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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1993
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ------ to ------
Commission File Number 0-13300
THE HARTFORD STEAM BOILER
INSPECTION AND INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
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Connecticut 06-0384680
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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One State Street
Hartford, Connecticut 06102
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (203) 722-1866
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class Name of each exchange
on which registered
Common stock, without par value New York Stock Exchange, Inc.
Rights to Purchase Depositary Receipts New York Stock Exchange, Inc.
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant(1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes...X..., No.......
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.......
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of February 8, 1994 was $1,017,004,459.
Number of shares of common stock outstanding as of February 8, 1994:
20,535,064.
Documents Incorporated By Reference
Portions of the Annual Report to shareholders for the fiscal year ended
December 31, 1993 are incorporated by reference in Parts I, II and IV of this
Form 10-K. Portions of the Proxy Statement dated March 1, 1994 for the Annual
Meeting of Shareholders to be held April 19, 1994 are incorporated by reference
in Parts III and IV herein.
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PART I
Item 1. Business.
A. GENERAL DEVELOPMENT OF BUSINESS
The Hartford Steam Boiler Inspection and Insurance Company (together
with its subsidiaries referred to as "Registrant" or the "Company" hereinafter)
was chartered under the laws of the State of Connecticut in 1866. The
Company's operations are divided into three industry segments - insurance,
engineering services and investments. The most significant business of the
Company is boiler and machinery insurance which provides insurance against
losses from accidents to boilers, pressure vessels, and a wide variety of
mechanical and electrical machinery and equipment along with a high level of
inspection services aimed at loss prevention. Earned premiums for boiler and
machinery insurance and the Company's other insurance products were $349.2
million for 1993, which accounted for approximately 55 percent of the Company's
revenues.
The Company also offers professional scientific and technical
consulting services for industry and government on a world-wide basis through
its Engineering Department and its engineering subsidiaries, the largest of
which is Radian Corporation, acquired by Hartford Steam Boiler in 1975 and
headquartered in Austin, Texas. In 1993 net Engineering Services revenues were
$231.5 million which accounted for approximately 36 percent of the Company's
revenues.
During the latter part of 1993, the Company commenced a restructuring
of its insurance and engineering operations for which the Company recorded a
$20 million charge in September. The charge reflected costs for severance and
other expenses related to the reduction in staff of approximately 300
employees. The initial phase of the restructuring was the reorganization of
the insurance segment of the Company into a Special Risks Division, which will
focus on large accounts requiring customized policies or specialized
engineering services and a Commercial Division, which will focus on small and
medium accounts. The purpose of the reorganization was to better align the
structure of the Company with the needs of its customers by focusing on
industry specialization.
The Company conducts its business in Canada through its wholly-owned
subsidiary, the Boiler Inspection and Insurance Company of Canada. Insurance
for risks located outside of North America is written by Engineering Insurance
Group, an unincorporated insurance facility formed in December 1988 which is
owned jointly by the Company and General Reinsurance Corporation and is
accounted for under the equity method of accounting.
The Company's principal market for its insurance and engineering
services is the United States. Revenues, net income and
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assets associated with operations outside of the United States are less than 10
percent of the respective consolidated amounts.
The Company derives approximately 10 percent of its revenues from
engineering contracts with various agencies and departments of the U.S.
government.
For additional information on the Company's business segments, see
Notes 1 and 4 to the Consolidated Financial Statements on pages 24 and 25 of
the Company's 1993 Annual Report to shareholders. Certain reclassifications
have been made to 1992 and 1991 financial information to conform to the 1993
presentation.
B. PRODUCTS AND SERVICES
Boiler and machinery insurance provides for the indemnification of the
policyholder for financial loss resulting from destruction or damage to an
insured boiler, pressure vessel, or other machine caused by an accident. This
financial loss can include the cost to repair or replace the damaged equipment
(property damage), and product spoilage, lost profits and expenses to avert
lost profits (business interruption) stemming from an accident.
The Company distinguishes itself from other insurance suppliers by
providing a high level of loss prevention, failure analysis and other
engineering services with the insurance product. This heavy emphasis on loss
prevention is intended to have the dual effect of increasing underwriting and
inspection expenses, while reducing loss and loss adjustment expenses.
An important ancillary benefit for the policyholder is that the
inspection performed by the Company's inspector on a boiler, pressure vessel,
or other piece of equipment, as part of the insurance process, is normally
viewed by state and other regulatory jurisdictions as acceptable for their
certification purposes. Without the issuance of a certificate of inspection by
the insurance carrier or another inspection agency, policyholders cannot
legally operate many types of equipment.
The Company also writes other types of insurance, primarily as an
adjunct to its boiler and machinery insurance. Such insurance accounted for
approximately 18 percent of net earned premium in 1993. By far the largest of
these other lines is the UNITECH all risk property insurance product. The
UNITECH line is marketed to accounts with equipment and machinery exposures,
such as electric utilities, where sophisticated engineering services are
important to loss prevention and control. UNITECH customers are offered
technical services such as computerized evaluation of fire protection systems
in addition to fire inspections and boiler and machinery inspections. The
Company's HSB BACK.UP policy provides all risk coverage for data processing
systems.
Separate divisions of the Company's Engineering Department
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provide quality assurance services, training for nondestructive testing,
inspections to code standards of the American Society of Mechanical Engineers
(ASME), and other specialized consulting and inspection services related to the
design and application of boilers, pressure vessels, and many other types of
equipment for equipment manufacturers and their customers. Hartford Steam
Boiler is the largest Authorized Inspection Agency for ASME codes in the world.
In addition, the Company's Engineering Department focuses on researching and
developing potential new products and services and new markets for current
services.
Radian Corporation provides advanced technical, engineering, and
scientific consulting services for industry and government. Radian's areas of
expertise include environmental engineering, health and safety, materials and
mechanical technologies, specialty chemicals, electronic systems and services,
and information technologies.
Other engineering subsidiaries provide fire protection consulting
services, and computerized maintenance management systems and services.
C. COMPETITION
Insurance
The Company is the largest writer of boiler and machinery insurance in
North America. Based on gross earned premium, the Company's U.S. market share,
at approximately 40%, has remained fairly stable over the past ten years. No
other single company has more than a 10% market share. Members of an
affiliated group of insurers have a market share of approximately 25%.
In general, the insurance market is influenced by the total insurance
capacity available based on policyholder surplus which in turn is driven by the
level of profits experienced by the industry. In addition, competition in the
boiler and machinery insurance market is based on price and service to the
insured. Service includes maintaining customer relationships, engineering and
loss prevention activities, and claims settlement. The Company prices its
product competitively in the marketplace, but competes by offering a high level
of service, not by offering the lowest-priced product. Recently the weak U.S.
economy has caused insurance customers to select programs with modest price
adjustments but higher deductibles resulting in a slower premium growth for the
Company.
The Company is predominantly a single line insurance company, unlike
its competitors which write boiler and machinery insurance as an adjunct to
their primary lines of insurance for fire and extended perils.
Many of its competitors have more assets than the Company. However,
the Company's leading position in the industry has
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allowed it to develop the largest force of inspectors, engineers and scientists
in the industry.
Engineering Services
The Company provides a wide range of engineering, consulting and
inspection services as described on pages 2-3. For most of these services it
has numerous competitors, some of whom are much larger and have greater
financial resources than the Company.
Competition in these areas is based on price and on the
qualifications, experience and availability of the individuals who perform the
work. The Company has a force of more than 2,500 inspectors, engineers,
scientists and technicians spread throughout the world. Ongoing training
programs ensure that the Company's inspectors, engineers, scientists and
technicians are kept up-to-date on the latest engineering and scientific
developments.
D. MARKETING
Insurance
The Company has contracts with independent insurance agencies in all
fifty states, the District of Columbia, Puerto Rico and Canada. These agencies
market the Company's direct insurance to the small and medium accounts serviced
by the Commercial Division. Personal contact with these independent insurance
agents is accomplished through the Company's field sales force which operates
out of 17 branch offices across the country. It is the Company's policy in
appointing agents to be selective, seeking to maintain and strengthen its
existing relationships and to develop relationships with new agents whom the
Company believes will become a continuing source of profitable business.
Recently the Company has undertaken efforts to review all of its agency
appointments and has selectively reduced them in order to retain only those
agents who consistently produce certain levels of business for the Company.
Special Risk accounts, which include high hazard occupancies and
UNITECH customers, are primarily serviced from the Company's Home Office.
Special Risk accounts generate approximately 38% of the annual premiums of the
Company.
The Company's reinsurance assumed business (see page 7) is marketed
through the distribution channels of the reinsured companies.
Engineering Services
The Company's engineering services are marketed in a variety of ways.
Customized services related to loss prevention, failure analysis, and equipment
testing are generally sold in conjunction
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with the insurance contract but are also available separately.
Most other engineering services, including those performed by Radian
Corporation, are marketed on a bid or proposal basis. While such business is
usually price sensitive, the exacting standards and requirements set by
industry and government for most of the services offered by the Company tend to
diminish that effect.
E. REGULATION
Insurance
The Company's insurance operations are subject to regulation
throughout the United States and in each foreign jurisdiction in which it does
business. Various aspects of the insurance operations are regulated, including
the type and amount of business that can be written, the price that can be
charged for particular forms of coverage, policy forms, trade and claim
settlement practices, reserve requirements and agency licensing. Regulations
also extend to the form and content of financial statements filed with such
regulatory authorities, the type and concentration of permitted investments for
insurers, and the extent and nature of affiliated transactions, including
dividends involving insurers. See Note 5 to the Consolidated Financial
Statements on page 25 of the Company's 1993 Annual Report to shareholders for
additional information.
The National Association of Insurance Commissioners recently adopted a
formula for Risk Based Capital (RBC) requirements applicable to property and
casualty insurers which establishes a required statutory surplus level for an
insurer based on the risks inherent in its overall operations. Use of the
formula is expected to begin in 1995 covering 1994 financial information. Based
upon the Company's financial position at December 31, 1993, the Company's
surplus exceeded the RBC requirements and therefore, such requirements are not
expected to affect the Company's ability to conduct its business.
The Company's operations are subject to examination by insurance
regulators at regular intervals. The most recent insurance financial
examination was completed for the year ending December 31, 1990 by the
Connecticut Insurance Department, the Company's domestic regulator. Similar
regulatory procedures govern the Company's U.S. insurance subsidiaries and its
Canadian subsidiary.
State insurance departments, consistent with sound underwriting
practices, require property and casualty insurance companies to maintain a
reasonable ratio of net premiums written to total capital and surplus.
Accordingly, a property and casualty insurance company's volume of net premiums
written is limited by the amount of its capital and surplus. The
reasonableness of a company's ratio is generally viewed in light
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of its underwriting history, investment practices, types of policies
written, policy limits and general financial condition. Currently, in the
absence of mitigating factors, a ratio of 3 to 1 or less is considered
acceptable by most regulatory authorities. The Company's ratio of net premiums
written to average statutory capital and surplus was approximately 1.2 to 1 in
1993. These ratios are expected to be replaced by RBC ratios as discussed on
the previous page.
As discussed earlier, the Company's insureds receive, in addition to
the insurance product, inspections which meet state, county or municipally
mandated requirements. In order for the Company's inspectors to perform these
mandated inspections, they must be commissioned. Commissioning is conducted by
the National Board of Boiler and Pressure Vessel Inspectors and the various
state jurisdictional authorities. The majority of the Company's inspectors are
commissioned, and the Company feels that it has an adequate number of
commissioned inspectors to conduct its business affairs.
Engineering Services
A portion of the Company's engineering services revenue comes from
certifying that boilers and pressure vessels are being constructed according to
standards adopted by the American Society of Mechanical Engineers (ASME). The
commission that authorizes inspectors to conduct insurance inspections also
authorizes them to perform ASME Code inspections.
F. INSURANCE OPERATIONS
Rates
Rates for the Company's products are developed based upon estimated
claim costs, expenses related to the acquisition and servicing of the business,
engineering expenses and a profit component. Traditionally the Company has used
boiler and machinery rates that were established by the Insurance Services
Office (ISO) and filed in the various jurisdictions within which the Company
does business. Due to the Company's large market share in the boiler and
machinery line of insurance, it has provided the largest weighting in the data
used by ISO. Consequently, ISO rates have been reflective of the Company's
experience. The Company has also developed its own rates, based on ISO rates,
for some of its boiler and machinery products.
The Company also has utilized rates developed and filed by ISO for its
UNITECH product. The Company's loss experience has been only a small factor in
the industry all risk line, and therefore its experience has not meaningfully
affected the industry ISO rates.
ISO no longer develops and files advisory rates for its member
companies, rather it compiles and makes available loss
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cost information based upon loss data furnished by its members which the
Company and other insurers can then use to develop their own rates and file
with the states.
Coverages for unique risks are judgment-rated, taking into account
deductibles, the condition of the insured's equipment, loss prevention and
maintenance programs of the insured, and other factors.
Policies
Policies are normally written for a term of one year. Most of the
Company's policies provide coverage for property damage and business
interruption to insured property (including buildings and structures under the
Company's UNITECH policy) resulting from covered perils. Property insured
under the Company's boiler and machinery policies includes such equipment as
steam boilers, hot water boilers, pressure vessels, refrigerating and air
conditioning systems, motors, generators, compressors, pumps, engines, fans,
blowers, gear sets, turbines, transformers, electrical switch gear, data
processing and business equipment and a wide variety of production and
processing equipment.
Reinsurance Assumed
The predominant practice in the insurance industry is to combine
several types of insurance coverages, including boiler and machinery, into one
policy referred to as a package policy. In response to this, the Company has
negotiated reinsurance agreements with several large and medium sized
multi-line insurance companies to reach the small to mid-size customers that
purchase such package policies. To date, more than 100 insurance companies
have signed reinsurance agreements with the Company. This segment of the
business, which focuses on small commercial customers, has been consistently
more profitable than the large accounts and offers more opportunity for growth
by the Company since boiler and machinery coverage has historically been
excluded from commercial package policies.
Under the reinsurance agreements, the Company's reinsured companies
may include boiler and machinery exposures in their multi-peril policies, and
such risks will be assumed by the Company under the terms of the agreement.
These plans generally provide that the Company will assume 100% of each boiler
and machinery risk, subject to the capacity specified in the agreement, and
will receive the entire boiler and machinery premium except for a ceding
commission which will be retained by the reinsured company for commissions to
agents and brokers, premium taxes and handling expenses.
Although the Company assumes the role of reinsurer, it continues to
have selling and underwriting responsibilities as well as involvement in
inspecting and claims adjusting. In
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effect, the Company becomes the boiler and machinery department of the
reinsured company and provides all boiler and machinery services as if it were
part of that organization. The Company retains the right to decline or
restrict coverage in the same manner as it does for its own business. In
summary, the Company's position as a reinsurer is substantially unchanged from
the normal method of doing business except that insurance coverage is written
on forms issued through the reinsured company.
The written premium generated through reinsurance assumed totaled $131
million in 1993, representing approximately 38% of the Company's net written
premium.
The Company's largest source of accepted reinsurance is Industrial Risk
Insurers (IRI). IRI is an insurance association funded by 43 members (each of
which is a property-casualty insurance company). While the Company provides
the largest share of boiler and machinery insurance capacity to IRI, there are
other IRI members who provide the same coverages. In addition, IRI often
writes boiler and machinery insurance for its own account. The Company assumed
$23.3 million of boiler and machinery premiums from IRI in 1993.
Other than Engineering Insurance Group which is described on page 1,
the Company does not participate to any significant degree in reinsurance pools
of other insurance companies because the Company chooses to insure only those
risks which it has inspected or has the right to inspect.
Reinsurance Ceded
The Company purchases reinsurance in support of its insurance
operations in order to guard against catastrophic losses and provide
competitive policy limits. The Company utilizes two primary reinsurance
arrangements. Liability in excess of the Company's retention (which is
currently $3.5 million for most of the Company's business, with limits up to $6
million in certain instances) is first assumed by the Company's primary
reinsurance group, made up of large, well-capitalized reinsurance companies.
Additional liability in excess of the first reinsurance treaty is covered by an
additional reinsurance facility composed of other U.S. and international
reinsurance companies and syndicates. In addition, the Company purchases
facultative reinsurance on certain high exposure risks and has catastrophe
reinsurance for aggregate losses greater than a $15 million retention. In the
unlikely event that the Company's reinsurers are unable to meet their
obligations, the Company would continue to have primary liability to
policyholders for losses incurred.
Recent experience under the excess of loss reinsurance program,
including losses related to hurricane Andrew and other large losses, resulted
in increased reinsurance costs in the
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second half of 1993. The Company expects additional price increases in 1994.
For additional information on reinsurance, see Note 9 to the
Consolidated Financial Statements on page 29 of the Company's 1993 Annual
Report to shareholders.
Claims and Claim Adjustment
The overwhelming majority of claims are handled by the Company's own
claims adjusters. Management believes that this is much more cost-efficient
than the retention of independent claims adjusters and that the Company's
adjusters are better able to make the connection between loss prevention and
loss control. The Company employs claims adjusters in its various branch
offices throughout the country and Canada and also operates a claims department
in its home office in Hartford, Connecticut. Home office claims adjusters
provide expertise and assistance to the branch office adjusters and also direct
the handling of larger, more complicated claims.
The Company establishes reserves for losses to account for the
estimate of the ultimate cost of claims that have been incurred but not
reported ("IBNR" reserves) and ones that have been reported but not settled.
The setting of IBNR reserves is based on actuarial techniques and historical
data, as adjusted to reflect current trends and economic developments. The
reserve set for a reported loss represents the informed judgment and experience
of the claims personnel regarding the nature and value of the specific type of
claim. Reserves are revised upward or downward over time as experience
develops and claims are reported and paid. Adjustments to reserves are
reflected in the net income of the period in which such adjustments are made.
The normal turnaround time in paying small claims is less than six
months. The vast majority of claims are settled within one year and very few
remain unsettled two years after the loss occurs. This pattern is skewed in
terms of claim dollars (as noted in the schedule on page 12) as it is the
larger claims that take longer to settle. Compared to the property-casualty
industry as a whole, the Company has a very "short-tail" claims liability. For
this reason, reserve estimates are not adjusted for the effects of inflation.
The Company's claims expenses are based on estimates of the current costs of
replacing productive capacity. The Company does not employ discounting
techniques in establishing liabilities for claims and claim adjustment
expenses.
For those relatively few claims involving litigation, the Company uses
both its in-house law department and outside counsel, depending on the issues,
costs, and staffing requirements.
For additional information on reserves, see the discussion
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of Insurance Operations in the Management's Discussion and Analysis of
Consolidated Financial Condition and Results of Operations (page 16) of the
Company's 1993 Annual Report to shareholders.
The following table provides a reconciliation of the beginning and
ending reserves for claims and claim adjustment expenses for the years ended
December 31, 1993, 1992 and 1991.
RECONCILIATION OF NET LIABILITY FOR
CLAIMS AND CLAIMS ADJUSTMENT EXPENSES
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1993 1992 1991
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(In millions)
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Net liability for claims and claim adjustment
expenses at beginning of year $132.8 $111.4 $115.7
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Plus:
Provision for claims and claim adjustment
expenses occurring in the current year 172.2 146.3 119.4
Increase (decrease) in estimated claims
and claim adjustment expenses arising
in prior years 26.9 26.1 19.7
---- ---- ----
Total incurred claims and
claim adjustment expenses 199.1 172.4 139.1
----- ----- -----
Less:
Payment for claims arising in:
Current year 60.9 59.8 56.7
Prior years 99.7 91.2 86.7
---- ---- ----
Total payments 160.6 151.0 143.4
----- ----- -----
Net liability for claims and claim
adjustment expenses at end of year $171.3 $132.8 $111.4
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The 1993, 1992 and 1991 claims and claim adjustment expenses included
adverse development of prior years' reserves. The adverse development of the
1992, 1991 and 1990 year-end reserves was attributable to the settlement of
certain large losses for which the Company initially determined it would not
have liability, the settlement of some outstanding claims for more than was
originally anticipated, unusually late notice of loss provided by the insured
for several large losses, and reserves established for losses on which the
coverage is being contested. The adverse development of the 1991 year-end
reserve was also impacted by two large December losses.
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The following table shows a reconciliation of the net liability to the
gross liability for claims and loss adjustment expenses based on reinsurance
recoverable on unpaid losses.
RECONCILIATION OF NET LIABILITY TO GROSS LIABILITY
FOR CLAIMS AND CLAIM ADJUSTMENT EXPENSES
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1993 1992
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(in millions)
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Net liability for claims and claim $171.3 $132.8
adjustment expenses at end of period
Reinsurance recoverable
on unpaid losses 43.1 39.9
---- ----
Gross liability for claims and claim
adjustment expenses at end of period $214.4 $172.7
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The claim and claim expense reserve runoff table on the following page
shows the amount of the net liability for 1983 through 1993. Each column shows
the net reserve established at calendar year-end as well as cumulative totals
for claims payments and reestimated liabilities for that accident year and all
previous years that make up that year-end reserve. The redundancy (deficiency)
is a cumulative number for that year and all previous years.
The deficiencies in 1992, 1991 and 1990 were explained on the previous
page. The deficiency in 1983 was related to the winter freeze that occurred in
late 1983.
The redundancies shown for 1985 through 1988 were attributed to the
difficulty in estimating claims due to inflationary impacts and business
interruption, which became a larger component of claims. The claim reserves
established in those years have been favorably settled, adjusted or closed
based on the results of claim audits, technical loss analysis, subrogation,
settlement with property carriers and the latest available information. The
net impact of those favorable settlements was to decrease claims expenses by
$10.2 million in 1990 and $28.0 million in 1989.
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RECONCILIATION OF BEGINNING AND ENDING NET CLAIMS RESERVES
AND EXHIBIT OF REDUNDANCIES (DEFICIENCIES)
(In Millions)
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<CAPTION>
YEAR ENDED 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993
- ---------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
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Net Liability for Unpaid
Claims and Claim $52.3 $77.5 $99.9 $126.1 $147.5 $157.4 $139.6 $115.7 $111.4 $132.8 $171.3
Adjustment Expenses
Cumulative Amount Paid as of:
End of Year - - - - - - - - - - -
One Year Later 44.5 45.5 51.1 54.9 57.4 78.8 85.6 86.7 91.2 99.7 -
Two Years Later 57.1 59.3 65.8 73.6 75.9 92.1 104.2 109.7 115.5 - -
Three Years Later 62.0 65.0 70.6 79.5 74.5 95.5 110.3 120.6 - - -
Four Years Later 64.1 67.6 73.3 79.7 75.4 95.4 112.5 - - - -
Five Years Later 64.3 69.0 74.3 80.4 74.5 93.6 - - - - -
Six Years Later 65.4 69.9 74.5 79.0 74.2 - - - - - -
Seven Years Later 66.1 70.1 74.2 78.8 - - - - - - -
Eight Years Later 66.3 69.8 74.0 - - - - - - - -
Nine Years Later 66.6 69.6 - - - - - - - - -
Ten Years Later 66.4 - - - - - - - - - -
Net Liability Reestimated as of:
End of Year 52.3 77.5 99.9 126.1 147.5 157.4 139.6 115.7 111.4 132.8 171.3
One Year Later 75.8 80.9 104.7 126.4 131.9 129.4 129.4 135.4 137.5 159.7 -
Two Years Later 72.6 84.3 101.1 115.8 100.4 108.7 127.4 138.0 139.7 - -
Three Years Later 73.8 85.5 94.7 96.1 86.0 106.8 127.8 136.8 - - -
Four Years Later 73.6 83.3 85.9 88.0 83.7 103.0 125.0 - - - -
Five Years Later 74.2 79.6 80.8 86.9 80.8 102.3 - - - - -
Six Years Later 72.7 76.6 80.9 83.6 82.0 - - - - - -
Seven Years Later 71.1 76.7 80.7 85.7 - - - - - - -
Eight Years Later 71.3 76.5 84.1 - - - - - - - -
Nine Years Later 71.8 79.9 - - - - - - - - -
Ten Years Later 74.8 - - - - - - - - - -
Cumulative Redundancy
(Deficiency) (22.5) (2.4) 15.8 40.4 65.5 55.1 14.6 (21.1) (28.3) (26.9) -
</TABLE>
G. INVESTMENTS
Income from the Company's investment portfolio contributes significantly
to operating income. Each year there is a significant inflow of cash from
insurance and engineering services operations and from investment income. In
addition, cash flow is affected by the normal maturity of fixed income
investments, and the purchase and sale of equity securities.
The investment objective for the Company's portfolio is to achieve a
high after-tax yield on an annual basis while maximizing long-term growth in
surplus. Growth in surplus is important because the amount of new business
that a property-casualty company can write is limited by the amount of surplus
available.
The Company has traditionally attempted to meet this investment
objective by holding a large portion of investment assets in equity securities.
Although this exposes the Company to the movement of the stock market, the
Company's investment strategy remains based on the premise that common stocks
provide the highest total return available in the securities market. At
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year-end 1993 the Company had approximately 57 percent of its investments in
equity securities which accounted for 33 percent of total assets on a market
value basis. The Company also holds bonds and preferred stocks. See Note 6
(pages 26-28) to Consolidated Financial Statements and the discussion of
investment operations in the Management's Discussion and Analysis of
Consolidated Financial Condition and Results of Operations (page 17) of the
Company's 1993 Annual Report to shareholders for additional information.
The following table summarizes the investment results of the Company's
investment portfolio:
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<CAPTION>
Annualized Rate
Net Invest- of Return (2) Investment
Cash and ment Income ------------------------- Gains (Losses) (3)
Invested Less Before After -------------------------
Assets, Less Interest Income Income Change in
Borrowed Money Expense (1) Taxes Taxes Realized Unrealized
-------------- ----------- ------ ------ -------- ----------
(In Millions) (In Millions)
<S> <C> <C> <C> <C> <C> <C>
1993 $462.6 $27.5 6.1% 5.3% $26.1 $(16.3)
1992 464.0 29.5 6.4 5.7 30.8 (22.6)
1991 482.4 33.0 7.2 6.3 33.9 28.7
</TABLE>
(1) Net investment income excludes realized investment gains and is reduced by
investment expenses, but is before the deduction for income taxes.
(2) The rates of return on investments shown above have been determined in
accordance with rules prescribed by the National Association of Insurance
Commissioners. These rates have been determined by the following formula:
2I
---------
A + B - I
I is equal to net investment income, before taxes, earned on investment assets.
A+B is equal to the sum of the beginning and end of the year amounts shown
under "Cash and Invested Assets, Less Borrowed Money". The after tax rates of
return are computed in the same manner, but net investment income is reduced by
income taxes.
(3) Realized and unrealized investment gains (losses) are before income taxes.
H. EMPLOYEES
At year-end 1993, the Company, including its subsidiaries, employed
4,036 people. Of this total, 1,988 were employed by the Company's wholly-owned
subsidiary, Radian Corporation; 202 were employed by the Company's Canadian
affiliate, The Boiler Inspection and Insurance Company of Canada; and 212 were
employed
13
<PAGE> 15
by other subsidiaries of the Company. Management believes that its relations
with its employees are satisfactory.
Item 2. Properties.
The Hartford Steam Boiler Inspection and Insurance Company leases
approximately 231,371 square feet for its home office at One State Street,
Hartford, Connecticut under a long-term capital lease with One State Street
Limited Partnership. In addition to its home office facility, the Company
leases facilities for its branch offices and subsidiaries throughout the United
States and Canada. The Company also leases space in a small number of foreign
locations. The Company considers the office facilities to be suitable and
adequate for its current and anticipated level of operations.
See Notes 8 (page 28) and 11 (page 31) to Consolidated Financial
Statements of the Company's 1993 Annual Report to shareholders for additional
information.
Item 3. Legal Proceedings.
The Company is involved in various legal proceedings as defendant or
co-defendant that have arisen in the normal course of its business. In the
judgment of management, after consultation with counsel, it is improbable that
any liabilities which may arise from such litigation will have a material
adverse impact on the consolidated financial position of the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 4(a). Executive Officers of the Registrant.
All officers are elected by the Board of Directors to hold office until
the next Annual Meeting of Shareholders. An officer may be removed at any time
by the Board of Directors.
Wilson Wilde, 66, Chairman and Chief Executive Officer since 9/93; Director
since 1967; President and Chief Executive Officer 11/71 - 9/93; Executive Vice
President 9/70 - 11/71; Vice President 11/67 - 9/70; Assistant Vice President
4/66 - 11/67; Assistant Secretary 2/64 - 4/66.
Gordon W. Kreh, 46, President and Director since 9/93; Senior Vice President -
Marketing 4/92 - 9/93; President - Engineering Insurance Group 10/89 - 4/92;
Vice President 11/84 - 10/89; Assistant Vice President 4/81 - 11/84.
Donald M. Carlton, 56, Executive Vice President since 4/92; Director since
7/75; President and Chairman of the Board - Radian Corporation since 1969.
14
<PAGE> 16
Donald K. Wilson, 58, Executive Vice President since 11/88; Senior Vice
President 11/84 - 11/88; Vice President 11/71 - 11/84; Assistant Vice President
9/70 - 11/71.
Michael L. Downs, 44, Senior Vice President since 2/94; Managing Director -
Engineering Insurance Co., Ltd. 1/91 - 2/94; Second Vice President 7/87 - 1/91;
Assistant Vice President 2/85 - 7/87; Assistant Secretary 4/80 - 2/85.
John J. Kelley, 48, Senior Vice President since 2/94; Corporate Secretary and
Special Assistant to the President 5/87 - 2/94; Assistant Vice President and
Special Assistant to the President 9/83 - 5/87; Assistant Vice President 9/79 -
9/83; Assistant Secretary 4/77 - 9/79.
Kenneth J. Kelly, 61, Senior Vice President and General Counsel since 11/84;
Vice President, Secretary and General Counsel 4/77 - 11/84; Secretary and
General Counsel 9/75 - 4/77; Assistant Vice President 4/74 - 9/75; Assistant
Secretary 3/70 - 4/74.
T. Skipwith Lewis, 57, Senior Vice President - Engineering since 3/94; Senior
Vice President - Engineering and Claims 11/84 - 3/94; Vice President 11/82 -
11/84; Assistant Vice President 10/81 - 11/82.
R. Kevin Price, 47, Senior Vice President and Corporate Secretary since 2/94;
Second Vice President 4/89 - 2/94; Assistant Vice President 1/84 - 4/89.
Robert W. Trainer, 44, Senior Vice President, Treasurer and Chief Financial
Officer since 2/94 and from 4/90 - 4/92; Senior Vice President - Underwriting
4/92-2/94; Vice President, Treasurer and Chief Financial Officer 7/86 - 4/90;
Vice President 11/84 - 7/86; Assistant Vice President 1/80 - 11/84; Assistant
Treasurer 4/78 - 1/80.
Robert C. Walker, 50, Senior Vice President - Claims since 3/94; Associate
General Counsel and head of Corporate Litigation Department of United
Technologies Corporation 5/89-3/94.
15
<PAGE> 17
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
Note 5 on page 25 and Note 18 on page 37 of the Company's 1993 Annual
Report to shareholders are incorporated herein by reference. The Company's
common stock is traded on the New York Stock Exchange under the symbol HSB. As
of February 8, 1994, the Company had 5,697 holders of record. Amounts
available to be paid for dividends to shareholders are limited by
state insurance regulations. Regulatory approval was required and received by
the Company from the Connecticut Insurance Commissioner for the payment of
1993 dividends. Effective December 1, 1993 the restriction on dividends was
amended to require approval for dividend distributions within a twelve month
period which would exceed the greater of (i) 10 percent of an insurer's
statutory surplus or (ii) net income (net investment income under the prior
standard) calculated as of the December 31st last preceding. The Company
expects to be required to request regulatory approval for the payment of any
dividends in 1994.
Item 6. Selected Financial Data.
"Ten-Year Financial Summary" on pages 40-41 of the Company's 1993 Annual
Report to shareholders is incorporated herein by reference. Dividends declared
per share for the prior five years are shown below.
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C>
$2.12 $2.06 $1.90 $1.75 $1.55
</TABLE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
"Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations" on pages 15-19 of the Company's 1993
Annual Report to shareholders is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data.
Consolidated Financial Statements and the related Notes to Consolidated
Financial Statements on pages 20-37, including Note 18, "Consolidated Quarterly
Data (unaudited)", of the Company's 1993 Annual Report to shareholders are
incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
None.
16
<PAGE> 18
PART III
Item 10. Directors and Executive Officers of the Registrant.
"Nominees for Election to the Board of Directors for Three-Year Term
Expiring in 1997" and "Members of the Board of Directors Continuing in Office"
on pages 2-6; and "Reporting of Securities Transactions" on page 10 of the
Company's Proxy Statement dated March 1, 1994 are incorporated herein by
reference. Also see pages 14-15 herein.
Item 11. Executive Compensation.
"Meetings and Remuneration of the Directors" on pages 6-8, "Board
Compensation Committee Report on Executive Compensation" on pages 10-13,
"Summary Compensation Table" on pages 14-15, "Stock Option and Long-Term
Incentive Plan Tables" on pages 15-16, "Retirement Plans" on pages 16-18,
"Employment Arrangements" on pages 18-19, "Compensation Committee Interlocks
and Insider Participation" on page 19, and "Performance Graph" on page 20 of
the Company's Proxy Statement dated March 1, 1994 are incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners
and Management.
"Security Ownership of Certain Beneficial Owners and Management" on
pages 8-10 of the Company's Proxy Statement dated March 1, 1994 is incorporated
herein by reference.
Item 13. Certain Relationships and Related Transactions.
"Compensation Committee Interlocks and Insider Participation" on page 19
of the Company's Proxy Statement dated March 1, 1994 is incorporated herein by
reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K.
(a) The financial statements and schedules listed in the accompanying
Index to Financial Statements and Financial Statement Schedules
are filed as part of this report.
(b) No reports on Form 8-K were filed during the fiscal quarter ended
December 31, 1993.
(c) The exhibits listed in the accompanying Index to
Exhibits are filed as part of this report.
17
<PAGE> 19
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C>
THE HARTFORD STEAM BOILER
INSPECTION AND INSURANCE COMPANY
(Registrant)
By: /s/ Robert W. Trainer
----------------------
Senior Vice President,
Treasurer and Chief
Financial Officer
March 30, 1994
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
(Signature) (Title)
<S> <C>
By: /s/ Robert W. Trainer Senior Vice President, Treasurer
--------------------- and Chief Financial Officer
Robert W. Trainer (Principal Financial Officer and
March 30, 1994 Principal Accounting Officer)
(Wilson Wilde)* Chairman, Chief Executive Officer
and Director
(Gordon W. Kreh)* President and Director
(Joel B Alvord)* Director
(Colin G. Campbell)* Director
(Donald M. Carlton)* Director
(Richard G. Dooley)* Director
(William B. Ellis)* Director
</TABLE>
18
<PAGE> 20
<TABLE>
<S> <C>
(E. James Ferland)* Director
(John A. Powers)* Director
(Paul A. Vatter)* Director
(John M. Washburn, Jr.)* Director
*By: /s/ Kenneth J. Kelly
-----------------------
Kenneth J. Kelly
(Attorney-in-Fact)
March 30, 1994
</TABLE>
19
<PAGE> 21
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Report of Independent Accountants 21
Financial Statements
Consolidated Statements of Operations for the years ended
December 31, 1993, 1992 and 1991. *
Consolidated Statements of Financial Position
- December 31, 1993 and 1992. *
Consolidated Statements of Cash Flows for the
years ended December 31, 1993, 1992 and 1991. *
Consolidated Statements of Changes in Shareholders'
Equity for the years ended December 31, 1993, 1992
and 1991. *
Notes to Consolidated Financial Statements. *
Schedule I - Summary of Investments -
Other than Investments in Related Parties 22
Schedule VI - Reinsurance 23
Schedule VIII - Valuation and Qualifying Accounts 24
Schedule IX - Short-Term Borrowings 25
Schedule X - Supplemental Information Concerning Property -
Casualty Insurance Operations 26
</TABLE>
No other schedules are required to be filed herewith pursuant to Article 7 of
Regulation S-X.
* Incorporated herein by reference from pages 20-37 of The Hartford Steam
Boiler Inspection and Insurance Company 1993 Annual Report to shareholders.
20
<PAGE> 22
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
The Hartford Steam Boiler Inspection and Insurance Company:
We have audited the consolidated statements of financial position of The
Hartford Steam Boiler Inspection and Insurance Company and its subsidiaries as
of December 31, 1993 and 1992, and the related consolidated statements of
operations, cash flows and changes in shareholders' equity for each of the
three years in the period ended December 31, 1993, which financial statements
are included on pages 20 through 37 of the 1993 Annual Report to shareholders
of The Hartford Steam Boiler Inspection and Insurance Company and incorporated
by reference herein. We have also audited the financial statement schedules
listed in the index on page 20 of this Form 10-K. These financial statements
and financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Hartford
Steam Boiler Inspection and Insurance Company and its subsidiaries as of
December 31, 1993 and 1992, and the consolidated results of their operations
and their cash flows for each of the three years in the period ended December
31, 1993, in conformity with generally accepted accounting principles. In
addition, in our opinion, the financial statement schedules referred to above,
when considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
As discussed in Note 2 to the consolidated financial statements, the Company
changed its method of accounting for postemployment benefits, accounting for
investments in debt and equity securities, and accounting and reporting for
reinsurance during 1993, and its method of accounting for postretirement
benefits other than pensions in 1992.
COOPERS & LYBRAND
Hartford, Connecticut
January 24, 1994
21
<PAGE> 23
SCHEDULE I
THE HARTFORD STEAM BOILER INSPECTION AND INSURANCE COMPANY
Summary of Investments - Other Than Investments in Related Parties
(in millions)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F Column G
- ----------------------------------------- --------- -------- -------- -------- -------- --------
1993 1992
--------------------------------- ------------------------------
Amount Amount
Shown Shown
In The In The
Market Balance Market Balance
Type of Investment Cost Value Sheet * Cost Value Sheet *
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fixed Maturities:
Bonds:
U.S. Government and Government Agencies
and Authorities $0.2 $0.2 $0.2 $0.2 $0.2 $0.2
States, Municipalities and Political
Subdivisions 28.9 31.2 31.2 28.4 30.0 28.4
Foreign Governments 26.6 28.4 28.4 26.6 27.2 26.6
Convertibles and Bonds with Warrants Attached 0.0 0.0 0.0 0.0 0.0 0.0
All Other Bonds 7.6 7.7 7.7 2.7 2.7 2.7
Mortgage Receivable 11.1 11.1 11.1 11.1 11.1 11.1
Redeemable Preferred Stocks 72.3 76.3 76.3 82.6 86.4 82.6
--------------------------------------------------------------
Total Fixed Maturities $146.7 $154.9 $154.9 $151.6 $157.6 $151.6
---------------------------------------------------------------
Equity Securities:
Common Stocks:
Public Utilities $47.8 $48.1 $48.1 $57.7 $64.9 $64.9
Banks and Insurance 6.7 8.1 8.1 8.1 10.4 10.4
Industrial & Other 108.9 149.5 149.5 105.0 159.8 159.8
Non-Redeemable Preferred Stocks 73.4 84.3 84.3 68.2 74.8 74.8
---------------------------------------------------------------
Total Equity Securities $236.8 $290.0 $290.0 $239.0 $309.9 $309.9
---------------------------------------------------------------
Short-Term Investments and Cash: 61.1 61.1 61.1 55.5 55.5 55.5
---------------------------------------------------------------
Total Investments $444.6 $506.0 $506.0 $446.1 $523.0 $517.0
===============================================================
</TABLE>
* In 1993, the company adopted FAS 115, and as such classified all
amounts as available for sale and presented them at fair value. In 1992,
fixed maturities were carried at amortized cost.
22
<PAGE> 24
SCHEDULE VI
THE HARTFORD STEAM BOILER INSPECTION AND INSURANCE COMPANY
Reinsurance
(in millions)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- --------- -------- -------- -------- -------- -----------
Insurance Gross Ceded To Assumed Net Percentage Of
Premiums Amount Other From Other Amount Amount Assumed
Companies Companies To Net
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1993
Property and
Liability
Insurance $246.9 $29.3 $131.6 $349.2 37.7%
1992
Property and
Liability
Insurance $245.0 $19.4 $117.3 $342.9 34.2%
1991
Property and
Liability
Insurance $235.2 $18.5 $102.1 $318.8 32.0%
</TABLE>
23
<PAGE> 25
SCHEDULE VIII
THE HARTFORD STEAM BOILER INSPECTION AND INSURANCE COMPANY
Valuation and Qualifying Accounts
(in millions)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
----------- ------------ ---------- --------- ---------- -----------
Description Balance at Charged to Charged to Balance
Beginning of Costs and Other Deductions At End of
Period Expenses Acccounts Describe (a) Period
<S> <C> <C> <C> <C> <C>
1993
Reserve for Bad Debts $0.4 $0.9 - $0.7 $0.6
1992
Reserve for Bad Debts $0.3 $0.5 - $0.4 $0.4
1991
Reserve for Bad Debts $0.4 $0.1 - $0.2 $0.3
</TABLE>
(a) Engineering Services Receivable written off as uncollectible.
24
<PAGE> 26
SCHEDULE IX
THE HARTFORD STEAM BOILER INSPECTION AND INSURANCE COMPANY
Short-Term Borrowings
(in millions)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
-------- -------- -------- --------- -------- --------
Category of Balance At Weighted Maximum Amt. Avg. Amount Weighted Avg
Aggregate End of Period Average Outstanding Outstanding Interest Rate
Short-term Interest During the During the During the
Year Borrowings Rate* Period Period* Period*
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1993 Commercial Paper $ 42.7 3.33% $ 56.7 $ 51.0 3.27%
Payable to Banks 0.0 6.00% 2.1 0.0 6.00
1992 Commercial Paper $ 52.2 3.47% $ 60.2 $ 52.8 3.96%
Payable to Banks 0.0 6.00 1.5 0.4 5.03
1991 Commercial Paper $ 45.6 5.06% $ 45.4 $ 36.8 5.93%
Payable to Banks 1.3 6.50 1.6 0.7 8.35
</TABLE>
* Based on month-end balances and interest rates.
25
<PAGE> 27
SCHEDULE X
THE HARTFORD STEAM BOILER INSPECTION AND INSURANCE COMPANY
Supplemental Information Concerning Property - Casualty Insurance Operations
For the years ended December 31,1993, 1992 and 1991
(in millions)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F Column G
- -------- -------- -------- -------- -------- -------- --------
Affiliation
with registrant Prepaid Reserves for Discount, if Unearned Earned Net invest-
acquisition unpaid claims any, deducted premiums premiums ment income
cost and claim in Column C
adjustment
expenses
The Hartford Steam
Boiler Inspection and
Insurance Company
Consolidated
<S> <C> <C> <C> <C> <C> <C>
1993 $30.0 $214.4 - $169.3 $349.2 $29.3
--------------------------------------------------------------------------
1992 $30.0 $172.7 - $171.0 $342.9 $32.0
--------------------------------------------------------------------------
1991 $28.0 $111.4 - $156.9 $318.8 $36.5
</TABLE>
<TABLE>
<CAPTION>
Column H Column I Column J Column K
-------- -------- -------- --------
Claims and claim Amortization Paid claims Premiums
adjustment expenses of prepaid and claim written
incurred related to policy adjustment
aquisition expenses
Current Prior costs
Year Years
<S> <C> <C> <C> <C> <C>
1993 $172.2 $26.9 $64.2 $160.6 $344.5
----------------------------------------------------------
1992 $146.3 $26.1 $64.9 $151.0 $351.0
----------------------------------------------------------
1991 $119.4 $19.7 $60.5 $143.4 $325.0
</TABLE>
26
<PAGE> 28
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- -------- -----------
<S> <C>
(3)(i) Charter of The Hartford Steam Boiler Inspection and Insurance Company, incorporated by reference
to Exhibit (3)(a) to registrant's Form 10-K for the year ended December 31, 1990.
(3)(ii) By-laws of The Hartford Steam Boiler Inspection and Insurance Company as amended April 19, 1988.
(4) Instruments defining the rights of holders of long-term debt of the registrant are not being
filed since the total amount of securities authorized under each such instrument does not
exceed ten percent of the total assets of the registrant and its subsidiaries on a
consolidated basis. The registrant shall furnish copies of such instruments to the
Securities and Exchange Commission upon request.
(10)(i) Lease Agreement with One State Street Limited Partnership; incorporated by reference to Exhibit
(10)(i) to registrant's Form 10. File No. 0-13300, filed March 18, 1985.
(10)(iii) (a) Employment Agreement dated February 28, 1988 between the registrant and various
executive officers; incorporated by reference to Exhibit (10)(iii)(a) to registrant's
Form 10-K for the year ended December 31, 1992. *
(b) The Hartford Steam Boiler Inspection and Insurance Company Long-Term Incentive Plan,
as amended and restated April 21, 1992; incorporated by reference to Exhibit
(10)(iii)(b) to registrant's Form 10-K for the year ended December 31, 1992. *
(c) The Hartford Steam Boiler Inspection and Insurance Company Short-Term Incentive
Plan, as amended and restated April 21, 1992; incorporated by reference to Exhibit
(10)(iii)(c) to registrant's Form 10-K for the year ended December 31, 1992. *
(d) The Hartford Steam Boiler Inspection and Insurance Company 1985 Stock Option Plan, as
amended and restated April 21, 1992; incorporated by reference to Exhibit (10)(iii)(d)
to registrant's Form 10-K for the year ended December 31, 1992. *
(e) Retirement Plan for Outside Directors, as
</TABLE>
<PAGE> 29
<TABLE>
<CAPTION>
<S> <C> <C> <C>
amended and restated October 24, 1988.*
(f) The Hartford Steam Boiler Inspection and Insurance Company 1989 Restricted Stock Plan for
Non-Employee Directors; as amended and restated November 1, 1991; incorporated by
reference to Exhibit (10)(iii)(f) to registrant's Form 10-K for the year ended
December 31, 1992. *
(g) The Radian Corporation Supplemental Executive Retirement Plan effective January 1, 1991;
incorporated by reference to Exhibit (10)(iii)(g) to registrant's Form 10-K for the
year ended December 31, 1992. *
(h) Salary Continuation Agreement between Radian Corporation and Donald M. Carlton dated
January 1, 1986; incorporated by reference to Exhibit (10)(iii)(h) to registrant's
Form 10-K for the year ended December 31, 1992. *
(i) Salary Continuation Agreement between Radian Corporation and Donald M. Carlton dated
April 4, 1989; incorporated by reference to Exhibit (10)(iii)(i) to registrant's Form
10-K for the year ended December 31, 1992. *
(j) Description of certain arrangements not set forth in any formal documents, as
described on pages 6 - 7, with respect to directors' compensation, and on pages
10 - 15 and 18 - 19, with respect to executive officers' compensation, which pages
are incorporated by reference to registrant's Proxy Statement dated March 1, 1994. *
(13)(ii) Pages 15 - 37 and 40 - 41 of The Hartford Steam Boiler Inspection and Insurance
Company 1993 Annual Report to shareholders.
(21) Subsidiaries of the registrant.
(23) Consent of experts and counsel -
consent of Coopers & Lybrand.
(24) Power of attorney.
(28)P Information from reports furnished to state insurance regulatory authorities. Schedule P of
the Consolidated Annual Statement of The Hartford Steam Boiler Inspection and Insurance Company
and its Affiliated Insurers for 1993. (Filed under cover of Form SE.)
</TABLE>
* Management contract, compensatory plan or arrangement required to be
filed as an exhibit pursuant to Item 14(c) of this report.
<PAGE> 1
EXHIBIT (3)(ii)
BY-LAWS
of
THE HARTFORD STEAM BOILER
INSPECTION AND INSURANCE COMPANY
AMENDED AS OF APRIL 19, 1988
ARTICLE I.
STOCKHOLDERS' MEETINGS
All meetings of the Stockholders shall be held in the City of Hartford
or such other place within Connecticut as the Directors may appoint. The
Annual Meeting shall be held on the 3rd Tuesday of April in each year or on
some other day within two (2) months thereafter as fixed by the Directors.
Special meetings of the Stockholders may be held at such time as fixed by the
Board of Directors. Notice of every meeting of the Stockholders and of the
time and place thereof shall be given as required by law. At each meeting of
the Stockholders the President or Chairman of the Board shall preside and act
as Chairman. The Chairman shall appoint a Committee on Proxies to receive,
count and report the votes cast in person at such meeting and the votes
represented by proxies. The holders of a majority of the shares of the issued
and outstanding stock entitled to vote at a meeting, present either in person
or by proxy, shall constitute a quorum for the transaction of business at such
meeting of the Stockholders. If a quorum is not present at such meeting, the
Stockholders present in person or by proxy may adjourn to such future time as
shall be agreed upon by them, and notice of such adjournment shall be given to
Stockholders not present or represented at the meeting.
Regulations for the conduct of a meeting of Stockholders may be
prescribed by the Chairman or at his option be adopted by the Stockholders
present by voice vote or by ballot.
ARTICLE II.
DIRECTORS
The Board of Directors shall be composed of not less than 9 nor more
than 14 members. No person shall serve as Director beyond the date of the
first Annual Meeting of Stockholders held subsequent to the Director's
seventieth birthday.
Directly following the Annual Meeting of the Stockholders, the Board of
Directors shall meet for the appointment of committees and for the election of
Officers and the transaction of any other business.
Regular and special meetings of the Board of Directors shall be held as
determined by the Directors.
<PAGE> 2
At any meetings of the Board of Directors, six (6) Directors shall
constitute a quorum for the transaction of business. Action of the Board of
Directors shall be by majority vote of the Directors present. The compensation
of Directors shall be determined by the Board of Directors.
ARTICLE III.
COMMITTEES
The Board of Directors may by resolution adopted by a majority vote of
the Directors present at a meeting at which a quorum is present, designate two
or more Directors to constitute an executive committee or other committees,
which committees shall have and may exercise all such authority of the Board of
Directors as shall be provided in such resolution.
The Directors of any committee of the Board of Directors may designate
a Director to serve on such committee in the place of a duly appointed Director
who is absent.
ARTICLE IV.
OFFICERS
There shall be a President and there may be a Chairman of the Board,
each elected by the Board of Directors from their own number. The President
shall be the chief executive officer and responsible under the direction of the
Board of Directors for the supervision, management and active control of the
affairs and properties of the Company.
There shall also be one or more Vice Presidents and there may be an
Executive Vice President. There shall also be a Treasurer, a Secretary, and
such other Officers as may be required for the prompt and orderly transaction
of the business of the Company.
The Officers (or any Officer) shall be elected to hold office until the
next Annual Meeting. Any officer may be removed at the pleasure of the
Directors.
ARTICLE V.
CORPORATE AUTHORITY
The President, any Vice President, the Treasurer, or the Secretary may
represent the Company either in person or by proxy at the Stockholders' meeting
of any corporation at which this Company is or may become a Stockholder.
The President, any Vice President, the Treasurer, the Secretary, or the
Assistant Treasurer, or any other officer to whom the President or the Board of
Directors delegates such authority, is hereby authorized to sign checks drawn
against the credit balances of this Company in any bank or trust company and is
hereby authorized to receive, receipt for and endorse any and all checks,
drafts and warrants issued and made payable to this Company; and any one or
more representative(s) of the Company
<PAGE> 3
duly authorized by the Secretary are hereby authorized to sign checks drawn
against the credit balances of this Company in certain accounts as specified by
the Secretary; and the Secretary is hereby authorized to rescind any
check-signing authorizations of any one or more representative(s).
The President, any Vice President, the Treasurer, or the Secretary, is
hereby authorized and empowered to sell, assign and transfer any and all
investments or real estate upon the approval of each transaction by the Finance
Committee or by the Board of Directors.
The President, any Vice President, the Treasurer, the Secretary, the
Assistant Treasurer, any Assistant Vice President, or any Assistant Secretary
or any other Officer to whom the President or the Board delegates such
authority, is authorized to execute any release, assignment, lease, contract or
other instruments relating to the operation of the Company and required in the
regular course of business.
ARTICLE VI.
AMENDMENTS
These by-laws may be altered, amended, added to or repealed by a
majority of the entire Board of Directors at any meeting of said Board,
provided that notice thereof shall have been given in the notice of such
meeting.
<PAGE> 1
Exhibit (10)(e)
Amended and restated as of October 24, 1988
RETIREMENT PLAN FOR OUTSIDE DIRECTORS
1. Purpose of the Plan
The purposes of this Plan are to attract and retain directors of
exceptional ability and to encourage them to make a long-term
commitment to The Hartford Steam Boiler Inspection and Insurance
Company ("the Company").
2. Administration
The Plan shall be administered by the Compensation Committee of the
Board of Directors together with the President of the Company (the
"Plan Committee"). The Committee is authorized to interpret the Plan
and may from time to time adopt such rules and regulations for
carrying out the Plan as it may deem appropriate. Decisions of the
Committee will be final, conclusive and binding upon all parties
concerned, unless otherwise determined by a majority of the Board of
Directors.
3. Eligibility
(a) A Director who is not an employee of the Company or any of its
subsidiaries and who has been a member of the Board for a
minimum period of one full year shall be eligible to
participate in the Plan.
(b) To receive benefits under this Plan (other than the spousal
death benefit described under Section 5 hereunder) a Director
must continue as a member of the Board until his 55th
birthday.
4. Amount of and Timing of Benefit
(a) A Director who has been a member of the Board for at least ten
years shall be entitled to receive an annual retirement
benefit equal to the annual retainer paid to such Director
immediately prior to his or her retirement.
(b) A Director with more than one full year but less than ten
years of service on the Board shall be entitled to a prorated
annual benefit based on the number of full years he or she has
served on the Board divided by ten, multiplied by the annual
retainer paid to such Director immediately prior to his or her
retirement.
(c) The benefit shall be paid in arrears in semi-annual
installments on January 1st and July 1st of each year and
shall be payable for the life of the Director. Benefit
payments shall commence on the earlier of the January 1st or
July 1st immediately following the Director's retirement.
(d) The amount of benefit payable hereunder to retired directors
may be adjusted periodically at the
<PAGE> 2
discretion of the Board of Directors.
5. Spousal Death Benefit
(a) In the event of the death of a Director with at least one full
year of service while still serving as a member of the Board,
his or her spouse shall be entitled to receive a death benefit
equal to 50% of the annual director's retainer in effect at
the time of the director's death. The ten years of service
requirement will be waived in the event of the Director's
death while still serving as a member of the Board.
(b) The death benefit will be paid in arrears in equal,
semi-annual installments on January 1st and July 1st of each
year until the spouse dies or remarries.
6. Unfunded Obligations; Trust Agreement
The Company will pay from its general assets all benefits to be paid
hereunder. However, the Company may in its discretion, establish a
trust, escrow agreement or similar arrangement in order to aid the
Company in meeting its obligations hereunder.
Any assets transferred by the Company into any such arrangement shall
remain at all times assets of the Company and subject to the claims of
the Company's general creditors in the event of bankruptcy or
insolvency of the Company. No security interest in such assets shall
be created in a Director's favor and a Director's rights under this
Plan and under any such arrangement shall be those of a general
unsecured creditor of the Company.
7. Assignment and Alienation
Benefits under this Plan may not be anticipated, assigned (either at
law or in equity), alienated, or subjected to attachment, garnishment,
levy, execution or other legal or equitable process. If a Director
became bankrupt or attempts to anticipate, alienate, sell, transfer,
assign, pledge, encumber or charge any benefit under this Plan, such
benefit shall, in the discretion of the Company, cease and terminate,
in which event the Company may hold or apply the same or any part
thereof for the benefit of such Director, his or her beneficiary,
spouse, children, other dependants or any of such individuals, in such
manner and in such proportion as the Company may deem proper.
8. Amendment and Termination
The Company reserves the right by action of its Board of Directors to
amend, terminate, or waive any requirement of the Plan at any time,
except that no such action may reduce any benefit that has accrued
under this Plan for any Director or retired Director's without such
Director's or retired Director's written consent.
<PAGE> 3
9. Change in Control
In the event of a Change in Control of the Company, this Plan shall
continue to be binding upon the Company, any successor in interest to
the Company and all persons in control of the Company or any successor
thereto and no transaction or series of transactions shall have the
effect of reducing or eliminating the benefits payable to a Director
that have not been distributed unless accrued consented to in writing
by such affected Director. A "Change in Control" as referred to under
this Plan shall be deemed to have occurred if:
(a) any "person" (as defined in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange
Act")), other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Company, is
or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities
of the Company representing twenty-five percent (25%) or more
of the combined voting power of the Company's then outstanding
securities;
(b) during any period within two (2) consecutive years there shall
cease to be a majority of the Board of Directors comprised as
follows: individuals who at the beginning of such period
constitute the Board of Directors and any new director(s)
whose election by the Board of Directors or nomination for
election by the Company's shareholders was approved by a vote
of at least two-thirds (2/3) of the directors then still in
office who either were directors at the beginning of the
period or whose election or nomination for election was
previously so approved; or
(c) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other
than (i) a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of
the surviving entity) more than 80% of the combined voting
power of the voting securities of the Company (or such
surviving entity) outstanding immediately after such merger or
consolidation or (ii) a merger or consolidation effected to
implement a recapitalization of the Company (or similar
transaction) in which no "person" (as hereinabove defined)
acquires more than 25% of the combined voting power of the
Company's then outstanding securities; or
(d) the shareholders of the Company approve (i) a plan of complete
liquidation of the Company or (ii) the sale or other
disposition of all or substantially all the
<PAGE> 4
Company assets.
10. Governing Law
This Plan shall be governed at all times in accordance with the laws
of the State of Connecticut.
11. Effective Date
This Plan will become effective as of September 28, 1981.
<PAGE> 1
EXHIBIT 13(ii)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
December 31, 1993
SUMMARY OF RESULTS OF OPERATIONS
Income after taxes and before accounting changes for 1993 was $13.1 million or
$.63 per share compared to 1992 earnings of $56.3 million or $2.71 per share
and 1991 earnings of $73.9 million or $3.53 per share. Results for 1993 were
significantly impacted by a $20 million restructuring charge, increased claims
and adjustment expenses, increased costs of reinsurance and a reduced level of
realized gains.
Total revenues were substantially unchanged at $636.1 million in 1993
compared to $636.7 million in 1992, which was 6.2 percent higher than revenues
of $599.5 million in 1991. In 1993, increased insurance premiums were offset by
lower investment income and lower realized gains. Net engineering services
revenue was substantially unchanged in 1993 from 1992. In 1992, insurance and
net engineering services revenues increased 7.6 percent and 9.8 percent
respectively from 1991, and income from investment operations decreased from
1991.
[TOTAL REVENUES CHART -- SEE EDGAR APPENDIX]
Insurance operations sustained an operating loss of $26.4 million in 1993
compared to operating gains of $1.8 million and $22.9 million in 1992 and 1991,
respectively. Engineering services operating gain decreased 19.7 percent to
$11.8 million in 1993 from $14.7 million in 1992, and the net margin decreased
in 1993 to 5.1 percent from 6.4 percent in 1992. Income from investment
operations decreased 11.8 percent to $55.4 million from $62.8 million in 1992.
Income from investment operations in 1992 was 10.7 percent lower than 1991
income from investment operations of $70.4 million. The decline in income from
investment operations in 1993 resulted from lower interest rates, lower
realized gains and a decrease in the average invested assets in 1993 compared
to prior years.
In the third quarter of 1993, the Company recorded a $20 million charge
to operations for the cost of restructuring its insurance and engineering
services businesses. Restructuring costs include severance and other costs
related to approximately 300 planned staff reductions and charges related to a
realignment of the Company's operations. In 1993, the Company changed its
method of presenting its participation in Engineering Insurance Group ("EIG"),
an insurance association, from the proportional consolidation method to the
equity method of accounting. This change had no impact on the Company's
reported net income, and all prior year amounts have been reclassified
accordingly.
Dividends paid in 1993 were $2.12, an increase of 4.4 percent from the
$2.03 paid in 1992 which increased 9.7 percent from the $1.85 paid in 1991.
15
<PAGE> 2
Insurance Operations
The operating loss sustained by insurance operations was the result of an
increase in claims and adjustment expenses in 1993. Underwriting and
inspection expenses increased 8.2 percent to $112.3 million from $103.8 million
in 1992, which increased 7.8 percent from 1991. The Company's claims and
adjustment expenses in 1993 include weather related losses from the 1993 winter
storms and midwest floods of $5.3 million and $6.8 million, respectively. The
1992 claims and adjustment expenses included $15.0 million related to hurricane
Andrew, net of reinsurance of $23.8 million. Insurance operations in 1993 were
also impacted by higher reinsurance costs. Recent experience within the
Company's excess of loss reinsurance treaty, including losses related to
hurricane Andrew and other large losses, resulted in increased reinsurance
costs in the second half of 1993. Underwriting and inspection expenses in 1993
include increases in employee related, travel and certain system development
costs. Restructuring activities including staff reductions are expected to have
a positive impact on underwriting and inspection expenses in 1994. Policy
acquisition expenses of $64.2 million were substantially unchanged in 1993, but
were lower as a percentage of insurance premiums.
[INSURANCE REVENUES CHART -- SEE EDGAR APPENDIX]
Insurance premiums increased $6.3 million to $349.2 million in 1993 from
$342.9 million in 1992. The 1.8 percent increase in insurance premiums was made
up of increases in net coverages and prices and net new business offset by
higher reinsurance costs. The increase in new business in 1993 was primarily
attributable to growth in reinsurance assumed. The net increases in coverages
and prices in 1993 were primarily due to the impact of a program the Company
began early in 1993 to increase prices for its major customers in response to
loss experience. Price competition continues to depress results in the
property/casualty industry, and the Company is prepared to experience flat or
lower revenues to accomplish improved profitability in 1994. In addition, the
weak U.S. economy has encouraged customers to select insurance programs with
modest price adjustments but higher deductibles, contributing to slower premium
growth. This, combined with the Company's re-underwriting efforts should have a
positive future impact on both the frequency and severity of losses.
Claims and adjustment expenses increased $26.7 million or 15.5 percent in
1993 after increasing $33.3 million or 23.9 percent in 1992. The components of
claims and adjustment expenses net of reinsurance were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Provision for claims and adjustment expenses
occurring in the current year . . . . . . . . . . . . $ 172.2 $ 146.3 $ 119.4
Change in estimated claims and
adjustment expenses established
in prior years . . . . . . . . . . . . . . . . . . . . 26.9 26.1 19.7
-------- ------- --------
Claims and adjustment expenses . . . . . . . . . . . . . $ 199.1 $ 172.4 $ 139.1
======== ======= =========
</TABLE>
The 1993 loss ratio of 57.1 percent, compares to 50.3 percent for 1992 and 43.6
percent for 1991. During 1993, the Company increased the incurred but not
reported reserve by $10.2 million. The 1993, 1992 and 1991 claims and
adjustment expenses included adverse development of prior years reserves. The
adverse development of the 1992, 1991 and 1990 year end reserves was
attributable to the settlement of certain large losses for which the Company
initially determined it would not have liability; the settlement of some
outstanding claims for more than was originally anticipated; unusually late
notice of loss provided by the insured for several large losses; and reserves
established for losses on which the coverage is being contested. The adverse
development of the 1991 year end reserve was also impacted by two large
December losses. The gross claims and adjustment expense reserve at year end
1993 was $214.4 million compared to the reserve at year end 1992 of $172.7
million. At December 31, 1993 the claims recoverable from reinsurers was $44.5
million compared to $39.9 million at December 31, 1992.
16
<PAGE> 3
Engineering Services Operations
Net engineering services revenues were substantially unchanged in 1993 at
$231.5 million from $231.0 million in 1992, which was 9.8 percent higher than
revenues of $210.3 million in 1991. The flat revenue in 1993 reflects slight
price increases, offset by lower volume. Engineering services operating gain
decreased 19.7 percent to $11.8 million in 1993 from $14.7 million in 1992 and
$14.0 million in 1991. The margin decreased to 5.1 percent in 1993 from 6.4
percent in 1992 and 6.7 percent in 1991. The Company anticipated engineering
services revenue growth to slow during 1993 as the Company focused on higher
margin business. Revenues and operating gains were lower than anticipated due
to the deferral of engineering services projects caused by the general weakness
in the economy and government indecision resulting from changes in the
Washington Administration. The Company anticipates improved margins in 1994 as
the benefits of the expense reduction programs begun in 1993 are realized.
[ENGINEERING SERVICES CHART -- SEE EDGAR APPENDIX]
Investment Operations
The Company's investment strategy continues to be to maximize the total return
on the investment portfolio over the long-term -- through investment income and
capital appreciation. Income from investment operations, combining net
investment income and realized gains, decreased in 1993 to $55.4 million from
$62.8 million in 1992 and $70.4 million in 1991. Net investment income was
$29.3 million in 1993 compared to $32.0 million in 1992, a decrease of $2.7
million or 8.4 percent. In 1992, net investment income decreased 12.3 percent
from $36.5 million in 1991. The decreases were primarily the result of declines
in interest rates and decreases in average invested assets. The decreases in
average invested assets were the result of cash used to pay dividends, the
repurchase of the Company's stock and the purchase of fixed assets, the
combination of which exceeded cash provided by operations. The Company
repurchased $9.8 million and $15.9 million of its stock in 1993 and 1992,
respectively. Realized gains were $26.1 million in 1993 compared to $30.8
million in 1992, and $33.9 million in 1991.
The market value of the portfolio decreased $17.0 million from $523.0
million to $506.0 million. At December 31, 1993, the pretax balance of
unrealized gains related to equity securities and fixed maturities was $61.4
million.
At December 31, 1993, both equity securities, including non-redeemable
preferreds, and fixed maturities, including redeemable preferreds, are carried
at fair value and are classified as available for sale under the accounting
provisions of FAS 115 ("Accounting for Certain Investments in Debt and Equity
Securities"). Prior to the adoption of FAS 115, fixed maturities were carried
at amortized cost and were classified as held to maturity.
The credit quality of the Company's bond investments at December 31, 1993
averaged a AA rating. The Company's portfolio does not include any bonds in
default as to either principal or interest. Bonds held at December 31, 1993 had
an average yield of 7.5 percent. The fair value of bonds at December 31, 1993
was $78.6 million and the amortized cost was $74.4 million. Bonds held at
December 31, 1993 with a rating of lower than BBB had a fair value of $2.2
million and an amortized cost of $2.3 million.
The Company's redeemable preferred stock investments average a BBB rating
and yield 8.4 percent. At December 31, 1993, the fair value of these
investments was $76.3 million and the cost was $72.3 million.
The Company has slightly more than half of its invested assets in equity
securities accounting for approximately 33 percent of total assets at December
31, 1993. The Company's largest single holding accounts for 1.0 percent of
total assets. The Company has an exposure to the movement of the stock market,
but its investment strategy remains based on the premise that common stocks
provide the highest total return available in the securities markets.
17
<PAGE> 4
Income Taxes
The effective tax rate for 1993 was 22 percent compared to 23 percent for 1992
and 27 percent for 1991. The lower tax rates in 1993 and 1992 were the result
of investment income, much of which is exempt from federal taxes, being a
larger proportion of total income before taxes, and the utilization of federal
tax credits. The lower effective rate was partially offset by the 1 percent
increase in the corporate tax rate.
[INCOME FROM INVESTMENT OPERATIONS CHART -- SEE EDGAR APPENDIX]
Liquidity and Capital Resources
At December 31, 1993, the Company had significant short-term and long-term
borrowing capacity. In addition, the Company receives a regular inflow of cash
from maturing investments, and maintains a highly liquid investment portfolio.
The Company manages its cash and short-term investment position to meet
its operating expense and claims payment needs. Cash from operating activities
was provided by receipts from insurance premiums, engineering services and
investment income, offset by payments for claims and operating expenses such as
salaries, commissions and taxes.
As reported in the Consolidated Statements of Cash Flows, the Company had
cash provided by operating activities of $62.5 million, $73.8 million and $37.9
million in 1993, 1992 and 1991, respectively. During the same periods,
investment transactions provided cash of $16.0 million, $15.9 million and $5.6
million, respectively. The cash provided by operations and investment
transactions was used to pay dividends, purchase fixed assets, repurchase
Company stock and repay short-term borrowings. The Company repurchased
approximately 200,000 and 300,000 shares of its stock in 1993 and 1992,
repectively.
The Company issues short-term commercial paper to fund operating needs.
Commercial paper issued by the Company has received an A1+ rating from Standard
& Poor's and a P1 rating from Moody's. The Company is currently authorized to
issue up to $75 million of commercial paper. At year-end 1993 and 1992, $42.7
million and $52.2 million of commercial paper was outstanding, respectively.
The commercial paper outstanding during 1993 and 1992 was primarily used to
fund engineering services operations.
Dividends paid by the Company are limited by state insurance regulations.
The current restriction is the greater of 10 percent of statutory surplus or
prior year's net income as reported to the regulatory agencies. Currently, the
Company can pay $25.9 million in dividends in 1994 without requesting
regulatory approval. Due to the Company's strong financial position, regulatory
approval was received for the payment of 1993 dividends. The Company expects to
be required to request regulatory approval for the payment of dividends in
1994.
The Company continues to maintain a very conservative capital position
when measured by regulatory requirements. In 1993, the Company's written
premium to surplus ratio was 1.3 to 1.0, which was well below the maximum
leverage point of 3.0 to 1.0 prescribed by state insurance regulators for
property/casualty insurance companies. This relatively low ratio and a low debt
to equity ratio allow the Company access to adequate capital resources.
The short-term nature of the liabilities in the Company's insurance
business and its continued conservative surplus position allow the Company the
flexibility to invest in equity securities and shorter duration fixed maturity
investments. As a result of the short duration of the Company's liabilities,
increases in inflation would not have a significant impact on the Company's
surplus.
18
<PAGE> 5
The Company's investments together with its available credit lines
combine to give the Company significant sources of liquidity. The Company
anticipates that cash flow from operations, the liquidity of its investments
and available credit will enable it to meet any foreseeable cash requirements.
Further enhancing the preservation of capital, the Company maintains
reinsurance to limit its exposure to any one hazard to $3.5 million for most of
the Company's business, with a $6 million maximum limit in certain instances
and catastrophe reinsurance for aggregate net losses greater than $15 million.
The National Association of Insurance Commissioners ("NAIC") recently
finalized the formula for Risk Based Capital ("RBC") requirements for
property/casualty insurers. RBC establishes a required statutory surplus level
for an insurance company based on the risks inherent in its overall operations.
Use of the RBC formula is expected to begin in 1995 for 1994 financial
statement data. The application of the current RBC standards to the Company's
operations at December 31, 1993 affirms that the Company's statutory surplus
exceeds the RBC requirements. The Company does not anticipate that the RBC
requirements will affect its ability to conduct its business.
Accounting Changes
At December 31, 1993, the Company adopted Statement of Financial Accounting
Standards No. 115 ("FAS 115"), "Accounting for Certain Investments in Debt and
Equity Securities". FAS 115 expands the use of fair value accounting for debt
and equity securities but retains the use of amortized cost for investments in
debt securities that the reporting entity has positive intent and ability to
hold to maturity.
During the year the Company adopted Statement of Financial Accounting
Standards No. 112 ("FAS 112"), "Employers' Accounting for Postemployment
Benefits" with retroactive application to January 1, 1993. This standard
requires the Company to accrue for the cost of postemployment benefits under
certain conditions, rather than report them on a cash basis, the prior
accounting practice. During the year the Company also adopted Statement of
Financial Accounting Standards No. 113 ("FAS 113"), "Accounting and Reporting
for Reinsurance of Short-Duration and Long-Duration Contracts". Under the
provisions of FAS 113, reinsurance recoverable on unpaid claims and the
unearned portion of ceded reinsurance premiums are reported as assets, rather
than netted against the related liability accounts.
In 1992, the Company adopted Statement of Accounting Standards No. 106
("FAS 106"), "Employers' Accounting for Postretirement Benefits Other Than
Pensions", with retroactive application to January 1, 1992. In 1992, the
Company also adopted the provisions of Statement of Financial Accounting
Standards No. 109 ("FAS 109"), "Accounting For Income Taxes" with retroactive
application to January 1, 1989.
These accounting changes are discussed in further detail in the notes
to the financial statements.
19
<PAGE> 6
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, (in millions, except per share data)
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
REVENUES:
Insurance premiums . . . . . . . . . . . . . . . . . . $ 349.2 $ 342.9 $ 318.8
Net engineering services . . . . . . . . . . . . . . . . 231.5 231.0 210.3
Net investment income . . . . . . . . . . . . . . . . . 29.3 32.0 36.5
Realized investment gains . . . . . . . . . . . . . . . 26.1 30.8 33.9
---------------------------------------
Total revenues . . . . . . . . . . . . . . . . . . . 636.1 636.7 599.5
---------------------------------------
EXPENSES:
Claims and adjustment . . . . . . . . . . . . . . . . . 199.1 172.4 139.1
Policy acquisition . . . . . . . . . . . . . . . . . . 64.2 64.9 60.5
Underwriting and inspection . . . . . . . . . . . . . . 112.3 103.8 96.3
Engineering services . . . . . . . . . . . . . . . . . 219.7 216.3 196.3
Interest . . . . . . . . . . . . . . . . . . . . . . . 1.8 2.5 3.5
Restructuring . . . . . . . . . . . . . . . . . . . . . 20.0 -- --
---------------------------------------
Total expenses . . . . . . . . . . . . . . . . . . . 617.1 559.9 495.7
Equity in operations of insurance association (2.1) (3.4) (2.8)
INCOME BEFORE TAXES AND CUMULATIVE
---------------------------------------
EFFECTS OF CHANGES IN ACCOUNTING PRINCIPLES . . . . . 16.9 73.4 101.0
---------------------------------------
INCOME TAXES (BENEFIT):
Current . . . . . . . . . . . . . . . . . . . . . . . 6.9 18.7 30.2
Deferred . . . . . . . . . . . . . . . . . . . . . . . (3.1) (1.6) (3.1)
---------------------------------------
Total income taxes . . . . . . . . . . . . . . . . 3.8 17.1 27.1
INCOME BEFORE CUMULATIVE EFFECTS
---------------------------------------
OF CHANGES IN ACCOUNTING PRINCIPLES . . . . . . . . . 13.1 56.3 73.9
Cumulative effects of changes in accounting principles
(net of income taxes of $1.9 and $7.8, respectively) (3.6) (15.1) --
---------------------------------------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . $ 9.5 $ 41.2 $ 73.9
=======================================
PER SHARE:
Income before accounting changes . . . . . . . . . . . $ 0.63 $ 2.71 $ 3.53
Cumulative effects of changes
in accounting principles . . . . . . . . . . . . . . (0.17) (0.73) --
---------------------------------------
Net income . . . . . . . . . . . . . . . . . . . . . . $ 0.46 $ 1.98 $ 3.53
=======================================
Average shares outstanding . . . . . . . . . . . . . . . . 20.7 20.8 21.0
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
20
<PAGE> 7
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
At December 31, (in millions, except per share data)
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
ASSETS:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7.3 $ 8.7
Short-term investments, at cost . . . . . . . . . . . . . 53.8 46.8
Fixed maturities:
Held to maturity, at amortized cost
(fair value -- $157.6) . . . . . . . . . . . . . . . -- 151.6
Available for sale, at fair value
(cost -- $146.7) 154.9 --
Equity securities, at fair value
(cost -- $236.8; $239.0) . . . . . . . . . . . . . . . 290.0 309.9
-----------------------
Total cash and invested assets . . . . . . . . . . . . 506.0 517.0
Insurance premiums receivable . . . . . . . . . . . . . 68.5 62.0
Engineering services receivable . . . . . . . . . . . . 79.0 71.2
Fixed assets . . . . . . . . . . . . . . . . . . . . . . 64.3 67.4
Participation in pools and associations . . . . . . . . 8.4 11.3
Prepaid acquisition costs . . . . . . . . . . . . . . . . 30.0 30.0
Capital lease . . . . . . . . . . . . . . . . . . . . . . 18.3 19.0
Reinsurance recoverable 44.5 39.9
Other assets . . . . . . . . . . . . . . . . . . . . . . 58.9 68.6
-----------------------
Total assets . . . . . . . . . . . . . . . . . . . . . $ 877.9 $ 886.4
=======================
LIABILITIES:
Unearned insurance premiums . . . . . . . . . . . . . . $ 169.3 $ 171.0
Claims and adjustment expenses . . . . . . . . . . . . . 214.4 172.7
Short-term borrowings . . . . . . . . . . . . . . . . . 42.7 52.2
Long-term borrowings . . . . . . . . . . . . . . . . . . .7 .8
Capital lease . . . . . . . . . . . . . . . . . . . . . . 27.7 27.6
Deferred income taxes . . . . . . . . . . . . . . . . . 6.9 15.5
Dividends payable . . . . . . . . . . . . . . . . . . . . 10.9 11.0
Employee stock ownership plan . . . . . . . . . . . . . 3.7 5.6
Other liabilities . . . . . . . . . . . . . . . . . . . . 76.9 55.7
-----------------------
Total liabilities . . . . . . . . . . . . . . . . . . . 553.2 512.1
-----------------------
Shareholders' equity:
Common stock (stated value; shares authorized
50.0; shares issued 21.3; shares
outstanding 20.5; 20.7) . . . . . . . . . . . . . . . 10.0 10.0
Additional paid-in capital . . . . . . . . . . . . . . . 33.9 33.4
Unrealized investment gains, net of tax . . . . . . . . 44.2 51.9
Retained earnings . . . . . . . . . . . . . . . . . . . 280.4 314.8
Treasury stock, at cost; (shares -- .8; .6) . . . . . . . (35.7) (26.9)
Benefit plans . . . . . . . . . . . . . . . . . . . . . . (8.1) (8.9)
-----------------------
Total shareholders' equity . . . . . . . . . . . . . . 324.7 374.3
-----------------------
Total liabilities and shareholders' equity . . . . . . $ 877.9 $ 886.4
=======================
Shareholders' equity per share . . . . . . . . . . . . $ 15.80 $ 18.05
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
21
<PAGE> 8
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, (in millions)
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 9.5 $ 41.2 $ 73.9
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . 20.6 19.9 20.3
Deferred income taxes . . . . . . . . . . . . . . . . . . (3.1) (9.3) (3.1)
Realized investment gains, net of tax . . . . . . . . . . (16.9) (20.3) (22.1)
Change in:
Insurance premiums receivable . . . . . . . . . . . . (6.5) (2.5) (.4)
Engineering services receivable . . . . . . . . . . . (7.8) 1.3 (19.4)
Prepaid acquisition costs . . . . . . . . . . . . . . . -- (2.1) (.4)
Reinsurance recoverable (4.6) (39.9) --
Unearned insurance premiums . . . . . . . . . . . . . (1.7) 14.1 6.2
Claims and adjustment expenses . . . . . . . . . . . . 41.7 61.4 (4.4)
Other 31.3 10.0 (12.7)
-------------------------------------
Cash provided by operating activities . . . . . . . 62.5 73.8 37.9
-------------------------------------
INVESTING ACTIVITIES:
Fixed asset additions . . . . . . . . . . . . . . . . . . . . (14.3) (26.2) (23.6)
Investments:
Sale (purchase) of short-term investments, net . . . . . . (7.2) (5.1) 7.0
Purchase of fixed maturities . . . . . . . . . . . . . . (29.9) (36.2) (17.2)
Proceeds from sale of fixed maturities . . . . . . . . . 7.0 15.6 39.1
Redemption of fixed maturities . . . . . . . . . . . . . 27.5 21.3 16.3
Purchase of equity securities . . . . . . . . . . . . . . (488.5) (446.1) (481.4)
Proceeds from sale of equity securities . . . . . . . . 507.1 466.4 441.8
-------------------------------------
Cash provided by (used in) investing activities . . . . 1.7 (10.3) (18.0)
-------------------------------------
FINANCING ACTIVITIES:
Dividends paid to shareholders . . . . . . . . . . . . . . . (43.9) (42.3) (38.7)
Increase (decrease) in short-term borrowings, net . . . . . . (9.5) 5.2 19.3
Repayment of long-term debt . . . . . . . . . . . . . . . . . (.1) (5.6) (5.7)
Repayment of employee stock ownership plan debt . . . . . . . (1.9) (1.7) (1.6)
Issuance (purchase) of treasury stock . . . . . . . . . . . (10.2) (16.4) 1.2
-------------------------------------
Cash used in financing activities . . . . . . . . . . . (65.6) (60.8) (25.5)
-------------------------------------
Net increase (decrease) in cash . . . . . . . . . . . . . (1.4) 2.7 (5.6)
Cash at beginning of period . . . . . . . . . . . . . . . 8.7 6.0 11.6
------------------------------------
Cash at end of period . . . . . . . . . . . . . . . . . . $ 7.3 $ 8.7 $ 6.0
=====================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
22
<PAGE> 9
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the years ended December 31, (in millions)
<TABLE>
<CAPTION>
NET
TOTAL UNREALIZED
SHARE- ADDITIONAL INVESTMENT
HOLDERS' COMMON PAID-IN GAINS RETAINED TREASURY BENEFIT
EQUITY STOCK CAPITAL (LOSSES) EARNINGS STOCK PLANS
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1990 . . . . . $348.7 $10.0 $28.4 $56.2 $282.3 $(16.3) $(11.9)
Net income . . . . . . . . . . . . . . . 73.9 -- -- -- 73.9 -- --
Dividends declared . . . . . . . . . . (39.9) -- -- -- (39.9) -- --
Change in unrealized
investment gains . . . . . . . . . . 11.9 -- -- 11.9 -- -- --
Benefit plans . . . . . . . . . . . . . 5.0 -- 2.9 -- -- 2.1 --
Exercise of stock options . . . . . . . 3.2 -- 1.7 -- -- 1.5 --
- -----------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1991 . . . . . 402.8 10.0 33.0 68.1 316.3 (12.7) (11.9)
- -----------------------------------------------------------------------------------------------------------------------
Net income . . . . . . . . . . . . . . 41.2 -- -- -- 41.2 -- --
Dividends declared . . . . . . . . . . (42.7) -- -- -- (42.7) -- --
Change in unrealized
investment gains . . . . . . . . . . (16.2) -- -- (16.2) -- -- --
Benefit plans . . . . . . . . . . . . . 4.0 -- .3 -- -- .7 3.0
Exercise of stock options . . . . . . . 1.1 -- .1 -- -- 1.0 --
Purchase of treasury stock . . . . . . . (15.9) -- -- -- -- (15.9) --
- -----------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1992 . . . . . 374.3 10.0 33.4 51.9 314.8 (26.9) (8.9)
- -----------------------------------------------------------------------------------------------------------------------
NET INCOME . . . . . . . . . . . . . . . 9.5 -- -- -- 9.5 -- --
DIVIDENDS DECLARED . . . . . . . . . . (43.9) -- -- -- (43.9) -- --
CHANGE IN UNREALIZED
INVESTMENT GAINS . . . . . . . . . . (13.0) -- -- (13.0) -- -- --
FAS 115 ACCOUNTING CHANGE . . . . . . . 5.3 -- -- 5.3 -- -- --
BENEFIT PLANS . . . . . . . . . . . . . 1.4 -- .2 -- -- .4 .8
EXERCISE OF STOCK OPTIONS . . . . . . . .9 -- .3 -- -- .6 --
PURCHASE OF TREASURY STOCK . . . . . . (9.8) -- -- -- -- (9.8) --
- -----------------------------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1993 . . . . . $324.7 $10.0 $33.9 $44.2 $280.4 $(35.7) $(8.1)
=======================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
23
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollar amounts in millions)
1. Accounting Policies
CONSOLIDATION The accompanying financial statements present the consolidated
accounts of The Hartford Steam Boiler Inspection and Insurance Company and its
subsidiaries (collectively, the Company) and are prepared in accordance with
generally accepted accounting principles. Significant intercompany transactions
and balances have been eliminated. Certain amounts from 1992 and 1991 have been
reclassified to conform with the 1993 presentation.
INSURANCE Insurance premiums are net of reinsurance ceded and are earned on a
pro rata basis over the contract period. The portion of gross insurance
premiums not earned at the end of the period is recorded as Unearned insurance
premiums on the Statements of Financial Position. Unearned ceded premiums are
recorded as prepaid premiums and are included in Other assets.
Prepaid acquisition costs, consisting of commissions and premium taxes,
are amortized as the related insurance premiums are earned.
The liability for claims and adjustment expenses for boiler and
machinery, property, environmental liability and other coverages represents the
estimated liability net of salvage recoverable on outstanding claims and claims
incurred but not reported. These liabilities are regularly adjusted based on
historical experience and the latest available information from ceding
reinsurers. These adjustments are recorded currently through the Statements of
Operations.
ENGINEERING SERVICES The Company recognizes the majority of its engineering
services revenues as the service is provided, net of related costs of
subcontracts of $24.6 million, $33.7 million and $21.8 million in 1993, 1992
and 1991, respectively. Revenues from certain contracts are recognized on the
percentage-of-completion method; costs on such contracts are included in
operations as incurred. Provisions are made for losses on contracts at the time
such losses become known.
INVESTMENTS Short-term investments have a maturity of one year or less and are
carried at cost which approximates fair value. Fixed maturities include bonds,
notes and redeemable preferred stocks. Equity securities include common and
non-redeemable preferred stocks.
At December 31, 1993, the Company adopted Statement of Financial
Accounting Standards No. 115 ("FAS 115"), "Accounting for Certain Investments
in Debt and Equity Securities". The Company determined that the fixed
maturities held at December 31, 1993 should be classified as available for
sale. Accordingly, these investments are carried at estimated fair value. In
1992, fixed maturities were classified as held to maturity and were carried at
amortized cost. Equity securities are classified as available for sale and are
carried at estimated fair value, which is consistent with the accounting
treatment in 1992. The adoption of this statement resulted in an increase in
the carrying value of fixed maturity investments of $8.2 million and an
increase in Shareholders' equity of $5.3 million, net of related deferred taxes
at December 31, 1993.
Investment income is net of investment expenses. Realized investment
gains and losses are determined on the basis of specific costs. Unrealized
gains and losses on equity securities and fixed maturities available for sale,
net of deferred income taxes, are included in Shareholders' equity.
The carrying values of short-term investments, investment income accrued
and securities transactions in the course of settlement approximate their fair
value.
INCOME TAXES Deferred income taxes are provided for unrealized appreciation on
equity securities and fixed maturities available for sale, prepaid acquisition
costs and other items which are the result of temporary differences in the
treatment of such items for tax return and financial statement purposes.
FIXED ASSETS Fixed assets are carried at cost less accumulated depreciation.
Depreciation is calculated on the basis of estimated useful lives using
straight-line and accelerated methods. Upon retirement or replacement, any gain
or loss is included in operations. Certain internal system development costs
are capitalized and amortized over a five year period.
PARTICIPATION IN POOLS AND ASSOCIATIONS The Company accounts for pools and
associations on a proportionate basis for all transactions in the Statements of
Operations and Financial Position.
Participation in pools and associations also includes the Company's
equity in the Engineering Insurance Group ("EIG"). In 1988, the Company entered
into an agreement with General Reinsurance Corporation to form EIG, an
unincorporated association which provides property insurance to businesses
outside North America. Each company has a 50 percent participation in the
association. On March 1, 1990, EIG established a wholly owned subsidiary, the
Engineering Insurance Company Limited ("EICL"), in London, England. EICL was
capitalized at $100 million. The capitalization of EICL is partially funded by
a private placement of $80 million of medium-term notes issued by EIG and
guaranteed by either or both the Company and General Reinsurance Company. At
December 31, 1993, $67.0 million of these medium-term notes were outstanding.
In 1993, the Company changed its method of presenting its participation in EIG
from the proportional consolidation method to the equity method of accounting.
The Company's share of revenue and expenses is included on the Statements of
Operations as Equity in operations of insurance association. All prior year
amounts have been reclassified accordingly.
24
<PAGE> 11
2. Changes in Accounting Principles
As discussed in Note 1, the Company adopted FAS 115 in 1993.
In 1993, the Company adopted Statement of Financial Accounting Standards
No. 112 ("FAS 112"), "Employers Accounting for Postemployment Benefits" with
retroactive application to January 1, 1993 (see Note 14).
In 1993, the Company adopted Statement of Financial Accounting Standards
No. 113 ("FAS 113"), "Accounting and Reporting for Reinsurance of
Short-Duration and Long-Duration Contracts". All amounts on the Statements of
Financial Position were reclassified accordingly (see Note 9).
In 1992, the Company adopted Statement of Financial Accounting Standards
No. 106 ("FAS 106"), "Employers Accounting for Postretirement Benefits Other
Than Pensions". Under FAS 106 the expense for these benefits was $2.3 million
and $2.0 million in 1993 and 1992, respectively. Prior to 1992 these costs were
expensed as claims were paid (See Note 14). The Company also adopted the
provisions of Statement of Financial Accounting Standards No. 109 ("FAS 109")
"Accounting for Income Taxes" (see Note 10).
3. Restructuring
In September of 1993, the Company recorded a $20 million charge for the cost of
restructuring its insurance and engineering services businesses. Restructuring
costs include severance and other costs related to approximately 300 planned
staff reductions and charges related to a realignment of the Company's
operations.
4. Segment Information
The Company operates three principal businesses -- insurance, engineering
services and investments. Revenues, expenses and receivables are shown for
these segments in the Company's financial statements. The Company does not
allocate assets, other than receivables, between business segments because the
allocations would be immaterial.
Revenues, net income and assets associated with operations outside of the
United States are less than 10 percent of consolidated totals.
The Company derives approximately 10 percent of its revenues from
contracts with various agencies and departments of the U.S. government.
5. Statutory Financial Information
Annual statements for state insurance regulatory authorities are prepared using
an accounting method prescribed or permitted by such authorities (statutory
basis). Statutory accounting practices differ in certain respects from
generally accepted accounting principles (GAAP). With respect to the Company's
financial statements, these differences are primarily comprised of the
accounting for prepaid acquisition costs, deferred income taxes, certain
non-insurance affiliates and employee benefit plans. At year-end 1993 and 1992,
policyholders' surplus on a statutory basis was $259.2 million and $307.6
million, respectively. Consolidated statutory net income for 1993, 1992 and
1991 was $19.7 million, $41.8 million and $59.8 million, respectively.
Various existing insurance and corporate laws, regulations and rulings
restrict payments of dividends. Without prior regulatory approval, at least
$25.9 million of retained earnings have no restrictions relating to
distributions to shareholders in 1994.
25
<PAGE> 12
6. Investments
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS 1993 1992 1991
<S> <C> <C> <C>
Investment income:
Short-term interest . . . . . . . . . . . . . . . . . . . . . $ 1.3 $ 1.8 $ 3.7
Fixed maturities:
Taxable interest . . . . . . . . . . . . . . . . . . . . . 3.7 2.3 2.1
Tax exempt interest . . . . . . . . . . . . . . . . . . . . 2.1 2.1 1.8
Redeemable preferred dividends . . . . . . . . . . . . . . 6.9 8.3 10.5
Equity securities:
Common dividends . . . . . . . . . . . . . . . . . . . . . 10.5 10.7 11.4
Non-redeemable preferred dividends . . . . . . . . . . . . 6.3 6.6 6.3
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.0 2.3 2.7
------ ------ ------
Total investment income . . . . . . . . . . . . . . . . 31.8 34.1 38.5
Investment expenses . . . . . . . . . . . . . . . . . . . . . (2.5) (2.1) (2.0)
------ ------ ------
Net investment income . . . . . . . . . . . . . . . . . 29.3 32.0 36.5
------ ------ ------
Realized investment gains (losses):
Fixed maturities:
Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . .4 .3 (1.7)
Redeemable preferred stocks . . . . . . . . . . . . . . . . .2 -- (.7)
Equity securities:
Common stocks . . . . . . . . . . . . . . . . . . . . . . 21.3 23.7 36.0
Non-redeemable preferred stocks . . . . . . . . . . . . . . 4.2 6.8 .3
------ ------ ------
Realized investment gains . . . . . . . . . . . . . . . 26.1 30.8 33.9
------ ------ ------
Income from investment operations . . . . . . . . . . . . . . . . $ 55.4 $ 62.8 $ 70.4
====== ====== ======
UNREALIZED INVESTMENT GAINS
Equity securities:
Gains . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 59.3 $ 75.7 $ 97.0
Losses . . . . . . . . . . . . . . . . . . . . . . . . . . (6.1) (4.8) (4.2)
Fixed Maturities: Available for sale
Gains . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.1 -- --
Losses . . . . . . . . . . . . . . . . . . . . . . . . . . (.9) -- --
Foreign exchange . . . . . . . . . . . . . . . . . . . . . . . . (2.2) (1.4) .3
------ ------ ------
Total unrealized investment gains . . . . . . . . . . . . . 59.2 69.5 93.1
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . (15.0) (17.6) (25.0)
------ ------ ------
Unrealized investment gains, net of tax . . . . . . . . . . $ 44.2 $ 51.9 $ 68.1
====== ====== ======
</TABLE>
26
<PAGE> 13
6. Investments (continued)
FIXED MATURITIES
The amortized cost, estimated fair values (determined principally based upon
quoted market prices) and gross unrealized gains and losses of fixed maturities
at December 31 were as follows:
<TABLE>
<CAPTION>
1993 AVAILABLE FOR SALE
--------------------------------------------------------
Estimated Gross Gross
Amortized Fair Unrealized Unrealized
Category Cost Value Gains Losses
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Redeemable preferred stocks . . . . . . . . . $ 72.3 $ 76.3 $ 4.6 $ .6
States and municipalities . . . . . . . . . 28.9 31.2 2.5 .2
Foreign governments . . . . . . . . . . . . . 26.6 28.4 1.8 --
Corporate and other . . . . . . . . . . . . . 18.7 18.8 .2 .1
U.S. Treasury and agencies . . . . . . . . . .2 .2 -- --
------ ------ ------ ------
Total fixed maturities . . . . . . . . . $ 146.7 $ 154.9 $ 9.1 $ .9
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
1992 HELD TO MATURITY
--------------------------------------------------------
Estimated Gross Gross
Amortized Fair Unrealized Unrealized
Category Cost Value Gains Losses
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Redeemable preferred stocks . . . . . . . . . $ 82.6 $ 86.4 $ 4.0 $ .2
States and municipalities . . . . . . . . . 28.4 30.0 1.9 .3
Foreign governments . . . . . . . . . . . . . 26.6 27.2 .7 .1
Corporate and other . . . . . . . . . . . . . 13.8 13.8 -- --
U.S. Treasury and agencies . . . . . . . . . .2 .2 -- --
------ ------ ------ ------
Total fixed maturities . . . . . . . . . $ 151.6 $ 157.6 $ 6.6 $ .6
====== ====== ====== ======
</TABLE>
The amortized cost and estimated fair value of fixed maturities at December 31,
1993 are shown below. Expected maturities will differ from contractual
maturities because borrowers may have the right to prepay obligations.
<TABLE>
<CAPTION>
1993 AVAILABLE FOR SALE
---------------------------
Estimated
Amortized Fair
Maturity Cost Value
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less . . . . . . . . . . . . . . . . . . . . . . . . . $ 4.6 $ 4.8
Due after one year through five years . . . . . . . . . . . . . . . . . 19.6 21.2
Due after five years through ten years . . . . . . . . . . . . . . . . . 30.7 32.4
Due after ten years . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.5 20.2
------- ---------
74.4 78.6
Redeemable preferred stocks . . . . . . . . . . . . . . . . . . . . . . . 72.3 76.3
------- ---------
Total fixed maturities . . . . . . . . . . . . . . . . . . . . . . . $ 146.7 $ 154.9
======= =========
</TABLE>
Gross gains of $.4 million were realized on sales (excluding calls and
redemptions) of fixed maturities in 1993.
27
<PAGE> 14
6. Investments (continued)
EQUITY SECURITIES
The cost, estimated fair values (determined principally based upon quoted
market prices) and gross unrealized gains and losses of equity securities at
December 31 were as follows:
<TABLE>
<CAPTION>
1993
----------------------------------------------------
Estimated Gross Gross
Fair Unrealized Unrealized
Category Cost Value Gains Losses
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stocks . . . . . . . . . . . . . . . . $ 163.4 $ 205.7 $ 48.0 $ 5.7
Non-redeemable preferred stocks . . . . . . . 73.4 84.3 11.3 .4
------- ------ ------- -------
Total equity securities . . . . . . . . . $ 236.8 $ 290.0 $ 59.3 $ 6.1
======= ====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
1992
----------------------------------------------------
Estimated Gross Gross
Fair Unrealized Unrealized
Category Cost Value Gains Losses
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stocks . . . . . . . . . . . . . . . . $ 170.8 $ 235.1 $ 67.5 $ 3.2
Non-redeemable preferred stocks . . . . . . . 68.2 74.8 8.2 1.6
------- ------ ------- -------
Total equity securities . . . . . . . . . $ 239.0 $ 309.9 $ 75.7 $ 4.8
======= ====== ======= =======
</TABLE>
7. Engineering Services Receivable
Engineering services receivable is summarized as follows:
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
Amounts billed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 47.3 $ 43.9
Amounts unbilled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26.1 22.3
Amounts due upon completion of contracts . . . . . . . . . . . . . . . . . 6.2 5.4
------- -------
79.6 71.6
Less reserve for bad debts . . . . . . . . . . . . . . . . . . . . . . . . (.6) (.4)
------- -------
Engineering services receivable . . . . . . . . . . . . . . . . . . . . $ 79.0 $ 71.2
======= =======
</TABLE>
8. Fixed Assets
Fixed assets are summarized as follows:
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
Land and buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7.4 $ 7.4
Furniture, equipment and other . . . . . . . . . . . . . . . . . . . . . . 113.9 119.8
------- -------
121.3 127.2
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . (57.0) (59.8)
------- -------
Fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 64.3 $ 67.4
======= =======
</TABLE>
28
<PAGE> 15
9. Reinsurance
The components of net written and net earned insurance premiums were as
follows:
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Written premiums:
Direct . . . . . . . . . . . . . . . . . . . . . . . . $ 246.1 $ 245.8 $ 242.0
Assumed . . . . . . . . . . . . . . . . . . . . . . . . 131.0 125.1 103.5
Ceded . . . . . . . . . . . . . . . . . . . . . . . . . (32.6) (19.9) (20.5)
------ ------ -------
Net written insurance premiums . . . . . . . . . . . $ 344.5 $ 351.0 $ 325.0
====== ====== =======
Earned premiums:
Direct . . . . . . . . . . . . . . . . . . . . . . . . $ 246.9 $ 245.0 $ 235.2
Assumed . . . . . . . . . . . . . . . . . . . . . . . . 131.6 117.3 102.1
Ceded . . . . . . . . . . . . . . . . . . . . . . . . . (29.3) (19.4) (18.5)
------ ------- -------
Net earned insurance premiums . . . . . . . . . . . . $ 349.2 $ 342.9 $ 318.8
====== ======= =======
</TABLE>
The Company writes direct business through agencies and brokerage firms. In
addition, the Company assumes boiler and machinery exposures from over 100
insurance companies and several insurance pools. The Company participates in
reinsurance ceded agreements to control its exposure to losses. In the unlikely
event that ceded reinsurers are unable to meet their obligations, the Company
would continue to have primary liability to policyholders for losses incurred.
As a result of the adoption of FAS 113, reinsurance recoverable on unpaid
claims and the unearned portion of ceded reinsurance premiums are reported as
assets, rather than netted against the related liability accounts. The adoption
of FAS 113 did not have any impact on net income for 1992 or 1993. The Company
is not party to any contracts which do not comply with the risk transfer
provisions of FAS 113. During the year the Company recorded $42.1 million of
reinsurance recoveries as a reduction of its claims and adjustment expense. At
December 31, 1993 reinsurance recoverable on paid losses was $1.4 million and
reinsurance recoverable on unpaid losses was $43.1 million.
29
<PAGE> 16
10. Income Taxes
TAX PROVISION
The tax provision (benefit) is comprised of the following:
<TABLE>
<CAPTION>
1993 1992 1991
---------------- --------------- ----------------
% of % of % of
Pre-Tax Pre-Tax Pre-Tax
Amount Income Amount Income Amount Income
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Income before taxes . . . . . . . $16.9 100% $73.4 100% $101.0 100%
----- ----- ----- ----- ----- -----
Tax at statutory rates . . . . . $ 5.9 35% $25.0 34% $34.4 34%
Income taxed at foreign rates . . .1 -- .2 -- .2 --
Dividends received deduction . . (5.7) (34) (5.6) (8) (6.4) (6)
Tax exempt interest . . . . . . . (.7) (4) (.7) (1) (.7) (1)
Restructuring . . . . . . . . . . 3.5 21 -- -- -- --
Tax credits and other . . . . . . .7 4 (1.8) (2) (.4) --
----- ----- ----- ----- ----- -----
Total income taxes . . . . . . . $3.8 22% $17.1 23% $27.1 27%
===== ===== ===== ===== ===== =====
</TABLE>
DEFERRED INCOME TAXES
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets as of December 31, 1993
and 1992 are as follows:
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
Deferred tax liabilities:
Prepaid acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . . $ (10.5) $ (10.5)
Accelerated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . (3.8) (3.8)
Pension asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7.7) (7.0)
Unrealized investment gains . . . . . . . . . . . . . . . . . . . . . . . . (20.8) (23.5)
Other -- net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6.1) (4.6)
------- ------
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . (48.9) (49.4)
Deferred tax assets:
Benefit plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10.9 $ 8.1
Capital lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.5 2.9
Unearned insurance premiums . . . . . . . . . . . . . . . . . . . . . . . . 11.9 11.4
Loss reserve discounting . . . . . . . . . . . . . . . . . . . . . . . . . 8.4 5.9
Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.8 --
Other -- net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.5 5.6
------- -------
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . 42.0 33.9
------- -------
Net deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . $ (6.9) $ (15.5)
======= =======
</TABLE>
OTHER INFORMATION
Income taxes paid amounted to $3.5 million, $25.8 million and $30.1 million in
1993, 1992 and 1991, respectively. Federal income tax returns for the years
1992, 1991 and 1990 are open to examination by the Internal Revenue Service. If
examined, no significant tax adjustments are anticipated. In February 1992, the
Financial Accounting Standards Board issued FAS 109, "Accounting for Income
Taxes". The standard prescribes the methodology for calculating and reporting
the provision for income taxes in the financial statements. The Company adopted
the provisions of the standard in its 1992 financial statements, with
retroactive application to December 31, 1989.
30
<PAGE> 17
11. Leases
The Company leases its home office facility at One State Street under a
long-term capital lease with the One State Street Limited Partnership. The
lease obligation of $26.1 million was recorded at July 1, 1983 at an interest
rate of 15 percent. Accumulated amortization was $7.8 million and $7.1 million
at December 31, 1993 and 1992, respectively. Terms of the lease require annual
payments of approximately $4.0 million a year through June 30, 2018. In
addition, the Company is required to pay over the lease term a proportional
share of the variable operating expenses of the facility. This amounted to
approximately $2.9 million for the years ended 1993, 1992 and 1991.
The Company owns the One State Street land and leases it to the One State
Street Limited Partnership. The Company receives a base rental for the land and
a participation in the cash flow of the Partnership. The Company has a right of
first refusal should the Partnership decide to sell the facility. If the
Company does not exercise its right of first refusal it will receive 65 percent
of the net sale proceeds.
In addition to its home office facility, the Company leases facilities
and certain equipment which are accounted for as operating leases. Lease
expenses amounted to $14.7 million, $14.5 million and $11.5 million in 1993,
1992 and 1991, respectively.
At December 31, 1993, minimum rental commitments under noncancelable
leases accounted for as operating leases with initial or remaining terms of
more than one year were as follows:
<TABLE>
<S> <C>
Years ended December 31,
1994 . . . . . . . . . . . . . . . . . . . . . . . . . $ 12.5
1995 . . . . . . . . . . . . . . . . . . . . . . . . . 11.0
1996 . . . . . . . . . . . . . . . . . . . . . . . . . 10.0
1997 . . . . . . . . . . . . . . . . . . . . . . . . . 8.7
1998 . . . . . . . . . . . . . . . . . . . . . . . . . 7.0
1999 and thereafter . . . . . . . . . . . . . . . . . 9.1
-----
Total . . . . . . . . . . . . . . . . . . . . . . . . $ 58.3
=====
</TABLE>
12. Debt
During 1993 the Company borrowed on a short-term basis through its commercial
paper program which has a limit of $75 million. Current maturities of
long-term debt in the amount of $.1 million are included within short-term
debt. Total interest paid on short-term and long-term debt amounted to $1.8
million, $2.6 million and $4.0 million in 1993, 1992 and 1991, respectively.
13. Pension Plans
The Company maintains various types of pension plans covering employees of HSB
and certain affiliates. The expense for all plans was $3.7 million, $3.3
million and $2.6 million in 1993, 1992 and 1991, respectively. The Company's
funding policy is to contribute an amount necessary to satisfy the minimum
requirements of applicable regulations plus such additional amounts as the
Company may determine appropriate.
The pension expense for the U.S. pension plans is a net credit to earnings for
1993, 1992 and 1991 due to the over funded status of the primary plan. The
components of the credit are as follows:
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Service costs . . . . . . . . . . . . . . . . . . . . . . . $ 3.2 $ 3.4 $ 3.1
Interest costs . . . . . . . . . . . . . . . . . . . . . . 9.3 8.6 7.3
Return on assets . . . . . . . . . . . . . . . . . . . . . (5.2) (5.1) (27.5)
Net amortization and deferral . . . . . . . . . . . . . . . (11.0) (9.5) 14.1
------ ------- -------
Net pension credit . . . . . . . . . . . . . . . . . . $ (3.7) $ (2.6) $ (3.0)
====== ======= =======
</TABLE>
31
<PAGE> 18
13. Pension Plans (continued)
The following table represents a reconciliation of the U.S. plans' funded
status and the amounts recognized in the Company's Statements of Financial
Position at December 31:
<TABLE>
<CAPTION>
Funded Unfunded
1993 1992 1993 1992
-------------------- -------------------
<S> <C> <C> <C> <C>
Actuarial present value of
benefit obligations:
Vested benefit obligation . . . . . . . . . . $ 86.1 $ 66.8 $ 19.6 $ 13.0
======== ======= ======== ========
Accumulated benefit obligation . . . . . . . $ 86.9 $ 67.5 $ 20.8 $ 15.4
======== ======= ======== ========
Projected benefit obligation . . . . . . . . $ 108.2 $ 85.0 $ 23.4 $ 17.7
Assets available for plan benefits
(equity securities and fixed income
investments at fair value) . . . . . . . 147.5 147.6 -- --
-------- ------- -------- --------
Assets in excess of (less than)
projected benefit obligation . . . . . . . 39.3 62.6 (23.4) (17.7)
FAS 87 unamortized net
transition asset (obligation) 16.9 19.0 (1.8) (2.2)
Unrecognized prior service costs (2.2) (2.5) (3.3) (3.3)
Unrecognized net gain (loss) . . . . . . . . (8.1) 19.8 (7.0) (3.0)
-------- ------- -------- --------
Unrecognized net asset (liability) 6.6 36.3 (12.1) (8.5)
Additional liability . . . . . . . . . . . . -- -- (5.0) --
-------- ------- -------- --------
Net pension asset (liability) . . . . . . $ 32.7 $ 26.3 $ (16.3) $ (9.2)
======== ======= ======== ========
</TABLE>
Assumptions used for the primary U.S. plan at years ended:
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Discount rate 7.50% 8.50% 8.50%
Long-term rate of return on assets 9.50% 10.50% 10.50%
Rate of increase in future compensation levels 5.50% 6.30% 6.80%
</TABLE>
The benefits payable under the Company's pension plans are based on a
combination of years of service and compensation level. Generally, vesting
occurs if a plan participant has at least five years of service or meets other
criteria. Assets available for plan benefits include approximately $14.9
million of Company stock.
32
<PAGE> 19
14. Postretirement and Postemployment Plans
POSTRETIREMENT PLANS
The Company makes available health care and life insurance benefits for retired
employees of HSB and certain affiliates.
The Company made contributions to the plans in 1993 as claims were
incurred. Contributions totaled $1.8 million, $1.4 million and $1.3 million for
the years ended December 31, 1993, 1992 and 1991, respectively. At December 31,
1993 and 1992, these plans were unfunded. Retirees' contributions to these
plans vary, based upon the retiree's age, years of service and election of
coverage. The Company amends the plan from time to time changing the
contribution rate of retirees and amounts of coverage.
Components of net periodic postretirement benefit cost are:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1993 1992
<S> <C> <C>
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .2 $ .1
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 1.9
------ -------
Net periodic postretirement benefit cost . . . . . . . . . . . . . . $ 2.3 $ 2.0
====== =======
</TABLE>
The following table sets forth the amounts recognized in the Company's
Statements of Financial Position:
<TABLE>
<CAPTION>
At December 31,
--------------------
1993 1992
<S> <C> <C>
Accumulated postretirement benefit obligations for:
Retirees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21.6 $ 19.3
Other fully eligible plan participants . . . . . . . . . . . . . . 1.5 1.4
Other active plan participants . . . . . . . . . . . . . . . . . . . 4.7 2.6
------ -------
Total accumulated postretirement benefit obligation 27.8 23.3
Unrecognized net loss (3.9) --
------ -------
Accrued postretirement benefit liability $ 23.9 $ 23.3
====== =======
</TABLE>
The assumptions used to calculate the above obligations are as follows:
<TABLE>
<CAPTION>
At December 31,
-------------------
1993 1992
<S> <C> <C>
Weighted-average discount rate . . . . . . . . . . . . . . . . . . . 7.5% 8.5%
Current year health care cost trend rate . . . . . . . . . . . . . . 16.0% 18.0%
Ultimate health care cost trend rate . . . . . . . . . . . . . . . . 6.0% 6.5%
Number of years to reach ultimate . . . . . . . . . . . . . . . . . . 8 8
</TABLE>
The health care cost trend rate assumption has a significant effect on the
amounts reported. To illustrate, increasing the assumed health care cost trend
rates by 1 percent in each year would increase the accumulated postretirement
benefit obligation as of January 1, 1993 of $25.2 million by approximately $1.6
million and the aggregate of the service and interest cost for the year ended
December 31, 1993 by approximately $.1 million.
POSTEMPLOYMENT PLANS
The Company makes available to employees of HSB and certain affiliates
postemployment benefits such as short-term and long-term disability, medical
continuation and workers compensation. In 1993, the Company adopted the
provisions of FAS 112 which requires the Company to accrue for the cost of
these benefits when certain conditions exist, rather than report these benefits
on a cash basis, which had been the prior accounting practice.
The adoption of FAS 112 resulted in a non-cash, after-tax charge of $3.6
million or $.17 per share. This charge was recognized as the cumulative effect
of a change in accounting principle in the Statements of Operations.
33
<PAGE> 20
15. Stock Option Plans
The Company has a Stock Option Plan under which key employees of the Company
and its subsidiaries may be granted restricted stock and stock options.
The Company's restricted stock is an award of common shares that may not
be sold or transferred during the restriction period, usually three years, from
the date on which the award is granted. During the restriction period, the
employee is the registered owner, receives dividends and may vote the
restricted shares. When the restriction period ends, the stock certificates are
delivered to the employee. Compensation expense is based on the market value of
the Company's common stock at the date of grant and is recognized over the
period of the restriction. Compensation expense for this plan in 1993, 1992 and
1991 was $3.3 million, $4.0 million, and $3.9 million, respectively. The
unamortized compensation expense related to this plan is included in Benefit
plans in the Statements of Financial Position. These amounts were $3.0 million
and $4.6 million in 1993 and 1992, respectively.
A stock option award under the Company's stock option plan allows for the
purchase of the Company's common stock at no less than the market price on the
date of grant. Options granted to-date are exercisable no earlier than one year
after the grant date and expire no more than seven years from the date of
grant.
Information with respect to restricted stock and stock options follows:
<TABLE>
<CAPTION>
Options Outstanding
Shares ---------------------------
Available Average
For Grant Shares Option Price
--------- --------- ------------
<S> <C> <C> <C>
Balance, December 31, 1990 . . . . . . . 365,699 486,003 $ 45.07
Options granted . . . . . . . . . . . . . (228,100) 228,100 62.25
Options forfeited (exercised) . . . . . . 3,400 (159,709) 31.43
Restricted stock granted . . . . . . . . (86,800) -- --
--------- --------- ---------
Balance, December 31, 1991 . . . . . . . 54,199 554,394 56.07
Authorized . . . . . . . . . . . . . . . 1,000,000 -- --
Options granted . . . . . . . . . . . . (263,600) 263,600 51.58
Options forfeited (exercised) . . . . . . 7,800 (41,011) 36.51
Restricted stock granted . . . . . . . . (47,051) -- --
--------- --------- ---------
Balance, December 31, 1992 . . . . . . . 751,348 776,983 55.58
OPTIONS GRANTED . . . . . . . . . . . . . (355,400) 355,400 55.39
OPTIONS FORFEITED (EXERCISED) . . . . . . 8,800 (37,283) 40.22
RESTRICTED STOCK GRANTED . . . . . . . . (29,220) -- --
--------- --------- ---------
BALANCE, DECEMBER 31, 1993 . . . . . . . 375,528 1,095,100 $ 56.03
========= ========= =========
</TABLE>
In 1989, the Company established a Restricted Stock Plan for non-employee
Directors of the Company. Stock awards are made on the date of the annual
meeting to each Director elected or continuing in office. The maximum number of
restricted shares which may be granted under the Plan shall be 20,000 shares of
common stock. Under this plan, 1,413 and 1,740 and 1,440 shares of restricted
stock were granted in 1993, 1992 and 1991, respectively.
34
<PAGE> 21
16. Employee Stock Ownership Plan
The Company has an Employee Stock Ownership Plan (ESOP) and a Trust to
administer the Plan. In 1985, the Trust borrowed $15 million from commercial
lenders at 9.57 percent and purchased 1,142,856 newly issued shares of the
Company's common stock (adjusted to reflect stock splits since that date). The
Company guaranteed the loan and the shares held in the Trust are pledged as
collateral.
The loan is reported as a liability and the cost of unallocated shares
related to the ESOP is included under Benefit plans on the Company's Statements
of Financial Position. The cost of unallocated shares was $2.6 million, $4.1
million and $5.6 million in 1993, 1992 and 1991, respectively.
Contributions made by the Company plus the dividends on the unallocated
shares held by the Trust are used to make interest and principal payments of
approximately $2.3 million per year over the 10-year term. Shares are allocated
to the account of each participant with one or more years of service, based on
salary, and become fully vested after five years of service.
Components of the ESOP expense were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Amortization of allocated shares . . . . . . . . . . $ 1.9 $ 1.8 $ 1.6
Interest expense . . . . . . . . . . . . . . . . . .5 .6 .8
Dividends paid on unallocated shares . . . . . . . . (.7) (.9) (1.0)
Proceeds from sale of forfeited shares . . . . . . . (.1) (.1) --
---- ---- -----
ESOP expense . . . . . . . . . . . . . . . . . . . . $ 1.6 $ 1.4 $ 1.4
==== ==== =====
</TABLE>
At December 31, 1993, the Trust held approximately 315,000 shares of stock not
allocated to employees.
35
<PAGE> 22
17. Stock Purchase Rights
On November 28, 1988, the Board of Directors created and authorized 250,000
shares of Series A Junior Participating Preferred Stock at no par value and
declared a dividend distribution of one right for each outstanding share of
common stock to shareholders of record on December 8, 1988.
The rights will separate from the common stock and become exercisable if
a person or group acquires ownership of 20 percent or more of the outstanding
common stock of the Company, commences a tender or exchange offer to acquire 20
percent or more of the outstanding shares, or if any person or group has become
the beneficial owner of an amount of common stock which the Board determines to
be substantial and not in the best interest of the shareholders.
The rights entitle holders to purchase preferred shares at an exercise
price of $110 per share. If an acquiror obtains 20 percent or more of the
Company's common stock and the Board of Directors determines that such
acquisition is not in the best interest of the shareholders, the rights will
entitle holders to purchase common shares of the Company at a discount. If the
Company is involved in a merger or other transactions in which shares are
exchanged, the rights will entitle holders to purchase common shares of the
acquiror at a discount.
The rights expire on November 28, 1998 and may be redeemed by the Company
for $.01 per right any time until the tenth business day following public
announcement that a 20 percent position has been acquired.
36
<PAGE> 23
18. Consolidated Quarterly Data (Unaudited)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1993 QUARTER QUARTER QUARTER QUARTER YEAR
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Insurance premiums . . . . . . . . . . . . $ 87.7 $ 88.0 $ 86.3 $ 87.2 $ 349.2
Net engineering services . . . . . . . . . 56.8 58.0 59.3 57.4 231.5
Net investment income . . . . . . . . . . . 7.5 7.8 7.3 6.7 29.3
Realized investment gains . . . . . . . . 7.8 7.6 6.5 4.2 26.1
-------- ------- -------- -------- -------
Total revenues . . . . . . . . . . . . $ 159.8 $ 161.4 $ 159.4 $ 155.5 $ 636.1
======== ======= ======== ======== =======
Income (loss) before taxes and
accounting change . . . . . . . . . . $ 24.0 $ 6.1 $ (29.7) $ 16.5 $ 16.9
Income taxes (benefits) . . . . . . . . . . (6.2) (.6) 7.1 (4.1) (3.8)
-------- ------- -------- -------- -------
Income (loss) before accounting change . . 17.8 5.5 (22.6) 12.4 13.1
Cumulative effect of
accounting change . . . . . . . . . . (3.6) -- -- -- (3.6)
-------- ------- -------- -------- -------
Net income (loss) . . . . . . . . . . . . . $ 14.2 $ 5.5 $ (22.6) $ 12.4 $ 9.5
======== ======= ======== ======== =======
Per common share:
Income (loss) before
accounting change . . . . . . . . . . $ .86 $ .26 $ (1.09) $ .60 $ .63
Cumulative effect of
accounting change . . . . . . . . . . (.17) -- -- -- (.17)
Net income (loss) . . . . . . . . . . $ .69 $ .26 $ (1.09) $ .60 $ .46
======== ======= ======== ======== =======
Dividends declared . . . . . . . . . . $ .53 $ .53 $ .53 $ .53 $ 2.12
Common stock price ranges:
High . . . . . . . . . . . . . . . . . $ 59 1/2 $58 $ 54 5/8 $ 49 5/8 $59 1/2
Low . . . . . . . . . . . . . . . . . 54 3/8 52 1/2 43 3/4 43 1/4 43 1/4
Close . . . . . . . . . . . . . . . . . 57 1/4 54 5/8 48 1/2 44 1/2 44 1/2
Shareholders at year-end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,603
</TABLE>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1992 QUARTER* QUARTER* QUARTER* QUARTER YEAR
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Insurance premiums . . . . . . . . . . . . $ 83.2 $ 85.4 $ 86.5 $ 87.8 $ 342.9
Net engineering services . . . . . . . . . 54.3 60.5 59.7 56.5 231.0
Net investment income . . . . . . . . . . . 8.5 8.0 7.5 8.0 32.0
Realized investment gains . . . . . . . . 7.9 7.4 7.4 8.1 30.8
-------- ------- -------- -------- -------
Total revenues . . . . . . . . . . . . $ 153.9 $ 161.3 $ 161.1 $ 160.4 $ 636.7
======== ======= ======== ======== =======
Income before taxes and
accounting change . . . . . . . . . . $ 24.9 $ 26.0 $ 1.4 $ 21.1 $ 73.4
Income taxes (benefits) . . . . . . . . . . (7.1) (7.5) 1.4 (3.9) (17.1)
-------- ------- -------- -------- -------
Income before accounting change . . . . . . 17.8 18.5 2.8 17.2 56.3
Cumulative effect of
accounting change . . . . . . . . . . (15.1) -- -- -- (15.1)
-------- ------- -------- -------- -------
Net income . . . . . . . . . . . . . . . . $ 2.7 $ 18.5 $ 2.8 $ 17.2 $ 41.2
======== ======= ======== ======== =======
Per common share:
Income before accounting change . . . . $ .85 $ .89 $ .13 $ .83 $ 2.71
Cumulative effect of
accounting change . . . . . . . . . . (.72) -- -- -- (.73)
-------- ------- -------- -------- -------
Net income . . . . . . . . . . . . . . $ .13 $ .89 $ .13 $ .83 $ 1.98
======== ======= ======== ======== =======
Dividends declared . . . . . . . . . . $ .50 $ .50 $ .53 $ .53 $ 2.06
Common stock price ranges:
High . . . . . . . . . . . . . . . . . $ 56 5/8 $56 3/4 $ 59 1/8 $ 59 1/4 $59 1/4
Low . . . . . . . . . . . . . . . . . 45 1/8 47 1/2 53 1/4 54 45 1/8
Close . . . . . . . . . . . . . . . . . 47 7/8 55 1/8 58 3/8 58 3/8 58 3/8
Shareholders at year-end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,764
</TABLE>
*Restated to reflect adoption of FAS 106.
37
<PAGE> 24
TEN YEAR FINANCIAL SUMMARY
(in millions, except per share data(1))
<TABLE>
<CAPTION>
SUMMARY OF STATEMENTS OF OPERATIONS
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Insurance premiums(4) . . . . . . . . . $ 349.2 $ 342.9 $ 318.8 $ 296.3 $ 286.8 $ 291.8
Net engineering services . . . . . . . . 231.5 231.0 210.3 174.2 137.8 112.7
Income from investment operations(4) . . 55.4 62.8 70.4 65.5 58.1 47.9
Total revenues . . . . . . . . . . . . 636.1 636.7 599.5 536.0 482.7 452.4
- --------------------------------------------------------------------------------------------------------------
Income before taxes and accounting
changes . . . . . . . . . . . . . . . . 16.9 73.4 101.0 110.5 109.6 96.0
Income taxes . . . . . . . . . . . . . . . 3.8 17.1 27.1 31.8 32.0 25.3
Income before accounting changes . . . . . 13.1 56.3 73.9 78.7 77.6 70.7
Income per share before accounting
changes . . . . . . . . . . . . . . . . 0.63 2.71 3.53 3.79 3.78 3.46
Dividends paid per share . . . . . . . . . 2.12 2.03 1.85 1.70 1.50 1.15
- --------------------------------------------------------------------------------------------------------------
SUMMARY OF STATEMENTS OF FINANCIAL POSITION
Total assets(4)(5) . . . . . . . . . . . $ 877.9 $ 886.4 $ 843.6 $ 784.6 $ 794.5 $ 730.1
Long-term borrowings and
capital lease obligations(4) . . . . . . 28.4 28.4 28.5 33.9 39.4 51.7
Shareholders' equity (3) . . . . . . . . . 324.7 374.3 402.8 348.7 329.0 266.5
Per share (3) . . . . . . . . . . . . . 15.80 18.05 19.16 16.74 15.97 13.04
Return on average equity before
accounting changes(3) . . . . . . . . . 3.7% 14.8% 19.5% 23.5% 26.3% 29.1%
Stock price per share:
High . . . . . . . . . . . . . . . . . . $ 59.50 $ 59.25 $ 63.75 $ 62.13 $ 59.25 $ 36.75
Low . . . . . . . . . . . . . . . . . . 43.25 45.13 46.25 43.50 34.75 23.00
Close . . . . . . . . . . . . . . . . . 44.50 58.38 57.50 48.75 53.50 36.75
Common shares outstanding
at end of year . . . . . . . . . . . . 20.5(2) 20.7(2) 21.0 20.8 20.6 20.4
- ---------------------------------------------------------------------------------------------------------------
INSURANCE(4)
Operating gain (loss) . . . . . . . . . . $ (26.4) $ 1.8 $ 22.9 $ 40.1 $ 46.2 $ 46.7
Loss ratio . . . . . . . . . . . . . . . 57.1% 50.3% 43.6% 37.1% 33.3% 35.0%
Expense ratio . . . . . . . . . . . . . 50.5% 49.2% 49.2% 49.4% 50.6% 49.0%
Combined ratio . . . . . . . . . . . . 107.6% 99.5% 92.8% 86.5% 83.9% 84.0%
- ---------------------------------------------------------------------------------------------------------------
ENGINEERING SERVICES
Gross revenues . . . . . . . . . . . . . $ 256.1 $ 264.7 $ 232.1 $ 193.8 $ 156.1 $ 119.0
Subcontract & equipment resale costs . . . 24.6 33.7 21.8 19.6 18.3 6.3
Net revenues . . . . . . . . . . . . . . 231.5 231.0 210.3 174.2 137.8 112.7
Operating gain . . . . . . . . . . . . . . 11.8 14.7 14.0 11.4 10.6 6.9
Gross margin . . . . . . . . . . . . . . 4.6% 5.6% 6.0% 5.9% 6.8% 5.8%
Net margin . . . . . . . . . . . . . . . 5.1% 6.4% 6.7% 6.5% 7.7% 6.1%
- ---------------------------------------------------------------------------------------------------------------
INVESTMENTS(4)
Net investment income . . . . . . . . . . $ 29.3 $ 32.0 $ 36.5 $ 37.9 $ 41.7 $ 35.8
Realized investment gains . . . . . . . . 26.1 30.8 33.9 27.6 16.4 12.1
Income from investment operations . . . 55.4 62.8 70.4 65.5 58.1 47.9
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) All per share data has been restated to reflect stock splits.
(2) Reflects the repurchase of approximately .2 million shares in 1993, .3
million shares in 1992, 1 million shares in 1987 and 8 million shares in
1984.
(3) The Company recognized the cumulative effect of the adoption of FAS 109
"Accounting for Income Taxes", effective January 1, 1989 and restated
results for 1989 through 1991. FAS 109 was adopted in 1992.
(4) Certain prior year amounts have been reclassified to conform with the
Company's change in presentation of its investment in Engineering Insurance
Group.
(5) Certain prior year amounts have been reclassified to conform with the 1993
presentation related to the adoption of FAS 113, "Accounting and Reporting
for Reinsurance of Short-Duration and Long-Duration Contracts".
40
<PAGE> 25
<TABLE>
<CAPTION>
10 Year
Compound
Annual
1987 1986 1985 1984 Growth
<S> <C> <C> <C> <C>
$ 283.5 $ 268.6 $ 206.3 $ 158.3 9.1%
98.4 84.4 83.2 78.4 12.8%
44.4 41.7 29.5 37.0 7.0%
426.3 394.7 319.0 273.7 10.1%
- -----------------------------------------------------------
85.6 77.1 40.8 15.8 -6.9%
25.0 24.0 9.9 0.7 -6.9%
60.6 53.1 30.9 15.1 -6.9%
2.96 2.50 1.51 0.67 -3.8%
0.95 0.55 0.42 0.38 19.1%
- -----------------------------------------------------------
$ 701.7 $ 669.7 $ 563.2 $ 416.0 7.8%
62.6 68.5 71.7 71.7
216.7 216.3 159.5 112.0 5.8%
10.65 10.17 7.50 5.57 9.4%
26.9% 27.3% 23.2% 11.0%
$ 36.63 $ 25.50 $ 15.88 $ 7.44 22.8%
20.25 15.63 7.31 6.13 24.3%
23.00 23.56 15.62 7.31 20.8%
20.3(2) 21.3 21.3 20.1(2)
- -----------------------------------------------------------
$ 40.4 $ 37.6 $ 10.9 $ (25.2)
35.6% 36.5% 40.6% 52.4%
50.1% 49.5% 54.1% 63.5%
85.7% 86.0% 94.7% 115.9%
- -----------------------------------------------------------
$ 102.7 $ 88.2 $ 84.8 $ 80.1 14.0%
4.3 3.4 1.6 1.7 36.6%
98.4 84.8 83.2 78.4 13.0%
6.9 4.2 6.6 9.0 10.1%
6.7% 4.8% 7.8% 11.3%
7.0% 5.0% 8.0% 11.5%
- ------------------------------------------------------------
$ 33.6 $ 30.2 $ 25.1 $ 20.9 5.4%
10.8 11.5 4.4 16.1
44.4 41.7 29.5 37.0 7.0%
- ------------------------------------------------------------
</TABLE>
[MARKET PRICE PER SHARE CHART -- SEE EDGAR APPENDIX]
[COMBINED RATIO CHART -- SEE EDGAR APPENDIX]
[ENGINEERING SERVICES MARGIN CHART -- SEE EDGAR APPENDIX]
41
<PAGE> 1
Exhibit (21)
LIST OF SUBSIDIARIES OF
THE HARTFORD STEAM BOILER
INSPECTION AND INSURANCE COMPANY
<TABLE>
<CAPTION>
STATE/JURISDICTION
OF INCORPORATION/
NAME OF COMPANY FORMATION
- --------------- ------------------
<S> <C>
The Allen Insurance Company, Ltd. Bermuda
ATOS
(30% owned by Radian Corporation and
70% owned by French interests) France
The Boiler Inspection and Insurance
Company of Canada Canada
Corporacion Radian, S.A. de C.V. Mexico
Engineering Insurance Company Limited
(wholly-owned by Engineering
Insurance Group) England
Engineering Insurance Group
(50% owned partnership with
General Re Corp.) Connecticut
Environment, Transport & Planning, S.L.
(28% owned by Radian Corporation and
72% owned by Environment, Planning &
Transport, S.L.) Spain
The Hartford Steam Boiler Inspection
and Insurance Company of Connecticut Connecticut
The Hartford Steam Boiler Inspection
and Insurance Company of Texas Texas
Hartford Steam Boiler Inspection
Technologies California
Hartford Steam Boiler International GmbH Lingen, Germany
Hartford Steam Boiler (Singapore) PTE Ltd. Singapore
HSB Associates, Inc. New York
HSB Club, Inc. Connecticut
HSB Investment Corporation Connecticut
HSB Professional Loss Control, Inc. Tennessee
HSB Reliability Technologies Corporation Florida
Hemisphere Consulting Corp.
(wholly-owned by HSB Reliability
Technologies Corporation) Florida
LWA-Urban Transportation & Utilities, Inc.
(wholly-owned by Radian Corporation) Georgia
One State Street Intermediaries
(wholly-owned by HSB Associates, Inc.) Connecticut
The Polytechnic Club, Inc. Connecticut
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
STATE/JURISDICTION
OF INCORPORATION/
NAME OF COMPANY FORMATION
- --------------- ---------
<S> <C>
Radecca, Inc.
(50% owned by Radian Corporation) Texas
Radian Australia Pty. Ltd.
(wholly-owned by Radian Corporation) Australia
Radian Canada, Inc.
(wholly-owned by Radian Corporation) Canada
Radian Ceramic Developments Corporation
(wholly-owned by Radian Corporation) Texas
Radian Corporation Texas
Radian Engineering, Inc.
(wholly-owned by Radian Corporation) New York
Radian GmbH
(wholly-owned by Radian Corporation) Germany
Radian (HK) Limited
(wholly-owned by Radian Corporation) Hong Kong
Radian Limited
(wholly-owned by Radian Corporation) England
Radian Systems Corp.
(wholly-owned by Radian Corporation) Texas
Ra-Hart Investment Company Texas
Tesam Hartley, S.A.
(25% owned by Radian Corporation,
37.5% owned by Hartley y Cia Ltda.
and 37.5% owned by Inversiones
Winkel, S.A.) Chile
</TABLE>
<PAGE> 1
Exhibit (23)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
The Hartford Steam Boiler Inspection and Insurance Company on Forms S-8 (File
Nos. 33-4397 and 33-36519) of our report dated January 24, 1994, on our audits
of the consolidated financial statements and financial statement schedules of
The Hartford Steam Boiler Inspection and Insurance Company and its subsidiaries
as of December 31, 1993 and 1992, and for the three years in the period ended
December 31, 1993, which report is included in this Annual Report on Form 10-K.
COOPERS & LYBRAND
Hartford, Connecticut
March 30, 1994
<PAGE> 1
POWER OF ATTORNEY Exhibit (24)
We, the undersigned directors of The Hartford Steam Boiler Inspection and
Insurance Company, hereby individually appoint Kenneth J. Kelly and Roberta A.
O'Brien, and each of them singly, with full power of substitution to each, our
true and lawful attorneys with full power to them and each of them singly, to
sign for us in our names in the capacities stated below the Form 10-K, Annual
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934,
for the fiscal year ended December 31, 1993 for The Hartford Steam Boiler
Inspection and Insurance Company, and any and all amendments to said Form 10-K,
and generally to do all such things in our name and on our behalf in our
capacities as directors that will enable the Company to comply with the
provisions of the Securities Exchange Act of 1934, as amended, and all
requirements of the Securities and Exchange Commission, which relate to said
Form 10-K and the filing thereof, hereby ratifying and confirming our
signatures as they may be signed by our said attorneys or any one of them to
said Form 10-K and any and all amendments thereto.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Power
of Attorney has been signed by the following persons in the capacities and on
the date indicated.
<TABLE>
<CAPTION>
(Signature) (Title) (Date)
<S> <C> <C>
/s/ Wilson Wilde
- -----------------------
Wilson Wilde Chairman, Chief March 28, 1994
Executive Officer
and Director
/s/ Gordon W. Kreh
- ----------------------
Gordon W. Kreh President and March 28, 1994
Director
/s/ Joel B. Alvord
- -----------------------
Joel B. Alvord Director March 28, 1994
/s/ Colin G. Campbell
- -----------------------
Colin G. Campbell Director March 28, 1994
/s/ Donald M. Carlton
- -----------------------
Donald M. Carlton Director March 28, 1994
/s/ Richard G. Dooley
- ------------------------
Richard G. Dooley Director March 28, 1994
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
(Signature) (Title) (Date)
<S> <C> <C>
/s/ William B. Ellis
- ------------------------
William B. Ellis Director March 28, 1994
/s/ E. James Ferland
- ------------------------
E. James Ferland Director March 28, 1994
/s/ John A. Powers
- ------------------------
John A. Powers Director March 28, 1994
/s/ Paul A. Vatter
- ------------------------
Paul A. Vatter Director March 28, 1994
/s/ John M. Washburn, Jr.
- -------------------------
John M. Washburn, Jr. Director March 28, 1994
</TABLE>
<PAGE> 3
EDGAR APPENDIX
The following descriptions apply to portions of Exhibit 13(ii) that were
incorporated by reference but which cannot be filed electronically via EDGAR:
1. Page 15; Total Revenues Graph:
Shows Total Revenues trend over 10 years from 1984 through 1993, with
amounts in millions:
<TABLE>
<S> <C>
1984 273.7
1985 319.0
1986 394.7
1987 426.3
1988 452.4
1989 482.7
1990 536.0
1991 599.5
1992 636.7
1993 636.1
</TABLE>
2. Page 16; Insurance Revenues Graph:
Shows Consolidated Net Earned Premium trend over 10 years from 1984
through 1993, with amounts in millions:
<TABLE>
<S> <C>
1984 $158.3
1985 $206.3
1986 $268.6
1987 $283.5
1988 $291.8
1989 $286.8
1990 $296.3
1991 $318.8
1992 $342.9
1993 $349.2
</TABLE>
3. Page 17; Engineering Services Chart:
Shows Net Engineering Services revenue (net of subcontract revenue)
trend over 10 years from 1984 through 1993, with amounts in millions:
<TABLE>
<S> <C>
1984 $78.4
1985 $83.2
1986 $84.4
1987 $98.4
1988 $112.7
1989 $137.8
1990 $174.2
1991 $210.3
1992 $231.0
1993 $231.5
</TABLE>
<PAGE> 4
4. Page 18: Income from Investment Operations Chart:
Shows Investment Income (net of expenses) and Realized capital gains
trend over 10 years 1984 through 1993, with amounts in millions:
<TABLE>
<CAPTION>
Net investment Realized Capital
Year Income Gains
<S> <C> <C>
1984 $20.9 $16.1
1985 $25.1 $4.4
1986 $30.2 $11.5
1987 $33.6 $10.8
1988 $35.8 $12.1
1989 $41.7 $16.4
1990 $37.9 $27.6
1991 $36.5 $33.6
1992 $32.0 $30.8
1993 $29.3 $26.1
</TABLE>
5. Page 41; Market price per share Chart:
Shows annual high low and closing HSB stock price - 10 year trend from
1984 through 1993
<TABLE>
<CAPTION>
Year High Low Close
<S> <C> <C> <C>
1984 $7.44 $6.13 $7.31
1985 $15.88 $7.31 $15.62
1986 $25.50 $15.63 $23.56
1987 $36.63 $20.25 $23.00
1988 $36.75 $23.00 $36.75
1989 $59.25 $34.75 $53.50
1990 $62.13 $43.50 $48.75
1991 $63.75 $46.25 $57.50
1992 $59.25 $45.13 $58.38
1993 $59.50 $43.25 $44.50
</TABLE>
6. Page 41; Combined Ratio Graph
Shows a comparison of HSB's and the A.M. Best P/C Industry's combined
ratios - 10 year trend from 1984 through 1993:
<TABLE>
<CAPTION>
Year HSB P/C
<S> <C> <C>
1984 115.9% 119.0%
1985 94.7% 116.5%
1986 86.0% 106.9%
1987 85.7% 103.3%
1988 84.0% 103.9%
1989 83.9% 108.6%
1990 86.5% 108.4%
1991 92.8% 108.6%
1992 99.5% 115.8%
1993 107.5% 109.2%
</TABLE>
<PAGE> 5
7. Page 41; Engineering Services Margin Graph
Shows Net Engineering Margin - 10 year trend from 1984 through 1993:
<TABLE>
<S> <C>
1984 11.5%
1985 8.0%
1986 5.0%
1987 7.0%
1988 6.1%
1989 7.7%
1990 6.5%
1991 6.7%
1992 6.4%
1993 5.1%
</TABLE>
