SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
/ / 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)
CONNECTICUT 06-0384680
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE STATE STREET, HARTFORD, CONNECTICUT 06102
(Address of principal executive offices) (Zip Code)
(203) 722-1866
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if
changed since the last report.)
Indicate by check mark whether the registrant (1) has filed all
reports required 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
The number of shares outstanding of the registrant's common stock
without par value, as of October 31, 1995: 20,334,813
<PAGE>
THE HARTFORD STEAM BOILER INSPECTION AND INSURANCE COMPANY
INDEX
PART I FINANCIAL INFORMATION PAGE
Consolidated Statements of Operations for the
Quarters and Nine Months Ended September 30, 1995
and 1994 (unaudited)................................. 3
Consolidated Statements of Financial Position as
of September 30, 1995 (unaudited) and December 31,
1994................................................ 4
Consolidated Statements of Cash Flow for the
Nine Months Ended September 30, 1995 and 1994
(unaudited)......................................... 5
Notes to Consolidated Financial Statements.......... 6
Management's Discussion and Analysis of
Consolidated Financial Condition and Results
of Operations....................................... 8
PART II OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K........... 14
SIGNATURES.............................................. 15
2
<PAGE>
Part I. Financial Information
THE HARTFORD STEAM BOILER INSPECTION AND INSURANCE COMPANY
Consolidated Statements of Operations
Unaudited
(In millions, except per share data)
<TABLE>
Quarter Nine Months
Ended September 30 Ended September 30
1995 1994 1995 1994
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Insurance premiums $ 98.3 $ 84.3 $ 290.0 $ 251.7
Net engineering services 65.9 57.5 190.3 172.0
Net investment income 6.5 6.4 20.5 19.1
Realized investment gains 1.0 1.8 2.5 8.2
------- ------- ------- -------
Total revenues 171.7 150.0 503.3 451.0
------- ------- ------- -------
Expenses:
Claims and adjustment 38.0 33.8 114.8 111.0
Policy acquisition 20.3 16.2 58.5 47.5
Underwriting and inspection 29.6 26.8 90.4 76.9
Net engineering services 60.3 52.6 173.0 158.8
Interest 0.4 0.4 1.2 1.2
Charge for Proposition 103 - 2.9 - 2.9
------- ------- ------- -------
Total expenses 148.6 132.7 437.9 398.3
------- ------- ------- -------
Equity in operations of insurance
association - 0.4 - 1.1
------- ------- ------- -------
Income before taxes 23.1 17.7 65.4 53.8
Income taxes:
Current 6.1 3.8 19.2 12.7
Deferred 0.7 1.6 0.2 2.6
------- ------- ------- -------
Total income taxes 6.8 5.4 19.4 15.3
Net income $ 16.3 $ 12.3 $ 46.0 $ 38.5
======= ======= ======= =======
Net income per share $ 0.80 $ 0.60 $ 2.25 $ 1.88
======= ======= ======= =======
Dividends declared per share $ 0.57 $ 0.55 $ 1.67 $ 1.61
Average shares outstanding 20.4 20.5 20.4 20.5
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
THE HARTFORD STEAM BOILER INSPECTION AND INSURANCE COMPANY
Consolidated Statements of Financial Position
(In millions, except per share data)
<TABLE>
September 30, December 31,
1995 1994
(Unaudited)
------------ ------------
<S> <C> <C>
Assets:
Cash $ 6.4 $ 12.1
Short-term investments, at cost 112.5 73.8
Fixed maturities, at fair value
(cost - $236.7; $205.2) 240.8 198.9
Equity securities, at fair value
(cost - $151.7; $178.7) 204.5 204.9
----------- -----------
Total cash and invested assets 564.2 489.7
Insurance premiums receivable 78.4 83.1
Engineering services receivable 69.8 72.1
Fixed assets 60.6 64.2
Prepaid acquisition costs 33.3 35.5
Capital lease 17.0 17.5
Reinsurance recoverable 33.5 44.9
Other assets 105.4 98.7
----------- ----------
Total assets $ 962.2 $ 905.7
=========== ==========
Liabilities:
Unearned insurance premiums $ 207.6 $ 201.3
Claims and adjustment expenses 180.8 199.4
Short-term borrowings 42.8 50.9
Long-term borrowings 25.5 0.6
Capital lease 27.8 27.8
Deferred income taxes 9.4 (4.6)
Dividends payable 11.6 11.2
Minority Interest 20.0 20.0
Other liabilities 103.7 99.6
----------- ----------
Total liabilities 629.2 606.2
----------- ----------
Shareholders' equity:
Common Stock (stated value; shares authorized
50.0; shares issued 21.3; shares
outstanding 20.4; 20.4) 10.0 10.0
Additional paid-in capital 33.9 34.0
Unrealized investment gains, net of tax 36.4 13.9
Retained earnings 300.1 288.1
Treasury stock, at cost; (shares 1.0; .9) (44.4) (41.9)
Benefit plans (3.0) (4.6)
----------- ----------
Total shareholders' equity 333.0 299.5
----------- ----------
Total liabilities and shareholders' equity $ 962.2 $ 905.7
============ ==========
Shareholders' equity per share 16.36 14.67
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
THE HARTFORD STEAM BOILER INSPECTION AND INSURANCE COMPANY
Consolidated Statements of Cash Flows
Unaudited
(In Millions)
<TABLE>
Nine Months Ended
September 30,
1995 1994
------------ ----------
<S> <C> <C>
Operating Activities:
Net income $ 46.0 $ 38.5
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 14.6 15.8
Deferred income taxes 0.2 2.6
Realized investment gains (2.5) (8.2)
Change in:
Insurance premiums receivable 4.7 5.7
Engineering services receivable 2.3 6.7
Prepaid acquisition costs 2.2 (0.6)
Reinsurance recoverable 11.4 7.1
Unearned insurance premiums 6.3 (3.7)
Claims and adjustment expenses (18.6) (27.3)
Other (1.7) (5.5)
------------ ----------
Cash provided by operating activities 64.9 31.1
------------ ----------
Investing Activities:
Fixed asset additions (8.2) (9.8)
Investments:
Purchase of short-term investments, net (38.6) (13.1)
Purchase of fixed maturities (134.2) (33.1)
Proceeds from sale of fixed maturities 88.2 3.8
Redemption of fixed maturities 13.1 12.4
Purchase of equity securities (77.1) (119.7)
Proceeds from sale of equity securities 107.7 178.6
------------ ---------
Cash provided by (used in) investment
activities (49.1) 19.1
------------ ---------
Financing Activities:
Dividends paid to shareholders (33.7) (32.6)
Decrease in short-term borrowings, net (8.1) (11.6)
Increase in long-term debt 25.0 0.0
Repayment of long-term debt (0.1) (0.1)
Repayment of employee stock ownership plan debt (1.6) (1.5)
Purchase of treasury stock (3.0) (5.0)
------------ --------
Cash used in financing activities (21.5) (50.8)
------------ ---------
Net decrease in cash (5.7) (0.6)
Cash at beginning of period 12.1 7.3
------------ ---------
Cash at end of period $ 6.4 $ 6.7
============ =========
Interest paid $ 3.2 $ 3.0
------------ ---------
Federal income tax paid $ 14.7 $ 4.8
------------ ---------
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. General
The interim financial statements in this report include
adjustments based on management's best estimates and
judgments, including estimates of future loss payments,
which are necessary to present a fair statement of the
results for the interim periods reported. These adjustments
are of a normal, recurring nature. The financial
statements are prepared on the basis of generally accepted
accounting principles and should be read in conjunction with
the financial statements and related notes in the 1994
Annual Report. Certain prior year amounts have been
reclassified to conform with the 1995 presentation.
2. Engineering Insurance Group Acquisition
In December 1994, the Company acquired the remaining
50 percent interest in Engineering Insurance Group (EIG) from
General Reinsurance Corporation (Gen Re). Coincident with the
acquisition, the partnership was incorporated with the Company
acquiring all outstanding common shares and Gen Re acquiring
preferred shares of the new Company, EIG, Co. The 1994
Consolidated Statement of Operations includes EIG's results in
Equity in operations of insurance association. The Company's
equity in EIG, Co. was fully consolidated at December 31,1994
in the Consolidated Statement of Financial Position. The 1995
amounts include EIG, Co. on a fully consolidated basis.
3. Radian Corporation Joint Venture
On October 23, 1995, HSB and The Dow Chemical Company (Dow)
announced plans for two of their wholly owned subsidiaries to
form a new company, tentatively named Dow Radian LLC (Limited
Liability Company), which will provide environmental, information
technology, and strategic chemical management services to industries
and government worldwide.
The new company, consisting of assets contributed by Dow
Environmental Inc. (DEI) and Radian Corporation, will be headquartered
in Austin, TX. Dow Radian will integrate the engineering and
environmental strengths of Radian and DEI, and DEI's access to the
chemical industry process technology of Dow to provide a wide range
of process and environmental systems and services to global customers.
According to the terms of the agreement in principle, the
ownership of Dow Radian will be 60 percent Dow and 40 percent HSB,
via the wholly owned subsidiaries of each
6
<PAGE>
company. Plans call for the transaction to be completed at or near year
end subject to the completion of due diligence.
4. Industrial Risk Insurers
Effective December 1, 1995 the Company will increase its
participation in Industrial Risk Insurers (IRI) from approximately
0.05 percent to 14 percent. IRI is a voluntary joint underwriting
association providing property insurance for the class of business
known as Highly Protected Risks - larger manufacturing, processing,
and industrial businesses which have invested in protection against
loss through the use of sprinklers and other means. The increased
participation will result in approximately $50 million to $60 million
in additional revenue to HSB in 1996 with minimal impact on earnings
in the near term.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SEPTEMBER 30, 1995
RESULTS OF OPERATIONS
- ---------------------
(dollar amounts in millions)
Consolidated Overview
- ---------------------
<TABLE>
Quarter Ended Nine Months Ended
September 30 September 30
-------------------- --------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Insurance premium $ 98.3 $ 84.3 $ 290.0 $ 251.7
Net engineering services revenues 65.9 57.5 190.3 172.0
Net investment income 6.5 6.4 20.5 19.1
Realized investment gains 1.0 1.8 2.5 8.2
-------- -------- -------- --------
Total revenues $ 171.7 $ 150.0 $ 503.3 $ 451.0
-------- -------- -------- --------
Net income $ 16.3 $ 12.3 $ 46.0 $ 38.5
======== ======== ======== ========
</TABLE>
Net income for the third quarter of 1995 increased 33 percent
over the third quarter of 1994. The increase was achieved
through improvements in both underwriting and engineering services
results. Net income for the first nine months of 1995 increased
19 percent over the first nine months of 1994 with improvements
in insurance and engineering results being offset, in part, by
lower realized gains. The 1994 results were impacted by a
$2.9 million charge for California proposition 103.
Consolidated revenues in the third quarter of 1995 were up
14 percent from the same quarter in 1994. Insurance premiums
increased 17 percent in the quarter. In 1994, EIG, Co. results were
presented on the equity method of accounting and, accordingly,
were not reflected under the revenue captions. If EIG had been
100 percent owned and fully consolidated in 1994, premiums would
have increased by 6 percent in the current quarter. Engineering
services revenues increased 15 percent from the third quarter
last year with Radian Corporation accounting for most of the gain.
Net investment income increased 2 percent in the current quarter
while realized gains were lower. Consolidated revenues for the
first nine months of 1995 increased 12 percent from the same period
in 1994 with insurance, engineering services and investments all
having positive variances to the prior year. The acquisition and
full consolidation of EIG accounted for more than half of the increase.
8
<PAGE>
The effective tax rate for the third quarter and the first nine months
of 1995 was 29 percent and 30 percent, respectively, compared to
31 and 28 percent, respectively, for the comparable prior year periods.
The year to date tax rate fluctuations resulted from improvement in
insurance and engineering services operating results. This changes
the mix of pre-tax income between fully taxable earnings and tax
preferred investment income. The Company continues to manage its use
of tax advantageous investments to maximize after tax investment earnings.
Recent Accounting Developments
- ------------------------------
In March 1995, the Financial Accounting Standards Board (the Board)
issued Statement of Financial Accounting Standards No. 121 (SFAS 121)
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" effective for fiscal years beginning
after December 31, 1995. SFAS 121 requires that entities review
long-lived assets, certain intangibles and goodwill for possible
impairment whenever circumstances indicate that the carrying amount
of an asset may not be recoverable. The SFAS also requires that
long-lived assets and certain intangibles to be disposed of be
reported at the lower of carrying amount or fair value less cost
to sell. Implementation of SFAS 121 is not expected to have a
material impact on the Company's financial results or position.
In October 1995, the Financial Accounting Standards Board (the Board)
issued Statement of Financial Accounting Standards No. 123 (SFAS 123)
"Accounting for Stock-Based Compensation" effective for fiscal years
beginning after December 15, 1995. SFAS 123 allows entities to adopt
the fair value based method of accounting for stock compensation or
continue under the provisions of APB Opinion No. 25, Accounting for
Stock Issued to Employees. Entities electing to remain with the
accounting in Opinion 25 must make pro forma disclosures of net
income and earnings per share as if the fair value based method of
accounting in this Statement had been applied. The Company has not
yet determined which approach under the provisions of SFAS 123 will
be adopted.
9
Insurance Operations
- --------------------
Insurance operations include the insurance results of The Hartford
Steam Boiler Inspection and Insurance Company, the Boiler Inspection
and Insurance Company of Canada (BI & I) and EIG, Co. The 1995
results include EIG, Co. on a fully consolidated basis. The 1994
insurance results do not include EIG as their net results were
recorded as Equity in operations of insurance association rather
than in premium and other income statement accounts.
<TABLE>
Quarter Ended Nine Months Ended
September 30 September 30
--------------- -----------------
1995 1994 1995 1994
------- ------- -------- --------
<S> <C> <C> <C> <C>
Gross earned premium $ 116.1 $ 97.1 $ 342.7 $ 286.4
Ceded premium 17.8 12.8 52.7 34.7
------- ------- -------- --------
Insurance premium 98.3 84.3 290.0 251.7
Claims and adjustment expenses 38.0 33.8 114.8 111.0
Underwriting, acquisition
and other expenses 49.9 45.9 148.9 127.3
------- ------- -------- --------
Underwriting gain $ 10.4 $ 4.6 $ 26.3 $ 13.4
======= ======= ======== ========
</TABLE>
Insurance premiums in the third quarter of 1995 increased
17 percent from the third quarter of 1994. This increase was
primarily attributable to the acquisition and full consolidation
of EIG, Co. and growth in reinsurance assumed business, offset by
slightly higher reinsurance costs. EIG, Co.'s premiums increased
34 percent in the current quarter compared to the third quarter 1994
and reinsurance assumed premiums increased 12 percent over the same
periods. Insurance premiums for the first nine months of 1995
increased 15 percent from the comparable 1994 period with EIG, Co.
and reinsurance assumed business accounting for the improvement.
Reinsurance ceded costs increased 39 percent in the current quarter
and 52 percent year to date from the comparable periods in 1994.
The acquisition and full consolidation of EIG Co. accounted for
$3.5 million of the third quarter increase and $ 11.7 million of
the year to date increase. Higher reinsurance treaty costs also
contributed to the variance.
The loss ratio improved in the current quarter and on a year to
date basis compared to the same periods in 1994 as both frequency
and severity of claims continued to improve. Claims and adjustment
expenses increased 12 percent in the current quarter compared to the
third quarter 1994 and 3 percent on a year to date basis. These
variances were due to the acquisition and full consolidation of
EIG, Co. Exclusive of EIG, Co., claims and adjustment expenses
decreased 7 percent for the first three quarters of 1995 from the
same period in 1994. Claims for the first nine
10
<PAGE>
months of 1994 reflect losses of $4.8 million for the California
earthquake while in 1995 there have been no material catastrophic
losses to date. Gross claims and adjustment expenses for the
first nine months of 1995 and 1994 were $123.4 million and $142.1
million, respectively.
Underwriting, acquisition and other expenses increased approximately
16 percent in the current quarter and 20 percent year to date
compared to the same 1994 periods. These increases were primarily
due to the acquisition and full consolidation of EIG, Co. and the
increase in acquisition costs associated with the assumed book of
business. Exclusive of EIG, Co., insurance operating expenses
increased 6 percent in the first nine months of 1995 compared to
the same period in 1994.
The components of the combined ratio, were as follows:
<TABLE>
Quarter Ended Nine Months Ended
September 30 September 30
--------------------- ------------------
1995 1994* 1995 1994*
------ ------ ------ ------
<S> <C> <C> <C> <C>
Loss ratio 38.7% 40.1% 39.6% 44.1%
Expense ratio 50.3% 51.0% 50.8% 49.4%
------ ------ ------ ------
Combined ratio 89.0% 91.1% 90.4% 93.5%
====== ====== ====== ======
</TABLE>
* - 1994 ratios do not include the results of EIG.
Engineering Services Operations
- -------------------------------
<TABLE>
Quarter Ended Nine Months Ended
September 30 September 30
--------------- -----------------
1995 1994 1995 1994
------- ------- -------- --------
<S> <C> <C> <C> <C>
Net engineering services revenue $ 65.9 $ 57.5 $ 190.3 $ 172.0
Net engineering services expenses 60.3 52.6 173.0 158.8
------- ------- -------- --------
Operating gain $ 5.6 $ 4.9 $ 17.3 $ 13.2
======= ======= ======== ========
Net margin 8.5% 8.5% 9.1% 7.7%
</TABLE>
Engineering services operations include the results of HSB's and
BI&I's engineering services, Radian Corporation, HSB Reliability
Technologies (HSBRT) and the Company's other engineering services
subsidiaries.
11
<PAGE>
Net engineering services revenues continued to show
consistent growth as the third quarter and the first nine months
of 1995 were up 15 percent and 11 percent, respectively, from the
same periods in 1994. The growth in revenues was primarily due to
increases generated by Radian Corporation, the Company's largest
engineering and environmental services subsidiary. Radian's
continues to be effective in increasing market share in the
defense, petroleum/chemicals and general manufacturing sectors.
The consolidated engineering services operating gain increased
14 percent in the current quarter and 31 percent on a year to
date basis from the same periods in 1994. Improvements in operating
margins by HSBRT and the gain on Radian's increased revenue
generated the increases. HSBRT disposed of certain unprofitable
operations in late 1994.
Investment Operations
- ---------------------
<TABLE>
Quarter Ended Nine Months Ended
September 30 September 30
------------------ -------------------
1995 1994 1995 1994
------ ------- ------- -------
<S> <C> <C> <C> <C>
Net investment income $ 6.5 $ 6.4 $ 20.5 $ 19.1
Realized investment gains 1.0 1.8 2.5 8.2
------ ------- ------- -------
Pretax income from
investment operations $ 7.5 $ 8.2 $ 23.0 $ 27.3
====== ======= ======= =======
</TABLE>
Net investment income increased 2 percent for the third quarter of
1995 compared to the third quarter of 1994 and 7 percent for the
first nine months of 1995 from the first nine months of 1994.
The increase was due to the acquisition and full consolidation of
EIG, Co. The Company has continued to shift the mix of its
portfolio to fixed maturities to maximize after tax investment
income. The year to date effective tax rate on investment income
decreased to 15.4 percent in 1995 from 16.2 percent for the first
nine months of 1994. The Company's investment portfolio, including
short term investments, fixed maturities and equity securities,
increased $80.2 million in the first nine months of 1995.
Unrealized market gains accounted for $36.7 million of the increase.
12
<PAGE>
Liquidity and Capital Resources
- -------------------------------
<TABLE>
Balances at
September 30 December 31
-----------------------------
1995 1994
------- -------
<S> <C> <C>
Total assets $ 962.2 $ 905.7
Short-term investments 112.5 73.8
Cash 6.4 12.1
Short-term borrowings 42.8 50.9
Long-term borrowings 25.5 0.6
Shareholder's equity 333.0 299.5
</TABLE>
Liquidity refers to the Company's ability to generate sufficient
funds to meet the cash requirements of its business operations.
Cash provided from operations was $64.9 million in the first
nine months of 1995 compared to $31.1 million in the first nine
months of 1994. The increase over 1994 was due to improved cash
flow from insurance and engineering services operations. Cash
flow from operations improved primarily through increases in
premiums and engineering services revenue collected and lower
claims paid, partially offset by higher paid expenses. The Company
receives a regular inflow of cash from maturing investments,
engineering and insurance operations and maintains a highly
liquid investment portfolio. The Company manages its cash and
short-term investment position to meet its operating expense and
claim payment needs.
Capital resources consist of shareholders' equity and debt
outstanding and represent those funds deployed or available to
be deployed to support business operations.
Shareholders' equity of $333.0 million at September 30, 1995 increased
by $33.5 million since December 31, 1994, representing an increase in book
value per share of $1.69 to $16.36 from $14.67. The increase in book
value per share reflects an increase in unrealized gains, net of tax,
of $22.5 million during the first nine months of 1995, and net income
of $46.0 million, offset by dividends of $34.0 million.
At September 30, 1995, the Company had significant short-term and
long-term borrowing capacity. The Company is currently authorized
to issue up to $75 million of commercial paper. Commercial paper
outstanding at September 30, 1995 and December 31, 1994 was $42.7 and
$26.7 million, respectively.
The Company does not anticipate any significant capital commitment
associated with the Radian/Dow transaction and currently has no
significant capital commitments planned for the remainder of 1995
and beyond.
13
<PAGE>
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits -
(10)(iii): Pre-Retirement Death Benefit and Supplemental Pension
Agreement dated September 18, 1995 between the registrant
and one of its executive officers.
(27): Financial Data Schedule
(b) Reports on Form 8-K - None during the quarterly period ended September
30, 1995.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange
Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
THE HARTFORD STEAM BOILER
INSPECTION AND INSURANCE COMPANY
Date: November 14, 1995 By: /s/ Saul A. Basch
Saul A. Basch
Senior Vice President, Treasurer
and Chief Financial Officer
Date: November 14, 1995 By: /s/ Robert C. Walker
Robert C. Walker
Senior Vice President and General
Counsel
15
PRE-RETIREMENT DEATH BENEFIT AND SUPPLEMENTAL PENSION AGREEMENT
THIS AGREEMENT, made and entered into this 18th day of
September, 1995 between The Hartford Steam Boiler Inspection and
Insurance Company, (hereinafter referred to as the
"Corporation"), a Corporation organized and existing under the
laws of the State of Connecticut and William A. Kerr (hereinafter
referred to as the "Executive").
WHEREAS, the Executive is employed by the Corporation and is
currently serving as Senior Vice President, and
WHEREAS, the Executive has performed his duties in a capable
and efficient manner, resulting in substantial growth and
progress to the Corporation; and
WHEREAS, the Corporation desires to retain the services of
the Executive, and realizes that if he were to leave the
Corporation it could suffer a substantial financial loss; and
WHEREAS, the Executive is willing to continue in the employ
of the Corporation if the Corporation will agree to pay him or
his designees certain benefits in accordance with the provisions
and conditions hereinafter set forth; and
WHEREAS, it is now understood and agreed that this Agreement
is to be effective as of September 18, 1995;
NOW, THEREFORE, for value received and in consideration of
the mutual covenants contained herein, the parties covenant and
agree as follows:
ARTICLE I - DEFINITIONS
For purposes of this Agreement, the following terms have the
meanings set forth below:
1.1 "Change in Control," as referred to in this Agreement, means
a change in control of a nature that would be required to be
reported in response to item 5(f) of Schedule 14 of
Regulation 14A promulgated under the Securities Exchange Act
of 1934 ("Exchange Act"); provided that, without limitation,
such a change in control shall be deemed to have occurred if
(i) any "person" (as such term is used in Sections 13(d) and
14 (d)(2) of the Exchange Act) is or becomes the beneficial
owner (as defined under Rule 13-d of the Exchange Act)
directly or indirectly, of securities of the Company
representing 25% or more of the combined voting power of the
Company's then outstanding securities; or (ii) during any
period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directors
of the Company cease for any reason to constitute at least a
majority thereof unless the nomination for election or
election of each director, who was not a director at the
beginning of the period, was approved by a vote of at least
two-thirds of the directors then still in office who were
directors at the beginning of the period.
1.2 "Executive's Base Annual Salary" means annual salary,
exclusive of bonuses, at the date of Termination of the
Executive's Employment or the date of a Change in Control,
whichever amount is higher.
1.3 "Full-Time Employment" means employment on a full-time basis
with the Corporation or any wholly-owned subsidiary thereof.
1.4 "Retirement" means the Termination of the Executive's
Employment after attaining age 55 for any reason other than
for Cause or on account of the Executive's death.
1.5 "Termination of the Executive's Employment" means the
cessation of the Executive's Full-Time Employment for any
reason.
1.6 "Termination of the Executive's Employment for Cause" means
the Termination of the Executive's Employment after (i)
providing the Corporation with materially false reports
concerning the Executive's business interests or employment-
related activities; (ii) making materially false
representations relied upon by the Corporation in furnishing
information to shareholders, a stock exchange, or the
Securities and Exchange Commission; (iii) maintaining an
undisclosed, unauthorized and material conflict of interest
in the discharge of duties owed by the Executive to the
Corporation; (iv) misconduct causing a serious violation by
the Corporation of state and federal laws; (v) theft of
Corporate funds or corporate assets; or (vi) conviction of a
crime (excluding traffic violations and similar
misdemeanors).
1.7 "Total Disability" means the same as defined under the
Corporation's Long Term Disability Plan or if no such plan
is in effect at the time a total disability is being
determined, then the same as for the purposes of the
Executive's entitlement to Social Security benefits.
ARTICLE II - PRE-RETIREMENT DEATH BENEFIT
2.1 If the Termination of the Executive's Employment is on
account of the Executive's death, a death benefit equal to
twenty-five (25%) of the Executive's Base Annual Salary at
the time of his death will be paid subject to the
limitations under Article VII. This death benefit will be
paid by the Corporation to the beneficiary of the Executive
each year for fifteen years (15) years. The amount to be
paid each year will be paid in equal monthly installments
beginning on the first day of the month following the date
of the Executive's death and on the first day of the month
thereafter. In the event the Termination of the Executive's
Employment is on account of any event other than death, no
benefit will be paid by the Corporation under this Article
II.
ARTICLE III - SUPPLEMENTAL PENSION BENEFIT
3.1 Eligibility for Supplemental Pension Benefit on Retirement
after Age 65
If the Retirement of the Executive occurs after the
Executive has attained age 65, the Executive will be
entitled to receive an annual Supplemental Pension Benefit
under this Agreement in an amount equal to seventeen and
one-half percent (17.5%) of the Executive's Base Annual
Salary. This Supplemental Pension Benefit will be paid by
the Corporation to the Executive each year for fifteen (15)
years. The amount to be paid each year will be paid in
equal monthly installments beginning on the first day of the
month, following the date of the Retirement of the
Executive, and on the first day of each month thereafter.
3.2 Eligibility for Supplemental Pension Benefit on Retirement
after Age 55
If the Retirement of the Executive occurs after the
Executive has attained age 55 but prior to attaining age 65,
the Executive will be entitled to receive an annual
Supplemental Pension Benefit under this Agreement in an
amount equal to seventeen and one-half (17.5%) percent of
the Executive's Base Annual Salary, multiplied by the
applicable percentage set forth in Appendix A and multiplied
by the percentage set forth in Appendix B, if applicable.
This Supplemental Pension Benefit will be paid by the
Corporation to the Executive each year for fifteen (15)
years. The amount to be paid each year will be paid in
equal monthly installments beginning on the first day of the
month following the date of the Retirement of the Executive
and on the first day of each month thereafter.
3.3 Eligibility for Supplemental Pension Benefit on Total
Disability
(a) If the Termination of the Executive's Employment occurs
on account of Total Disability, the Executive will be
entitled to receive a Supplemental Pension Benefit
under this Agreement in an amount equal to seventeen
and one-half percent (17.5%) of the Executive's Base
Annual Salary reduced by any benefit to which the
Executive may be entitled under Social Security, the
Corporation's Long-Term Disability Plan payments,
Worker's Compensation awards, or any combination
thereof, on account of Total Disability. This
Supplemental Pension Benefit, if any, will be paid by
the Corporation to the Executive each year for fifteen
(15) years. The amount to be paid each year will be
paid in equal monthly installments, beginning on the
first day of the month following the date of the
Termination of the Executive's Employment, and on the
first day of each month thereafter.
(b) If, at any time during a period in which the Executive
is entitled to receive payments on account of Total
Disability, the condition of Total Disability no longer
exists, the Corporation's obligation to make any
further payments on account of Total Disability will
terminate on the date on which Total Disability no
longer exists. If the Executive resumes employment
with the Corporation following such Total Disability in
the same or a similar capacity as the Executive
occupied prior to such Total Disability, any
supplemental pension or death benefit to which the
Executive or his beneficiary otherwise becomes
entitled shall be unreduced on account of the payments
received on account of the Executive's Total Disability
hereunder.
3.4 Termination of the Executive's Employment for Cause
If the Termination of the Executive's Employment is a
Termination of the Executive's Employment for Cause,
notwithstanding any other provision of this Agreement, the
Executive will not be entitled to receive any benefits under
this Article III.
3.5 Eligibility for Supplemental Pension Benefit on Other Than
Retirement or Total Disability
Except, as provided in Article IV, if the Termination of the
Executive's Employment occurs for any reason other than
those provided in this Article III, or is for a reason
provided for in this Article III but is under circumstances
which do not meet the requirements for entitlement to a
benefit under said Article, the Executive will not be
entitled to receive a Supplemental Pension Benefit under
this Agreement.
ARTICLE IV
TERMINATION OF EXECUTIVE'S EMPLOYMENT FOLLOWING CHANGE IN CONTROL
4.1 If the Executive's employment with the Corporation is
terminated by the Corporation during the six (6) months
following a Change in Control, and is not a Termination of
the Executive's Employment for Cause or on account of the
Executive's death or Total Disability, said termination
shall be deemed a termination on account of the Retirement
of the Executive after age 65, and the Executive shall be
entitled to the benefit provided in Section 3.1 of Article
III hereof, as if the Executive had retired on the date of
such termination.
4.2 If the Termination of the Executive's Employment occurs six
(6) months or later following a Change in Control, and is
not a Termination of the Executive's Employment for Cause or
on account of the Executive's death or Total Disability,
said termination shall be deemed a termination on account of
the Retirement of the Executive after age 65, and the
Executive shall be entitled to the benefit provided in
Section 3.1 of Article III hereof, as if the Executive had
retired on the date of such termination.
ARTICLE V - BENEFICIARY OF DEATH BENEFIT OR SUPPLEMENTAL PENSION
5.1 In the event that the termination of the Executive's
employment with the Corporation is on account of the
Executive's death or that the Executive should die prior to
receipt of any amounts(s) due or remaining to be paid under
Article III of this Agreement, the death benefit payable
under Article II or any amounts remaining payable under
Article III, shall be paid at the times and in the manner
specified under the terms of Article II or Article III, as
applicable, to such beneficiary or beneficiaries as the
Executive may have designated by filing with the Corporation
a notice in writing in a form acceptable to the Corporation.
In the absence of any such designation, such unpaid amounts
shall be paid to the Executive's surviving spouse, or if the
Executive should die without a spouse surviving, to the
Executive's estate.
ARTICLE VI - CLAIMS PROCEDURE
6.1 Filing Claims
Any insured, beneficiary or other individual (hereinafter,
"Claimant") entitled to benefits under the Agreement shall
file a claim request with the Administrator.
6.2 Notification of Claimant
If a claim request is wholly or partially denied, the
Administrator will furnish to the Claimant a notice of the
decision within 90 days in writing and in a manner
calculated to be understood by the Claimant, which notice
will contain the following information:
(a) The specific reason or reasons for the denial;
(b) Specific reference to pertinent provisions of the
Agreement upon which the denial is based;
(c) A description of any additional material or
information necessary for the Claimant to perfect
the Claim and an explanation of why such material
or information is necessary; and
(d) An explanation of the claims review procedure
under the Agreement describing the steps to be
taken by a Claimant who wishes to submit his claim
for review.
6.3 Review Procedure
Claimant or his authorized representative may with respect
to any denied claims:
(a) Request a review upon written application filed
within sixty (60) days after receipt by the
Claimant of written notice of the denial of his
claim;
(b) Review pertinent documents; and
(c) Submit issues and comments in writing.
Any request or submission must be in writing and directed to
the Fiduciary (or its designee). The Fiduciary (or its
designee) will have the sole responsibility for the review
of any denied claim and will take all steps appropriate in
the light of its findings.
6.4 Decision on Review
(a) The Fiduciary (or its designee) will render a decision
following its review. If special circumstances (such
as the need to hold a hearing on any matter pertaining
to the denied claim) warrant additional time, the
decision will be rendered as soon as possible, but not
later than 120 days after receipt of the request for
review. Written notice of any such extension will be
furnished to the Claimant prior to the commencement of
the extension.
(b) The decision on review will be in writing and will
include specific reasons for the decision, written in a
manner calculated to be understood by the Claimant, as
well as specific references to the pertinent provisions
of the Agreement on which the decision is based.
(c) If the decision on the review is not furnished to the
Claimant within the time limits prescribed above, the
claim will be deemed denied on review.
ARTICLE VII - MISCELLANEOUS PROVISIONS
7.1 Misrepresentation
(a) The Corporation may deem it appropriate to insure its
obligation to provide all or any part of the benefits
described in this Agreement. The Corporation may wish
to make any insurance used to insure its obligation
effective as of the date the Executive becomes entitled
to the benefit insured with such insurance. If the
Corporation does deem it appropriate to insure all or
any part of any such benefits, the Corporation will so
notify the Executive. The Executive agrees to take
whatever actions may be necessary to enable the
Corporation to timely apply for, acquire and maintain
such insurance and to fulfill the requirements of the
insurance company relative to the issuance thereof.
(b) If the Executive is required by the Corporation to
submit information to one or more insurers in order to
secure insurance as described herein, and if the
Executive has made a material misrepresentation in any
application for such insurance, the Executive's right
to a benefit under this Agreement will be reduced by
the amount of the benefit that is not paid by the
insurer(s) because of such material misrepresentation.
7.2 Suicide
No benefit will be payable under this Agreement if the
Executive dies by suicide within two years after the
effective date of this Agreement or of any policy secured
pursuant to Section 7.1. No increase in the amount of any
benefit provided in this Agreement will be payable under
this Agreement if the Executive dies by suicide within two
years of the effective date of such increase or any policy
secured by the Corporation to insure its obligation for such
increase.
7.3 Satisfaction of Claims
The Executive agrees that his rights and interests, and
rights and interests of any persons taking under or through
him, will be completely satisfied upon compliance by the
Corporation with the provisions of this Agreement.
7.4 Amendment
The Agreement may be altered, amended, or modified only by a
written instrument signed by the Corporation and the
Executive. This Agreement sets forth the entire
understanding of the parties with respect to the subject
matter thereof.
7.5 Governing Law
This Agreement will be governed by the laws of the State of
Connecticut.
7.6 Non-Assignable Rights
Neither the Executive nor his spouse, nor other beneficiary,
will have any right to commute, sell, assign, transfer or
otherwise convey the right to receive any payments hereunder
without the written consent of the Corporation. Such
payments and the right thereto are expressly declared to be
non-assignable and nontransferable.
7.7 Independence of Agreement
The benefits under this Agreement will be independent of,
and in addition to, any other agreement that may exist from
time to time between the parties hereto, or any other
compensation payable by the Corporation to the Executive,
whether as salary, bonus or otherwise. This Agreement will
not be deemed to constitute a contract of employment between
the parties hereto, nor will any provision hereof restrict
the right of the Corporation to discharge the Executive, or
restrict the right of the Executive to terminate his
employment.
7.8 Non-Secured Promise
The rights of the Executive under this Agreement and of any
beneficiary of the Executive will be solely those of an
unsecured creditor of the Corporation. Any insurance policy
or any other asset acquired or held by the Corporation in
connection with the liabilities assumed by it hereunder,
will not be deemed to be held under any trust for the
benefit of the Executive or his beneficiaries or to be
security for the performance of the obligations of the
Corporation, but will be, and remain, a general, unpledged,
unrestricted asset of the Corporation and the Corporation
will retain all ownership rights in any such policy.
7.9 Change of Business Forms
The Corporation agrees that it will not merge with, or
permit its business activities to be taken over by, any
other corporation or organization, unless and until the
succeeding or continuing corporation or other organization
agrees to assume the rights and obligations of the
Corporation herein set forth. The Corporation further
agrees that it will not cease its business activities or
terminate its existence, other than as heretofore set forth
in this Article VII, without having made adequate provisions
for the fulfilling of its obligations hereunder.
7.10 Fiduciary and Administrator
(a) The Corporation will be Fiduciary and Administrator of
this Agreement. The Corporation's Board of Directors
may authorize a person or group of persons to fulfill
the responsibilities of the Corporation as
Administrator.
(b) The Fiduciary or the Administrator may employ others to
render advice with regard to its responsibilities under
this Agreement. The Fiduciary may also allocate
fiduciary responsibilities to others and may exercise
any other powers necessary for the discharge of its
duties to the extent not in conflict with any
provisions of the Employee Retirement Income Security
Act of 1974 that may be applicable.
7.11 Waiver by Human Resources Committee
The Human Resources Committee of the Board is authorized to
waive any provisions of this Agreement which would otherwise
operate to deny, reduce or delay any benefit payments under
any provisions of this Agreement.
IN WITNESS WHEREOF, the parties have hereunto set their
hands and seals, the Corporation by its duly authorized
officer, on the day and year first written above.
/s/ William A. Kerr
Executive
THE HARTFORD STEAM BOILER
INSPECTION AND INSURANCE
COMPANY
/s/ Gordon W. Kreh
Its: President
<PAGE>
APPENDIX A
ATTAINED AGE
AT TERMINATION OF
EMPLOYMENT PERCENTAGE OF
BENEFIT
65 100
64 97
63 94
62 91
61 88
60 85
59 82
58 79
57 76
56 73
55 70
<PAGE>
APPENDIX B
YEARS OF SERVICE
AT TERMINATION OF
EMPLOYMENT PERCENTAGE OF
BENEFIT
5 100
4 80
3 60
2 40
1 20
Less than 1 0
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<PERIOD-END> SEP-30-1995
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0
0
<OTHER-SE> 323
<TOTAL-LIABILITY-AND-EQUITY> 962
290
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