SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) - December 30, 1994
THE HARTFORD STEAM BOILER INSPECTION AND INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
Connecticut 0-13300 06-0384680
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
One State Street, Hartford, Connecticut 06102
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code - (203-722-1866)
<PAGE>
Item 2. Acquisition or Disposition of Assets
On December 30, 1994 The Hartford Steam Boiler Inspection and
Insurance Company (HSB) completed the acquisition of General
Reinsurance Corporation's 50% interest in Engineering Insurance
Group (EIG), a partnership of HSB and General Reinsurance formed
in 1988 to provide machinery breakdown insurance to business and
industry outside the United States and Canada.
According to the terms of the transaction, HSB and General
Reinsurance contributed their partnership interests to a newly
formed corporation, EIG Co., in exchange for which HSB received
all of the outstanding common shares of EIG Co. and General
Reinsurance received preferred stock of EIG Co. with a stated
value of $20 million and a dividend rate of 6.5% per annum.
Subject to certain conditions, after a minimum period of two
years the preferred stock can be exchanged for 6.5% preferred
stock of HSB which is convertible, at General Reinsurance's
option, into 398,370 common shares of HSB.
Following the acquisition, Engineering Insurance Company,
Limited, the insurance operating subsidiary of EIG Co. will
remain a fully capitalized insurer based in London.
The transaction has been accounted for as a purchase by HSB. The
terms of the acquisition are more fully described in the
Transaction Agreement filed as Exhibit 2 to the registrant's
Current Report on Form 8-K dated January 17, 1995 and
incorporated herein by this reference.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired
The following consolidated financial statements of Engineering
Insurance Group are filed herewith:
Consolidated Statement of Operations for the year ended
December 31, 1993
Consolidated Statement of Financial Position as of
December 31, 1993
Consolidated Statement of Cash Flows for the year ended
December 31, 1993
Notes to Consolidated Financial Statements
Report of Independent Accountants
(b) Pro Forma Financial Information
The following pro forma consolidated condensed financial
<PAGE>
statements of The Hartford Steam Boiler Inspection and Insurance
Company are filed herewith:
Pro Forma Condensed Consolidated Statement of Financial
Position as of September 30, 1994 (Unaudited)
Pro Forma Condensed Consolidated Income Statement for the Nine
Months ended September 30, 1994 (Unaudited)
Pro Forma Condensed Consolidated Income Statement for the Year
Ended December 31, 1993 (Unaudited)
Notes to Unaudited Pro Forma Condensed Consolidated Statement
of Financial Position
Notes to Unaudited Pro Forma Condensed Consolidated Income
Statements
(c) Exhibits
2. Transaction Agreement between The Hartford Steam Boiler
Inspection and Insurance Company and General
Reinsurance Corporation dated December 30, 1994 (filed as
Exhibit 2 to the registrant's Current Report on Form 8-K
dated January 17, 1995 and incorporated herein by this
reference).
23.1 Consent of Price Waterhouse
<PAGE>
Pursuant to the requirements 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.
THE HARTFORD STEAM BOILER
INSPECTION AND INSURANCE COMPANY
Dated: March 15, 1995 /s/ Robert C. Walker
Robert C. Walker
Senior Vice President and General Counsel
<PAGE>
INDEX TO EXHIBITS
Exhibit No.
2 Transaction Agreement between The Hartford
Steam Boiler Inspection and Insurance Company
and General Reinsurance Corporation dated
December 30, 1994 (filed as Exhibit 2 to the
registrant's Current Report on Form 8-K dated
January 17, 1995 and incorporated herein by
this reference).
23.1 Consent of Price Waterhouse
<PAGE>
ENGINEERING INSURANCE GROUP
FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1993
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED
DECEMBER 31, 1993 (in thousands)
<TABLE>
1993
<S> <C>
Revenues:
Insurance premiums $23,940
Net investment income 8,031
Realised Investment Gains 191
-------
Total revenues 32,162
Expenses:
Claims and adjustment 14,459
Policy acquisition 5,032
Underwriting and inspection 10,086
Interest 6,799
-------
Total expenses 36,376
Loss before taxes 4,214
Income taxes:
Current 1,424
Deferred 309
-------
Total income taxes 1,733
-------
Net loss $5,947
=======
</TABLE>
[FN]
See Notes to Consolidated Financial Statements.
<PAGE>
ENGINEERING INSURANCE GROUP
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT DECEMBER 31, 1993 (in thousands)
<TABLE>
1993
<S> <C>
Assets:
Cash $ 1,114
Short term investments, at cost 10,646
Fixed maturities, at amortized cost 87,087
--------
Total cash and invested assets 98,847
Insurance premiums receivable and funds withheld 5,666
Fixed assets 1,341
Prepaid acquisition costs 2,160
Goodwill 8,250
Reinsurance recoverable 4,607
Other assets 3,881
--------
Total assets $124,752
========
Liabilities:
Unearned insurance premiums $13,258
Claims and adjustment expenses 19,961
Long term borrowings 67,000
Other liabilities 8,415
--------
Total liabilities 108,634
Partnership Capital:
Partnership contributions 44,000
Partnership earnings (27,882)
Total partnership capital 16,118
--------
Total liabilities and partnership capital $124,752
========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
ENGINEERING INSURANCE GROUP
FINANCIAL STATEMENTS
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1993 (in thousands)
1993
<S> <C>
Operating Activities:
Net loss $(5,947)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 893
Deferred income taxes 309
Realised investments gains, net of tax (191)
Change in:
Insurance premiums receivable (1,362)
Prepaid acquisition costs (1,023)
Reinsurance recoverable 1,178
Unearned insurance premiums 6,622
Claims and adjustment expenses 6,898
Other 2,354
--------
Cash provided by operating activities $9,731
========
Investing Activities:
Fixed asset additions $(1,147)
Investments:
Purchase of short-term investments, net (6,262)
Purchase of fixed maturities (61,593)
Proceeds from sale of fixed maturities 19,192
Redemption of fixed maturities 53,950
--------
Cash provided by investment activities $4,140
========
Financing Activities:
Repayment of long term debt $13,000
========
Cash used in financing activities $13,000
========
Net increase in cash 871
Cash at beginning of period 243
--------
Cash at end of period $1,114
========
Interest paid $7,009
========
Income tax paid $539
========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
ENGINEERING INSURANCE GROUP
FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1993
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Accounting Policies
Consolidation
The accompanying financial statements present the consolidated
partnership accounts of Engineering Insurance Group (EIG) and its
subsidiary (collectively, the Partnership) and are prepared in
accordance with generally accepted accounting principles (GAAP). The
Partnership holds 100% of the share capital of Engineering Insurance
Company Limited (EICL). Significant intercompany transactions and
balances have been eliminated on consolidation.
Insurance
Insurance premiums are recognised in the Partnership accounts when
written and are net of reinsurance ceded, refunds and rebates.
Provision for unearned premiums is made on a time apportionment
basis for those periods of risk extending beyond the Partnership's
financial year and are included in other assets on the Consolidated
Statement of Financial Position.
Underwriting acquisition expenses are deferred on a time
apportionment basis for expenses which relate to policies which have
periods of risk extending beyond the end of the financial year.
The provision for outstanding claims consists of the estimated costs of
claims to be paid in respect of incidents notified up to the balance sheet
date supplemented by additional amounts to cover claims incurred but not
reported at that date where considered necessary. The provision is stated net
of salvage reinsurance and other recoveries but includes estimates for
claims handling.
Reinsurance recoverable represents amounts due from reinsurers for paid and
unpaid claims and adjustment expense estimates through participation in
insurance ceded arrangements.
Investments
Short term investments have a maturity of one year or less and are carried at
cost which approximates fair value. Fixed maturities consists of bonds.
Investment income is net of investment expenses and realised gains and
losses.
<PAGE>
Income Taxes
No income taxes are provided on Partnership activity. The consolidated
insurance subsidiary reflects a provision for income taxes. Deferred income
taxes are provided for items of income and expense which result in temporary
differences in the treatment of such items for tax and financial statement
purposes.
Fixed Assets
Fixed assets are carried at cost less accumulated depreciation. Depreciation
is calculated to write-off the costs of fixed assets on a straight line basis
over their estimated useful lives.
Goodwill and Other Intangible Assets
Goodwill is amortised over 20 years and other intangibles over 5 years.
Foreign Currency Translation
Gains and losses arising from the translation of the local currency value of
foreign transactions to US dollars, the functional currency of the
Partnership, are included in underwriting and inspection expenses. A net
$363 thousand gain was taken into income in 1993.
2. Changes in Accounting Principles
In 1993, the Partnership adopted Statement of Financial Accounting Standards
No. 113 (SFAS 113), "Accounting and Reporting for Reinsurance of Short
Duration and Long Duration Contracts". All amounts on the Consolidated
Statements of Financial Position were reclassified accordingly. The adoption
of SFAS 113 had no impact on net income.
Accounting Standards Not Yet Adopted
In May 1993, The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115 (SFAS 115) "Accounting for Certain
Investments in Debt and Equity Securities". SFAS 115, which is effective for
the Partnership's fiscal year 1994 financial statements addresses the
accounting and reporting for investments in equity securities that have
readily determinable fair values and for all investments in debt securities.
<PAGE>
3. Investments (in thousands)
<TABLE>
1993
<S> <C>
Income from Investment Operations
Net Investment Income:
Short term interest $ 399
Fixed maturities 7,798
Investment expenses (166)
--------
$8,031
========
Realised Investment gains (losses):
Fixed maturities:
Gains 191
Losses 0
--------
Realized investment gains, 191
========
Income from investment operations $8,222
========
</TABLE>
<PAGE>
3. Investments (continued)
Fixed Maturities:
The amortized cost, estimated fair values (based principally upon quoted
market prices) and gross unrealized gains and losses of fixed maturities at
December 31 were as follows (in thousands):
<TABLE>
1993
Estimated Gross Gross
Amortised Fair Unrealized Unrealized
Category Cost Value Gains Losses
<S> <C> <C> <C> <C>
Foreign governments $19,101 $19,460 $ 359 $ 0
Corporates and other 67,986 70,095 2,109 0
-------- -------- -------- -------
Total fixed maturities $87,087 $89,555 $2,468 $0
======== ======== ======== =======
</TABLE>
The amortised cost and estimated fair value of fixed maturities at
December 31, 1993 by contractual years to maturity follow (in thousands).
Expected maturities will differ from contractual maturities because
borrowers may have the right to prepay obligations.
<TABLE>
1993
---------------------
Amortised Estimated
Maturity Cost Value
<S> <C> <C>
One year or less $55,455 $56,201
Over one year through five years 28,209 29,529
Over five years through ten years 3,423 3,825
-------- --------
Total fixed maturities $87,087 $89,555
======== ========
</TABLE>
<PAGE>
4. Fixed Assets
Fixed assets are summarized as follows (in thousands):
1993
Land and buildings $ 0
Furniture, equipment and other 2,114
--------
2,114
Less accumulated depreciation (773)
--------
Fixed assets $1,341
========
5. Reinsurance
The components of net written and net earned insurance premiums were as
follows (in thousands):
1993
Written premiums
Direct $ 6,178
Assumed 32,072
Ceded (6,420)
--------
Net written insurance premiums $31,830
========
Earned premiums
Direct $ 6,101
Assumed 23,833
Ceded (5,994)
--------
Net earned insurance premiums $23,940
========
<PAGE>
5. Reinsurance (continued)
The Partnership 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 Partnership would continue to have primary
liability to policyholders for losses incurred. As a result of the adoption
of SFAS 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 SFAS 113 did not have
any impact on net income for 1993. The Partnership is not party to any
contracts which do not comply with the risk transfer provisions of SFAS 113.
At 31 December 1993 reinsurance recoverable on paid losses was $1,597
thousand and reinsurance recoverable on unpaid losses was $4,559 thousand.
6. Income Taxes
Tax provision
The tax provision is comprised of the following:
<TABLE>
1993
-----------
% of Pretax
Amount income
(in thousands) %
<S> <C> <C>
Loss before taxes $(4,214) 100
------- -------
Tax at statutory rates (1,475) 35
Tax effect of Partnership Income (loss)* 3,313 (79)
Foreign tax rate differential (105) 3
------- -------
Total Income Taxes $1,733 (41)
======= =======
</TABLE>
*Partnership income (loss) is taxable directly to the individual partners.
No income tax provision (benefit) is made at the partnership level.
<PAGE>
6. Income Taxes (continued)
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 Partnership's deferred tax liabilities and assets as of 31
December 1993 are as follows (in thousands):
1993
Deferred tax liabilities:
Depreciation $(320)
Accrued interest income (215)
--------
Total deferred tax liabilities (535)
Deferred tax assets 0
--------
Total deferred tax assets 0
--------
Net deferred tax liability $(535)
========
<PAGE>
7. Leases
Minimum rental commitments under noncancellable leases accounted for as
operating leases with initial or remaining terms of more than one year were
as follows (in thousands):
Years ended December 31
1994 $ 305
1995 305
1996 305
1997 183
1998 183
1999 and thereafter 917
--------
Total $2,198
Costs under operating leases are charged as an expense as incurred.
8. Debt
Long term
Maturities on long term borrowings for the years succeeding 31 December 1993
are as follows (in thousands):
1994 $43,000
1995 24,000
--------
Total $67,000
The long term borrowings are in the form of loan notes held with Chase
Manhattan Bank. Interest is charged at the rate of 9.35% per annum. The
borrowings are guaranteed by means of a floating charge on the undertaking,
property and assets of the Partnership.
<PAGE>
9. Pension Plans
The Partnership participates in a multi-employer pension plan, through its
participating partners' defined benefits pension plans, covering employees of
EIG and EICL. The plan assets are recorded and accounted for by the partners
accordingly. The Partnership recorded $346 thousand in pension expense for
the year ended 1993.
10. Partnership Capital (in thousands)
1993
Partnership contributions:
General Reinsurance Corporation Inc $22,000
Hartford Steam Boiler Inspection and Insurance
Company 22,000
--------
$44,000
========
Partnership earnings:
Accumulated partnership earnings as of 1 January $(21,935)
Net income (loss) for the year (5,947)
--------
Accumulated partnership earnings (27,882)
========
Total Partnership Capital $16,118
========
<PAGE>
11. Related Party Transactions
The Hartford Steam Boiler Inspection and Insurance Company ("HSB")
and General Reinsurance Corporation Inc. (GenRe) were both
related parties to EIG due to the nature of the Partnership.
The following transactions took place during the year:
Engineering expenses amounting to $ 1,943 thousand were charged by
HSB.
Reinsurance was ceded to GenRe and HSB, amounting to $ 1,623 thousand
and $ 327 thousand, respectively.
At the end of the year, balances amounting to $ 484 thousand were
due to HSB and GenRe.
12. Subsequent Events
In December 1994, HSB acquired the remaining 50% interest in the
Partnership from Gen Re. Coincident with the December 1994
acquisition, the Partnership was incorporated with HSB
acquiring all outstanding common shares and Gen Re acquiring
preferred shares in the new company, EIG Co.
The Group made a pre tax gain of $2.7 million and a post tax loss
of $ 71 thousand and held net assets of $ 32 million for the
year ending December 31, 1994.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the board of directors and partners of Engineering Insurance
Group
In our opinion, the accompanying consolidated statement of financial position
and the related consolidated statements of operations and cash flows present
fairly, in all material respects, the financial position of Engineering
Insurance Group and its subsidiary at 31 December 1993, and the results of
their operations and cash flows for the year then ended in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Partnership's management; our responsibility
is to express an opinion on these financial statements based upon
our audit. We conducted our audit of these statements in accordance
with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE
London
10 March 1995
<PAGE>
The Hartford Steam Boiler Inspection and Insurance Company
Pro Forma Condensed Consolidated Financial Statements
(Unaudited)
The following unaudited pro forma condensed consolidated statements of
income for HSB for the nine months ended September 30, 1994 and year
ended December 31, 1993, present consolidated operating results for
HSB as if HSB's acquisition of 50% of EIG not previously owned by HSB
had occurred as of January 1, 1993. The accompanying unaudited pro
forma condensed consolidated Statement of Financial Position as of
September 30, 1994 gives effect to the 50% acquisition as if it had
occurred as of September 30, 1994. The unaudited pro forma condensed
financial data does not purport to represent what HSB's financial
position or results of operations actually would have been had the
transaction in fact occurred on the dates indicated, or to project
HSB's financial position or results of operations for any future
period. The pro forma adjustments are based upon available
information and certain assumptions believed to be reasonable in the
circumstances. The unaudited pro forma consolidated financial
information should be read in conjunction with the accompanying notes
thereto and the separate historical financial statements of HSB as of
and for the nine months ended September 30, 1994, and for the year
ended December 31, 1993, which are contained in HSB's Form 10-Q for
the quarterly period ended September 30, 1994 and in its Annual Report
on Form 10-K for the year ended December 31, 1993, respectively.
The pro forma adjustments are provided for informational purposes only
and are applied to the historical consolidated financial statements of
HSB and EIG to account for the acquisition as a purchase. Under
purchase accounting the total purchase price will be allocated to EIG
Co. assets and liabilities based upon relative fair values.
<PAGE>
Hartford Steam Boiler Inspection and Insurance Company
Pro Forma Condensed Consolidated Statement of Financial Position (Unaudited)
September 30, 1994
(in millions)
<TABLE>
HSB EIG Pro Forma Pro Forma
Historical Historical 100% Adjustments HSB
---------- --------------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS:
CASH $ 6.70 $ 1.20 $ 7.90
SHORT-TERM INVESTMENTS 66.80 16.30 83.10
FIXED MATURITIES 161.60 39.10 200.70
EQUITY SECURITIES 213.00 213.00
--------- --------- ---------
TOTAL CASH & INVESTED ASSETS 448.10 56.60 504.70
INSURANCE PREMIUMS RECEIVABLE 62.80 15.20 78.00
ENGINEERING SERVICES RECEIVABLE 72.30 72.30
FIXED ASSETS 60.90 1.80 62.70
PARTICIPATION IN POOLS & ASSOCIATIONS 8.60 $ (8.10)(B) 0.50
PREPAID ACQUISITION COSTS 30.60 4.10 34.70
CAPITAL LEASE 17.70 17.70
REINSURANCE RECOVERABLE 37.40 13.70 51.10
OTHER ASSETS 74.00 9.70 11.90 (A) 95.60
--------- --------- -------- ---------
TOTAL ASSETS $ 812.40 $ 101.10 $ 3.80 $ 917.30
========= ========= ======== =========
LIABILITIES:
UNEARNED INSURANCE PREMIUMS $ 165.60 $ 27.80 $ 193.40
CLAIMS AND ADJUSTMENT EXPENSES 187.10 27.70 214.80
SHORT-TERM BORROWINGS 31.10 24.00 $ 0.20 (A) 55.30
LONG-TERM BORROWINGS 0.60 0.60
CAPITOL LEASE 27.80 27.80
DEFERRED INCOME TAXES (3.00) (1.30) (0.10)(A) (4.40)
DIVIDEND PAYABLE 11.30 11.30
EMPLOYEE STOCK OWNERSHIP PLAN 2.20 2.20
OTHER LIABILITIES 85.90 6.60 20.00 (A) 112.50
--------- --------- -------- ---------
TOTAL LIABILITIES 508.60 84.80 20.10 613.50
--------- --------- -------- ---------
PARTNERSHIP INTEREST/COMMON EQUITY 16.30 (16.30)(A)(B) 0.00
PREFERRED STOCK 20.00 (A)
(20.00)(A) 0.00
COMMON STOCK 10.00 10.00
ADDITIONAL PAID-IN CAPITOL 34.00 34.00
UNREALIZED INVESTMENT GAINS, NET OF TAX 20.60 20.60
RETAINED EARNINGS 285.90 285.90
TREASURY STOCK, @ COST (40.20) (40.20)
BENEFIT PLANS (6.50) (6.50)
--------- --------- -------- ---------
TOTAL SHAREHOLDER'S EQUITY 303.80 16.30 (16.30) 303.80
--------- --------- -------- ---------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 812.40 $ 101.10 $ 3.80 $ 917.30
========= ========= ======== =========
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Consolidated Statement
of Financial Position.
<PAGE>
The Hartford Steam Boiler Inspection and Insurance Company
Notes to Unaudited Pro Forma Condensed Consolidated
Statement of Financial Position
(A) Pro forma adjustments reflecting the issuance of EIG Co. preferred
stock and the resulting minority interest position reflected on HSB's
consolidated statement of financial position. Pro forma adjustments
resulting from the allocation of purchase price based on relative fair
values of underlying net assets acquired are as follows:
- Excess purchase price over fair value of net assets acquired.
- Premium allocated to short term debt based on current interest rates.
- Adjustment to deferred tax asset based upon other purchase adjustments.
(B) Adjustments to eliminate HSB's 100% interest in EIG partnership, including
the 50% interest previously reported on the equity basis of accounting.
<PAGE>
Hartford Steam Boiler Inspection and Insurance Company
Pro Forma Condensed Consolidated Income Statement (Unaudited)
For the Nine Months Ended September 30, 1994
(in millions except per share amounts)
<TABLE>
HSB EIG Pro Forma Pro Forma
Historical Historical Adjustments HSB Consolidated
---------- ---------- ----------- ----------------
<S> <C> <C> <C> <C>
REVENUES:
INSURANCE PREMIUMS $ 255.40 $ 22.90 $ 278.30
NET ENGINEERING SERVICES 172.00 172.00
NET INVESTMENT INCOME 19.10 3.70 22.80
REALIZED INVESTMENT GAINS 8.20 (0.10) 8.10
--------- --------- ---------
TOTAL REVENUES 454.70 26.50 481.20
EXPENSES:
CLAIMS AND ADJUSTMENT 111.00 9.40 120.40
POLICY ACQUISITION 48.00 4.90 52.90
UNDERWRITING & INSPECTION 80.10 4.80 84.90
NET ENGINEERING SERVICES 158.80 2.80 161.60
OTHER 1.20 2.40 $ (0.2) (a) 5.20
0.8 (b)
1.0 (c)
PROPOSITION 103 2.90 2.90
--------- --------- -------- ---------
TOTAL EXPENSES 402.00 24.30 1.6 427.90
EQUITY IN OPERATIONS OF INS. ASSOC. 1.10 (1.1) (d) 0.00
INCOME BEFORE TAXES AND CUMULATIVE --------- --------- -------- ---------
EFFECT OF CHANGE IN ACCTG. PRIN. 53.80 2.20 (2.7) 53.30
--------- --------- -------- ---------
INCOME TAXES:
CURRENT 12.70 1.10 (1.0) (e) 12.20
(0.6) (f)
DEFERRED 2.60 0.80 3.40
--------- --------- -------- ---------
TOTAL INCOME TAXES 15.30 1.90 (1.6) 15.60
INCOME BEFORE CUMULATIVE EFFECT --------- --------- -------- ---------
OF CHANGE IN ACCTG. PRIN. $ 38.50 $ 0.30 $ (1.1) $ 37.70
========= ========= ======== =========
PER SHARE:
INCOME BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCTG. PRIN. $ 1.88 $ 1.84
========= =========
AVERAGE SHARES OUTSTANDING 20.50 20.50
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Consolidated Income
Statement.
<PAGE>
Hartford Steam Boiler Inspection and Insurance Company
Pro Forma Condensed Consolidated Income Statement (Unaudited)
For the Year Ended December 31, 1993
(in millions except per share amounts)
<TABLE>
HSB EIG Pro Forma Pro Forma
Historical Historical Adjustments HSB Consolidated
---------- ---------- ----------- ----------------
<S> <C> <C> <C> <C>
REVENUES:
INSURANCE PREMIUMS $ 349.20 $ 23.90 $ 373.10
NET ENGINEERING SERVICES 231.50 231.50
NET INVESTMENT INCOME 29.30 8.40 37.70
REALIZED INVESTMENT GAINS 26.10 26.10
--------- -------- ---------
TOTAL REVENUES 636.10 32.30 668.40
EXPENSES:
CLAIMS AND ADJUSTMENT 199.10 14.40 213.50
POLICY ACQUISITION 64.20 5.00 69.20
UNDERWRITING & INSPECTION 112.30 5.40 117.70
NET ENGINEERING SERVICES 219.70 3.30 223.00
OTHER 1.80 8.40 $ (0.4) (a) 12.10
1.0 (b)
1.3 (c)
RESTRUCTURING 20.00 20.00
--------- --------- -------- ---------
TOTAL EXPENSES 617.10 36.50 1.9 655.50
EQUITY IN OPERATIONS OF INS. ASSOC. (2.10) 2.1 (d) 0.00
INCOME BEFORE TAXES AND CUMULATIVE --------- --------- -------- ---------
EFFECT OF CHANGE IN ACCTG. PRIN. 16.90 (4.20) 0.2 12.90
--------- --------- -------- ---------
INCOME TAXES:
CURRENT 6.90 1.40 (0.9) (e) 5.90
(1.5) (f)
DEFERRED (3.10) 0.30 (2.80)
--------- --------- -------- ---------
TOTAL INCOME TAXES 3.80 1.70 (2.4) 3.10
INCOME BEFORE CUMULATIVE EFFECT --------- --------- -------- ---------
OF CHANGE IN ACCTG. PRIN. $ 13.10 $ (5.90) $ 2.6 $ 9.80
========= ========= ======== =========
PER SHARE:
INCOME BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCTG. PRIN. $ 0.63 $ 0.47
========== =========
AVERAGE SHARES OUTSTANDING 20.7 20.7
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Consolidated Income
Statement.
<PAGE>
The Hartford Steam Boiler Inspection and Insurance Company
Notes to Unaudited Pro Forma Condensed Consolidated Income
Statements
(a) Adjustment to reflect elimination of amortization of
goodwill and other intangibles on EIG's financials
resulting from the original investment.
(b) Adjustment to reflect amortization of goodwill arising
from the current transaction over a 15 year period.
(c) Adjustment to reflect preferred stock dividend paid to
minority interest resulting from the transaction.
(d) Adjustment to eliminate HSB's original 50% interest in
the historical earnings of EIG, reported on the equity
basis of accounting.
(e) Adjustment to eliminate HSB's existing 50% share of
taxes arising from EIG's consolidated incorporated
subsidiary, Engineering Insurance Company, Limited.
(f) Adjustment to reflect HSB's tax provision on the EIG
partnership activity for the 50% portion not previously
owned.
10 March 1995
The Directors
Hartford Steam Boiler Inspection and Insurance Company
One State Street
Hartford, Connecticut 06102-5024
USA
Dear Sirs,
We hereby consent to the inclusion of the financial statements of Engineering
Insurance Group for the year ended 31 December 1993 audited by ourselves, in
the Form 8-K Current Report of The Hartford Steam Boiler Inspection and
Insurance Company dated 17 January 1995.
Yours faithfully,
PRICE WATERHOUSE
London
