. Reserves for certain assumed reinsurance coverage acquired in the merger, discounted using rates of 5.0% to 7.5%, were $116 million at December 31, 2004. In determining claims and claim adjustment expense reserves, the Company carries on a continuing review of its overall position, its...

  • Page 138
    ... authority. The St. Paul Fire and Marine Insurance Company (Fire and Marine) was granted a permitted practice in 2004 by the Minnesota Department of Commerce regarding the valuation of certain investments in affiliated limited liability companies, allowing it to value these investments based on...

  • Page 139
    ...equity and earnings. Minority interest of $123 million was recorded in other liabilities at December 31, 2004. Nuveen Investments has three principal sources of revenue: advisory fees on assets under management, including separately managed accounts, closed-end exchange-traded funds and mutual funds...

  • Page 140
    THE ST. PAUL TRAVELERS COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued For stock-based employee awards granted, modified, or settled after December 31, 2002, the Company applies the FAS 123 fair value ...

  • Page 141
    ... the merger on April 1, 2004, the Company was organized into four reportable business segments: Commercial, Specialty, Personal (these three segments collectively represent the Company's insurance segments) and Asset Management. The insurance segments reflect how the Company manages its property and...

  • Page 142
    .... Select Accounts serves small businesses and offers property, liability, commercial auto and workers' compensation insurance. National Accounts provides casualty products and services to large companies, with particular emphasis on workers' compensation, general liability and automobile liability...

  • Page 143
    ...and offers products and services to address its respective customers' specific needs. These groups include Financial and Professional Services, Bond, Construction, Technology, Ocean Marine, Oil and Gas, Public Sector, Underwriting Facilities, Umbrella/Excess & Surplus Group, Discover Re and Personal...

  • Page 144
    ... its investment products and services, including individually managed accounts, closed-end exchange-traded funds and mutual funds, to the affluent and high-net-worth market segments through unaffiliated intermediary firms including broker/dealers, commercial banks, affiliates of insurance providers...

  • Page 145
    THE ST. PAUL TRAVELERS COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued of terrorism by the U.S. Secretary of Treasury. In the case of a war declared by Congress, only workers' compensation losses are ...

  • Page 146
    ... of property and casualty insurance products. Allocation of the Purchase Price The purchase price has been allocated based on an estimate of the fair value of the assets acquired and liabilities assumed as of April 1, 2004, as follows: (in millions) Net tangible assets (1) ...Total investments...

  • Page 147
    ...2. MERGER AND ACQUISITION, Continued supporting the loss reserves. The fair value adjustment is reported as an intangible asset on the consolidated balance sheet, and the amounts measured in accordance with the acquirer's accounting policies for insurance contracts are reported as part of the claims...

  • Page 148
    ... ACQUISITION, Continued Supplemental Schedule of Noncash Investing and Financing Activities The allocated purchase price calculated above results in an estimate of the fair value of assets acquired and liabilities assumed as of the merger date, as follows: (in millions) As of April 1, 2004 Assets...

  • Page 149
    ... subsidiary, TIGHI, a property casualty insurance holding company. Also included were the accounts of CitiInsurance International Holdings Inc. and its subsidiaries (CitiInsurance), the principal assets of which are investments in the property casualty and life operations of Fubon Insurance Co., Ltd...

  • Page 150
    ...for 2002 was a tax benefit of $280 million related to the asbestos charge covered by the agreement. For additional information see "-Asbestos Claims and Litigation." On February 28, 2002, TPC sold CitiInsurance to other Citigroup affiliated companies for $403 million, its net book value. TPC applied...

  • Page 151
    THE ST. PAUL TRAVELERS COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 3. TPC CORPORATE REORGANIZATION, Continued processing services and short-term investment pool management services. Charges for these shared services were allocated at cost. In connection ...

  • Page 152
    ..., in millions) 2004 Commercial ...Specialty ...Personal ...Asset management ...Other ...Total ... $1,893 900 613 1,717 158 $5,281 5. SEGMENT INFORMATION The company comprises four reportable business segments: Commercial, Specialty, Personal and Asset Management. The accounting policies used to...

  • Page 153
    ... components of the Company's revenues, operating income (loss) and total assets by reportable business segments: Asset Management Total Reportable Segments (at and for the year ended December 31, in millions) Commercial Specialty Personal 2004 Revenues Premiums ...Net investment income ...Fee...

  • Page 154
    ... Commercial ...Specialty: General liability ...Fidelity and surety ...Workers' compensation ...Commercial automobile ...Property ...Commercial multi-peril ...International ...Total Specialty ...Personal: Automobile ...Homeowners and other ...Total Personal ...Total earned premiums ...Net investment...

  • Page 155
    THE ST. PAUL TRAVELERS COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 5. SEGMENT INFORMATION, Continued 2004 2003 2002 (at December 31, in millions) Asset reconciliation Total assets for reportable segments ...Other assets (1) ...Total consolidated assets ...

  • Page 156
    THE ST. PAUL TRAVELERS COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 6. INVESTMENTS Fixed Maturities The Company's investment portfolio includes the fixed maturities, equity securities, and other investments acquired in the merger at their fair values as of...

  • Page 157
    ...St. Paul Re-U.K., and the Company's operations at Lloyd's (all acquired in the merger) are required, as accredited U.S. reinsurers, to hold certain investments in trust in the United States. These trust funds had a fair value of $359 million at December 31, 2004. Additionally, Unionamerica, St. Paul...

  • Page 158
    ... include warehouses, office buildings, land, and other commercial real estate assets that are directly owned. The Company negotiates commercial leases with individual tenants through unrelated, licensed real estate brokers. Negotiated terms and conditions include, among others, rental rates, length...

  • Page 159
    ... acquired in the merger, which are generally nonpublicly traded instruments in early-stage companies and, historically, having a holding period of four to seven years. These investments have primarily been made in the health care, software and computer services, and networking and information...

  • Page 160
    THE ST. PAUL TRAVELERS COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 6. INVESTMENTS, Continued The quarterly valuation procedures described above are in addition to the portfolio managers' ongoing responsibility to frequently monitor developments affecting ...

  • Page 161
    ... as those securities rated below investment grade by external rating agencies, or the equivalent by the Company's investment advisors when a public rating does not exist. Such assets include publicly traded below investment grade bonds and certain other privately issued bonds that are classified as...

  • Page 162
    THE ST. PAUL TRAVELERS COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 6. INVESTMENTS, Continued Changes in net unrealized gains (losses) on investment securities that are included as a separate component of accumulated other changes in equity from nonowner ...

  • Page 163
    ...) 2004 2003 2002 Basic Net income (loss), as reported ...Preferred stock dividends, net of taxes ...Net income (loss) available to common shareholders ...Diluted Net income (loss) available to common shareholders ...Effect of dilutive securities: Dilutive affect of affiliates ...Equity unit stock...

  • Page 164
    ...increase in 2004, $256 million was merger-related and $108 million resulted from the Company's ongoing review process described above. The Company assumed 100% of the workers' compensation premiums previously written by the Accident Department of its former affiliate, The Travelers Insurance Company...

  • Page 165
    ... the Company received net cash of approximately $867 million. In 1996, Lloyd's of London (Lloyd's) restructured its operations with respect to claims for years prior to 1993 and reinsured these claims into Equitas Limited (Equitas). Amounts recoverable from unaffiliated insurers at December 31, 2004...

  • Page 166
    THE ST. PAUL TRAVELERS COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 9. INSURANCE CLAIMS RESERVES Claims and claim adjustment expense reserves were as follows: (at December 31, in millions) 2004 2003 Property-casualty ...Accident and health ...Total ... $58...

  • Page 167
    ... at Gulf Insurance Company, a subsidiary that wrote specialty insurance prior to being placed in runoff in 2004. The net 2003 total also included unfavorable development related to American Equity, an operation that was placed in run-off in the second quarter of 2002, and environmental claims. Those...

  • Page 168
    ... included net unfavorable development, primarily related to certain Commercial coverages, predominantly in assumed reinsurance specialty businesses, partially offset by favorable development in Commercial workers' compensation and Personal automobile. In 2002, estimated claims and claim adjustment...

  • Page 169
    ... quarter following completion of the Company's annual ground-up review of asbestos exposures. That review included an analysis of exposure and claim payment patterns by policyholder category, as well as recent settlements, policyholder bankruptcies, state judicial rulings and legislative actions...

  • Page 170
    THE ST. PAUL TRAVELERS COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 9. INSURANCE CLAIMS RESERVES, Continued facts, current law and management's judgment. However, the uncertainties surrounding the final resolution of these claims continue, and it is ...

  • Page 171
    ...500 200 - - 893 50 500 - - - 2,717 2,717 - (42) $2,675 * Debt instrument acquired in merger. On April 1, 2004, The St. Paul Travelers Companies, Inc. fully and unconditionally guaranteed the payment of all principal, premiums, if any, and interest on certain debt obligations of its subsidiaries TPC...

  • Page 172
    THE ST. PAUL TRAVELERS COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 10. DEBT, Continued The following table presents the unamortized fair value adjustment and the related effective interest rate on the debt instruments acquired in the merger: Unamortized ...

  • Page 173
    THE ST. PAUL TRAVELERS COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 10. DEBT, Continued Nuveen Investments' Debt-In September 2003, Nuveen Investments issued $300 million of 4.22% notes in a private placement. The notes mature in 2008. A portion of the ...

  • Page 174
    THE ST. PAUL TRAVELERS COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 10. DEBT, Continued will be convertible into shares of common stock at a conversion rate of 1.0808 shares of common stock for each $57.68 principal amount of notes (equivalent to an initial...

  • Page 175
    THE ST. PAUL TRAVELERS COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 10. DEBT, Continued commitment for each line of credit, a utilization fee. The applicable margin and the rates on which the commitment fee and utilization fee are based vary based upon the ...

  • Page 176
    ... of change in accounting principles ...Statutory tax rate ...Expected federal income tax expense (benefit) ...Tax effect of: Nontaxable investment income ...Recoveries under Citigroup Indemnification Agreement ...Tax reserve adjustment ...Foreign operations ...Other, net ...Total income tax expense...

  • Page 177
    THE ST. PAUL TRAVELERS COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 11. FEDERAL INCOME TAXES, Continued The net deferred tax asset comprises the tax effects of temporary differences related to the following assets and liabilities: (at December 31, in ...

  • Page 178
    ... used these funds to redeem the $900 million liquidation value of the Trust Securities. Preferred Stock The Company's preferred shareholders' equity represents the par value of preferred shares outstanding that the Company assumed in the merger related to The St. Paul Companies, Inc. Stock Ownership...

  • Page 179
    ... ST. PAUL TRAVELERS COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 12. SHAREHOLDERS' EQUITY AND DIVIDEND AVAILABILITY, Continued The Company is governed by the Minnesota Business Corporation Act. All authorized shares of voting common stock have no par value...

  • Page 180
    ... Changes in Equity from Nonowner Sources, Net of Tax Changes in each component of Accumulated Other Changes in Equity from Nonowner Sources were as follows: Accumulated Net Unrealized Minimum Other Changes Gains (Losses) Pension in Equity from on Investment Liability Nonowner Securities Adjustment...

  • Page 181
    ...FINANCIAL STATEMENTS-(Continued) 13. INCENTIVE PLANS After the merger, the Company's Board of Directors adopted The St. Paul Travelers Companies, Inc. 2004 Stock Incentive Plan (the 2004 Incentive Plan), which also was approved by the Company's shareholders on July 28, 2004. The purposes of the 2004...

  • Page 182
    ...fees paid in the form of cash, common stock or deferred stock. Deferred stock for the annual retainer, and committee chair and co-chair fees, is elected pursuant to the St. Paul Travelers Deferred Compensation Plan for Non-Employee Directors that the Board adopted after the merger and is vested upon...

  • Page 183
    THE ST. PAUL TRAVELERS COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 13. INCENTIVE PLANS, Continued Legacy SPC 1994 Stock Plan and Global Stock Option Plan On April 1, 2004, in connection with the merger, the Company assumed 23 million outstanding SPC stock ...

  • Page 184
    ... ST. PAUL TRAVELERS COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 13. INCENTIVE PLANS, Continued Information with respect to stock option activity under the Company's stock option plans for the years ended December 31, 2004, 2003 and 2002 is as follows: 2004...

  • Page 185
    ... at the merger and replacement awards issued August 20, 2002 to TPC employees who held Citigroup stock option awards on that date were as follows: 2004 2003 2002 Expected life of stock options ...Expected volatility of the Company's stock (1) ...Risk-free interest rate ...Expected annual dividend...

  • Page 186
    ...upon the announcement date market price per share of SPC common stock, using an option-pricing model. The unvested stock option awards require the holder to render service during the vesting period and are therefore considered unearned compensation. At April 1, 2004, the estimated fair values of the...

  • Page 187
    THE ST. PAUL TRAVELERS COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 13. INCENTIVE PLANS, Continued Legacy TPC 2002 Incentive Plans On April 1, 2004, in accordance with the merger agreement, the restricted stock awards and deferred stock awards of the legacy...

  • Page 188
    ... sponsor nonqualified defined benefit pension plans which cover certain highly-compensated employees and also sponsor postretirement health and life insurance benefit plans for employees satisfying certain age and service requirements and for certain retirees. Prior to the August 20, 2002 Citigroup...

  • Page 189
    ...Change in plan assets Fair value of plan assets at beginning of year ...$ 602 $431 $ - $- SPC acquisition ...1,194 - 28 - Actual return on plan assets ...125 82 - - Company contributions ...7 95 13 - Benefits paid ...(88) (6) (15) - Foreign currency exchange rate change ...4 - - - Fair value of plan...

  • Page 190
    THE ST. PAUL TRAVELERS COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 14. PENSION PLANS, RETIREMENT BENEFITS AND SAVINGS PLANS, Continued The pretax minimum liability included in other comprehensive income was $10 million at both December 31, 2004 and 2003. ...

  • Page 191
    ... ST. PAUL TRAVELERS COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 14. PENSION PLANS, RETIREMENT BENEFITS AND SAVINGS PLANS, Continued April 1, 2004 and a reduction of $2 million in net periodic postretirement benefit cost for the year ended December 31, 2004...

  • Page 192
    ...: Asset Category Plan Assets Equity securities ...Debt securities ...Cash ...Other ... 30 - 70% 30 - 70% 0 - 10% 0 - 10% Equity securities include 797,600 shares of the Company's common stock with a market value of $30 million at December 31, 2004. The Company's other post-retirement benefit plan...

  • Page 193
    THE ST. PAUL TRAVELERS COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 14. PENSION PLANS, RETIREMENT BENEFITS AND SAVINGS PLANS, Continued To finance the preferred stock purchase for future allocation to qualified employees, the SOP borrowed $150 million at ...

  • Page 194
    ... of the change in fair value of the derivative hedging the net investment, including any forward premium or discount, is reflected in the accumulated other changes in equity from nonowner sources as part of the foreign currency translation adjustment. For the years ended December 31, 2004 and 2003...

  • Page 195
    ... agreements are used to support new products offered by Nuveen Investments. The mark-to-market valuations were not significant and are reflected in results of operations. During the third quarter of 2004, the Company terminated its interest rate swap agreements which had been acquired in the merger...

  • Page 196
    ... market price or dealer quote are not available was $574 million and $685 million at December 31, 2004 and 2003, respectively. See note 1. The carrying values of cash, short-term securities, mortgage loans, investment income accrued, and payables for securities lending and repurchase agreements...

  • Page 197
    ... ST. PAUL TRAVELERS COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 17. CONTINGENCIES, COMMITMENTS AND GUARANTEES, Continued issued by TPC. The proposed plan and disclosure statement filed by ACandS claimed that ACandS had settled the vast majority of asbestos...

  • Page 198
    ... settlements described above, has numerous defenses in all of the direct action cases asserting Common Law Claims that are pending against it. Many of these defenses have been raised in initial motions to dismiss filed by SPC and other insurers. There have been favorable rulings during 2003 and 2004...

  • Page 199
    ... of the Company, naming the Company as a nominal defendant. In Rowe v. Fishman, et al. (Oct. 22, 2004), the plaintiff shareholder alleges state law claims, including breach of fiduciary duty, based on allegations similar to those alleged in In re St. Paul Travelers Securities Litigation described...

  • Page 200
    THE ST. PAUL TRAVELERS COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 17. CONTINGENCIES, COMMITMENTS AND GUARANTEES, Continued 2004), the plaintiff shareholder alleges state law claims, including breach of fiduciary duty, based on the Company's alleged ...

  • Page 201
    ... liability insurance and branding requirements for salvage automobiles. The Company or its affiliates have received subpoenas or written requests for information from: (i) State of California Office of the Attorney General; (ii) State of California Department of Insurance; (iii) Licensing and Market...

  • Page 202
    ...1, 2004, either due to purchase accounting or adjustment of SPC's reserves prior to the merger. Other Commitments and Guarantees Commitments Venture Capital-The Company has long-term commitments to fund venture capital investments through its subsidiary, St. Paul Venture Capital VI, LLC, through new...

  • Page 203
    ... make payments. 18. RELATED PARTY TRANSACTIONS Prior to the Citigroup Distribution, TPC provided and purchased services to and from Citigroup affiliated companies, including facilities management, banking and financial functions, benefit coverages, data processing services, and short-term investment...

  • Page 204
    ...of 2004, the Company's management approved and committed to plans to terminate and relocate certain employees and to exit certain activities. The cost of these actions has been recognized as a liability and is included in either the allocation of the purchase price or recorded as part of general and...

  • Page 205
    ... Company's financial information on the same basis of accounting as the consolidated financial statements. The St. Paul Travelers Companies, Inc. has fully and unconditionally guaranteed certain debt obligations of TPC, its wholly-owned subsidiary, which totaled $2.64 billion as of December 31, 2004...

  • Page 206
    ...lending and repurchase agreements) (amortized cost $53,004) ...$34,334 $19,895 Equity securities, at fair value (cost $720) ...614 102 Real estate ...2 771 Mortgage loans ...148 43 Short-term securities ...2,695 2,320 Other investments ...2,151 1,345 Total investments ...39,944 24,476 Cash ...166 91...

  • Page 207
    ...) sales, net ...Other investments, net ...Securities transactions in course of settlement ...Net cash acquired in merger ...Other ...Net cash used in investing activities ...Cash flows from financing activities Issuance of debt ...Payment of debt ...Issuance of common stock-employee stock options...

  • Page 208
    THE ST. PAUL TRAVELERS COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 22. SELECTED QUARTERLY FINANCIAL DATA (Unaudited) 2004 (in millions, except per share data) First Quarter Second Quarter Third Quarter Fourth Quarter Total Total revenues ...Total expenses...

  • Page 209
    ... is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to the Company's management, including our Chief Executive Officer and Chief Financial Officer, as...

  • Page 210
    ... with authorizations of the Company's management and directors; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. • Because of its inherent...

  • Page 211
    ...standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of The St. Paul Travelers Companies, Inc., and subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of income (loss), changes in shareholders' equity, and cash...

  • Page 212
    ... Performance Plan. Generally, if the Company's return on equity (which is determined by dividing the after-tax operating earnings for the performance period by beginning total common shareholders' equity) for a performance period is greater than 8%, the bonus pool available to the Compensation...

  • Page 213
    ... grant date market values of the CAP restricted stock awards for the Named Executive Officers made pursuant to the Senior Executive Performance Plan for 2004. Name and Position Bonus CAP Awards Jay S. Fishman ...Chief Executive Officer & President Robert I. Lipp ...Chairman of the Board T. Michael...

  • Page 214
    ... Company since the merger of Travelers Property Casualty Corp. (TPC) and The St. Paul Companies, Inc. (SPC) on April 1, 2004 (the Merger). Prior to that, he was Chairman and Chief Executive Officer of TPC since December 18, 2001. Mr. Lipp also served as Chairman of Travelers Insurance Group Holdings...

  • Page 215
    ... president of Corporate Real Estate and Services for TPC. From 1980 to December 2001, Mr. Bessette held a number of management positions at TIGHI. Samuel G. Liss, 48, has been Executive Vice President-Business Development of the Company since the Merger, and prior to that, he held the same office...

  • Page 216
    ... where she worked on numerous initial public offerings, mergers and acquisitions and public debt offerings. Doreen Spadorcia, 47, has been Executive Vice President - Claim, since March 2, 2005. Prior to that, she was President and Chief Executive Officer of Bond operations for the Company since the...

  • Page 217
    ...information as of December 31, 2004 regarding the Company's equity compensation plans. The only plan pursuant to which the company may make equity grants is The St. Paul Travelers Companies, Inc. 2004 Stock Incentive Plan (the 2004 Plan) that was approved by shareholders at the Company's 2004 annual...

  • Page 218
    ... are used to pay the exercise price of stock options and shares used to pay withholding taxes on equity awards generally; and (iii) shares purchased by the Company on the open market using cash from option exercises, as limited by the 2004 Plan. In April 1998, SPC merged with USF&G Corporation ("USF...

  • Page 219
    ...Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES Documents filed as a part of the report: (1) Financial Statements. See Index to Consolidated Financial Statements on page 112 hereof. (2) Financial Statement Schedules. See Index to Consolidated Financial Statements and Schedules on page 210 hereof...

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    ... persons on behalf of The St. Paul Travelers Companies, Inc. and in the capacities and on the dates indicated. Date By /S/ ROBERT I. LIPP Robert I. Lipp Director, Chairman of the Board March 16, 2005 By /S/ JAY S. FISHMAN Jay S. Fishman Director, Chief Executive Officer and President...

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    ... March 16, 2005 By * Thomas R. Hodgson Director March 16, 2005 By * William H. Kling Director March 16, 2005 By * James A. Lawrence Director March 16, 2005 By * Blythe J. McGarvie Director March 16, 2005 By * Glen D. Nelson, M.D. Director March 16, 2005 By * Clarence Otis, Jr...

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    ...AND SCHEDULES Page Report of Independent Registered Public Accounting Firm ...Consolidated Statement of Income (Loss) for the years ended December 31, 2004, 2003 and 2002 ...Consolidated Balance Sheet at December 31, 2004 and 2003 ...Consolidated Statement of Changes in Shareholders' Equity for the...

  • Page 223
    ...The St. Paul Travelers Companies, Inc., and subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of income (loss), changes in shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2004, which are included in this Form...

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    ... represents results of The St. Paul Travelers Companies, Inc. (parent company only) for the ninemonth period from the merger date of April 1, 2004 through December 31, 2004. Data for prior periods represents historical data for Travelers Property Casualty Corp. (parent company only) for the twelve...

  • Page 225
    ... II THE ST. PAUL TRAVELERS COMPANIES, INC. (Parent Company Only) CONDENSED FINANCIAL INFORMATION OF REGISTRANT (in millions) CONDENSED BALANCE SHEET At December 31, 2004 2003 Assets Fixed maturities ...Equity securities ...Short-term securities ...Investment in subsidiaries at equity ...Goodwill...

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    ... benefit (expense) ...Income taxes receivable (payable) ...Recoveries from former affiliate ...Net transfer of pension asset and post-retirement liability ...Other ...Net cash provided by (used in) operating activities ...Cash flows from investing activities Short-term securities, (purchases) sales...

  • Page 227
    ... ST. PAUL TRAVELERS COMPANIES, INC. AND SUBSIDIARIES Supplementary Insurance Information 2002-2004 (in millions) Segment Deferred Policy Acquisition Costs Unearned Premiums Premium Revenue Net Investment Income (a) Claims and Claim Adjustment Expense Reserves Claims and Claim Adjustment Expenses...

  • Page 228
    ...43 $- $ 78 $ 27 (1) Includes balances acquired in the merger and accounting conformity adjustments. (2) Charged to claims and claim adjustment expenses in the consolidated statement of income (loss). (3) Credited to the related asset account. Amount in 2004 includes $62 million addition related to...

  • Page 229
    ... ST. PAUL TRAVELERS COMPANIES, INC. AND SUBSIDIARIES Supplementary Information Concerning Property-Casualty Insurance Operations (1) 2002-2004 (in millions) Claims and claim adjustment expenses incurred related to: Affiliation with Registrant (2) Deferred Policy Acquisition Costs Claims and Claim...

  • Page 230
    ... INDEX Exhibit Number Description of Exhibit 2.1 Agreement and Plan of Merger, dated as of November 16, 2003, as amended, among The St. Paul Companies, Inc. ("SPC"), Travelers Property Casualty Corp. ("TPC") and Adams Acquisition Corp. ("Adams"), along with the related articles of incorporation...

  • Page 231
    ... Stock Incentive Plan was filed as Exhibit 10.4 to the Company's quarterly report on Form 10-Q for the fiscal quarter ended September 30, 2004, and is incorporated herein by reference. The St. Paul Travelers Companies, Inc. Amended and Restated Deferred Compensation Plan for Non-Employee Directors...

  • Page 232
    ...The St. Paul Travelers Companies, Inc. Deferred Compensation Plan effective December 1, 2004 was filed as Exhibit 99.1 to the Company's Registration Statement on Form S-8 (Registration No. 333-120998) dated December 3, 2004, and is incorporated herein by reference. Summary of Named Executive Officer...

  • Page 233
    ... to security holders who make written request therefor to The St. Paul Travelers Companies, Inc., 385 Washington Street, Saint Paul, MN, 55102, Attention: Corporate Secretary. †* Filed herewith Management contract or compensatory plan in which directors and/or executive officers are eligible...

  • Page 234
    ... ST. PAUL TRAVELERS COMPANIES, INC. AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (for the year ended December 31, in millions, except ratios) 2004 2003 2002 2001 2000 Income (loss) before income taxes (benefit), minority interest and cumulative effect of changes in accounting...

  • Page 235
    ..., Chief Executive Officer, certify that: 1. I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2004 of The St. Paul Travelers Companies, Inc. (the Company); Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state...

  • Page 236
    ... Executive Vice President and Chief Financial Officer, certify that: 1. I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2004 of The St. Paul Travelers Companies, Inc. (the Company); Based on my knowledge, this report does not contain any untrue statement of a material...

  • Page 237
    ...of the Securities Exchange Act of 1934 (the "Exchange Act") and 18 U.S.C. Section 1350, the undersigned officer of The St. Paul Travelers Companies, Inc. (the "Company"), hereby certifies that the Company's Annual Report on Form 10-K for the year ended December 31, 2004 (the "Report") fully complies...

  • Page 238
    ...of the Securities Exchange Act of 1934 (the "Exchange Act") and 18 U.S.C. Section 1350, the undersigned officer of The St. Paul Travelers Companies, Inc. (the "Company"), hereby certifies that the Company's Annual Report on Form 10-K for the year ended December 31, 2004 (the "Report") fully complies...

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    © 2005 The St. Paul Travelers Companies, Inc. All rights reserved. 58418 Ed. 3-05

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    385 Washington Street Saint Paul, MN 55102-1396 800.328.2189 www.stpaultravelers.com NYSE: STA