FORM 11-K
FOR ANNUAL REPORTS OF EMPLOYEE STOCK PURCHASE, SAVINGS
AND SIMILAR PLANS PURSUANT TO SECTION 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 1999.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from __________ to __________
Commission file number 001-13135
The HSB Group, Inc.
Employees' Thrift Incentive Plan
(Full title of the plan)
HSB Group, Inc.
(Name of issuer of securities held pursuant to the plan)
One State Street, Hartford, Connecticut 06102-5024.
(Address of principal executive office)
REQUIRED INFORMATION
Items 1 through 3. Not applicable.
Item 4. The plan is subject to the requirements of ERISA and therefore plan
financial statements and schedules prepared in accordance with the financial
reporting requirements of ERISA are attached.
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THE HSB GROUP, INC. EMPLOYEES' THRIFT INCENTIVE PLAN
Financial Statements and Supplemental Schedule
As of December 31, 1999 and 1998 and for the year ended December 31, 1999
With Report of Independent Accountants
Table of Contents
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Page Number
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Report of Independent Accountants 1
Basic Financial Statements
Statement of Net Assets Available for Benefits 2
Statement of Changes in Net Assets
Available for Benefits 3
Notes to Financial Statements 4 - 11
Additional Information *
Schedule I - Schedule of Assets Held for
Investment Purposes 12
* Other supplemental schedules required by Section 2520.103-10 of the
Department of Labor Rules and Regulations for Reporting and Disclosure under
ERISA have been omitted because they are not applicable.
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Report of Independent Accountants
To the Participants and Administrator of
The HSB Group, Inc. Employees' Thrift Incentive Plan
In our opinion, the accompanying statement of net assets available for benefits
and the related statement of changes in net assets available for benefits
present fairly, in all material respects, the net assets available for benefits
of The HSB Group, Inc. Employees' Thrift Incentive Plan (the "Plan") at December
31, 1999 and 1998, and the changes in net assets available for benefits for the
years then ended, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Plan's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule of assets held
for investment purposes is presented for the purpose of additional analysis and
is not a required part of the basic financial statements but is supplementary
information required by the Department of Labor's Rules and Regulations for
Reporting and Disclosure under the Employee Retirement Income Security Act of
1974. This supplemental schedule is the responsibility of the Plan's management.
The supplemental schedule has been subjected to the auditing procedures applied
in the audits of the basic financial statements and, in our opinion, is fairly
stated in all material respects in relation to the basic financial statements
taken as a whole.
PricewaterhouseCoopers LLP
June 9, 2000
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<TABLE>
<CAPTION>
THE HSB GROUP, INC. EMPLOYEES' THRIFT INCENTIVE PLAN
Statement of Net Assets Available for Benefits
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As of December 31,
1999 1998
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Investments, at fair value
Registered investment companies:
T. Rowe Price Science & Technology Fund * $ 32,142,662 * $ 13,589,472
Vanguard 500 Index Fund * 51,145,764 * 39,766,517
Vanguard Intermediate-Term Corporate Fund * 26,908,743 * 31,349,334
Vanguard International Growth Fund 897,268 168,201
Vanguard LifeStrategy Conservative Growth Fund 2,524,320 2,248,951
Vanguard LifeStrategy Growth Fund * 11,944,471 * 8,437,746
Vanguard LifeStrategy Income Fund 744,538 1,058,160
Vanguard LifeStrategy Moderate Growth Fund 7,465,347 5,916,678
Vanguard Long-Term Corporate Fund 575,215 816,267
Vanguard Prime Money Market Fund * 11,443,750 6,214,160
Vanguard Windsor II Fund 924,403 693,770
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146,716,481 110,259,256
The HSB Stock Fund * 26,190,327 * 36,586,873
Participant Loans 5,311,551 4,733,500
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178,218,359 151,579,629
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Investments, at contract value
Mutual Benefit Fund - 636,254
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Total investments 178,218,359 152,215,883
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Receivables
Employer's contributions 171,858 25,539
Participants' contributions 519,868 70,306
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Total receivables 691,726 95,845
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Net assets available for benefits $178,910,085 $152,311,728
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* Represents 5% or more of net assets available for benefits.
The accompanying notes are an integral part of the financial statements.
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THE HSB GROUP, INC. EMPLOYEES' THRIFT INCENTIVE PLAN
Statement of Changes in Net Assets Available for Benefits
--------------------------------------------------------------------------------
Year Ended December 31,
1999 1998
-----------------------------
Additions
Investment income:
Interest and dividend income, investments $ 10,247,792 $ 5,160,664
Interest income, participant loans 383,169 375,315
Net appreciation in fair value of investments 12,023,528 12,088,214
--------------- ------------
22,654,489 17,624,193
--------------- ------------
Contributions:
Employer 2,473,725 2,123,905
Participant 8,994,144 9,365,845
--------------- ------------
11,467,869 11,489,750
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Net asset transfers in from Plan mergers 2,306,136 35,834,092
--------------- ------------
Total additions 36,428,494 64,948,035
--------------- ------------
Deductions
Distributions 9,782,428 11,886,422
Other deductions (including
administrative expenses) 47,709 16,535
--------------- ------------
Total deductions 9,830,137 11,902,957
--------------- ------------
Net increase 26,598,357 53,045,078
Net assets available for plan benefits:
Beginning of year 152,311,728 99,266,650
=============== ============
End of year $178,910,085 $152,311,728
=============== ============
The accompanying notes are an integral part of the financial statements.
3
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THE HSB GROUP, INC. EMPLOYEES' THRIFT INCENTIVE PLAN
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NOTE 1 - DESCRIPTION OF PLAN
The following description of The HSB Group, Inc. Employees' Thrift Incentive
Plan (the "Plan") provides only general information. Participants should refer
to the Plan document for a more complete description of the Plan's provisions.
General
The Plan is a defined contribution plan covering all employees of HSB Group,
Inc. (the "Company") or its affiliates who have adopted the Plan who work at
least 17.5 hours per week and have completed one month of service. It is subject
to the provisions of the Employee Retirement Income Security Act of 1974
("ERISA").
Effective February 13, 1998, former employees of the Mechanical and Materials
Engineering department of Radian International LLC ("MME") were eligible to
participate in the Plan, and prior service with MME was considered Credited
Service for the purposes of determining vesting under the Plan on that day.
Effective June 30, 1998, the HSB Group, Inc. Employee Stock Ownership Plan
merged into the Plan. As a result of the merger, $34,308,776 relating to 779,660
shares of stock was transferred into the Plan. This transaction is a component
of the net asset transfers line on the statement of changes in net assets
available for plan benefits.
Effective July 13, 1998, former employees of Kemper Insurance Companies
("Kemper") who became Hartford Steam Boiler Inspection and Insurance Company
employees were eligible to participate in the Plan, and given credit for prior
service with Kemper for purposes of determining vesting under the Plan.
During 1999, the Solomon Associates, Inc. Benefit Plan merged with and into the
Plan. As a result of the merger $2,306,136 was transferred into the Plan. Prior
service with Solomon Associates, Inc. was considered Credited Service for the
purposes of determining vesting under the Plan.
Contributions
Under the Plan, an employee may make a total contribution that is limited to 15%
of the participant's compensation up to the Federal limit of $10,000 for 1999
and 1998. The Company makes a matching contribution of 50% of employee
contributions up to 6% of compensation.
Participant Accounts
A separate account is maintained for each investment option of a participant by
type of contribution. Each participant's account is credited with the
participant's contribution and allocations of (a) the Company's contributions,
and (b) Plan earnings and charged with administrative expenses, if applicable.
The benefit to which a participant is entitled is the benefit that can be
provided from the participant's vested account.
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Vesting
A participant shall be deemed at all times to be 100% vested in amounts held in
the participant's account which are attributable to the participant's
contributions, including any interest, dividends or earnings accrued thereon.
A participant's vested interest in Company contributions made to the
participant's account, including the value of any interest, dividends or
earnings accrued thereon, shall be determined by reference to the following
schedule:
Years of
Continuous Service Vested Percentage
------------------ -----------------
Less than 2 0%
2 25%
3 50%
4 75%
5 or more 100%
For employees of HSB Reliability Technologies Corporation, who were participants
of the former HSB Reliability Technologies Corporation Employee Savings and
Retirement Plan as of May 1, 1997, the following vesting schedule applies rather
than the vesting schedule described above:
Years of
Continuous Service Vested Percentage
------------------ -----------------
Less than 1 0%
1 20%
2 40%
3 60%
4 80%
5 100%
A year of service for vesting purposes shall mean a twelve consecutive month
period beginning with the participant's employment commencement date or any
anniversary date thereof, during which a participant has at least 1,000 hours of
service.
Notwithstanding the above, and in accordance with Plan provisions, a participant
shall be deemed to be 100% vested in the total value of all amounts held in his
or her participant account in the event of death, disability, retirement, or
attainment of age 65.
Participant Loans
A participant may borrow a maximum of the lesser of 50% of the vested account
balance as reduced by the participant's highest outstanding loan balance in the
previous twelve months, or $50,000.
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For loans originating after January 1, 1994, subject to certain terms and
conditions, participants may have a maximum of three personal loans and one home
loan outstanding at any one time. Prior to this time there was no limit on the
number of loans that participants could have outstanding.
Loans made prior to September 27, 1989 bear a rate of interest to be fixed by
the Plan Committee and the period of repayment shall not exceed five years for a
personal loan or thirty years for a home loan. Loans made after September 27,
1989 bear interest equal to the prime rate plus one-half percent. This rate is
reviewed monthly to establish the rate for new loans. The average rate of
interest on loans originating during 1999 and 1998 was 8.4% and 8.9%,
respectively.
Loan transactions are treated as a transfer to (from) the applicable investment
fund from (to) Participant Loans. Loans are secured by the balance in the
participant's account.
Payment of Benefits and Withdrawals
Plan benefits are payable to participants at the time of termination or
retirement (including early retirement), in the case of becoming permanently and
totally disabled, or to their beneficiary in the event of death, based on the
fully vested balance of their accounts.
Upon an employee's termination, a distribution may generally be made under one
of the following two methods:
a. The participant or beneficiary receives the entire distribution in one lump
sum payment.
b. For employees who became participants in the Plan prior to July 1, 1989, the
participant or beneficiary may elect to receive the entire distribution by
deposit into an individual account in a savings institution or the savings
department of a commercial bank. This deposit is subsequently paid out in
equal installments, together with interest accrued thereon, at such
intervals (at least yearly but no more frequently than monthly) and over
such a period of time (not more than 10 years) as designated by the
participant.
A terminated employee under age 65 who has greater than or equal to a $5,000
balance in the Plan has the additional option to continue to defer distribution
from the Plan.
Withdrawals are paid by the Trustee from net assets available for plan benefits.
The withdrawal to which a participant is entitled, subject to vesting and
hardship guidelines, is the benefit that can be provided by any rollover and
pretax contributions and pre-1989 income thereon (including net realized and
unrealized investment gains and losses).
As determined by the Company in a uniform manner from case to case without
discriminating in favor of officers, shareholders, supervisors or highly-paid
employees, a participant may, subject to the consent of the Plan Committee,
withdraw at any time an amount from their participant's account that is not in
excess of employee rollover contributions and pre-tax contributions to the Plan.
Neither Company matching contributions nor interest or dividends earned on
either Company matching contributions or employee contributions are available
for withdrawal. Prior to January 1, 1989, interest and dividends earned on
employee contributions were available for withdrawal. The Plan Committee may
grant such hardship withdrawal for the following reasons: purchase or
construction of a home, education of self, spouse or dependents, unusual medical
expenses and prevention of eviction from or foreclosure on primary
6
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residence. The Plan Committee shall have the right to request positive evidence
as to the circumstances for such requests.
Effective January 1, 1999, the Plan was amended such that lump sum payments will
be made in the event of retirement, disability, death or termination of
employment when the amount distributable to the participant is less than $5,000.
Prior to January 1, 1999 this amount was $3,500.
Forfeited Accounts
Forfeitures of non-vested employer contributions by terminated participants may
be used to reduce employer-matching contributions. At December 31, 1999,
forfeited non-vested accounts available to reduce future employer contributions
totaled $236,068. In 1999 and 1998, employer contributions were not reduced by
forfeited amounts.
Plan Termination
The Company intends to continue the Plan indefinitely but reserves the right to
terminate the Plan, amend the Plan, or discontinue its contributions at any time
subject to the provisions of ERISA. In the event the Plan terminates, the
accounts of the participants will be distributed at that time in the manner
determined by the Company and in accordance with the terms of the Plan.
Investment Options
During the plan years ended December 31, 1999 and 1998, participants were able
to allocate daily in whole percentage increments their contributions among the
following investment options (with the exception of the Mutual Benefit Fund
which ceased to be an investment option during 1999):
T. Rowe Price Science & Technology Fund: Seeks long-term growth of
capital appreciation by investing in common stocks of companies which
are expected to benefit from the development, advancement, and the use
of science and technology.
Vanguard 500 Index Fund: Seeks to provide long-term growth of capital
and income from dividends by holding all of the 500 stocks that make up
the unmanaged Standard & Poor's 500 Composite Stock Price Index, a
widely recognized benchmark of U.S. stock market performance.
Vanguard Intermediate-Term Corporate Fund: Seeks to provide a high
level of interest income by investing in a diversified group of
intermediate-term bonds, most of them issued by corporations with good
credit ratings.
Vanguard International Growth Fund: Seeks to provide long-term growth
of capital by investing in stocks of high-quality, seasoned companies
based outside the United States. Stocks are selected from more than 15
countries.
Vanguard LifeStrategy Conservative Growth Fund: Seeks to provide a high
level of income and moderate long-term growth of capital and income by
investing in five Vanguard funds: a domestic stock fund, an
international stock fund, two bond funds, and an asset allocation fund.
The fund's asset allocation ranges are expected to be 25%-50% stocks,
50%-75% bonds, and 0%-25% cash investments.
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Vanguard LifeStrategy Growth Fund: Seeks to provide long-term growth of
capital by investing in four other Vanguard funds: a domestic stock
fund, an international stock fund, a bond fund, and an asset allocation
fund. The fund's asset allocation ranges are expected to be 65%-90%
stocks, 10%-35% bonds, and 0%-25% cash investments.
Vanguard LifeStrategy Income Fund: Seeks to provide a high level of
income by investing in four Vanguard funds: a stock fund, two bond
funds, and an asset allocation fund. The fund's asset allocation ranges
are expected to be 5%-30% stocks, 70%-95% bonds, and 0%-25% cash
investments.
Vanguard LifeStrategy Moderate Growth Fund: Seeks to provide a
reasonable level of income and long-term growth of capital and income
by investing in four Vanguard funds: a domestic stock fund, an
international stock fund, a bond fund, and an asset allocation fund.
The fund's asset allocation ranges are expected to be 45%-70% stocks,
30%-55% bonds, and 0%-25% cash investments. Vanguard Long-Term
Corporate Fund: Seeks to provide a high and sustainable level of
interest income by investing primarily in a diversified group of
long-term bonds issued by corporations with strong credit ratings.
Vanguard Prime Money Market Fund: Seeks to provide high income and a
stable share price of $1 by investing in short-term, high-quality money
market instruments issued by financial institutions, non-financial
corporations, the U.S. government, and federal agencies.
Vanguard Windsor II Fund: Seeks to provide long-term growth of capital
and income from dividends by investing in a diversified group of
out-of-favor stocks of large-capitalization companies. The stocks
generally sell at prices below the overall market average compared to
their dividend income and future return potential.
The HSB Stock Fund: This fund invests primarily in shares of HSB Group,
Inc.'s common stock. Contributions to this fund are limited to 50% of
total contributions to the Plan. Dividends received are reinvested into
additional shares of the Company's stock. At December 31, 1999 and
1998, this fund held 770,914 and 888,025 shares of the Company's stock,
respectively.
Mutual Benefit Fund: Seeks to provide a high level of income and a
stable unit value of $1. This fund was an investment option of the HSB
Reliability Technologies Corporation Employee Savings and Retirement
Plan. As a result of Sun Financial Group's acquisition of Mutual
Benefit Life Insurance Company, withdrawal penalties related to this
fund were eliminated. On July 19, 1999 all funds were moved out of the
Mutual Benefit Life Contract and automatically invested in the Vanguard
Prime Money Market Fund and participants were given the option of
redirecting their balances to any other fund immediately following the
transfer.
Participant Loans: This option represents the total outstanding
principal due from participants for loans taken from their individual
accounts.
Participants may change their investment options at any time, subject to certain
conditions.
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NOTE 2 - SUMMARY OF ACCOUNTING POLICIES
The following accounting policies, which conform with generally accepted
accounting principles, have been used consistently in the preparation of the
Plan's financial statements:
Basis of Accounting
The financial statements of the Plan are prepared under the accrual method of
accounting.
Financial Statement Presentation
Effective for the year ended December 31, 1999, the Plan adopted Statement of
Position ("SOP") 99-3, "Accounting for and Reporting of Certain Defined
Contribution Benefit Plan Investments and Other Disclosure Matters". This SOP
eliminated the previously required reporting of changes in net assets by
investment option for participant-directed investments. Certain
reclassifications of the 1998 amounts have been made to conform to the 1999
presentation in accordance with SOP 99-3.
Use of Estimates
The preparation of financial statements, in conformity with generally accepted
accounting principles, requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, as
well as reported amounts of additions and deductions during the reporting
period. Actual results could differ from those estimates.
Investment Valuation and Income Recognition
The Plan's investments are stated at fair value except for its investment
contracts, which are valued at contract value. Shares of registered investment
companies are valued at quoted market prices that represent the net asset value
of shares held by the Plan at year-end. The HSB Stock Fund is valued at its
year-end unit closing price (constituting market value of shares owned plus
uninvested cash position).
Purchases and sales of investments are recorded on a trade-date basis.
Investment income is accrued when earned. Dividend income is recorded on the
ex-dividend date. Capital gain distributions are included in dividend income.
Participant loans represent loan principal balances due and are valued at cost,
which approximates fair value.
Payment of Benefits
Benefits are recorded when paid.
Reclassification
Certain amounts in the 1998 financial statements have been reclassified to
conform to the current year presentation.
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NOTE 3 - INVESTMENTS
During 1999 and 1998, the Plan's investments (including gains and losses on
investments bought and sold, as well as held during the year) appreciated
(depreciated) in value as follows:
1999 1998
---------------- ----------------
Registered Investment Companies $ 17,995,477 $ 13,638,828
Common Stock (5,971,949) (1,550,614)
---------------- ----------------
$ 12,023,528 $ 12,088,214
================ ================
All investments are participant-directed.
NOTE 4 - RELATED PARTY TRANSACTIONS
Certain Plan investments are shares of mutual funds managed by an affiliate of
Vanguard Fiduciary Trust Company ("VFTC"). VFTC is the Trustee as defined by the
Plan and, therefore, these transactions qualify as party-in-interest. The
Department of Labor ("DOL") has specifically issued Prohibited Transaction
Exemptions relating to Plan transactions with a trustee affiliate also serving
as a fund manager/advisor. In addition, the Plan holds shares of the common
stock of HSB Group, Inc., the Plan's Sponsor, which also qualifies as a
party-in-interest.
NOTE 5 - PLAN EXPENSES
The administrative expenses of the Plan are paid by the Company, and include all
direct investment expenses, investment management fees, Trustee's fees, and
other expenses of the Plan (unless required under the terms of the particular
fund to be applied directly to purchase or redemption transactions), other than
certain expenses related to The HSB Stock Fund.
NOTE 6 - TAX STATUS
The Internal Revenue Service has determined and informed the Company by a letter
dated October 5, 1995, that the Plan and related trust are designed in
accordance with applicable sections of the Internal Revenue Code ("IRC"). The
Plan has been amended since receiving the determination letter. However, the
Plan administrator believes that the Plan is designed and is currently being
operated in compliance with the applicable requirements of the IRC.
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NOTE 7 - RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500
The following is a reconciliation of net assets available for plan benefits per
the financial statements to the Form 5500:
December 31,
1999 1998
--------------- ----------------
Net assets available for plan benefits per
the financial statements $178,910,085 $152,311,728
Amounts allocated to withdrawing participants (254,007) (145,397)
--------------- ----------------
Net assets available for plan benefits
per the Form 5500 $178,656,078 $152,166,331
=============== ================
The following is a reconciliation of distributions to participants per the
financial statements to the Form 5500:
Year ended
December 31, 1999
------------------
Distributions to participants per the financial statements $9,782,428
Add: Amounts allocated to withdrawing participants
at December 31, 1999 254,007
Less: Amounts allocated to withdrawing participants
at December 31, 1998 (145,397)
----------
Benefits paid to participants per the Form 5500 $9,891,038
===========
Amounts allocated to participants who have withdrawn from the Plan as of
December 31, but for which disbursement of those funds had not been made by
December 31, are not recognized as liabilities in the statements of net assets
available for plan benefits. Accordingly, $254,007 and $145,397 of distributions
payable have been included as net assets available for plan benefits at December
31, 1999 and 1998, respectively, and not recognized as liabilities. Such amounts
have been recorded as distributions payable in the Plan's Form 5500, in
accordance with the DOL's rules and regulations.
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Additional Information
Schedule I - Schedule of Assets Held for Investment Purposes
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THE HSB GROUP, INC. EMPLOYEES' THRIFT INCENTIVE PLAN
Schedule of Assets Held for Investment Purposes
As of December 31, 1999
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The HSB Group, Inc. Employees' Thrift Incentive Plan, EIN 06-0384680
Attachment to Form 5500, Schedule H, Part IV, Line i:
Identity of Issue Investment Type Current Value
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<S> <C> <C>
* T. Rowe Price Science & Technology Fund Registered Investment Company $ 32,142,662
* Vanguard 500 Index Fund Registered Investment Company 51,145,764
* Vanguard Intermediate-Term Corporate Fund Registered Investment Company 26,908,743
* Vanguard International Growth Fund Registered Investment Company 897,268
* Vanguard LifeStrategy Conservative Growth Fund Registered Investment Company 2,524,320
* Vanguard LifeStrategy Growth Fund Registered Investment Company 11,944,471
* Vanguard LifeStrategy Income Fund Registered Investment Company 744,538
* Vanguard LifeStrategy Moderate Growth Fund Registered Investment Company 7,465,347
* Vanguard Long-Term Corporate Fund Registered Investment Company 575,215
* Vanguard Prime Money Market Fund Registered Investment Company 11,443,750
* Vanguard Windsor II Fund Registered Investment Company 924,403
* The HSB Stock Fund HSB Group, Inc. Common Stock 26,190,327
The HSB Group, Inc. Employees' Thrift Incentive Plan Participant Loans (5%-11%) 5,311,551
-----------------
Total assets held for investment purposes $ 178,218,359
=================
</TABLE>
* Party-in-Interest
12
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SIGNATURES
The Plan. Pursuant to the requirements of the Securities Exchange Act of 1934
the Administrative Committee for the plan has duly caused this annual report to
be signed on its behalf by the undersigned hereunto duly authorized.
The HSB Group, Inc. Employees'
Thrift Incentive Plan
(Name of Plan)
Date: June 28, 2000 By: /s/ Jodi L. Lussier
-------------------
Jodi L. Lussier
Plan Administrator
13
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EXHIBIT INDEX
Exhibit Number Description Page
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23 Consent of PricewaterhouseCoopers 17
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