USF&G CORPORATION
Form 10-K
1993
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended Commission File Number
December 31, 1993 1-8233
USF&G CORPORATION
(Exact name of registrant as specified in its charter)
Maryland 52-1220567
(State of Incorporation) (IRS Employer Identification No.)
100 Light Street, Baltimore, Maryland 21202
(Address of principal executive offices) (zip code)
Telephone: 410-547-3000
Securities registered pursuant to Section 12(b) of the Act:
$4.10 Series A Convertible Exchangeable Preferred Stock,
Par Value $50
$5.00 Series C Cumulative Convertible Preferred Stock,
Par Value $50
Preferred Share Purchase Rights
Common Stock, Par Value $2.50
Securities registered pursuant to Section 12(g) of the Act: None
Registered-New York Stock Exchange
Registered-Pacific Stock Exchange
Registered-New York Stock Exchange
Registered-Pacific Stock Exchange
Registered-New York StockExchange
Registered-Pacific Stock Exchange
Registered-New York Stock Exchange
Registered-Pacific Stock Exchange
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 twelve
(12) months 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. [X]
The aggregate market value of voting stock held by
non-affiliates of the registrant as of March 28, 1994, was
$1,214,501,978.
Voting stock held by any persons who may be deemed to be
affiliates under Rule 405 would be immaterial.
The number of shares outstanding of the issuer's common stock as
of March 28, 1994:
Common Stock, Par Value $2.50; 85,228,209 shares outstanding.
Documents Incorporated by Reference:
Portions of the 1993 Annual Report to Shareholders are
incorporated by reference into Parts I and II.
Portions of the definitive proxy statement for the annual
meeting scheduled for May 4, 1994, are incorporated
by reference into Part III.
Exhibit Index is on page 18.
USF&G Corporation
Index
Part I
Item 1. Description of Business
1.1. General 1
1.2. Business Segments 1
1.3. Distribution Systems 5
1.4. Competition 6
1.5. Investments 6
1.6. Property/Casualty Loss Reserves 7
1.7. Life Benefit Reserves 11
1.8. Geographical Distribution 11
1.9. Executive Officers of the Registrant 12
Item 2. Business Properties 13
Item 3. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 14
Part II
Item 5. Market for Registrant's Common Equity and
Related Shareholder Matters 16
Item 6. Selected Financial Data 16
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
Item 8. Financial Statements and Supplementary Data 16
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 16
Part III
Item 10. Executive Officers and Directors of the Registrant 17
Item 11. Executive Compensation 17
Item 12. Security Ownership of Certain Beneficial Owners
and Management 17
Item 13. Certain Relationships and Related Transactions 17
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 18
USF&G Corporation
Part 1
Item I. Description of Business
1.1. General
USF&G Corporation (the "Corporation") is a holding corporation
organized in 1981 as a Maryland corporation. United States
Fidelity and Guaranty Company ("USF&G Company"), organized in
1896 under Maryland law, is the predecessor registrant of the
Corporation. The term "Corporation" as used in the Form 10-K
refers to the Corporation and all of its subsidiaries. As of
December 31, 1993, the Corporation had approximately 6,500
employees.
The Corporation, through its subsidiaries, is primarily engaged
in the business of insurance. Property/casualty insurance is its
primary business. USF&G Company, the Corporation's largest
subsidiary, is the 21st largest property/casualty insurer among
over 3,000 insurers in the United States based on 1992 statutory
net premiums written. Life insurance and annuity products are
sold by Fidelity and Guaranty Life Insurance Company ("F&G
Life"). Noninsurance operations are composed of the parent
company, asset management, and management consulting services.
1.2. Business Segments
Financial information about the Corporation's business segments
is set forth in Note 13 of the Notes to Consolidated Financial
Statements in the Corporation's 1993 Annual Report to Shareholders
(hereinafter referred to as "Consolidated Financial Statements")
and incorporated herein by reference. A description of the
Corporation's principal business segments begins with the Property/
Casualty Insurance Segment on page 1, and continues with the Life
Insurance Segment on page 4, and Parent and Noninsurance Operations
on page 5 of this Form 10-K.
1.2a. Property/Casualty Insurance Segment
USF&G Company currently underwrites most forms of property/
casualty insurance. USF&G Company's property/casualty business
is grouped into four business categories: commercial, personal,
reinsurance, and fidelity/surety. In 1993, the property/casualty
segment accounted for 85 percent of the Corporation's total
revenues and 67 percent of its total assets. Selected financial
data for the property/casualty insurance segment are as follows:
<TABLE>
<CAPTION>
(dollars in millions) 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984
Operating Results
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Premiums earned $2,327 $2,533 $3,018 $3,330 $3,532 $3,613 $3,746 $3,539 $2,962 $2,215
Losses and loss expenses incurred 1,758 2,088 2,545 2,763 2,732 2,648 2,734 2,765 2,623 1,980
Underwriting expenses 796 872 988 1,089 1,136 1,129 1,108 1,049 920 706
Underwriting loss $ (227) $ (427) $ (515) $ (522) $ (336) $ (164) $ (96) $ (275) $ (581) $ (471)
Net investment income $ 433 $ 475 $ 498 $ 576 $ 623 $ 621 $ 607 $ 565 $ 348 $ 333
Net income (loss) 281 193 (40) (192) 200 318 331 310 (116) (69)
Financial Position
Investments $6,916 $6,948 $7,599 $6,983 $7,479 $7,416 $6,649 $6,026 $4,997 $3,614
Assets 9,565 8,253 9,353 8,959 9,443 9,294 8,483 7,772 6,775 5,395
Unpaid losses and loss expenses 6,329 5,540 5,704 5,630 5,461 5,256 4,774 4,112 3,521 2,825
Operating ratios-GAAP:
Loss ratio 75.6 82.4 84.3 83.0 77.3 73.3 73.0 78.1 88.6 89.4
Expense ratio 34.2 34.4 32.7 32.7 32.2 31.2 29.6 29.6 31.0 31.9
Combined ratio 109.8 116.8 117.0 115.7 109.5 104.5 102.6 107.7 119.6 121.3
Statutory Data
Premiums written $2,429 $2,420 $3,032 $3,631 $3,698 $3,892 $3,845 $3,696 $3,151 $2,318
Policyholders' surplus (USF&G Company) 1,541 1,467 1,404 1,352 1,417 1,395 1,242 1,240 913 653
Operating ratios-statutory:
Loss ratio 75.4 82.0 84.1 81.9 76.5 73.1 73.2 79.1 90.7 90.5
Expense ratio 33.7 34.9 33.1 32.9 32.8 31.1 30.1 29.1 30.0 31.4
Combined ratio 109.1 116.9 117.2 114.8 109.3 104.2 103.3 108.2 120.7 121.9
Policyholders' dividend ratio .3 .3 .5 .5 .6 .6 .9 .8 1.0 1.2
</TABLE>
USF&G Company reinsures portions of its policy risks with other
insurance companies or underwriters and remains contingently
liable under these contracts (ceded reinsurance). In addition,
it assumes policy risks from other insurance companies and
through participation in pools and associations (assumed
reinsurance). (Refer to the Assumed Reinsurance Category
discussion on page 3 of this Report). The information presented
for the property/casualty insurance segment is net of applicable
reinsurance amounts.
Reinsurance allows USF&G Company to obtain indemnification
against losses associated with insurance contracts it has
written by entering into a reinsurance contract with another
insurance enterprise (the reinsurer). USF&G Company pays (cedes)
an amount to the reinsurer who agrees to reimburse USF&G Company
for a specified portion of any claims paid on business under the
reinsured contracts. Reinsurance gives USF&G Company the ability
to write certain individually large risks or groups of risks,
and control its exposure to losses by ceding a portion of such
large risks. USF&G Company's ceding reinsurance agreements are
generally structured on a treaty basis whereby all risks meeting
a certain criteria are automatically reinsured.
USF&G Company may also use supplemental facultative reinsurance
based on an underwriter's evaluation of characteristics of a
specific insured risk. The following table summarizes the
approximate extent of the company's reinsurance coverages.
Coverage
Risk Type Percentage Coverage
Property* 90% $50 - $160 million
Casualty 100 7 - 43 million
Fidelity 100 2 - 50 million
Surety 100 5 - 30 million
Workers Compensation 100 1 - 525 million
*Individual property losses are recoverable in excess of a $1 to
$4 million net retention established by the underwriter.
Commercial Category: Commercial coverages provide protection
related to property loss, liability claims, and workers
compensation benefits to businesses and other institutions. This
type of insurance protects against loss from damage to the
insured's covered properties and protects against legal
liability for injuries to other persons or damage to their
property arising from the insured's business operations. Workers
compensation provides benefits to employees, as mandated by
state laws, for employment-related accidents, injuries, or
illnesses. Selected data for the commercial category are as
follows:
<TABLE>
<CAPTION>
(dollars in millions) 1993 1992 1991
Automobile:
<S> <C> <C> <C>
Premiums written $ 389 $ 413 $ 499
Statutory combined ratio 87.5 96.5 106.6
General Liability:
Premiums written $ 371 $ 366 $ 472
Statutory combined ratio 118.7 137.6 128.9
Property:
Premiums written $ 315 $ 315 $ 349
Statutory combined ratio 101.3 115.6 109.6
Workers Compensation:
Premiums written $ 164 $ 261 $ 460
Statutory combined ratio 233.8 150.0 152.5
Total Commercial:
Premiums written $1,239 $1,355 $1,780
Underwriting loss* (223) (343) (455)
Percent of total premiums written 51% 56% 59%
GAAP Underwriting Ratios:
Loss ratio 83.0 87.8 91.7
Expense ratio 35.3 35.4 32.5
Combined ratio 118.3 123.2 124.2
Statutory Underwriting Ratios:
Loss ratio 83.6 86.9 91.6
Expense ratio 34.7 36.3 33.4
Combined ratio 118.3 123.2 125.0
</TABLE>
[FN]
*Reported in accordance with Generally Accepted Accounting
Principles ("GAAP")
Personal Category: Personal coverages for automobile and
homeowners insurance include aspects of property loss and
liability risks. Automobile policies cover liability to
third-parties for bodily injury and property damage, and cover
physical damage to the insured's own vehicle resulting from
collision and various other perils. Homeowners policies protect
against loss of dwellings and contents arising from a variety of
perils, as well as liability arising from ownership or
occupancy. Selected data for the personal category are as
follows:
<TABLE>
<CAPTION>
(dollars in millions) 1993 1992 1991
Automobile:
<S> <C> <C> <C>
Premiums written $ 489 $ 512 $ 668
Statutory combined ratio 100.6 103.5 107.2
Homeowners:
Premiums written $ 139 $ 169 $ 204
Statutory combined ratio 115.9 143.0 123.2
Other Property:
Premiums written $ 25 $ 45 $ 53
Statutory combined ratio 134.5 110.0 101.9
Total Personal:
Premiums written $ 653 $ 726 $ 925
Underwriting loss* (28) (110) (97)
Percent of total premiums written 27% 30% 30%
GAAP Underwriting Ratios:
Loss ratio 70.6 80.9 80.0
Expense ratio 33.5 33.1 30.5
Combined ratio 104.1 114.0 110.5
Statutory Underwriting Ratios:
Loss ratio 71.2 80.0 80.0
Expense ratio 33.9 33.2 30.4
Combined ratio 105.1 113.2 110.4
</TABLE>
[FN]
*Reported in accordance with GAAP
Assumed Reinsurance Category: USF&G Company operates a
separate reinsurance division which underwrites treaty
reinsurance and is composed of various wholly-owned
subsidiaries. The lead company in this group, F&G Re, Inc., acts
as the reinsurance underwriting manager and solicits and
services assumed reinsurance for USF&G Company. F&G Re, Inc.,
writes reinsurance in North America and in specific foreign
countries (mainly in Western Europe and Japan). Reinsurance
prices and conditions are not normally subject to the same state
regulation applicable to the primary insurance market because
reinsurers contract solely with other insurance companies.
Selected data for the reinsurance category are as follows:
<TABLE>
<CAPTION>
(dollars in millions) 1993 1992 1991
<S> <C> <C> <C>
Premiums written $403 $243 $211
Underwriting gain* 32 20 26
Percent of total premiums written 17% 10% 7%
GAAP Underwriting Ratios:
Loss ratio 66.7 75.0 40.9
Expense ratio 22.6 12.1 31.5
Combined ratio 89.3 87.1 72.4
Statutory Underwriting Ratios:
Loss ratio 67.3 76.9 59.1
Expense ratio 24.6 17.0 29.9
Combined ratio 91.9 93.9 89.0
</TABLE>
[FN]
*Reported in accordance with GAAP
Fidelity/Surety Category: Fidelity bonds indemnify employers
against the dishonesty or default of employees in their
employment. These types of bonds are written for mercantile
businesses, financial institutions, and public officials. Surety
bonds guarantee the performance of a principal who undertakes
contractual or statutory obligations, and indemnify third-party
obligees for damages caused by the principal+s failure to
perform. Selected data for the fidelity/surety category are as
follows:
<TABLE>
<CAPTION>
(dollars in millions) 1993 1992 1991
Fidelity:
<S> <C> <C> <C>
Premiums written $19 $ 18 $ 20
Statutory combined ratio 109.6 75.8 92.1
Surety:
Premiums written $101 $ 91 $ 96
Statutory combined ratio 106.4 100.1 99.9
Total Fidelity/Surety:
Premiums written $120 $109 $116
Underwriting gain (loss)* (8) 6 11
Percent of total premiums written 5% 4% 4%
GAAP Underwriting Ratios:
Loss ratio 50.2 32.3 35.5
Expense ratio 56.6 62.6 55.5
Combined ratio 106.8 94.9 91.0
Statutory Underwriting Ratios:
Loss ratio 50.5 32.0 42.3
Expense ratio 56.4 64.0 56.3
Combined ratio 106.9 96.0 98.6
</TABLE>
[FN]
*Reported in accordance with GAAP
1.2b. Life Insurance Segment
The life insurance segment ("F&G Life") sells many forms of
annuity and life insurance products. In 1993, the segment
accounted for 14 percent of the Corporation's total revenues
and 34 percent of its total assets. Selected financial data
for the life insurance segment are as follows:
<TABLE>
<CAPTION>
(dollars in millions) 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984
Operating Results
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Premium income $ 129 $ 104 $ 169 $ 186 $ 165 $ 178 $ 133 $ 79 $ 67 $ 58
Net investment income 321 349 370 348 273 159 88 67 50 39
Net income (loss) 10 (5) 31 (16) 31 14 37 20 27 18
Life Insurance Sales
Annuities $ 162 $ 93 $ 195 $ 972 $ 872 $ 930 $ 198 $ 47 $ 88 $ 56
Permanent 4 9 12 17 20 106 51 10 9 7
Term and group 2 2 2 5 6 9 6 6 6 6
Total $ 168 $ 104 $ 209 $ 994 $ 898 $ 1,045 $ 255 $ 63 $ 103 $ 69
Financial Position
Investments $ 4,540 $ 4,512 $ 4,672 $ 4,308 $ 3,372 $ 2,240 $ 1,086 $ 707 $ 535 $ 403
Assets 4,848 4,856 5,012 4,721 3,645 2,471 1,194 784 607 468
Policy benefit reserves 3,973 3,896 3,773 3,924 2,838 1,875 795 501 402 282
Statutory surplus 316 310 283 254 245 169 107 82 56 53
Life Insurance In Force
Permanent $ 6,733 $ 6,769 $ 6,937 $ 7,014 $ 6,038 $ 4,930 $ 3,979 $ 3,035 $ 2,228 $ 1,613
Term 5,347 5,549 5,854 6,463 6,438 6,603 6,579 6,648 6,338 6,009
Group 30 42 586 4,373 4,605 4,058 2,834 2,687 2,737 2,695
Total $12,110 $12,360 $13,377 $17,850 $17,081 $15,591 $13,392 $12,370 $11,303 $10,317
</TABLE>
F&G Life Products: Life insurance and annuity sales
(premiums and deposits) by product type are as
follows:
<TABLE>
<CAPTION>
(in millions) 1993 1992 1991
<S> <C> <C> <C>
Structured settlement annuities $ 66 $ 37 $ 71
Single premium deferred annuities 44 33 70
Tax-sheltered annuities 35 - -
Other annuities 17 23 54
Life insurance 6 11 14
Total $168 $104 $209
</TABLE>
Single-premium deferred annuities ("SPDAs") offer the owner the
option of receiving a lump sum distribution at a future date or
a series of fixed payments over a specified period.
Tax-sheltered annuity ("TSA") products, which provide retirement
income, are a type of deferred annuity. Other annuities consist
of single-premium immediate annuities ("SPIAs"), which provide
for payments that begin within one year after the sale and
continue over a fixed period or an individual's lifetime.
Structured settlements are immediate annuities principally sold
through the property/casualty company in settlement of insurance
claims.
Other insurance products include recurring and single premium
universal life and term insurance that generally provide a fixed
benefit upon the death of the insured. These products were sold
on an individual and group basis. However, F&G Life sold its
group life business in 1991. Universal life insurance provides a death
benefit for the life of the insured and accumulates cash values
to which interest is credited. Term life insurance provides a
fixed death benefit if the insured dies during the contractual
period.
Universal life products, which represent all the permanent life
insurance sales in 1993 through 1991, and have been the majority
of permanent life insurance sales since 1988, also include a
cash value component that is credited with interest at
competitive rates. The interest rates are applied to premiums
for one year from receipt; new rates are declared quarterly on
recurring premium policies and semi-monthly on single premium
policies. Universal life cash values are charged for the cost
of life insurance coverage and for administrative expenses.
Additional information on the life insurance segment's products
is discussed on pages 42 and 43 in Management's Discussion and
Analysis to Consolidated Financial Statements.
1.2c. Parent and Noninsurance Operations
Selected financial data for the parent company and noninsurance operations
are as follows:
<TABLE>
<CAPTION>
(in millions) 1993 1992 1991
Revenues before realized gains (losses):
<S> <C> <C> <C>
Management consulting $ 32 $ 30 $ 36
Oil and gas - 19 23
Other noninsurance investments 10 4 8
Parent and other 8 14 8
Total revenues before realized
gains (losses) $ 50 $ 67 $ 75
Parent company expenses:
Interest expense $ (37) $ (35) $ (42)
Unallocated expense, net (35) (34) (20)
Noninsurance losses:
Management consulting (2) (4) (2)
Oil and gas - (18) (17)
Other noninsurance investments (9) (13) (22)
Realized losses on investments (45) (50) (37)
Restructuring charges - (2) (6)
Loss from discontinued operations - (7) (23)
Other 2 3 2
Total parent/noninsurance net loss $(126) $(160) $(167)
</TABLE>
The parent company performs corporate functions including
managing the capital requirements of the Corporation and its
subsidiaries. The noninsurance operations include management
consulting services, asset management services, and discontinued
operations. As a result of restructuring, there were no oil and
gas operating losses in 1993. During 1992, the investment in oil
and gas properties was merged with another oil and gas
exploration and production company. Discontinued operations
included certain investment management, leasing, marketing, and
travel services, and other operations.
1.3. Distribution Systems
The Corporation's subsidiaries market a full range of property/
casualty insurance and life insurance products.
Property/Casualty Insurance: USF&G Company's products have been
sold exclusively by independent agents since its founding in
1896. Independent agents generally represent multiple insurance
companies. USF&G Company's products are sold through
approximately 3,900 independent agencies in the United States
on a commission basis.
USF&G Corporation
Part 1
During 1992, USF&G Company initiated the implementation of a
regionalization strategy to enhance marketing and underwriting
operations. Five regions have been established to improve
marketing effectiveness and further streamline branch operations.
In addition, product and market strategic business units have
been formed to implement highly focused strategies targeted at
the most attractive market segments.
USF&G Company maintains 5 regional offices and 30 branch offices
to service its independent agents and policyholders. The
regional offices are located in the Northeast, Southeast,
Midwest, and Western areas, and in Mississippi. The branch
offices are located throughout the United States. These offices
support the administration of underwriting standards, the
delivery of policies, and the supervision of the company's claim
offices.
Life Insurance: F&G Life's sales by distribution system are as
follows:
<TABLE>
<CAPTION>
(in millions) 1993 1992 1991
<S> <C> <C> <C>
Direct-structured settlement annuities $ 66 $ 37 $ 71
Independent agencies/insurance brokers 60 60 76
National wholesaler - TSA 35 - -
Member firm/financial institutions 7 7 62
Total $168 $104 $209
</TABLE>
Structured settlements are annuities sold predominately through
the property/casualty company in settlement of certain of its
insurance claims. Tax-sheltered annuities are sold through a
national wholesale distribution network primarily to teachers.
SPDAs are sold primarily through independent agents and
insurance brokers. Prior to 1992, most SPDAs were sold through
securities brokerage firms (member firm and other financial
institutions).
1.4. Competition
Property/Casualty Insurance: The property/casualty insurance
industry is highly competitive with about 3,000 companies
nationwide. These insurers are not only stock companies but
also mutual companies and other underwriting organizations.
USF&G Company ranked 21st in the industry based on 1992
statutory net premiums written and 23rd based on 1992
statutory policyholders' surplus. USF&G Company competes with
other property/ casualty insurance companies whose products are
distributed through national, regional and local independent
agencies, direct sales and brokers. Consumers may also use
self-insurance, which includes captive insurance subsidiaries.
Pricing is a primary means of competition in the
property/casualty industry. The industry is currently in a
period of significant price competition, which adversely
affects USF&G Company's profitability. Availability and quality
of products, quality and speed of service (including claims
service), financial strength, distribution systems and technical
expertise are also important elements of competition. In
personal and other lines offered by USF&G Company, significant
price competition is experienced from direct-writing companies
that do not use independent agents and generally have lower
policy acquisition costs.
Life Insurance: The Corporation's life insurance subsidiaries
operate in a competitive environment, with approximately 2,000
companies in the industry including stock and mutual companies.
F&G Life ranked 74th in the United States based on 1992
statutory assets and 93rd based on 1992 statutory capital and
surplus.
In the life insurance industry, interest crediting rates, policy
features, financial stability and service quality are important
competitive factors. F&G Life's products compete not only with
those offered by other life insurance companies, but also with
other income accumulation-oriented products offered by other
financial institutions. F&G Life has experienced considerable
competitive pressure in recent periods as a result of its
relatively lower credit ratings. Competitive pressures for
agency business also have intensified in recent years because of
an increase in the variety of products available in the market
and efforts of competitors to expand their market shares.
Premium Rates: Most states have laws requiring that rate
schedules and other information be filed with a regulatory
authority for substantially all property, casualty, and surety
lines. Some states permit insurers to use rates without prior
regulatory approval whereas other states prohibit implementation
of new rates without such approval. The authority may disapprove
a filing if it finds that the rates are inadequate, excessive,
or unfairly discriminatory. Rates are not necessarily uniform
for all insurers. In states that require prior approval of
rates, regulators usually require the submission of historical
data to justify rate increases and, accordingly, there is often
a time lag between identifying the need for rate increases and
securing such increases. The effect of this lag is particularly
severe in times of rising claims and inflation. Rates for life
insurance are generally not regulated.
1.5. Investments
Investing the net cash flows from operations is a major
aspect of the property/casualty and life insurance
businesses. The components of the Corporation's investment
portfolio and investment performance are discussed on pages 45
through 49, and 65 through 67 of the 1993 Annual Report to
Shareholders incorporated herein by reference.
1.6. Property/Casualty Loss Reserves
1.6a. General
The reserve liabilities for property/casualty
losses and loss adjustment expenses ("LAE") represent estimates
of the ultimate net cost of all unpaid losses and loss adjustment
expenses incurred through December 31 of each year. The reserves
are determined using adjusters' individual case estimates and
actuarially based statistical projections.
USF&G Company's estimates of losses for reported claims are
established judgmentally on an individual case basis. Such
estimates are based on a claim adjuster's particular expertise
with the type of risk involved and knowledge of circumstances
surrounding the individual claims. These estimates are reviewed
on a regular basis and updated as additional facts become known.
The reserves derived from statistical projections are subject to
the effects of trends in claim severity and frequency.
Statistical projections are employed in three specific areas: 1)
to calculate bulk reserves for incurred but not reported
("IBNR") losses and provide for development of case basis loss
reserves; 2) to calculate allocated LAE reserves; and 3) to
calculate unallocated LAE reserves.
IBNR and Case Development Reserves: USF&G Company's estimates of
IBNR and case development reserves are derived from analyses of
historical patterns of development of paid and reported losses
by accident year for each line of business. The loss projection
procedures used in this analysis contain explicit provisions for
quantifying the effect of inflation on loss payments expected to
be made in the future. This process relies on the basic
assumption that past experience adjusted for the effect of
current developments and likely trends is an appropriate basis
for predicting future events.
Allocated LAE: USF&G Company's estimates of unpaid LAE are based
on analyses of the long-term relationship of projected ultimate
LAE to projected ultimate losses for each line of business. By
using incurred losses as a base, inflation assumptions
applicable to loss reserves apply equally to allocated expense
reserves.
Unallocated LAE: Unallocated LAE reserves are based on
historical relationships of paid unallocated expenses to paid
losses. As with allocated LAE, the inflation assumptions
applicable to loss reserves are presumed to apply equally to
unallocated expense reserves.
The process of estimating the liability for unpaid losses and
LAE is inherently judgmental. The process is influenced by
factors which are subject to significant variation. Possible
sources of variation include changing rates of inflation
(particularly medical cost inflation) as well as changes in
other economic conditions, the legal system and internal claims
settlement practices, among other variables. In many cases
significant periods of time may lapse between the occurrence of
an insured event, the reporting of a claim to USF&G Company and
USF&G Company's final settlement of the claim. More than 45
percent of USF&G Company's loss and LAE reserves are provided
for claims which have been incurred but not reported and for
future development on reported claims. While USF&G Company
reports a single amount as the estimate for unpaid loss and LAE
as of each valuation date, the reported reserves should be
considered the best estimate from a range of possible outcomes.
It is unlikely that future losses and LAE will develop exactly
as projected and may in fact vary significantly from
projections. These estimates are continually reviewed and
updated as experience develops and new information becomes
known. Any resulting adjustments are reflected in current
operating results.
1.6b. Discounted Loss Reserves
The reserves for permanent-total disability benefits and long-term
medical care benefits under workers compensation insurance are discounted
at rates of interest generally ranging from 3 percent to 5 percent. The
carrying amount of such workers compensation reserves, net of
reinsurance and net of discount, was $1.75 billion, $1.80
billion, and $1.85 billion at December 31, 1993, 1992, and 1991,
respectively. The discount is amortized over the expected
lifetimes of the claimants. Discounted reserves come from three
sources: reserves assumed from the Workers Compensation
Reinsurance Bureau (WCRB), reserves assumed from residual market
pools, and reserves for USF&G Company's net retained business.
WCRB is a voluntary association of primary workers compensation
insurers formed for the purpose of providing excess of loss
reinsurance to its members. At the end of 1993, a significant
portion of USF&G Company's reinsurance treaty with WCRB was
commuted. A large body of claims, previously ceded to WCRB and
then retroceded to WCRB member companies in proportion to
relative premium volume, is now retained directly by USF&G
Company. The reduction in USF&G Company's ceded reserves is
offset by a corresponding reduction in reserves assumed from
WCRB. Prior to this commutation, WCRB was the main source of
discount, utilizing a rate of 5 percent. Concurrently with the
commutation, the discount rate on the remaining portion of
reserves assumed from WCRB was reduced from 5 percent to 4
percent to comply with discount rate limitations prescribed by
state regulators. The following table shows the changes in
estimates of the workers compensation discount.
<TABLE>
<CAPTION>
(in millions) 1993 1992 1991
<S> <C> <C> <C>
Estimated discount, January 1 $680 $683 $631
Estimated (reduction) additional discount accrued (138) 29 73
Less estimated discount amortized 34 32 21
Estimated discount, December 31 $508 $680 $683
</TABLE>
The source of the negative discount in 1993 results from the
WCRB commutation and the concurrent reduction in discount rates.
Additionally, the discount was reduced by a redistribution of
reserves to states and re-apportionment on reserves assumed
from residual market pools.
1.6c. Roll-Forward of Liability for Loss and Loss Adjustment
Expenses
The following table reconciles the changes in loss and
LAE reserves for the years presented.
<TABLE>
<CAPTION>
(in millions) 1993 1992 1991
<S> <C> <C> <C>
Reserve at beginning of year $5,540 $5,704 $5,630
Incurred for claims occurring during:
Current year 1,696 2,010 2,416
Prior years 62 78 129
Total incurred 1,758 2,088 2,545
Payments for claims occurring during:
Current year 562 684 821
Prior years 1,460 1,568 1,650
Total paid 2,022 2,252 2,471
Total reserve at end of year, net $5,276 $5,540 $5,704
Reinsurance receivable 1,053
Total reserve at end of year, gross $6,329
</TABLE>
1.6d. Analysis of Loss and Loss Adjustment Expense Reserve
Development
The following table shows property/casualty loss reserves as
recorded in the indicated years and subsequent payments made
with respect to such reserves and re-estimates of such reserves.
The top line shows the estimated liability that was recorded at
the end of each of the indicated years for all current and prior
year unpaid losses and LAE. The upper portion of the table shows
the cumulative amount subsequently paid in succeeding years.
The lower portion of the table shows re-estimates of the original
recorded reserve as of the end of each successive year. Such
re-estimations result from development of additional facts and
circumstances pertaining to unsettled claims. The bottom line
shows the deficiency for each year and represents the dollar
amount of the cumulative change through 1993 that is attributable
to the original recorded reserve for each prior year. Such change
has been reflected in income of subsequent years.
The columns in the table below are cumulative. For example, the
deficiency related to losses settled in 1993 but incurred in
1983 and prior years would be included in the cumulative
deficiency amounts for 1983 through 1992, but the re-estimation
of such losses would have affected income for 1993 only.
Conditions and trends that have affected reserve development in
the past may change and may not necessarily occur in the future.
Therefore, care should be exercised in extrapolating future
reserve redundancies or deficiencies from such development.
<TABLE>
<CAPTION>
Analysis of Loss and Loss Adjustment Expense Reserve Development
At December 31
(in millions) 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Liability for Unpaid losses
and LAE $2,352 $2,817 $3,510 $4,089 $4,741 $5,204 $5,461 $5,630 $5,704 $5,540 $5,276
Cumulative paid as of:
One year later 845 1,027 1,251 1,347 1,373 1,537 1,719 1,650 1,568 1,460
Two years later 1,354 1,659 2,040 2,163 2,256 2,611 2,789 2,740 2,524 -
Three years later 1,737 2,131 2,557 2,777 3,030 3,347 3,587 3,411 - -
Four years later 2,040 2,451 2,971 3,313 3,548 3,935 4,049 - - -
Five years later 2,246 2,708 3,362 3,639 3,990 4,261 - - - -
Six years later 2,415 2,947 3,595 3,863 4,237 - - - - -
Seven years later 2,592 3,112 3,759 4,055 - - - - - -
Eight years later 2,691 3,243 3,918 - - - - - - -
Nine years later 2,778 3,368 - - - - - - - -
Ten years later 2,874 - - - - - - - - -
Liability reestimated:
One year later 2,479 3,131 3,696 4,208 4,881 5,233 5,673 5,759 5,782 5,602
Two years later 2,655 3,249 3,914 4,443 4,941 5,481 5,794 5,899 5,911 -
Three years later 2,719 3,384 4,168 4,585 5,107 5,562 5,954 6,143 - -
Four years later 2,818 3,563 4,341 4,721 5,285 5,757 6,239 - - -
Five years later 2,944 3,696 4,457 4,916 5,440 6,025 - - - -
Six years later 3,049 3,778 4,631 5,048 5,698 - - - - -
Seven years later 3,118 3,932 4,743 5,278 - - - - - -
Eight years later 3,243 4,039 4,954 - - - - - - -
Nine years later 3,330 4,220 - - - - - - - -
Ten years later 3,475 - - - - - - - - -
Cumulative deficiency $(1,123) $(1,403) $(1,444) $(1,189) $ (957) $ (821) $ (778) $ (513) $ (207) $ (62)
</TABLE>
Certain reserves are recorded on a discounted basis to reflect
the value of timing differences between the recording of
reserves and subsequent payment. The amortization of that
discount is included in the reserve deficiencies shown above.
The preceding table shows a $62 million increase in prior year
incurred losses representing current year adjustments to loss
reserves recorded in prior years. Such increase reflected
changes based on additional data and experience in the
evaluation of ultimate expected costs associated with prior year
exposures. The increase is primarily attributable to
strengthening of the unallocated loss expense reserve for
voluntary and servicing carrier business. In addition, as shown
in the workers compensation discount table, $34 million of
amortized discount in 1993 will contribute to the increase in
prior year incurred losses.
Effect of Reserve Reestimations on Calendar Year Operations
(increase) decrease in reserves
<TABLE>
<CAPTION>
Total by
Accident
(in millions) 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 Year
Accident Years
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1983 & Prior $(127) $(176) $(64) $(99) $(126) $(105) $(69) $(125) $(87) $(145) $(1,123)
1984 - (138) (54) (36) (53) (28) (13) (29) (20) (36) (407)
1985 - - (68) (83) (75) (40) (34) (21) (5) (30) (356)
1986 - - - 99 19 31 (20) (20) (20) (19) 70
1987 - - - - 95 82 (30) 17 (23) (28) 113
1988 - - - - - 31 (82) 97 (40) (10) (4)
1989 - - - - - - 36 (40) 35 (17) 14
1990 - - - - - - - (7) 21 41 55
1991 - - - - - - - - 61 115 176
1992 - - - - - - - - - 67 67
Total by calendar year $(127) $(314) $(186) $(119) $(140) $(29) $(212) $(128) $(78) $(62) $(1,395)
</TABLE>
In the table above, each column total shows reserve
re-estimates made in the indicated calendar year and
details the accident year to which the re-estimates apply.
Cumulative reserves have generally developed favorably for
accident years from 1986 to 1992. Adverse development on
accident years prior to 1986 results primarily from the
continued reevaluation of data in the general liability and
workers compensation lines of business. Acquisition of
additional data, more refined data segments and enhancements in
reserve evaluation techniques have resulted in an increase in
the provision for losses and loss adjustment expenses in those
accident years.
1.6e. Loss Portfolio Transfers
Also included in the table "Analysis of Loss and Loss Adjustment
Expense Development" are various loss portfolio transfer
transactions. These transactions are reinsurance contracts
that do not involve the same type of risk as traditional
reinsurance. In a loss portfolio reinsurance contract, USF&G
Company assumes another insurer's outstanding loss reserves for
a price equal to their discounted value plus a fee. These contracts
generally provide for fixed loss payments at specified future dates.
The financial risk involved is whether the investment income earned
on the cash received will cover the discount associated with the
losses assumed. This financial risk is controlled by the
Corporation's asset/liability management techniques, which involve
matching the maturities of the investment portfolio to expected
patterns of future claim and benefit payments.
Loss portfolio transfers have had no impact on reported reserve
deficiencies and no future loss development, either adverse or
favorable, is anticipated. Loss portfolio transfers included in
outstanding reserves were as follows:
<TABLE>
<CAPTION>
(in millions)
<S> <C>
1993 $110
1992 123
1991 279
1990 324
1989 397
1988 394
1987 355
1986 241
</TABLE>
1.6f. Structured Settlements
Structured settlements represent the settlement of claims
through the purchase of annuities. While they result in
accelerated claim payments, structured settlements generally
reduce the ultimate amount of claims paid. Structured
settlements are used primarily in the third-party liability
and workers compensation lines of business. These types of
settlements were not used extensively on liability lines
until 1985. Their use was extended to workers compensation
claims in 1987. The number of such settlements has grown
steadily and they appear to be having an impact on claim
payment patterns. USF&G Company has developed procedures
to ensure that the impact of structured settlements is given
appropriate recognition in estimating ultimate reserve liabilities.
1.6g. Reconciliation of Liability for Loss and Loss Adjustment
Expenses from SAP to GAAP
The following table presents the differences between property/
casualty insurance claim reserves reported in the Consolidated
Financial Statements in accordance with generally accepted
accounting principles ("GAAP"), and the consolidated annual
statement filed with state insurance departments in accordance
with statutory accounting practices ("SAP"):
<TABLE>
<CAPTION>
At December 31
(in millions) 1993 1992 1991
<S> <C> <C> <C>
SAP basis property/casualty reserves $ 4,961 $5,361 $5,417
Reserves of foreign subsidiaries (consolidated
for GAAP but not SAP) 315 240 355
Estimated salvage and subrogation
recoveries (primarily on property
and surety lines, cash basis for SAP
but accrual basis for GAAP), plus
other immaterial items - (61) (68)
GAAP basis property/casualty reserves, net 5,276 5,540 5,704
Reinsurance receivable 1,053
GAAP basis property/casualty reserves, gross 6,329
Reserves of life insurance subsidiaries, net 3,969 3,896 3,773
Reinsurance receivable 4
Reserves of life insurance subsidiaries, gross 3,973
Total liability on GAAP basis $10,302 $9,436 $9,477
</TABLE>
1.7. Life Benefit Reserves
Ordinary life insurance future policy benefit reserves are
computed under the net level premium method using assumptions
for future investment yields, mortality, and withdrawal rates.
These assumptions reflect F&G Life's experience, modified to
reflect anticipated trends, and provide for possible adverse
deviation. Reserve interest rate assumptions are graded and
range from 4.25 percent to 8.25 percent.
Universal life and annuity reserves are computed on the
retrospective deposit method, which produces reserves equal to
the cash value of the contracts. Such reserves are not reduced
for charges that would be deducted from the cash value of
policies surrendered. Reserves on single premium annuities with
guaranteed payments are computed on the prospective deposit
method, which produces reserves equal to the present value of
future benefit payments.
The table below shows F&G Life's benefit reserves by policy type.
<TABLE>
<CAPTION>
At December 31
(in millions) 1993 1992 1991
Single premium annuities:
<S> <C> <C> <C>
Deferred $2,138 $2,077 $1,996
Immediate 815 788 790
Other annuities 462 508 500
Universal life/term/group life 554 523 487
Total, net $3,969 $3,896 $3,773
Reinsurance receivable 4
Total, gross $3,973
</TABLE>
1.8. Geographical Distribution
The risks insured by the Corporation's insurance subsidiaries are
geographically diversified primarily throughout the United States.
Reinsurance risks are incurred throughout North America and
specific foreign countries (mainly in Western Europe and Japan).
The products marketed by the Corporation's management consulting
subsidiary, a part of noninsurance operations, are distributed
throughout the world. Total assets and revenues of foreign
operations are not material. The tables below show the composition
of statutory voluntary direct premiums written for the Corporation's
property/casualty operations and statutory premium income of its
life insurance operations by region for the year ended 1993.
<TABLE>
<CAPTION>
Property/Casualty
Voluntary Direct Premiums Written
<S> <C>
Northeast 28%
Southeast 25
Midwest 22
West 17
Mississippi 8
Total 100%
Life Statutory
Premium Income
Northeast 46%
South 17
Northwest 15
Midwest 12
Southwest 10
Total 100%
</TABLE>
USF&G Corporation
Part 1
<TABLE>
<CAPTION>
1.9. Executive Officers of the Registrant
<S> <C> <C>
Name Age Positions and Office with Registrant or Significant Subsidiaries
Norman P. Blake, Jr. 52 Chairman of the Board, President, Chief Executive Officer, and Director
Glenn W. Anderson 41 Executive Vice President-Commercial Lines
Gary C. Dunton 38 Executive Vice President-Field Operations
Dan L. Hale 49 Executive Vice President-Chief Financial Officer
Kenneth E. Cihiy 47 Senior Vice President-Claims
Thomas K. Lewis, Jr. 41 Senior Vice President-Chief Information Officer
John A. MacColl 45 Senior Vice President-General Counsel and Assistant Secretary
Amy P. Marks 37 Senior Vice President-Human Resources
Richard J. Potter 48 Senior Vice President-Personal Lines
Andrew A. Stern 36 Senior Vice President-Strategic Planning and Corporate Marketing
John C. Sweeney 49 Senior Vice President-Chief Investment Officer
</TABLE>
All persons in the preceding table are officers of the
Registrant except Glenn W. Anderson, Kenneth E. Cihiy, and Gary
C. Dunton, who are executive officers of United States Fidelity
and Guaranty Company (a wholly owned subsidiary of the
Registrant).
Mr. Anderson was Vice President of Strategic Target Marketing
with Fireman's Fund Insurance Company, a domestic insurance
company, and joined the Corporation in December 1992. Mr. Blake
was Chairman and Chief Executive Officer of Heller International
Corporation, a world-wide commercial financial services
organization, and joined the Corporation in November 1990. Mr.
Cihiy was Resident Vice President of Sacramento Field Operations
with Aetna Life and Casualty Company, an insurance and financial
services company, and joined the Corporation in May 1993. Mr.
Dunton was Vice President and Division Manager of Standard
Lines with Aetna Life and Casualty Company and joined the
Corporation in December 1992. Mr. Hale was President and Chief
Executive Officer of Chase Manhattan Leasing Company, an
international leasing company, and joined the Corporation in
February 1991. Mr. Lewis was Vice President and General Manager
for Europe, Middle East, and Africa for Seer Technologies, a
joint venture of CS First Boston and IBM, and joined the
Corporation in November 1993. Mr. MacColl was previously a
partner in the Baltimore office of the law firm of Piper and
Marbury, and joined the Corporation in January 1989. Ms. Marks
was Senior Engagement Manager with McKinsey & Company, a
national business consulting firm, and joined the Corporation
in January 1992. Mr. Potter was President of Credit Life
Insurance Company before its merger with Aon Corporation, a
diversified insurance holding company, and joined the
Corporation in February 1991. Mr. Stern was Partner and Vice
President of Booz Allen & Hamilton, a national business
consulting firm, and joined the Corporation in May 1993. Mr.
Sweeney was a Principal and Practice Director with Towers
Perrin, an asset management and consulting company, and joined
the Corporation in November 1992.
Item 2. Business Properties
Real estate owned and used in the regular conduct of business
consists of 12 business properties located in various cities
throughout the United States. The Corporation's Mount Washington
Center, located in Baltimore, Maryland, is the principal owned
property. This is the headquarters for the life insurance
operations, and the location of the information systems and
training and development complexes.
In addition, the Corporation leases approximately 120 offices in
various cities in the regular course of business. See Note 5 of
Notes to the Consolidated Financial Statements. The principal
leased property is a 40-story home office building in Baltimore,
Maryland, sold in 1984 and leased back by the Corporation.
Item 3. Legal Proceedings
The Corporation's insurance subsidiaries are routinely engaged in
litigation in the normal course of their business, including
defending claims for punitive damages. As a liability insurer,
they defend third-party claims brought against their insureds.
As an insurer, they defend themselves against coverage claims.
In the opinion of management the litigation described herein is
not expected to have a material adverse effect on USF&G
Corporation's consolidated financial position, although it is
possible that the results of operations in a particular quarter
or annual period would be materially affected by an unfavorable
outcome.
3.1. Shareholder Class Action Suits
During 1990 and 1991, twelve class action complaints were filed
against the Corporation in the United States District Court for the
District of Maryland and the United States District Court for
the Eastern District of Pennsylvania. The Corporation moved to
dismiss all twelve complaints. The complaints refer to the
Corporation's public announcement on November 7, 1990, concerning
a reduction in its dividend and related matters. All class action
suits were consolidated for all purposes, under the caption IN RE
USF&G CORPORATION SECURITIES LITIGATION in the United States District
Court for the District of Maryland. By an order dated February 11,
1993, the court dismissed eleven of the class action complaints
and on April 23, 1993, the court dismissed the remaining action.
The plaintiffs have appealed these rulings and on January 6, 1994,
the Fourth Circuit of Appeals affirmed the dismissal of all twelve
suits. The plaintiffs have not yet indicated whether they will seek
review from the United States Supreme Court. While the outcome cannot
be predicted with any certainty, management believes the lawsuits are
without merit and the outcome is unlikely to have a material adverse
effect on the Corporation's financial position.
3.2. Maine "Fresh Start" litigation.
In 1987, the State of Maine adopted workers compensation reform
legislation which was intended to rectify historic rate inadequacies
and encourage insurance companies to reenter the Maine voluntary
workers compensation market. This legislation, which was popularly
known as "Fresh Start," required the Maine Superintendent of
Insurance to annually determine whether the premiums collected for
policies written in the involuntary market and related investment
income were adequate on a policy-year basis. The Superintendent
was required to assess a surcharge on policies written in later
policy years if it was determined that rates were inadequate.
Assessments were to be borne by workers compensation policyholders,
except that for policy years beginning in 1989 the Superintendent
could require insurance carriers to absorb up to 50 percent of
any deficits if the Superintendent found that insurance carriers
failed to make good faith efforts to expand the voluntary market
and depopulate the residual market. Insurance carriers which served
as servicing carriers for the involuntary market would be obligated
to pay 90 percent of the insurance industry's share. The Maine
Fresh Start statute requires the Superintendent to annually
estimate each year's deficit for seven years before making a
final determination with respect to that year.
In March 1993, the Superintendent affirmed a prior Decision and
Order (known as "1992 Fresh Start Order") in which he, among
other things, found that there were deficits for the 1988, 1989,
and 1990 policy years, and that insurance carriers had not made
a good faith effort to expand the voluntary market and
consequently were required to bear 50 percent of any deficits
relating to the 1989 and 1990 policy years. The Superintendent
further found that a portion of these deficits were attributable
to servicing carrier inefficiencies and poor investment
practices and ordered that these costs be absorbed by insurance
carriers. Also, in May 1993 the Superintendent found that
insurance carriers would be liable for 50 percent of any
deficits relating to the 1991 policy year (the "1993 Fresh Start
Order"), but indicated that he would make no further
determinations regarding the portions of any deficits
attributable to alleged servicing carrier inefficiencies and
poor investment practices until his authority to make such
determinations was clarified in the various suits involving
prior Fresh Start orders.
USF&G Company was a servicing carrier for the Maine residual
market in 1988, 1989, 1990, and 1991. The Corporation withdrew
from the Maine voluntary market and as a servicing carrier
effective December 31, 1991. The Corporation has joined in an
appeal of the 1992 Fresh Start Order which was filed April 5,
1993, in a case captioned THE HARTFORD ACCIDENT AND INDEMNITY
COMPANY, ET AL., V. SUPERINTENDENT OF INSURANCE filed in
Superior Court, State of Maine, Kennebec. In addition to The
Hartford Accident and Indemnity Company and USF&G Company, the
National Council of Compensation Insurance ("NCCI") and seven
other insurance companies which were servicing carriers during
this time frame have instituted similar appeals. These appeals
will be heard on a consolidated basis, in a case captioned,
NATIONAL COUNCIL OF COMPENSATION INSURANCE, ET AL., V.
ATCHINSON. USF&G Company is seeking, among other things, to have
the court set aside the Superintendent's findings that the
industry did not make a good faith effort to expand the
voluntary market and is responsible for deficiencies resulting
from alleged poor servicing and investments. Similar appeals of
the Superintendent's 1993 Fresh Start Order have been filed by
USF&G Company, the NCCI, and several other servicing carriers in
the same court. The appeals of the 1993 Fresh Start Order will
be heard on a consolidated basis in a case captioned THE
NATIONAL COUNCIL OF COMPENSATION INSURANCE, ET AL., V.
ATCHINSON.
Estimates of the potential deficits vary widely and are
continuously revised as loss and claims data matures. If the
Superintendent were to prevail on all issues, then the range of
liability for USF&G Company, based on the most recent estimates
provided by the Superintendent and the NCCI, respectively,
could range from approximately $12 million to approximately $19
million. However, USF&G Company believes that it has meritorious
defenses and has determined to defend the actions vigorously.
3.3. Arkansas Servicing Carrier Litigation
On September 14, 1993, Interstate Contractors, Inc. and two other
Arkansas corporations filed a class action in the U.S. District
Court for the Eastern District of Arkansas, Little Rock, against
the National Council on Compensation Insurance ("NCCI"), USF&G
and ten other insurance companies which served as servicing carriers
for the Arkansas involuntary workers compensation market. The case,
which is captioned INTERSTATE CONTRACTORS, INC., ET AL. V. NATIONAL
COUNCIL ON COMPENSATION INSURANCE, ET AL., alleges that the
defendants failed to provide safety and loss control services,
claim management services, and assistance in moving
insureds from the involuntary market to the voluntary market.
The plaintiffs are pursuing their claims under various legal
theories, including breach of contract, breach of fiduciary
duty, and negligence. The plaintiffs seek unspecified
compensatory damages based on the premiums attributable to
services allegedly not performed and damages allegedly incurred
as a result of the alleged failure to provide such services.
USF&G Company believes that it has meritorious defenses and has
determined to defend the action vigorously. Management believes
that it is unlikely such claims will have a material adverse
effect on USF&G Corporation's financial position.
3.4. North Carolina workers compensation Litigation
On November 24, 1993, N.C. Steel, Inc. and six other North
Carolina employers filed a class action in the General Court
of Justice, Superior Court Division, Wake County, North Carolina,
against the NCCI, North Carolina Rate Bureau, USF&G Company and
eleven other insurance companies which served as servicing carriers
for the North Carolina involuntary workers compensation market.
On January 20, 1994, the plaintiffs filed an amended complaint
seeking to certify a class of all employers who purchased workers
compensation insurance in the State of North Carolina after
November 24, 1989. The amended complaint, which is captioned
N.C. STEEL INC. ET AL., V. NATIONAL COUNCIL ON COMPENSATION
INSURANCE, ET AL., alleges that the defendants conspired to
suppress competition with respect to the North Carolina
voluntary and involuntary workers compensation business, thereby
artificially inflating the rates in such markets and the fees
payable to the insurers. The complaint also alleges that the
carriers agreed to improperly deny qualified companies from
acting as servicing carriers, improperly encouraged agents to
place employers in the assigned risk pool, and improperly
promoted inefficient claims handling. USF&G Company has acted as
a servicing carrier in North Carolina since 1990. The plaintiffs
are pursuing their claims under various legal theories,
including violations of the North Carolina antitrust laws,
unlawful conspiracy, breach of fiduciary duty, breach of implied
covenant of good faith and fair dealing, unfair competition,
constructive fraud, and unfair and deceptive trade practices.
The plaintiffs seek unspecified compensatory damages, punitive
damages for the alleged construction fraud, and treble damages
under the North Carolina antitrust laws. USF&G Company believes
that it has meritorious defenses and has determined to defend
the action vigorously. Management believes that it is unlikely
such claims will have a material adverse effect on USF&G
Corporation's financial position.
3.5. Proposition 103
In November 1988, California voters passed Proposition 103,
which required insurers doing business in that state to rollback
property/ casualty premium prices in effect between November 1988
and November 1989 to 1987 levels, less an additional 20 percent
discount, unless an insurer could establish that such rate levels
threatened its solvency. As a result of a court challenge, the
California Supreme Court ruled in May 1989 that an insurer does
not have to face insolvency in order to qualify for exemption
from the rollback requirements and is entitled to a "fair and
reasonable return." Significant controversy has surrounded the
numerous regulations proposed by the California Insurance
Department, which would be used to determine whether rate
rollbacks and premium refunds are required by insurers. Some
of the Insurance Department's proposals were disapproved by the
California Office of Administrative Law ("OAL"), which is
responsible for the review and approval of such regulations. The
most recent regulations proposed by the Insurance Department have
not yet been reviewed by the OAL, pending a recent court challenge
by various insurers to the Department's authority to issue such
regulations. On February 25, 1993, the trial judge presiding over
that court challenge voided substantial parts of the regulations
proposed by the Insurance Department. The court held that the Insurance
Department's regulations exceeded the Department's authority by
setting rates based upon an across-the-board formula. The court
indicated that rates and what constitutes a reasonable return
would have to be determined individually for each insurer and
that the Department's authority was to approve or disapprove
rates proposed by insurers rather than setting rates which
cannot vary from a prescribed formula. An appeal is currently
pending before the California Supreme Court.
During 1989, less than five percent of USF&G's total premiums
were written in the State of California. USF&G believes that the
returns it received, both during and since the one-year rollback
period, have not exceeded the "fair and reasonable return"
standard. Additionally, based on the long history of events and
the significant uncertainty about the Insurance Department's
regulations, management does not believe it is probable that the
revenue recognized during the rollback period will be subject to
a material refund. Management believes that no premium refund
should be required for any period after November 8, 1988, but
that any rate rollbacks and premium refunds, if ultimately
required, would not have a material adverse effect on USF&G
Corporation's financial position.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders,
through the solicitation of proxies or otherwise, during the
fourth quarter of 1993.
USF&G Corporation
Part II
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters
Market and dividend information for the Corporation's common
stock on page 88 of the Annual Report to Shareholders for 1993
is incorporated herein by reference.
Item 6. Selected Financial Data
Selected financial data of the Corporation on pages 56 and 57
of the Annual Report to Shareholders for 1993 is incorporated
herein by reference.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Management's Discussion and Analysis on pages 34 through 55 of
the Annual Report to Shareholders for 1993 is incorporated
herein by reference.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements of the Corporation and notes
to such financial statements on pages 58 through 82 of the
Annual Report to Shareholders for 1993 are incorporated herein
by reference.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Not applicable.
USF&G Corporation
Part III
Item 10. Executive Officers and Directors of the Registrant
Information regarding the Corporation's executive officers can
be found on page 12 of this Form 10-K. Information regarding the
Corporation's directors is incorporated herein by reference to
the Election of Directors section of the Corporation's
definitive proxy statement for its annual meeting of
shareholders to be held May 4, 1994.
Item 11. Executive Compensation
See the Compensation of Executive Officers and Directors
section of the Corporation's definitive proxy statement for
its annual meeting of shareholders to be held May 4, 1994,
which is incorporated herein by reference. To the best
of the Corporation's knowledge, there were no late filings under
Section 16(a) of the Securities Exchange Act of 1934.
Item 12. Security Ownership of Certain Beneficial Owners and Management
See the Stock Ownership of Certain Beneficial Owners, Directors
and Management section of the Corporation's definitive proxy
statement for its annual meeting of shareholders to be held
May 4, 1994, which is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
See the Other Information-Certain Business Relationships section of
the Corporation's definitive proxy statement for its annual meeting
of shareholders to be held May 4, 1994, which is incorporated
herein by reference.
USF&G Corporation
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K
(a) (1) Financial Statements
The following consolidated financial statements of USF&G
Corporation and its subsidiaries, included in the annual report
of the registrant to its shareholders for the year ended
December 31, 1993, are incorporated by reference in Item 8:
Consolidated Statement of Operations
Consolidated Statement of Financial Position
Consolidated Statement of Cash Flows
Consolidated Statement of Shareholders' Equity
Notes to Consolidated Financial Statements
Report of Independent Auditors
(2) Schedules
The following consolidated financial statement schedules of
USF&G Corporation and its subsidiaries are included in Item
14(d):
Page 24 Schedule I. Summary of Investments-Other than
Investments in Related Parties
25-27 Schedule III. Condensed Financial Information of
Registrant
28 Schedule V. Supplementary Insurance Information
29 Schedule VI. Reinsurance
30 Schedule IX. Short-term Borrowings
31 Schedule X. Supplemental Information Concerning
Consolidated Property/Casualty
Insurance Operations
All other schedules specified by Article 7 of Regulation S-X are
not required pursuant to the related instructions or are
inapplicable and, therefore, have been omitted.
(3) Exhibits
The following exhibits are included in Item 14:
Page __ Exhibit 11 Computation of Earnings Per Share
__ Exhibit 12 Computation of Ratio of
Consolidated Earnings to Fixed Charges
and Preferred Stock Dividends
A copy of all other exhibits not included with this Form 10-K
may be obtained without charge upon written request to the
Secretary at the address shown on page ___ of this Form 10-K.
Exhibit 3A
Charter of USF&G Corporation.
Exhibit 3B
Amended By-laws of USF&G Corporation. Incorporated by
reference to Exhibit 3B, 1985 Annual Report on Form 10-K.
Exhibit 4A
Rights agreement dated as of September 18, 1987,
between USF&G Corporation and First Chicago Trust Company of New
York (successor to Morgan Shareholder's Service Trust Company)
including Form of Rights Certificate. Incorporated by reference
to Exhibits 1 and 2 to the Registrant's Form 8-A filed
September 31, 1987, File No. 1-8233.
Exhibit 4B
Indenture dated as of October 15, 1986, between USF&G Corporation
and Chemical Bank (Delaware). Incorporated by reference to
Exhibit 4.1 to the Registrant's Form 10-Q for the quarter ended
September 30, 1986, File No. 1-8233.
Exhibit 4C
Officer's certificate dated November 19, 1986, classifying 8 7/8%
Notes of USF&G Corporation. Incorporated by reference to
Exhibit 4.1 to the Registrant's Form 8-K dated November 19, 1986,
File No. 1-8233.
Exhibit 4D
Bond issuance and payment agreement dated November
16, 1987, for Swiss Franc Public Issue of 5 1/2% Bonds 1988-1996
of Swiss Francs 120,000,000. Incorporated by reference to
Exhibit 4M to the Registrant's Form 10-K for the year ended
December 31, 1987, File No. 1-8233.
Exhibit 4E
Indenture dated as of January 28, 1994, between USF&G Corporation
and Chemical Bank.
Exhibit 4F
Form of Note dated March 3, 1994, for Zero Coupon
Convertible Subordinated Notes due 2009. Incorporated by
reference to Exhibit 4 to the Registrant's Form 8-K dated
March 3, 1994, File No. 1-8233.
Exhibit 10A
Credit Agreement dated as of March 20, 1990, as
amended on April 15, 1991, among USF&G Corporation, Morgan
Guaranty Trust Company of New York, and Swiss Bank Corporation
as agents. Incorporated by reference to Exhibit 4F to the
Registrant's Form 10-K for the year ended December 31, 1991,
File No. 1-8233.
Exhibit 10B
Stock Option Plan of 1987. Incorporated by reference to
Exhibit 4.1 to the Registrant's Form S-8 dated July 28, 1987,
File No. 33-16111.
Exhibit 10C
Employment Agreement dated November 20, 1990, between the
Registrant and Norman P. Blake, Jr. Incorporated by
reference to Exhibit 10A to the Registrant's Form 10-K for the
year ended December 31, 1990, File No. 1-8233.
Exhibit 10D
USF&G Supplemental Executive Retirement Agreement between the
Registrant and Norman P. Blake, Jr., dated November 20, 1990.
Incorporated by reference to Exhibit 10B to the Registrant's
Form 10-K for the year ended December 31, 1990, File No. 1-8233.
Exhibit 10E
Stock Option Plan of 1990. Incorporated by reference
to Exhibit 4 to the Registrant's Form S-8 Registration Statement
as filed December 7, 1990, File No. 33-38113. Certified Copy of
the Board Resolution adopted on December 6, 1990, amending the
Stock Option Plan of 1990. Incorporated by reference to Exhibit
10G to the Registrant's Form 10-K for the year ended December
31, 1990, File No. 1-8233.
USF&G Corporation
Part IV
Exhibit 10F
Description of Management Incentive Plan. Incorporated by reference
to Exhibit 10J to the Registrant's Form 10-K for the year ended
December 31, 1990, File No. 1-8233.
Exhibit 10G
Description of Long-Term Incentive Compensation
Plan. Incorporated by reference to Exhibit 10K to the
Registrant's Form 10-K for the year ended December 31, 1990,
File No. 1-8233.
Exhibit 10H
Stock Incentive Plan of 1991. Incorporated by
reference to Exhibit 4(a) to the Registrant's Form S-8
Registration Statement as filed February 11, 1992, File No.
33-45664.
Exhibit 10I
Form of Stock Option Agreement used in connection
with the Stock Option Plan of 1987, Stock Option Plan
of 1990, and Stock Incentive Plan of 1991.
Exhibit 10J
1993 Stock Plan for Non-Employee Directors. Incorporated
by reference to Exhibit 10N to the Registrant's Form 10-K
for the year ended December 31, 1992, File No. 1-8233.
Exhibit 10K
Employment Agreement dated November 10, 1993,
between the Registrant and Norman P. Blake, Jr.
Exhibit 10L
Stock Option Agreement dated November 10, 1993,
between the Registrant and Norman P. Blake, Jr.
Exhibit 10M
Stock Option Agreement dated November 10, 1993,
between the Registrant and Norman P. Blake, Jr.
Exhibit 10N
Waiver dated November 10, 1993, between the
Registrant and Norman P. Blake, Jr.
Exhibit 10O
First Amendment to USF&G Supplemental Executive
Retirement Agreement between the registrant and Norman P.
Blake, Jr. dated November 10, 1993.
Exhibit 10P
Letter dated November 19, 1992, describing
Employment Arrangement between the Registrant
and Gary C. Dunton.
Exhibit 10Q
USF&G Supplemental Retirement Plan.
Exhibit 11
Computation of ratio of consolidated earnings to
fixed charges and preferred stock dividends.
Exhibit 12
Computation of earnings per share.
Exhibit 13
1993 Annual Report to Shareholders.
Exhibit 21
Subsidiaries of the registrant.
Exhibit 23
Consent of independent auditors.
Exhibit 28
Information from reports furnished to state
insurance regulatory authorities.
All other exhibits specified by Item 601 of Regulation S-K are
not required pursuant to the related instructions or are
inapplicable and, therefore, have been omitted.
(b) Reports on Form 8-K No reports on Form 8-K were filed during
the fourth quarter 1993. The registrant filed a Form 8-K on
February 14, 1994, reporting under Item 5, Other Events, audited
financial statements for the year ended December 31, 1993, and a
related Management's Discussion and Analysis, and other related
financial information. The registrant filed a Form 8-K March 3,
1994, reporting under Item 5, Other Events, related to the sale
of Zero Coupon Subordinated Notes.
USF&G Corporation
Signatures
Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this
Annual Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
USF&G CORPORATION
BY NORMAN P. BLAKE, JR.
Norman P. Blake, Jr.
Chairman of the Board, President,
and Chief Executive Officer
Dated at Baltimore, Maryland
March 30, 1994
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.
Principal Executive Officer:
NORMAN P. BLAKE, JR.
Norman P. Blake, Jr.
Chairman of the Board, President,
Chief Executive Officer, and Director
Principal Financial and Accounting
Officer:
DAN L. HALE
Dan L. Hale
Executive Vice President and
Chief Financial Officer
Dated at Baltimore, Maryland
March 30, 1994
Directors
H. FURLONG BALDWIN ROBERT J. HURST
H. Furlong Baldwin Robert J. Hurst
MICHAEL J. BIRCK WILBUR G. LEWELLEN
Michael J. Birck Wilbur G. Lewellen
GEORGE L. BUNTING, JR. HENRY A. ROSENBERG, JR.
George L. Bunting, Jr. Henry A. Rosenberg, Jr.
ROBERT E. DAVIS LARRY P. SCRIGGINS
Robert E. Davis Larry P. Scriggins
RHODA M. DORSEY ANNE MARIE WHITTEMORE
Rhoda M. Dorsey Anne Marie Whittemore
DALE F. FREY GEORGE S. WILLS
Dale F. Frey George S. Wills
ROBERT E. GREGORY, JR.
Robert E. Gregory, Jr.
USF&G Corporation
Schedule I. Summary of Investments - Other Than Investments in
Related Parties
<TABLE>
<CAPTION>
At December 31, 1993
Amount at
which shown
in the
Statement of
Financial
Cost Value Position
(in millions)
Fixed maturities
<S> <C> <C> <C>
Bonds:
Held to maturity:
United States Government and
government agencies and
authorities $ 1,269 $1,318 $ 1,269
States, municipalities, and
political subdivisions 23 22 23
Foreign governments 35 38 35
Public utilities 257 259 257
All other corporate bonds 3,077 3,159 3,077
Total fixed maturities held to maturity 4,661 4,796 4,661
Available for sale:
United States Government and
government agencies and
authorities 1,082 1,135 1,135
States, municipalities, and
political subdivisions 34 37 37
Foreign governments 91 97 97
Public utilities 105 110 110
All other corporate bonds 3,369 3,524 3,524
Total fixed maturities available
for sale 4,681 4,903 4,903
Total fixed maturities $ 9,342 $9,699 $ 9,564
Equity securities
Common stocks:
Public utilities $ - $ - $ -
Banks, trust, and insurance companies 13 13 13
Industrial, miscellaneous, and all other 85 74 74
Total common stocks 98 87 87
Nonredeemable preferred stocks 48 48 48
Total equity securities $ 146 $ 135 $ 135
Short-term investments 322 $ 322 322
Mortgage loans 302 304 302
Real estate 685 685
Other invested assets 369 369
Total investments $11,166 $11,377
</TABLE>
USF&G Corporation
Schedule III. Condensed Financial Information of Registrant -
Statement of Financial Position (Parent Company)
<TABLE>
<CAPTION>
At December 31
(in millions) 1993 1992 1991
<S> <C> <C> <C>
Assets
Cash $ 2 $ 10 $ 1
Short-term investments, at market - - 1
Investment in subsidiaries, at equity 2,354 2,097 2,149
Due from subsidiaries 127 135 170
Other assets 23 34 44
Total assets $2,506 $2,276 $2,365
Liabilities
Debt (short-term, 1993, $395;
1992, $375;
1991, $388) $ 574 $ 574 $ 617
Dividends payable to shareholders 16 16 16
Due to subsidiaries 322 335 307
Other liabilities 83 81 102
Total liabilities 995 1,006 1,042
Shareholders' Equity
Preferred stock 455 455 455
Common stock 212 211 211
Paid-in-capital 963 957 955
Net unrealized gains (losses) on investments 192 (31) (21)
Net unrealized gains (losses) on foreign currency (2) 2 10
Minimum pension liability (85) - -
Retained earnings (deficit) (224) (324) (287)
Total shareholders' equity 1,511 1,270 1,323
Total liabilities and shareholders' equity $2,506 $2,276 $2,365
<FN>
See Note to Condensed Financial Statements
</TABLE>
USF&G Corporation
Schedule III. Condensed Financial Information of Registrant -
Statement of Operations (Parent Company)
<TABLE>
<CAPTION>
For the Years Ended December 31
(in millions) 1993 1992 1991
<S> <C> <C> <C>
Revenues
Net investment income:
Dividends from subsidiaries $125 $125 $ 127
Interest expense on loans
from subsidiaries (6) (7) (9)
Other revenues:
From subsidiaries 7 9 13
From others 5 22 5
Revenues before realized gains 131 149 136
Realized gains on investments - - 15
Total revenues 131 149 151
Expenses
Interest expense 37 43 51
Lease expense 21 21 21
Other operating expense 19 20 8
77 84 80
Foreign currency (gains) losses - 1 -
Total expenses 77 85 80
Income before income taxes and equity
in earnings of subsidiaries 54 64 71
Provision for income taxes - - -
Income before equity in earnings
of subsidiaries 54 64 71
Equity in undistributed earnings of
subsidiaries:
Continuing operations 73 (29) (223)
Discontinued operations - (7) (24)
Income from cumulative effect of
adopting new accounting standards 38 - -
Net income (loss) $165 $ 28 $(176)
<FN>
See Note to Condensed Financial Statements
</TABLE>
USF&G Corporation
Schedule III. Condensed Financial Information of Registrant -
Statement of Cash Flows (Parent Company)
<TABLE>
<CAPTION>
For the Years Ended December 31
(in millions) 1993 1992 1991
<S> <C> <C> <C>
Net Cash Provided From Operating
Activities $ 58 $ 71 $ 38
Investing Activities
Purchases of short-term investments - (23) (160)
Sales or maturities of short-term
investments - 23 160
Additional investments in subsidiaries - - (202)
Other, net (4) (12) (3)
Net cash used in investing activities (4) (12) (205)
Financing Activities
Short-term borrowings - - -
Repayments of short-term borrowings - - (35)
Intercompany advances, net (2) 49 92
Long-term borrowings - - -
Repayments of long-term borrowings - (36) -
Repurchases of securities pursuant to
put options - - (139)
Issuances of common stock 6 3 2
Issuances of preferred stock - - 310
Cash dividends paid to shareholders (66) (66) (62)
Net cash provided from (used in)
financing activities (62) (50) 168
Increase (decrease) in cash (8) 9 1
Cash at beginning of year 10 1 -
Cash at end of year $ 2 $ 10 $ 1
<FN>
See Note to Condensed Financial Statements
</TABLE>
Note to Condensed Financial Statements
The accompanying condensed financial statements should be read in conjunction
with the Consolidated Financial Statements and Notes thereto of the 1993
Annual Report to Shareholders incorporated herein by
reference. Certain amounts have been reclassified to conform to
the 1993 presentation. The parent company's provision for income
taxes is based on the Corporation+s consolidated federal income
tax allocation policy.
USF&G Corporation
Schedule V. Supplementary Insurance Information
<TABLE>
<CAPTION>
At December 31 For the Years Ended December 31
Unpaid Losses, Amortization
Deferred losses,loss Other loss of deferred
policy expenses policy Net expenses, policy Other
acquisi- & policy holders' invest- & acquisi- operating
tion bene- Unearned funds Premium ment policy tion expenses Premiums
costs fits(b) premiums (a) revenue income(a) benefits costs (a) written
1993
Property/casualty
insurance:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $168 $ 4,108 $444 $1,223 $1,014 $359 $ 71 $1,239
Personal 69 553 264 681 481 175 46 653
Reinsurance 6 559 29 305 204 71 28 403
Fidelity/surety 28 56 56 118 59 59 9 120
Reinsurance receivable - 1,053 124 - - - - -
Other - - - - - - - 14
Property/casualty 271 6,329 917 $ 7 2,327 $433 1,758 664 154 2,429
Life insurance 164 3,973 - 67 129 321 395 9 50 N/A
Total $435 $10,302 $917 $ 74 $2,456 $754 $2,153 $673 $204 $2,429
1992
Property/casualty
insurance:
Commercial $170 $ 4,348 $420 $1,480 $1,299 $426 $ 86 $1,356
Personal 76 626 286 785 635 210 42 727
Reinsurance 3 511 11 157 118 22 25 243
Fidelity/surety 28 55 53 111 36 55 19 109
Other - - - - - - - (15)
Property/casualty 277 5,540 770 $ 9 2,533 $475 2,088 713 172 2,420
Life insurance 189 3,896 - 56 104 349 377 25 51 N/A
Total $466 $ 9,436 $770 $ 65 $2,637 $824 $2,465 $738 $223 $2,420
1991
Property/casualty
insurance:
Commercial $208 $ 4,391 $555 $1,885 $1,728 $509 $ 83 $1,780
Personal 95 633 349 920 736 247 33 925
Reinsurance 3 633 22 96 40 31 30 211
Fidelity/surety 27 47 55 117 41 55 9 116
Property/casualty 333 5,704 981 $ 21 3,018 $498 2,545 842 155 3,032
Life insurance 201 3,773 - 58 169 370 437 44 50 N/A
Total $534 $ 9,477 $981 $ 79 $3,187 $868 $2,982 $886 $205 $3,032
<FN>
N/A - Not applicable to life insurance pursuant to Rule 12-16 of
Regulation S-X.
(a) Other policyholders' funds, net investment
income, and other operating expenses are not allocated to
property/casualty categories.
(b) Unpaid losses and loss expenses
reflect the implementation of SFAS No. 113, "Accounting and
Reporting for Reinsurance of Short-Duration and Long-Duration
Contracts," which increased liabilities by $1.2 billion with a
corresponding increase in assets at December 31, 1993. This
standard requires reinsurance receivables and prepaid
reinsurance premiums to be reported separately as assets instead
of the previous practice of netting such receivables against the
related loss and unearned premium liabilities.
</TABLE>
USF&G Corporation
Schedule VI. Reinsurance
<TABLE>
<CAPTION>
For the Years Ended December 31
Ceded to Assumed Percentage of
Gross other from other Net amount
(in millions) amount companies companies amount assumed to net
1993
<S> <C> <C> <C> <C> <C>
Life insurance in force $11,955 $1,404 $155 $10,706 1.4%
Premiums earned:
Life insurance $ 133 $ 5 $ - $ 128 -%
Accident/health
insurance - - 1 1 99.1
Property/casualty
insurance 2,338 517 506 2,327 21.7
Total $ 2,471 $ 522 $507 $ 2,456 20.6%
1992
Life insurance in force $12,228 $1,444 $132 $10,916 1.2%
Premiums earned:
Life insurance $ 107 $ 5 $ 1 $ 103 .3%
Accident/health
insurance - - 1 1 94.0
Property/casualty
insurance 2,692 535 376 2,533 14.8
Total $ 2,799 $ 540 $378 $ 2,637 14.3%
1991
Life insurance in force $13,227 $1,481 $150 $11,896 1.3%
Premiums earned:
Life insurance $ 170 $ 5 $ - $ 165 .3%
Accident/health
insurance 3 - 1 4 41.2
Property/casualty
insurance 3,127 532 423 3,018 14.0
Total $ 3,300 $ 537 $424 $ 3,187 13.3%
</TABLE>
USF&G Corporation
Schedule IX. Short-Term Borrowings
<TABLE>
<CAPTION>
At December 31 For the Years Ended December 31
Maximum Average Weighted-
amount amount average
Weighted- outstanding outstanding interest rate
Balance at average during during during
(in millions) end of year interest rate the year the year (a) the year (b)
1993
<S> <C> <C> <C> <C> <C>
Bank lines of
credit $376 3.6% $376 $375 3.7%
1992
Bank lines of
credit $376 3.6% $376 $376 4.6%
1991
Bank lines of
credit $376 5.9% $411 $390 6.9%
<FN>
(a) The average amount outstanding during the year was
calculated based on daily balances.
(b) The weighted-average
interest rate during the year was computed by dividing actual
interest expense by the average amount outstanding during the
period.
</TABLE>
USF&G Corporation
Schedule X. Supplemental Information Concerning Consolidated
Property/Casualty Insurance Operations
<TABLE>
<CAPTION>
At December 31
(in millions) 1993 1992 1991
<S> <C> <C> <C>
Deferred policy acquisition costs $ 271 $ 277 $ 333
Reserves for unpaid claims and
claim adjustments (a) 6,329 5,540 5,704
Discount deducted from reserves (b) 508 680 683
Unearned premiums 917 770 981
<FN>
(a) Reserves for unpaid claims and claim adjustments reflect the
implementation of SFAS No. 113, "Accounting and Reporting for
Reinsurance of Short-Duration and Long-Duration Contracts," which
increased liabilities by $1.2 billion with a corresponding
increase in assets at December 31, 1993. This standard requires
reinsurance receivables and prepaid reinsurance premiums to be
reported separately as assets instead of the previous practice
of netting such receivables against the related loss and
unearned premium liabilities.
(b) Certain long-term disability payments for workers compensation
are discounted at rates ranging from 3% to 5%.
</TABLE>
<TABLE>
<CAPTION>
For the Years Ended December 31
1993 1992 1991
<S> <C> <C> <C>
Earned premiums $2,327 $2,533 $3,018
Net investment income 433 475 498
Losses and loss adjustment
expenses incurred related to:
Current year 1,696 2,010 2,416
Prior years 62 78 129
Amortization of deferred policy
acquisition costs 664 713 842
Paid claims and claim adjustment expenses 2,022 2,252 2,471
Premiums written 2,429 2,420 3,032
</TABLE>
ARTICLES OF INCORPORATION
OF
USF&G CORPORATION
USF&G CORPORATION
ARTICLES OF INCORPORATION
FIRST: THE UNDERSIGNED, Elver T. Pearson, whose address is 100
Light Street, Baltimore, Maryland 21202, being at least eighteen
years of age, acting as incorporator, does hereby form a
corporation under the General Laws of the State of Maryland.
SECOND: The name of the corporation (which is hereinafter
called the "Corporation") is:
USF&G CORPORATION
THIRD: The purposes for which and any of which the Corporation
is formed and the business and objects to be carried on and
promoted by it are:
(1) To purchase, own, and hold the stock of other corporations,
and to do every act and thing covered generally by the
denomination "holding company";
(2) To purchase, subscribe for, acquire, own, hold, sell,
exchange, assign, transfer, create security interests in,
pledge, or otherwise dispose of shares, or voting trust
certificates for shares, of the capital stock of, or any bonds,
notes, securities, or evidences of indebtedness created by, any
other corporation or corporations organized under the laws of
this state or any other state or district, county, nation or
government; and
(3) To engage in any one or more businesses or transactions, or
to acquire all or any portion of any entity engaged in any one
or more businesses or transactions which the Board of Directors
may from time to time authorize or approve, whether or not
related to the business described elsewhere in this Article or
to any other business at the time or theretofore engaged in by
the Corporation.
The foregoing enumerated purposes and objects shall be in no
way limited or restricted by reference to, or inference from,
the terms of any other clause of this or any other Article of
the charter of the Corporation, and each shall be regarded as
independent; and they are intended to be and shall be construed
as powers as well as purposes and objects of the Corporation and
shall be in addition to and not in limitation of the general
powers of corporations under the General Laws of the State of
Maryland.
FOURTH: The present address of the principal office of the
Corporation in this state is 100 Light Street, Baltimore,
Maryland 21202.
FIFTH: The name and address of the resident agent of the
Corporation in this state are John A. MacColl, 100 Light Street,
Baltimore, Maryland 21202. Said resident agent is a citizen of
the State of Maryland who resides there.
SIXTH: The total number of shares of stock of all classes
which the Corporation has authority to issue is 252,000,000
having an aggregate par value of $1,200,000,000 of which
240,000,000 shares of the par value of $2.50 per share,
amounting in aggregate par value to $600,000,000, shall be
Common Stock, and 12,000,000 shares of the par value of $50.00
per share, amounting in aggregate par value to $600,000,000,
shall be Preferred Stock.
SEVENTH: The following is a description of the preferences,
conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and
conditions of redemption of the Common Stock and the Preferred
Stock of the Corporation:
COMMON STOCK
(1) The Common Stock shall not be subject to classification or
reclassification by the Board of Directors, and shall have the
rights and terms hereinafter specified, subject to the terms of
any other stock provided in the charter pursuant to
classification or reclassification by the Board of Directors or
otherwise in accordance with law.
(2) Each share of Common Stock shall have one vote, and, except
as otherwise provided in respect of any Preferred Stock, the
exclusive voting power for all purposes shall be vested in the
holders of the Common Stock.
(3) Subject to the provisions of law and any preferences of any
Preferred Stock, dividends may be paid on the Common Stock of
the Corporation at such time and in such amounts as the Board of
Directors may deem advisable.
(4) In the event of any liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, the
holders of the Common Stock shall be entitled, after payment or
provision for payment of the debts and other liabilities of the
Corporation and the amount to which the holders of any Preferred
Stock shall be entitled, to share ratably in the remaining net
assets of the Corporation.
PREFERRED STOCK
(5) The Board of Directors shall have authority to classify and
reclassify any unissued shares of the Preferred stock from time
to time by setting or changing in any one or more respects the
preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, and qualifications,
or terms or conditions of redemption, of the Preferred Stock;
provided, that the Board of Directors shall not classify or
reclassify any of such shares into shares of the Common Stock,
or into any class or series of stock (i) which is not prior to
the Common Stock either as to dividends or upon liquidation and
(ii) which is not limited in some respects either as to
dividends or upon liquidation. Subject to the foregoing, the
power of the Board of Directors to classify and reclassify any
of the shares of Preferred Stock shall include, without
limitation, subject to the provisions of the charter, authority
to classify or reclassify any unissued shares of such stock into
a class or classes of preferred stock, preference stock, special
stock or other stock, and to divide and classify shares of any
class into one or more series of such class, by determining,
fixing or altering one or more of the following:
(a) The distinctive designation of such class or series and the
number of shares to constitute such class or series; provided
that, unless otherwise prohibited by the terms of such or any
other class or series, the number of shares of any class or
series may be decreased by the Board of Directors in connection
with any classification or reclassification of unissued shares
and the number of shares of such class or series may be
increased by the Board of Directors in connection with any such
classification or reclassification, and any shares of any class
or series which have been redeemed, purchased, otherwise
acquired or converted into shares of Common Stock or any other
class or series shall remain part of the authorized Preferred
Stock and be subject to classification and reclassification as
provided in this Section.
(b) Whether or not and, if so, the rates, amounts and times at
which, and the conditions under which, dividends shall be
payable on shares of such class or series, whether any such
dividends shall rank senior or junior to or on a parity with the
dividends payable on any other class or series of Preferred
Stock, and the status of any such dividends as cumulative,
cumulative to a limited extent, or non-cumulative and as
participating or non-participating.
(c) Whether or not shares of such class or series shall have
voting rights, in addition to any voting rights provided by law
and, if so, the terms of such voting rights.
(d) Whether or not shares of such class or series shall have
conversion or exchange privileges and, if so, the terms and
conditions thereof, including provision for adjustment of the
conversion or exchange rate in such events or at such times as
the Board of Directors shall determine.
(e) Whether or not shares of such class or series shall be
subject to redemption and, if so, the terms and conditions of
such redemption, including the date or dates upon or after which
they shall be redeemable and the amount per share payable in
case of redemption, which amount may vary under different
conditions and at different redemption dates; and whether or not
there shall be any sinking fund or purchase account in respect
thereof, and if so, the terms thereof.
(f) The rights of the holders of shares of such class or series
upon the liquidation, dissolution or winding up of the affairs
of, or upon any distribution of the assets of, the Corporation,
which rights may vary depending upon whether such liquidation,
dissolution or winding up is voluntary or involuntary and, if
voluntary, may vary at different dates, and whether such rights
shall rank senior or junior to or on a parity with such rights
of any other class of series of Preferred Stock.
(g) Whether or not there shall be any limitations applicable,
while shares of such class or series are outstanding, upon the
payment of dividends or making of distributions on, or the
acquisition of, or the use of moneys for purchase or redemption
of, any stock of the Corporation, or upon any other action of
the Corporation, including action under this Section, and, if
so, the terms and conditions thereof.
(h) Any other preferences, rights, restrictions, including
restrictions on transferability, and qualification of shares of
such class or series, not inconsistent with law and the charter
of the Corporation.
(6) For the purposes hereof and of any articles supplementary
to the charter providing for the classification or
reclassification of any shares of Preferred Stock or of any
other charter document of the Corporation (unless otherwise
provided in any such articles or documents), any class or series
of stock of the Corporation shall be deemed to rank:
(a) prior to another class or series either as to dividends or
upon liquidation, if the holders of such class or series shall
be entitled to the receipt of dividends or of amounts
distributable on liquidation, dissolution or winding up, as the
case may be, in preference or priority to holders of such other
class or series;
(b) on a parity with another class or series either as to
dividends or upon liquidation, whether or not the dividend
rates, dividend payment dates, or redemption or liquidation
price per share thereof be different from those of such others,
if the holders of such class or series of stock shall be
entitled to receipt of dividends or amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in
proportion to their respective dividend rates or redemption or
liquidation prices, without preferences or priority over the
holders of such other class or series; and
(c) junior to another class or series either as to dividends or
upon liquidation, if the rights of the holders of such class or
series shall be subject or subordinate to the rights of the
holders of such other class or series in respect of the receipt
of dividends or the amounts distributable upon liquidation,
dissolution or winding up, as the case may be.
EIGHTH: The number of directors of the Corporation shall be
three (3), which number may be increased or decreased pursuant
to the By-Laws of the Corporation, but shall never be less than
the minimum number permitted by the General Laws of the State of
Maryland now or hereafter in force. The names of the directors
who will serve until the first annual meeting and until their
successors are elected and qualify are as follows: Charles H.
Foelber, Jack Moseley and Larry P. Scriggins.
NINTH: The following provisions are hereby adopted for the
purpose of defining, limiting, and regulating the powers of the
Corporation and of the directors and stockholders:
(1) The Board of Directors is hereby empowered to authorize the
issuance from time to time of shares of its stock of any class,
whether now or hereafter authorized, or securities convertible
into shares of its stock of any class or classes, whether now or
hereafter authorized, for such consideration as may be deemed
advisable by the Board of Directors and without any action by
the stockholders.
(2) No holder of any stock or any other securities of the
Corporation, whether now or hereafter authorized, shall have any
preemptive right to subscribe for or purchase any stock or any
other securities of the Corporation other than such, if any, as
the Board of Directors, in its sole discretion, may determine
and at such price or prices and upon such other terms as the
Board of Directors, in its sole discretion, may fix; and any
stock or other securities which the Board of Directors may
determine to offer for subscription may, as the Board of
Directors in its sole discretion shall determine, be offered to
the holders of any class, series or type of stock or other
securities at the time outstanding to the exclusion of the
holders of any or all other classes, series or types of stock or
other securities at the time outstanding.
(3) The Board of Directors shall have power from time to time
and in its sole discretion to determine in accordance with sound
accounting practice, what constitutes annual or other net
profits, earnings, surplus, or net assets in excess of capital;
to fix and vary from time to time the amount to be reserved as
working capital, or determine that retained earnings or surplus
shall remain in the hands of the Corporation; to set apart out
of any funds of the Corporation such reserve or reserves in such
amount or amounts and for such proper purpose or purposes as it
shall determine and to abolish any such reserve or any part
thereof; to distribute and pay distributions or dividends in
stock, cash or other securities or property, out of surplus or
any other funds or amounts legally available therefor, at such
times and to the stockholders of record on such dates as it may,
from time to time, determine; and to determine whether and to
what extent and at what times and places and under what
conditions and regulations the books, accounts and documents of
the Corporation, or any of them shall be open to the inspection
of stockholders, except as otherwise provided by statute or by
the By-Laws, and, except as so provided, no stockholder shall
have any right to inspect any book, account or document of the
Corporation unless authorized so to do by resolution of the
Board of Directors.
(4) A contract or other transaction between the Corporation and
any of its directors or between the Corporation and any other
corporation, firm or other entity in which any of its directors
is a director or has a material financial interest is not void
or voidable solely because of any one or more of the following:
the common directorship or interest; the presence of the
director at the meeting of the Board of Directors which
authorizes, approves, or ratifies the contract or transaction;
or the counting of the vote of the director for the
authorization, approval, or ratification of the contract or
transaction. This Section applies if:
(a) the fact of the common directorship or interest is
disclosed or known to: the Board of Directors and the Board
authorizes, approves, or ratifies the contract or transaction by
the affirmative vote of a majority of disinterested directors,
even if the disinterested directors constitute less than a
quorum; or the stockholders entitled to vote, and the contract
or transaction is authorized, approved, or ratified by a
majority of the votes cast by the stockholders entitled to vote
other than the votes of shares owned of record or beneficially
by the interested director or corporation, firm, or other
entity; or
(b) the contract or transaction is fair and reasonable to the
Corporation.
Common or interested directors or the stock owned by them or by
an interested corporation, firm, or other entity may be counted
in determining the presence of a quorum at a meeting of the
Board of Directors or at a meeting of the stockholders, as the
case may be, at which the contract or transaction is authorized,
approved, or ratified. If a contract or transaction is not
authorized, approved, or ratified in one of the ways provided
for in clause (a) of the second sentence of this Section, the
person asserting the validity of the contract or transaction
bears the burden of proving that the contract or transaction was
fair and reasonable to the Corporation at the time it was
authorized, approved, or ratified. The procedures in this
Section do not apply to the fixing by the Board of Directors of
reasonable compensation for a director, whether as a director or
in any other capacity.
(5) The Corporation shall indemnify (a) its directors to the
full extent provided by the General Laws of the State of
Maryland now or hereafter in force, including the advance of
expenses under the procedures provided by such laws; (b) its
officers to the same extent it shall indemnify its directors;
and (c) its officers who are not directors to such further
extent as shall be authorized by the Board of Directors and be
consistent with law. The foregoing shall not limit the
authority of the Corporation to indemnify other employees and
agents consistent with law.
(6) The Corporation reserves the right from time to time to
make any amendments of its charter which may now or hereafter be
authorized by law, including any amendments changing the terms
or contract rights, as expressly set forth in its charter, of
any of its outstanding stock by classification, reclassification
or otherwise; but no such amendment which changes such terms or
contract rights of any of its outstanding stock shall be valid
unless such amendment shall have been authorized by not less
than a majority of the aggregate number of the votes entitled to
be cast thereon, by a vote at a meeting or in writing with or
without a meeting.
(7) To the fullest extent permitted by Maryland statutory or
decisional law, as amended or interpreted, no director or
officer of this Corporation shall be personally liable to the
Corporation or its stockholders for money damages. No amendment
of the Charter of the Corporation or repeal of any of its
provisions shall limit or eliminate the benefits provided to
directors and officers under this provision with respect to any
act or omission which occurred prior to such amendment or repeal.
The enumeration and definition of particular powers of the
Board of Directors included in the foregoing shall in no way be
limited or restricted by reference to or inference from the
terms of any other clause of this or any other Article of the
charter of the Corporation, or construed as or deemed by
inference or otherwise in any manner to exclude or limit any
powers conferred upon the Board of Directors under the General
Laws of the State of Maryland now or hereafter in force.
TENTH: The duration of the Corporation shall be perpetual.
IN WITNESS WHEREOF, I have signed these Articles of
Incorporation acknowledging the same to be my act, on July 22,
1981.
Witness:
/SAMUEL H. McCOY, II/ /ELVER T. PEARSON/
<PAGE>
USF&G CORPORATION
ARTICLES OF AMENDMENT
USF&G CORPORATION, a Maryland corporation , having its
principal office in Baltimore City, Maryland (which is
hereinafter called the "Corporation"), hereby certifies to the
State Department of Assessments and Taxation of Maryland that:
FIRST: The Charter of the Corporation is hereby amended as
follows:
(a) By changing and reclassifying each one (1) share of Common
Stock, $2.50 par value, issued at the time of effectiveness of
this Amendment into two (2) shares of Common Stock, $2.50 par
value; and
(b) by deleting Article SIXTH of the Articles of Incorporation
in its entirety and in lieu thereof substituting the following:
"SIXTH: The total number of shares of stock of all
classes which the Corporation has authority to issue is
132,000,000 shares having an aggregate par value of $900,000,000,
of which 120,000,000 shares of the par value of $2.50 per share,
amounting in aggregate par value to $300,000,000, shall be
Common Stock, and 12,000,000 shares of the par value of $50.00
per share, amounting in aggregate par value to $600,000,000,
shall be Preferred Stock."
SECOND: (a) As of immediately before the amendment the total
number of shares of stock of all classes which the Corporation
has authority to issue is 44,000,000 shares, of which 4,000,000
shares are Preferred Stock (par value $50.00 per share) and
40,000,000 shares are Common Stock (par value $2.50 per share).
(b) As amended the total number of shares of stock of all
classes which the Corporation has authority to issue is
132,000,000 shares, of which 12,000,000 shares are Preferred
Stock (par value $50.00 per share) and 120,000,000 shares are
Common Stock (par value $2.50 per share).
(c) The aggregate par value of all shares having a par value
is $300,000,000 before the amendment and $900,000,000 as amended.
(d) The descriptions of each class of stock of the Corporation
are not changed by the amendment.
THIRD: The foregoing amendment to the Charter of the
Corporation has been advised by the Board of Directors and
approved by the stockholders of the Corporation.
FOURTH: The foregoing amendment to the Charter of the
Corporation shall be effective as of 5:00 p.m., Baltimore Time,
on May 14, 1984.
IN WITNESS WHEREOF, USF&G CORPORATION has caused these presents
to be signed in its name and on its behalf by its Chairman of
the Board and President and witnessed by its Secretary on May
14, 1984.
WITNESS: USF&G CORPORATION
By:
William F. Spliedt, Jack Moseley,
Secretary Chairman of the Board
and President
THE UNDERSIGNED, Chairman of the Board and President of USF&G
CORPORATION, who executed on behalf of the Corporation the
foregoing Articles of Amendment of which this certificate is
made a part, hereby acknowledges in the name and on behalf of
said Corporation the foregoing Articles of Amendment to be the
corporate act of said Corporation and hereby certifies that to
the best of his knowledge, information, and belief the matters
and facts set forth therein with respect to the authorization
and approval thereof are true in all material respects under the
penalties of perjury.
Jack Moseley,
Chairman of the Board
and President
<PAGE>
ARTICLES SUPPLEMENTARY
Junior Participating Preferred Stock
OF
USF&G CORPORATION
USF&G CORPORATION, a Maryland corporation, having its
principal office in Baltimore City, Maryland (hereinafter called
the "Corporation"), hereby certifies to the State Department of
Assessments and Taxation of Maryland that:
FIRST: Pursuant to authority expressly vested in the Board of
Directors of the Corporation by Article Seventh of the Charter
of the Corporation, the Board of Directors has duly divided and
classified 1,200,000 shares of the Preferred Stock of the
Corporation into a series designated "Junior Participating
Preferred Stock" and has provided for the issuance of such
series.
SECOND: The terms of the Junior Participating Preferred Stock
as set by the Board of Directors are as follows:
1. Designation and Amount. The shares of such series shall be
designated as "Junior Participating Preferred Stock" (the
"Junior Preferred Stock") and the number of shares constituting
such series shall initially be 1,200,000, subject to increase or
decrease by action of the Board of Directors effectuated by
further Articles Supplementary.
2. Dividends and Distributions.
(i) The holders of shares of Junior Preferred Stock, in
preference to the holders of Common Stock and of any other
junior stock, shall be entitled to receive, when, as and if
declared by the Board of Directors out of funds legally
available for the purpose, quarterly dividends payable in cash
on the last day of March, June, September and December in each
year (each such date being referred to herein as a "Quarterly
Dividend Payment Date"), commencing on the first Quarterly
Dividend Payment Date after the first issuance of a share or
fraction of a share of Junior Preferred Stock, in an amount per
share (rounded to the nearest cent) equal to the greater of (a)
Sixty-Two dollars ($62.00) or (b) subject to the provision for
adjustment hereinafter set forth, 100 times the aggregate per
share amount of all cash dividends, and 100 times the aggregate
per share amount (payable in kind) of all non-cash dividends or
other distributions other than a dividend payable in shares of
Common Stock of the Corporation or a subdivision of the
outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock since the immediately
preceding Quarterly Dividend Payment Date or, with respect to
the first Quarterly Dividend Payment Date, since the first
issuance of any share or fraction of a share of Junior Preferred
Stock. In the event the Corporation shall at any time after the
date hereof declare or pay any dividend on Common Stock payable
in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise) into a greater or
lesser number of shares of Common Stock, then in each such case
the amount to which holders of shares of Junior Preferred Stock
were entitled immediately prior to such event under clause (b)
of the preceding sentence shall be adjusted by multiplying such
amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common
Stock that were outstanding immediately prior to such event.
(ii) The Corporation shall declare a dividend or distribution
on the Junior Preferred Stock as provided in subparagraph (i) of
this paragraph 2 immediately after it declares a dividend or
distribution on the Common Stock (other than a dividend payable
in shares of Common Stock); provided that, in the event no
dividend or distribution shall have been declared on the Common
Stock during the period between any Quarterly Dividend Payment
Date and the next subsequent Quarterly Dividend Payment Date, a
dividend of Sixty-Two Dollars ($62.00) per share on the Junior
Preferred Stock shall nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.
(iii) Dividends shall begin to accrue and be cumulative on
outstanding shares of Junior Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such
shares of Junior Preferred Stock, unless the date of issue of
such shares is prior to the record date for the first Quarterly
Dividend Payment Date, in which case dividends on such shares
shall begin to accrue from the date of issue of such shares, or
unless the date of issue is a Quarterly Dividend Payment Date or
is a date after the record date for the determination of holders
of shares of Junior Preferred Stock entitled to receive a
quarterly dividend and before such Quarterly Dividend Payment
Date, in either of which events such dividends shall begin to
accrue and be cumulative from such Quarterly Dividend Payment
Date. Accrued but unpaid dividends shall not bear interest.
Dividends paid on the shares of Junior Preferred Stock in an
amount less than the total amount of such dividends at the time
accrued and payable on such shares shall be allocated pro rata
on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for
the determination of holders of shares of Junior Preferred Stock
entitled to receive payment of a dividend or distribution
declared thereon, which record date shall be not more than 60
days prior to the date fixed for the payment thereof.
3. Voting Rights. The holders of shares of Junior Preferred
Stock shall have the following voting rights:
(i) Subject to the provision for adjustment hereinafter set
forth, each share of Junior Preferred Stock shall entitle the
holder thereof to 100 votes on all matters submitted to a vote
of the shareholders of the Corporation. In the event the
Corporation shall at any time after the date hereof declare or
pay any dividend on Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation
of the outstanding shares of Common Stock (by reclassification
or otherwise) into a greater or lesser number of shares of
Common Stock, then in each such case the number of votes per
share to which holders of shares of Junior Preferred Stock were
entitled immediately prior to such event shall be adjusted by
multiplying such number by a fraction the numerator of which is
the number of shares of Common Stock outstanding immediately
after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior
to such event.
(ii) Except as otherwise provided herein or by law, the
holders of shares of Junior Preferred Stock and the holders of
shares of Common Stock and any other capital stock of the
Corporation having general voting rights shall vote together as
one class on all matters submitted to a vote of shareholders of
the Corporation.
(iii) (a) If on the date used to determine stockholders of
record for any meeting of stockholders for the election of
directors, accrued dividends on the shares of Junior Preferred
Stock shall not have been paid in an aggregate amount equal to
or greater than six quarterly dividends on the shares of Junior
Preferred Stock at the time outstanding, then, and in any such
event, the number of Directors then constituting the entire
Board of Directors of the Corporation shall automatically be
increased by two Directors and the holders of shares of Junior
Preferred Stock and holders of any other shares of the Preferred
Stock of the Corporation then outstanding ranking on a parity
with the Junior Preferred Stock as to dividends and upon
liquidation ("Parity Stock"), voting together as a single class,
shall be entitled at such meeting to fill such newly created
directorships. Such right to vote as a single class to elect
two Directors shall, when vested, continue until all dividends
in default on the shares of Junior Preferred Stock shall have
been paid in full and, when so paid, such right to elect two
Directors separately as a class shall cease, subject, always, to
the same provisions for the vesting of such right to elect two
Directors separately as a class in the case of future dividend
defaults.
(b) So long as any shares of Junior Preferred Stock are
outstanding the number of Directors of the Corporation shall at
all times be such that the exercise, by the holders of shares of
Junior Preferred Stock and the holders of shares of Parity
Stock, of the right to elect Directors under the circumstances
provided in paragraph (a) of this subclause (iii) will not
contravene any provisions of the Maryland General Corporation
Law or the Charter of the Corporation.
(c) Directors elected pursuant to paragraph (a) of this
subclause (iii) shall serve until the earlier of (x) the next
annual meeting of the stockholders of the Corporation and the
election (by the holders of shares of Junior Preferred and
Parity Stock) and qualification of their respective successors
or (y) the date upon which all dividends in default on the
shares of Junior Preferred and such Parity Stock shall have been
paid in full. Directors elected pursuant to paragraph (a) of
this subclause (iii) may be removed by, and shall not be removed
except by, the vote of the holders of record of the outstanding
shares of Junior Preferred and Parity Stock, voting together as
a single class without regard to series, at a meeting of the
stockholders, or the holders of shares of Junior Preferred and
Parity Stock, called for that purpose. If, prior to the end of
the term of any Director elected as aforesaid, a vacancy in the
office of such Director shall occur during the continuance of a
default in dividends on the shares of Junior Preferred Stock by
reason other than removal, such vacancy shall be filled for the
unexpired term by the appointment by the remaining Director
elected as aforesaid of a new Director for the unexpired term of
such former Director.
(iv) Except as set forth herein, holders of Junior Preferred
Stock shall have no special voting rights and their consent
shall not be required (except to the extent they are entitled to
vote with holders of Common Stock and any other capital stock of
the Corporation having general voting rights as set forth
herein) for taking any corporate action.
4. Certain Restrictions.
(i) Whenever quarterly dividends or other dividends or
distributions payable on the Junior Preferred Stock as provided
in paragraph 2 of this Section are in arrears, thereafter and
until all accrued and unpaid dividends and distributions,
whether or not declared, on shares of Junior Preferred Stock
outstanding shall have been paid in full, the Corporation shall
not:
(a) declare or pay dividends on, make any other distributions
on, or redeem or purchase or otherwise acquire for consideration
any shares of stock ranking junior (either as to dividends or
upon liquidation, dissolution or winding up) to the Junior
Preferred Stock;
(b) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity (either
as to dividends or upon liquidation, dissolution or winding up)
with the Junior Preferred Stock, except dividends paid ratably
on the Junior Preferred Stock and all such parity stock on which
dividends are payable or in arrears in proportion to the total
amounts to which the holders of all such shares are then
entitled;
(c) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking junior either as to dividends or
upon liquidation, dissolution or winding up) with the Junior
Preferred Stock, provided that the Corporation may at any time
redeem, purchase or otherwise acquire shares of any such junior
stock in exchange for shares of any stock of the Corporation
ranking junior (either as to dividends or upon dissolution,
liquidation or winding up) to the Junior Preferred Stock; or
(d) purchase or otherwise acquire for consideration any
shares of Junior Preferred Stock, or any shares of stock ranking
on a parity with the Junior Preferred Stock, except in
accordance with a purchase offer made in writing or by
publication (as determined by the Board of Directors) to all
holders of such shares upon such terms as the Board of
Directors, after consideration of the respective annual dividend
rates and other relative rights and preferences of the
respective series and classes, shall determine in good faith
will result in fair and equitable treatment among the respective
series or classes.
(ii) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration
any shares of stock of the Corporation unless the Corporation
could, under subparagraph (i) of this paragraph 4, purchase or
otherwise acquire such shares at such time and in such manner.
5. Reacquired Shares. Any shares of Junior Preferred Stock
purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled promptly after the
acquisition thereof. All such shares shall upon their
cancellation become authorized but unissued shares of Preferred
Stock and may be classified again and reissued as part of a new
series or class of Preferred Stock to be created by the Board of
Directors pursuant to its power contained in the Charter,
subject to the conditions and restrictions on issuance set forth
herein.
6. Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Corporation, no
distribution shall be made (a) to the holders of shares of stock
ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Junior Preferred Stock unless,
prior thereto, the holders of shares of Junior Preferred Stock
shall have received One Hundred Forty dollars ($140) per share,
plus an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not declared, to the date of
such payment, provided that the holders of shares of Junior
Preferred Stock shall be entitled to receive an aggregate amount
per share, subject to the provision for adjustment hereinafter
set forth, equal to 100 times the aggregate amount to be
distributed per share to holders of Common Stock, or (b) to the
holders of stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Junior
Preferred Stock, except distributions made ratably on the Junior
Preferred Stock and all other such parity stock in proportion to
the total amounts to which the holders of all such shares are
entitled upon such liquidation, dissolution or winding up. In
the event the Corporation shall at any time after the date
hereof declare or pay any dividend on Common Stock payable in
shares of Common Stock, or effect a subdivision or combination
or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise) into a greater or lesser number
of shares of Common Stock, then in each such case the aggregate
amount to which holders of shares of Junior Preferred Stock were
entitled immediately prior to such event under the proviso in
clause (a) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction the numerator of which is
the number of shares of Common Stock outstanding immediately
after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior
to such event.
7. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, share exchange,
combination or other transaction in which the shares of Common
Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such
case the shares of Junior Preferred Stock shall at the same time
be similarly exchanged or changed in an amount per share
(subject to the provision for adjustment hereinafter set forth)
equal to 100 times the aggregate amount of stock, securities,
cash and/or any other property (payable in kind), as the case
may be, into which or for which each share of Common Stock is
changed or exchanged. In the event the Corporation shall at any
time after the date hereof declare or pay any dividend on Common
Stock payable in shares of Common Stock, or effect a subdivision
or combination or consolidation of the outstanding shares of
Common Stock (by reclassification or otherwise) into a greater
or lesser number of shares of Common Stock, then in each such
case the amount set forth in the preceding sentence with respect
to the exchange or change of shares of Junior Preferred Stock
shall be adjusted by multiplying such amount by a fraction the
numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
8. No Redemption. The shares of Junior Preferred Stock shall
not be redeemable.
9. Rank. The Junior Preferred Stock shall rank junior with
respect to payment of dividends and on liquidation to all other
Preferred Stock of the Corporation unless the terms of any other
Preferred Stock specifically provide that it shall rank junior
to, or on a parity with, the Junior Preferred Stock.
10. Amendment. The Charter of the Corporation shall not be
amended in any manner that would materially alter or change the
powers, preferences or special rights of the Junior Preferred
Stock so as to affect them adversely without the affirmative
vote of the holders of two-thirds of the outstanding shares of
Junior Preferred Stock, voting together as a single class.
IN WITNESS WHEREOF, USF&G Corporation has caused these presents
to be signed in its name and on its behalf by its Executive Vice
President and witnessed by its Secretary on October 1, 1987.
WITNESS: USF&G CORPORATION
By
William F. Spliedt, Secretary Paul J. Scheel
Executive Vice President
THE UNDERSIGNED, Executive Vice President of USF&G
Corporation, who executed on behalf of the Corporation Articles
Supplementary of which this Certificate is made a part, hereby
acknowledges in the name and on behalf of said Corporation the
foregoing Articles Supplementary to be the corporate act of said
Corporation and hereby certifies that the matters and facts set
forth herein with respect to the authorization and approval
thereof are true in all material respects under the penalties of
perjury.
Paul J. Scheel
Executive Vice President
<PAGE>
ARTICLES SUPPLEMENTARY
$4.10 SERIES A CONVERTIBLE EXCHANGEABLE
PREFERRED STOCK
OF
USF&G CORPORATION
USF&G CORPORATION, a Maryland corporation, having its principal office
in Baltimore City, Maryland (the "Corporation"), hereby certifies to the
Maryland State Department of Assessments and Taxation that:
FIRST: Pursuant to authority expressly vested in the Board of Directors
of the Corporation by Article Seventh of the Charter of the Corporation, the
Board of Directors has duly divided and classified 4,000,000 shares of the
Preferred Stock of the Corporation into a series designated $4.10 Series A
Convertible Exchangeable Preferred Stock and has provided for the issuance
of such series.
SECOND: The terms of the $4.10 Series A Convertible Exchangeable Preferred
Stock are as follows:
(i) Designation and Amount. The designation of said series of the
Preferred Stock shall be "$4.10 Series A Convertible Exchangeable Preferred
Stock" (the "Series A"). The number of shares of Series A shall initially be
4,000,000, subject to increase or decrease by action of the Board of Directors
effectuated by further Articles Supplementary.
(ii) Dividends. Holders of shares of Series A will be entitled to
receive, when, as and if declared by the Board of Directors out of funds
legally available therefor, dividends from the date of issue thereof at the
annual rate of $4.10 per share, payable quarterly, in arrears, on January 31,
April 30, July 31 and October 31, (a "Dividend Payment Date") in each year,
commencing on October 31, 1986. Such dividends shall be cumulative with
respect to each share from the date of original issuance, whether or not
earned or declared. The holders of Series A will not be entitled to any
dividends other than the cash dividends described in this Clause (ii).
Unless full cumulative dividends on all outstanding shares of Series A
or any other class of preferred stock ranking on a parity with the Series A
as to dividends and upon liquidation at the time such dividends are payable
("Parity Stock") have been paid or are contemporaneously declared and paid
(or declared and a sum sufficient for the payment thereof is set apart for
such payment), the Corporation will not (a) declare or pay any dividend on
the Common Stock, $2.50 par value (the "Common Stock"), of the Corporation or
on any other class of stock ranking junior to the Series A as to dividends
and upon liquidation (the Common Stock and any such junior class being
the "Junior Stock") or make any payment on account of, or set apart money
for, a sinking or other analogous fund for, the purchase, redemption or other
retirement of, any Junior Stock or make any distribution in respect thereof,
either directly or indirectly and whether in cash or property or in
obligations or shares of the Corporation (other than in shares of Junior
Stock) or (b) purchase any shares of Series A or Parity Stock (except
for consideration payable in Junior Stock) or redeem fewer than
all of the shares of Series A or Parity Stock then outstanding.
Unless and until all dividends accrued and payable but unpaid on
the Series A and any Parity Stock at the time outstanding have
been paid in full, all dividends declared by the Corporation
upon such Series A or Parity Stock shall be declared pro rata
with respect to all Series A and Parity Stock then outstanding,
so that the amounts of any dividends declared on the Series A
and such Parity Stock shall in all cases bear to each other the
same ratio that, at the time of such declaration, all accrued
and payable but unpaid dividends on the Series A and such other
Parity Stock, respectively, bear to each other.
(iii) Optional Redemptions for Cash. Shares of Series A shall be
redeemable at the option of the Corporation at any time on or after
October 31, 1989 at the following redemption prices per share, if redeemed
during the 12-month period beginning October 31 in each of the following
years:
<TABLE>
<CAPTION>
Redemption Redemption
Year Price Year Price
<S> <C> <C> <C> <C>
1989 $52.87 1993 $51.23
1990 52.46 1994 50.82
1991 52.05 1995 50.41
1992 51.64
</TABLE>
and on or after October 31, 1996 at $50 per share, plus, in each case,
any accrued and unpaid dividends thereon.
The Corporation may not purchase or redeem less than all the Series A
and Parity Stock then outstanding if, as of such time, the Corporation has
failed to pay all accrued and unpaid dividends thereon, whether or not
earned or declared.
The Corporation will mail notice of redemption to each holder of record
of Series A to be redeemed no less than 20 nor more than 60 days prior to
the redemption date. Such notice shall specify the time and place of such
redemption, the number of shares to be redeemed and the Conversion Price as
defined in Clause (vi) below, the date on which the right to convert the
Series A to be redeemed will terminate and the place or places where such
Series A may be surrendered for conversion. Such notice shall be given by
first class mail, postage prepaid, to the holders of record of the shares
of Series A to be redeemed at their respective addresses as the same shall
appear on the books of the Corporation, but neither failure to mail such
notice, nor any defect therein or in the mailing thereof, to any particular
holder shall affect the sufficiency of the notice or the validity of the
proceedings for redemption with respect to the other holders. Any notice
which was mailed in the manner herein provided shall be conclusively
presumed to have been duly given whether or not the holder receives the
notice.
If fewer than all of the shares of Series A are to be redeemed, the shares
to be redeemed shall be selected by lot or pro rata or in some other
equitable manner determined by the Corporation.
If a notice of redemption has been given pursuant to this
Clause (iii) and if, on or before the date fixed for redemption,
the funds necessary for such redemption shall have been set
aside by the Corporation, separate and apart from its other
funds, in trust for the pro rata benefit of the holders of the
shares so called for redemption, then on and after the
redemption date, notwithstanding that any certificates for such
shares have not been surrendered for cancellation, dividends
shall cease to accrue on the shares of Series A to be redeemed,
such shares shall no longer be deemed to be outstanding and all
rights of the holders of such shares as stockholders of the
Corporation shall cease except the right to receive the moneys
payable upon such redemption, without interest, upon surrender
of the certificates evidencing such shares.
(iv) Optional Redemption Through Debenture Exchange.
(A) Shares of Series A shall be redeemable at the option of
the Corporation, in whole but not in part, on any Dividend Payment Date
beginning October 31, 1989, to and including October 31, 2011, through the
issuance of the Corporation's 8.2% Convertible Subordinated Debentures due
October 31, 2011 (hereinafter referred to as the "Debentures") in redemption
of and in exchange for the shares of Series A, in the manner provided in
this Clause (iv).
(B) Holders of Series A will be entitled to receive $50
principal amount of the Debentures for each share of Series A
held by them on the Exchange Date (as hereinafter defined).
(C) The Corporation will mail notice of its intention to
redeem through such an exchange to each holder of record of the
shares of Series A no less than 20 nor more than 60 days prior
to the redemption date. Such notice shall be given by first
class mail, postage prepaid to the holders of record of shares
of Series A at their respective addresses as the same shall
appear on the books of the Corporation, specifying the effective
date of the exchange (the "Exchange Date") and the place where
certificates for shares of Series A are to be surrendered for
Debentures and stating that dividends on shares of Series A will
cease to accrue on the Exchange Date, but neither failure to
mail such notice, nor any defect therein or in the mailing
thereof, to any particular holder shall affect the sufficiency
of the notice or the validity of the proceedings for redemption
and exchange with respect to the other holders. Any notice
which was mailed in the manner herein provided shall be
conclusively presumed to have been duly given whether or not the
holder received the notice.
If notice of redemption and exchange has been given pursuant
to this Clause (iv) then on or after the Exchange Date (unless
the Corporation shall default in issuing Debentures in
redemption of and in exchange for shares of Series A) and
notwithstanding that any certificates for shares of this series
have not been surrendered for exchange, the rights of the
holders of the Series A as stockholders of the Corporation shall
cease (except the right to receive accrued and unpaid dividends
to the date of redemption, whether or not earned or declared),
and the person or persons entitled to receive the Debentures
issuable upon such redemption and exchange shall be treated for
all purposes as the registered holder or holders of such
Debentures. Upon the surrender (and endorsement, if required by
the Corporation) in accordance with such notice of the
certificates for shares of Series A, such certificates shall be
exchanged for Debentures and such accrued dividends in
accordance with this Clause (iv).
(D) Prior to issuance of the Debentures, the Corporation will
use reasonable efforts to list the Debentures for trading on the
New York Stock Exchange or, if they cannot be so listed, the
Corporation will use reasonable efforts to list the Debentures
on another principal national securities exchange or include
them on a national quotations system.
(v) Liquidation.
(A) In case of the voluntary or involuntary liquidation,
dissolution or winding-up of the Corporation, the holders of any
shares of Series A are entitled to receive a liquidation
preference of $50 per share, plus an amount equal to the
dividends accrued and unpaid thereon to the payment date, before
any distribution is made to the holders of Junior Stock.
(B) The holders of shares of Series A and all Parity Stock
shall share ratably, in accordance with the respective amounts
payable thereon, in any such distribution which is not
sufficient to pay in full the aggregate of the amounts payable
thereon. After payment in full of the liquidation price to
which the holders of shares of Series A are entitled, the
holders of shares of Series A will not be entitled to any
further participation in any distribution of assets by the
Corporation.
(C) Neither a consolidation or merger of the Corporation with
or into any other corporation, nor a merger of any other
corporation with or into the Corporation, nor a sale or transfer
of all or substantially all of the Corporation's assets for cash
or securities nor a statutory share exchange in which
stockholders of the Corporation may participate shall be
considered a liquidation, dissolution or winding-up of the
Corporation within the meaning of this Clause (v).
(vi) Conversion.
(A) Subject to the provisions for adjustment hereinafter set
forth, each share of Series A shall be convertible at the option
of the holder thereof, in the manner hereinafter set forth, into
fully paid and nonassessable shares of Common Stock at the
conversion price, determined as hereinafter provided, in effect
on the date of conversion, provided that if any of the Series A
is called for redemption (whether for cash or Debentures), the
conversion rights pertaining thereto will terminate at the close
of business on the redemption date. The price at which shares
of Common Stock shall be delivered upon conversion (hereinafter
referred to as the "Conversion Price") shall be initially $46.00
per share of Common Stock. The Conversion Price shall be
adjusted in certain instances as provided in subclause (B) of
this Clause (vi).
Any holder of shares of Series A desiring to convert the same
into shares of Common Stock shall surrender the certificate or
certificates for the shares of Series A being converted, duly
endorsed or assigned to the Corporation or in blank, at the
principal office of the Corporation or at a bank or trust
company appointed by the Corporation for that purpose,
accompanied by a written notice of conversion specifying the
number (in whole shares) of shares of Series A to be converted
and the name or names in which such holder wishes the
certificate or certificates for shares of Common Stock to be
issued; in case such notice shall specify a name or names other
than that of such holder, such notice shall be accompanied by
payment of all transfer taxes payable upon the issue of shares
of Common Stock in such name or names. In case less than all of
the shares of Series A represented by a certificate are to be
converted by a holder, upon such conversion the Corporation
shall issue and deliver or cause to be issued and delivered, to
the holder a certificate or certificates for the shares of
Series A not so converted. The holders of shares of Series A at
the close of business on a dividend payment record date shall be
entitled to receive the dividend payable on such shares (except
shares called for redemption on a redemption date between such
record date and the Dividend Payment Date) on the corresponding
dividend payment date notwithstanding the conversion thereof or
the Corporation's default on payment of the dividend due on such
Dividend Payment Date. However, shares of Series A surrendered
for conversion during the period from the close of business on
any dividend payment record date for the Series A to the opening
of business on the corresponding Dividend Payment Date (except
shares called for redemption on a redemption date during such
period) must be accompanied by payment of an amount equal to the
dividend payable on such shares on such Dividend Payment Date.
A holder of shares of Series A on a dividend payment record date
who (or whose transferee) converts shares of Series A on a
dividend payment date will receive the dividend payable on such
shares by the Corporation on such date, and the converting
holder need not include payment in the amount of such dividend
upon surrender of shares of Series A for conversion. Except as
provided above, no payment or adjustment will be made on account
of accrued or unpaid dividends upon the conversion of shares of
Series A.
(B) The Conversion Price shall be adjusted from time to time
as follows:
(1) on any class of capital stock of the Corporation in
shares of Common Stock, the Conversion Price in
effect at the opening of business on the day following
the date fixed for the determination of stockholders
entitled to receive such dividend or other
distribution shall be reduced by multiplying such
Conversion Price by a fraction of which the numerator
shall be the number of shares of Common Stock
outstanding at the close of business on the date fixed
for such determination and the denominator shall be
the sum of such number of shares and the total number
of shares constituting such dividend or other
distribution, such reduction to become effective
immediately after the opening of business on the day
following the date fixed for such determination.
(2) In case the Corporation shall issue rights or warrants
to all holders of its shares of Common Stock entitling
them to subscribe for or purchase Common Stock at a
price per share less than the current market price per
share (determined as provided in subclause (C)) of the
Common Stock on the date fixed for the determination
of stockholders entitled to receive such rights or
warrants, the Conversion Price in effect at the
opening of business on the day following the date
fixed for such determination shall be reduced by
multiplying such Conversion Price by a fraction of
which the numerator shall be the number of shares
of Common Stock outstanding at the close of business
on the date fixed for such determination plus the
number of shares of Common Stock which the aggregate
of the offering price of the total number of shares
of Common Stock so offered for subscription or
purchase would purchase at such current market
price and the denominator shall be the number of
shares of Common Stock outstanding at the close of
business on the date fixed for such determination
plus the number of shares of Common Stock so offered
for subscription or purchase, such reduction to
become effective immediately after the opening of
business on the day following the date fixed for
such determination.
(3) In case the outstanding shares of Common Stock shall
be subdivided into a greater number of shares, the
Conversion Price in effect at the opening of business
on the day following the day upon which such
subdivision becomes effective shall be
proportionately reduced, and, conversely, in case
outstanding shares of Common Stock shall each be
combined into a smaller number of shares, the
Conversion Price in effect at the opening of business
on the day following the day upon which such
combination becomes effective shall be
proportionately increased, such reduction or increase,
as the case may be, to become effective immediately
after the opening of business on the day following
the day upon which such subdivision or combination
becomes effective.
(4) In case the Corporation shall, by dividend or
otherwise, distribute to all holders of shares of
Common Stock evidences of indebtedness or assets
(including securities, but excluding any rights or
warrants referred to in subclause (B)(2), any
dividend or distribution paid in cash out of the
earned surplus of the Corporation and any dividend
or distribution referred to in subclause (B)(1)),
the Conversion Price shall be adjusted so that the
same shall equal the price determined by multiplying
the Conversion Price in effect immediately prior to
the close of business on the date fixed for the
determination of stockholders entitled to receive
such distribution by a fraction of which the
numerator shall be the current market price per
share (determined as provided in subclause (C))
of the Common Stock on the date fixed for such
determination less the then fair market value
(as determined by the Board of Directors, whose
determination shall be conclusive) of the portion
of the assets or evidences of indebtedness so
distributed allocable to one share of Common Stock
and the denominator shall be such current market
price per share of the Common Stock, such adjustment
to become effective immediately prior to the opening
of business on the day following the date fixed
for the determination of stockholders entitled to
receive such distribution.
(5) The reclassification of Common Stock into securities
other than Common Stock (other than any
reclassification upon a consolidation or merger to
which subclause (F) applies) shall be deemed to
involve (a) a distribution of such securities other
than Common Stock to all holders of Common Stock
(and the effective date of such reclassification
shall be deemed to be "the date fixed for the
determination of stockholders entitled to receive
such distribution" and the "date fixed for such
determination" within the meaning of subclause
(B)(4), and (b) a subdivision or combination, as
the case may be, of the number of shares of Common
Stock outstanding immediately prior to such
reclassification into the number of shares of Common
Stock outstanding immediately thereafter (and the
effective date of such reclassification shall be
deemed to be "the day upon which such subdivision
becomes effective", or "the day upon which such
combination becomes effective", as the case may be,
and "the day upon which such subdivision or
combination becomes effective" within the meaning
of subclause (B)(3) of this Section).
(C) For the purpose of any computation under subclauses
(B)(2) and (B)(4), the current market price per share of Common Stock
on any day shall be deemed to be the average of the daily
Closing Prices for the 15 consecutive Business Days selected by
the Board of Directors commencing not less than 20 nor more than
30 Business Days before the day in question. The term "Closing
Price" on any day shall mean the reported last sale price or, in
case no such reported sale takes place on such day, the average
of the reported closing bid and asked prices regular way, in
either case on the New York Stock Exchange, or, if the Common
Stock is not listed or admitted to trading on such Exchange, on
the principal national securities exchange on which the Common
Stock is listed or admitted to trading or, if not listed or
admitted to trading on any national securities exchange, on the
National Association of Securities Dealers Automated Quotations
National Market System or, if the Common Stock is not listed or
admitted to trading on any national securities exchange or
quoted on such National Market System, the average of the
closing bid and asked prices in the over-the-counter market as
furnished by any New York Stock Exchange member firm selected
from time to time by the Board of Directors for that purpose;
and the term "Businesss Day" shall mean each Monday, Tuesday,
Wednesday, Thursday, and Friday which is not a day on which
banking institutions in The City of New York are authorized or
obligated by law or executive order to close.
(D) Notwithstanding the provisions of subclause (B) above, no
adjustment in the Conversion Price shall be required unless such
adjustment (plus any adjustments not previously made by reason
of this subclause (D)) would require an increase or decrease of
at least 1% in such price; provided, however, that any
adjustments which by reason of this subclause (D) are not
required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under
this Clause (vi) shall be made to the nearest cent.
(E) The Corporation may make such reductions in the Conversion
Price, in addition to those required by this Clause (vi), as it
considers to be advisable in order to avoid or diminish any
income tax to any holder of shares of Common Stock resulting
from any dividend or distribution of stock or issuance of rights
or warrants to purchase or subscribe for stock or from any event
treated as such for income tax purposes or for any other
reasons. The Corporation shall have the power to resolve any
ambiguity or correct any error in this Clause (vi) and its
actions in so doing shall be final and conclusive.
(F) In case the Corporation shall effect any capital
reorganization of the Common Stock (other than a subdivision,
combination, capital reorganization or reclassification provided
for in subclause (B)) or shall consolidate, merge or engage in a
statutory share exchange with or into any other corporation
(other than a consolidation, merger or share exchange in which
the Corporation is the surviving corporation and each share of
Common Stock outstanding immediately prior to such consolidation
or merger is to remain outstanding immediately after such
consolidation or merger) or shall sell or transfer all or
substantially all its assets to any other corporation, lawful
provision shall be made as a part of the terms of such
transaction whereby the holders of shares of Series A shall
receive upon conversion thereof, in lieu of each share of Common
Stock which would have been issuable upon conversion of such
shares if converted immediately prior to the consummation of
such transaction, the same kind and amount of stock (or other
securities, cash or property, if any) as may be issuable or
distributable in connection with such transaction with respect
to each share of Common Stock outstanding at the effective time
of such transaction, subject to subsequent adjustments for
subsequent stock dividends and distributions, subdivisions or
combinations of shares, capital reorganizations,
reclassifications, consolidations mergers or share exchanges as
nearly equivalent as possible to the adjustments provided for in
this Clause (vi).
(G) Whenever the Conversion Price is adjusted as herein provided:
(1) the Corporation shall compute the adjusted
Conversion Price and shall cause to be prepared a
certificate signed by the chief financial or
accounting officer of the Corporation setting
forth the adjusted Conversion Price and showing in
reasonable detail the facts upon which such
adjustment is based and the computation thereof
and such certificate shall forthwith be filed with
each transfer agent for the shares of Series A; and
(2) a notice stating that the Conversion Price has been
adjusted and setting forth the adjusted Conversion
Price shall, as soon as practicable, be mailed to the
holders of record of outstanding shares of Series A.
(H) In case:
(1) the Corporation shall declare a dividend or other
distribution on its shares of Common Stock otherwise
than in cash out of its earned surplus;
(2) the Corporation shall authorize the granting to the
holders of its shares of Common Stock of rights or
warrants entitling them to subscribe for or purchase
any shares of capital stock of any class or of any
other rights;
(3) of any reclassification of the shares of Common Stock
(other than a subdivision or combination of its
outstanding shares of Common Stock), or of any
consolidation, merger or share exchange to which
the Corporation is a party and for which approval
of any stockholders of the Corporation is required,
or of the sale or transfer of all or substantially
all the assets of the Corporation; or
(4) of the voluntary or involuntary liquidation,
dissolution or winding-up of the Corporation;
then the Corporation shall cause to be mailed to each transfer
agent for the shares of Series A and to the holders of record of
the outstanding shares of Series A, at least 20 days (or 10 days
in any case specified in subclauses (1) or (2) above) prior to
the applicable record or effective date hereinafter specified, a
notice stating (x) the date as of which the holders of record of
shares of Common Stock to be entitled to such dividend,
distribution, rights or warrants are to be determined, or (y)
the date on which such reclassification, consolidation, merger,
share exchange, sale, transfer, liquidation, dissolution or
winding-up is expected to become effective and the date as of
which it is expected that holders of record of shares of Common
Stock shall be entitled to exchange their shares for securities
or other property, if any, deliverable upon such
reclassification, consolidation, merger, share exchange, sale,
transfer, liquidation, dissolution or winding-up. Such notice
shall also state whether such transaction will result in any
adjustment in the Conversion Price applicable to the shares of
Series A and, if so, shall state what the adjusted Conversion
Price will be and when it will become effective. Neither the
failure to give the notice required by this subclause (H), nor
any defect therein, to any particular holder shall affect the
sufficiency of the notice or the legality or validity of the
proceedings described in subclauses (H)(1) through (H)(4).
(I) The Corporation shall at all times reserve and keep
available out of its authorized but unissued shares of Common
Stock, for the purpose of issuance upon conversion of shares of
Series A, the full number of shares of Common Stock then
issuable upon the conversion of all shares of Series A then
outstanding and shall take all action necessary so that shares
of Common Stock so issued will be validly issued, fully paid and
nonassessable.
(J) The Corporation will pay any and all stamp or similar
taxes that may be payable in respect of the issuance or delivery
of shares of Common Stock on conversion of shares of Series A.
The Corporation shall not, however, be required to pay any tax
which may be payable in respect of any transfer involved in the
issuance and delivery of shares of Common Stock in a name other
than that in which the shares of Series A so converted were
registered, and no such issuance or delivery shall be made
unless and until the person requesting such issuance has paid to
the Corporation the amount of any such tax or has established to
the satisfaction of the Corporation that such tax has been paid.
(K) No fractional shares or scrip representing fractional
shares shall be issued upon the conversion of shares of Series
A. If any such conversion would otherwise require the issuance
of a fractional share an amount equal to such fraction
multiplied by the Closing Price per share of Common Stock
(determined as provided in subclause (C) above) on the day of
conversion shall be paid to the holder in cash by the
Corporation.
(L) The certificate of any independent firm of public
accountants of recognized standing selected by the Board of
Directors shall be presumptive evidence of the correctness of
any computation made under this Clause (vi).
(vii) Voting Rights. Except as otherwise required by law,
holders of shares of Series A shall have no voting rights;
provided, however, that:
(A) Dividend Defaults.
(1) If on the date used to determine stockholders of
record for any meeting of stockholders for the
election of directors, accrued dividends on the
shares of Series A or any Parity Stock shall not
have been paid in an aggregate amount equal to or
qreater than six quarterly dividends on the shares
of Series A or such Parity Stock at the time
outstanding, then, and in any such event, the
number of Directors then constituting the entire
Board of Directors of the Corporation shall
automatically be increased by two Directors and the
holders of shares of Series A and the holders of
shares of Parity Stock, voting together as a
single class, shall be entitled at such meeting to
fill such newly created directorships. Such right
to vote as a single class to elect two Directors
shall, when vested, continue until all dividends
in default on the shares of Series A and such
Parity Stock, as the case may be, shall have been
paid in full and, when so paid, such right to elect
two Directors separately as a class shall cease,
subject, always, to the same provisions for the
vesting of such right to elect two Directors
separately as a class in the case of future
dividend defaults.
(2) So long as any shares of Series A are outstanding
the number of Directors of the Corporation shall at
all times be such that the exercise, by the holders
of shares of Series A and the holders of shares of
Parity Stock, of the right to elect Directors under
the circumstances provided in paragraph (1) of
this subclause (A) will not contravene any
provisions of the Maryland General Corporation Law
or the Charter of the Corporation.
(3) Directors elected pursuant to paragraph (1) of
this subclause (A) shall serve until the earlier
of (x) the next annual meeting of the stockholders
of the Corporation and the election (by the holders
of shares of Series A and Parity Stock) and
qualification of their respective successors or
(y) the date upon which all dividends in default
on the shares of Series A and such Parity Stock
shall have been paid in full. Directors
elected pursuant to paragraph (1) of this
Subclause (A) may be removed by, and shall not
be removed except by, the vote of the holders
of record of the outstanding shares of Series A
and Parity Stock, voting together as a single
class without regard to series, at a meeting of
the stockholders, or the holders of shares of
Series A and Parity Stock, called for that purpose.
If, prior to the end of the term of any Director
elected as aforesaid, a vacancy in the office of
such Director shall occur during the continuance
of a default in dividends on the shares of Series
A or such Parity Stock by reason other than removal,
such vacancy shall be filled for the unexpired term
by the appointment by the remaining Director
elected as aforesaid of a new Director for the
unexpired term of such former Director.
(B) Miscellaneous.
(1) Without the affirmative vote of the holders of at
least two-thirds of the outstanding shares of
Series A and Parity Stock, voting as a single
class, the Corporation may not:
(x) amend any provision of the Charter which
would materially adversely affect the voting
powers (except as such voting powers may be
affected by the authorization of any new
series of Parity Stock having the same voting
rights as Series A or by the authorization of
any other shares of any class which are not
entitled to vote together with Series A in
any class vote) or other rights or preferences
of holders of the shares of Series A; or
(y) authorize or create any class of stock senior
to the Series A as to dividends and upon
liquidation.
(2) Without the affirmative vote of the holders of at
least a majority of the outstanding shares of
Series A and Parity Stock, voting together as a
single class, the Corporation may not increase
the number of shares of Preferred Stock authorized
in Article SEVENTH of the Charter or create any
other class of capital stock of the Corporation
ranking on a parity with the Preferred Stock as
to dividends and upon liquidation.
IN WITNESS WHEREOF, USF&G Corporation has caused these presents
to be signed in its name and on its behalf by its President and
witnessed by its Secretary on , 1986.
WITNESS: USF&G CORPORATION
William F. Spliedt Jack Moseley
Secretary President, Chief Executive Officer
and Chairman of the Board
[CORPORATE SEAL]
THE UNDERSIGNED, Chairman of the Board and President of USF&G
Corporation, who executed on behalf of the Corporation Articles
Supplementary of which this Certificate is made a part, hereby
acknowledges in the name and on behalf of said Corporation the
foregoing Articles Supplementary to be the corporate act of said
Corporation and hereby certifies that the matters and facts set
forth herein with respect to the authorization and approval
thereof are true in all material respects under the penalties of
perjury.
_________________________________
Jack Moseley
President, Chief Executive Officer and
Chairman of the Board
<PAGE>
USF&G CORPORATION
ARTICLES OF AMENDMENT
USF&G CORPORATION, a Maryland corporation, having its principal
office in Baltimore City, Maryland (which is hereinafter called
the "Corporation"), hereby certifies to the State Department of
Assessments and Taxation of Maryland that:
FIRST: The Charter of the Corporation is hereby amended as
follows:
Article NINTH of the Charter is amended by adding the following
paragraph (7) to said Article NINTH, as follows:
"(7) To the fullest extent permitted by Maryland statutory or
decisional law, as amended or interpreted, no director or
officer of this Corporation shall be personally liable to the
Corporation or its stockholders for money damages. No amendment
of the Charter of the Corporation or repeal of any of its
provisions shall limit or eliminate the benefits provided to
directors and officers under this provision with respect to any
act or omission which occurred prior to such amendment or
repeal."
SECOND: The amendment does not increase the authorized stock of
the Corporation.
THIRD: The foregoing amendment to the Charter of the
Corporation has been advised by the Board of Directors and
approved by the stockholders of the Corporation.
IN WITNESS WHEREOF, USF&G CORPORATION has caused these presents
to be signed in its name and on its behalf by its Chairman of
the Board and President and witnessed by its Secretary on May 4,
1988.
WITNESS: USF&G CORPORATION
By:
William F. Spliedt, Secretary Jack Moseley, Chairman of the
Board and President
<PAGE>
Articles Supplementary
Series B Cumulative Convertible Preferred Stock
and 11% Preferred Stock of USF&G Corporation
USF&G Corporation, a Maryland Corporation, having its
principal office in Baltimore City, Maryland (the
"Corporation"), hereby certifies to the Maryland State
Department of Assessments and Taxation that:
FIRST: Pursuant to authority expressly vested in the
Board of Directors of the Corporation by Article SEVENTH of the
Charter of the Corporation, the Board of Directors has duly
divided and classified (i) 1,300,000 shares of the Preferred
Stock of the Corporation into a Series designated Series B
Cumulative Convertible Preferred Stock and has provided for the
issuance of such Series and (ii) 1,000 shares of the Preferred
Stock of the Corporation into a Series designated 11% Preferred
Stock and has provided for the issuance of such Series.
SECOND: The terms of the Series B Cumulative Convertible
Preferred Stock are as follows:
(i) Designation and Amount. The designation of the Series of
the Preferred Stock described in clause (i) of Article FIRST
hereof shall be "Series B Cumulative Convertible Preferred
Stock" (the "Series B Preferred Stock"), which shall be further
designated into three subseries, being the "Series B Cumulative
Convertible Preferred Stock 1995" (the "Series B Preferred Stock
1995"), the "Series B Cumulative Convertible Preferred Stock
1996" (the "Series B Preferred Stock 1996") and the "Series B
Cumulative Convertible Preferred Stock 1997" (the "Series B
Preferred Stock 1997"). The number of shares of Series B
Preferred Stock shall be 1,300,000, of which 650,000 shall be
Series B Preferred Stock 1995, 325,000 shall be Series B
Preferred Stock 1996 and 325,000 shall be Series B Preferred
Stock 1997.
(ii) Dividends. (a) Rate, etc. Except as such rate of
dividends may be otherwise increased pursuant to the final
sentence of this clause (ii), the holders of shares of Series B
Preferred Stock shall be entitled to receive, when, as and if
declared by the Board of Directors out of funds legally
available therefor, annual dividends from the date of issue
thereof at the rate of $10.25 per share, calculated on the basis
of a 360-day year of 12 30-day months, accruing on a daily
basis, payable quarterly, in arrears, on January 31, April 30,
July 31 and October 31 (a "Dividend Payment Date"), in each
year, commencing on July 31, 1991. Such dividends shall be
cumulative with respect to each share from the date of original
issuance, whether or not earned or declared. The rate per annum
shall be increased from $10.25 per share, as set forth in the
first sentence of this clause (ii), to $10.75 per share for the
dividend period commencing August 1, 1991; provided, however,
that this sentence shall be and become of no force and effect if
the Corporation shall have received gross proceeds (exclusive of
costs of issuance and underwriters' discounts and commissions)
("Gross Proceeds") of at least $170,000,000 pursuant to the
issuance and sale of capital stock of the Corporation after the
date of issuance of the Series B Preferred Stock and prior to
September 30, 1991.
(b) Rank, etc. The Series B Preferred Stock shall rank
on a parity with the Corporation's $4.10 Series A Convertible
Exchangeable Preferred Stock, 11% Preferred Stock (as defined in
Article Third (i)) and Series C Cumulative Convertible Preferred
Stock, $50.00 par value (the "Series C Preferred Stock"), if and
when such Series C Preferred Stock, or any other series of
Preferred Stock by its terms ranking on a parity with the Series
B Preferred Stock as to dividends and upon liquidation, is duly
divided and classified and so designated by the Board of
Directors, as to dividends and upon liquidation. Unless full
cumulative dividends on all outstanding shares of Series B
Preferred Stock or any other class of Preferred Stock ranking on
a parity with the Series B Preferred Stock as to dividends and
upon liquidation at the time such dividends are payable ("Parity
Stock") have been paid or are contemporaneously declared and
paid (or declared and a sum sufficient for the payment thereof
is set apart for such payment), the Corporation will not (1)
declare or pay any dividend on the Common Stock, $2.50 par value
(the "Common Stock"), of the Corporation or on any other class
of stock ranking junior to the Series B Preferred Stock as to
dividends and upon liquidation (the Common Stock and any such
junior class being the "Junior Stock") or make any payment on
account of, or set apart money for, a sinking or other analogous
fund for the purchase, redemption or other retirement of, any
Junior Stock or make any distribution in respect thereof, either
directly or indirectly and whether in cash or property or in
obligations or shares of the Corporation (other than in shares
of Junior Stock) or (2) purchase any shares of Series B
Preferred Stock or Parity Stock (except for consideration
payable in Junior Stock) or redeem fewer than all of the shares
of Series B Preferred Stock or Parity Stock then outstanding.
Unless and until all dividends accrued and payable but unpaid on
the Series B Preferred Stock and any Parity Stock at the time
outstanding have been paid in full, all dividends declared by
the Corporation upon such Series B Preferred Stock or Parity
Stock shall be declared with respect to all Series B Preferred
Stock and Parity Stock then outstanding, so that the amounts of
any dividends declared on the Series B Preferred Stock and such
Parity Stock shall in all cases bear to each other the same
ratio that, at the time of such declaration, all accrued and
payable but unpaid dividends on the Series B Preferred Stock and
such other Parity Stock, respectively, bear to each other.
(iii) Liquidation. (a) Preference on Liquidation. In the
event of any liquidation, dissolution or winding up of the
affairs of the Corporation (any or all of such events,
a"liquidation"), whether voluntary or involuntary, the holders
of shares of Series B Preferred Stock then outstanding shall be
entitled, pari passu as if members of a single class of
securities with the holders of other Parity Stock, to be paid
out of the assets of the Corporation, before any payment shall
be made to the holders of the Junior Stock or the holders of any
other capital stock of the Corporation, an amount equal to $100
per share of such Series B Preferred Stock (the "Liquidation
Value") plus an amount equal to the dividends accrued and unpaid
thereon to the payment date. Alternatively, a holder of shares
of Common Stock may convert any or all of such holder's shares
of Series B Preferred Stock into shares of Common Stock in
accordance with clause (vi) of this Article SECOND.
(b) Insufficient Assets. If, upon any liquidation of
the Corporation, the assets of the Corporation are insufficient
to pay the holders of shares of the Parity Stock then
outstanding the full amounts to which they shall be entitled,
such assets shall be distributed to the holders of the Parity
Stock pro rata in proportion to the amounts to which they shall
be entitled.
(c) Rights of Other Holders. In the event of any
liquidation, after payment shall have been made to the holders
of the Series B Preferred Stock and other Parity Stock of all
preferential amounts to which they shall be entitled, the
holders of shares of Junior Stock and other capital stock of the
Corporation shall receive such amounts as to which they are
entitled by the terms thereof.
(d) Consolidation, Merger or Sale of Assets. Neither a
consolidation or merger of the Corporation with or into any
other Corporation, nor a sale or transfer of all or
substantially all of the Corporation's assets for cash or
securities nor a statutory share exchange in which stockholders
of the Corporation may participate shall be considered a
liquidation, dissolution or winding-up of the Corporation within
the meaning of this clause (iii).
(iv) Redemption. (a) Special Redemption at Holders' Option
Upon Change in Control Event. Subject to and limited by the
provisions of this paragraph, the Series B Preferred Stock shall
be subject to redemption at the option of the holder exercisable
for a period ending 30 days subsequent to receipt by such holder
of notice from the Corporation to the effect that a Change in
Control Event (as hereinafter defined) has occurred, upon
written notice to the Corporation by such holder specifying the
number of shares and the subseries of Series B Preferred Stock
held by such holder to be redeemed. The Corporation shall give
notice of any Change in Control Event to the holders of Series B
Preferred Stock within five days of the occurrence of such
Change in Control Event. The Corporation shall redeem the
Series B Preferred Stock pursuant to the notice delivered by the
requesting holder at a redemption price per share equal to the
Liquidation Value plus the Redemption Premium (as hereinafter
defined) plus dividends accrued thereon to the date of
redemption (the "Special Redemption Price"). Anything in this
clause (iv)(a) to the contrary notwithstanding, the Corporation
shall be required to redeem such Series B Preferred Stock to,
and only to, the extent to which, after receiving notice from
the holder, the Corporation shall have, (1) using its best
efforts, offered for sale in one or more issuances,
non-redeemable (other than at the option of the Corporation)
capital stock of the Corporation and (2) received net proceeds
from the sale thereof equal to or greater than the Special
Redemption Price with respect to such Series B Preferred Stock
to be redeemed; provided, however, that to the extent such net
proceeds are less than the aggregate amount required to redeem
all such Series B Preferred Stock requested to be redeemed at
the Special Redemption Price, the Corporation shall, to the
extent of such net proceeds, redeem such Series B Preferred
Stock pro rata from the holders requesting such redemption.
For the purposes of this clause (iv) the following
definitions shall apply:
(A) "Change in Control Event" shall mean (i) the
acquisition in one or more related transactions by any Person of
beneficial ownership, direct or indirect, of securities of the
Corporation representing 50% or more of the combined voting
power of the Corporation's then outstanding voting securities,
(ii) the sale, transfer or other disposition in one or more
related transactions of all or substantially all of the assets
of the Corporation or (iii) the merger or consolidation of the
Corporation with or into another Person, other than a
wholly-owned subsidiary, unless such merger or consolidation
does not result in a reclassification, conversion, exchange or
cancellation of any outstanding shares of Common Stock of the
Corporation.
(B) "Redemption Premium" shall mean:
Period
June 1, 1991 to May 31, 1992 $10.250
June 1, 1992 to May 31, 1993 9.225
June 1, 1993 to May 31, 1994 8.200
June 1, 1994 to May 31, 1995 7.175
June 1, 1995 to May 31, 1996 6.150
June 1, 1996 to May 31, 1997 5.125
June 1, 1997 to May 31, 1998 4.100
June 1, 1998 to May 31, 1999 3.075
June 1, 1999 to May 31, 2000 2.050
June 1, 2000 to May 31, 2001 1.025
June 1, 2001 and thereafter 0
provided, however, that if the dividend rate on the Series B
Preferred Stock has been increased pursuant to the last sentence
of Article Second (ii), "Redemption Premium" shall mean:
Period
June 1, 1991 to May 31, 1992 $10.750
June 1, 1992 to May 31, 1993 9.675
June 1, 1993 to May 31, 1994 8.600
June 1, 1994 to May 31, 1995 7.525
June 1, 1995 to May 31, 1996 6.450
June 1, 1996 to May 31, 1997 5.375
June 1, 1997 to May 31, 1998 4.300
June 1, 1998 to May 31, 1999 3.225
June 1, 1999 to May 31, 2000 2.150
June 1, 2000 to May 31, 2001 1.075
June 1, 2001 and thereafter 0
(b) Optional Redemption Upon Satisfaction of Certain
Conditions. The Series B Preferred Stock shall be subject to
redemption, at the option of the Corporation, in whole or from
time to time in part, in each case as set forth in the second
proviso below, (i) at any time on or after June 1, 1994 and
prior to June 1, 1997, at a per share redemption price equal to
the Liquidation Value plus any dividends accrued thereon to the
date of redemption, and (ii) at any time on or after June 1,
1997, at a per share redemption price equal to the Special
Redemption Price; provided, however, that in the event of a
redemption described in clause (i), on the date notice of
redemption is given and for each of the twenty consecutive
trading days prior to such date, the closing price for a share
of Common Stock on the principal national securities exchange
for such Common Stock shall be equal to or greater than an
amount equal to 150% of the Conversion Price (as defined in
clause (vi) hereof) then in effect; provided, further, however,
that the Corporation may redeem (i) only Series B Preferred
Stock 1995 prior to June 1, 1995 and (ii) only Series B
Preferred Stock 1995 or Series B Preferred Stock 1996 on or
after June 1, 1995 and prior to June 1, 1996.
(c) Notice of Redemption. The Corporation shall give
each holder of Series B Preferred Stock written notice of each
redemption pursuant to clause (iv) (b) hereof not less than 30
days nor more than 45 days prior to any redemption date,
specifying such redemption date and the number of shares to be
redeemed on such date. Notice of redemption having been given
as aforesaid, the number of shares to be redeemed as specified
in such notice shall be so redeemed on the redemption date
specified, except to the extent that any share of Series B
Preferred Stock which is to be so redeemed shall have been
surrendered to the Corporation for conversion prior to such
redemption date in accordance with clause (vi) hereof.
(d) Effect of Redemption. On or after the date
established for redemption, all rights in respect of the shares
of Series B Preferred Stock to be redeemed, except the right to
receive the applicable redemption price, including premium, if
any, plus accrued dividends, if any, to the date of redemption,
shall (unless default shall be made by the Corporation in the
payment of the applicable redemption price, including premium,
if any, plus accrued dividends, if any, in which event such
rights shall be exercisable until such default is cured) cease
and terminate, and such shares shall no longer be deemed to be
outstanding, notwithstanding that any certificates representing
such shares shall not have been surrendered to the Corporation.
(e) Conversion Prior to Redemption. Anything to the
contrary in this clause (iv) of this Article SECOND
notwithstanding, the holders of Series B Preferred Stock shall
have the right, exercisable at any time prior to the date set
for redemption thereof, to convert all or any part of such
Series B Preferred Stock into shares of Common Stock pursuant to
clause (vi) hereof.
(v) Voting Rights. Excepting the rights specified below in
this clause (v), the holders of the Series B Preferred Stock
shall not be entitled to any voting rights. For purposes of
this clause (v) and in any case where the holders of the Series
B Preferred Stock are entitled to vote upon any matter together
with holders of Parity Stock as a single class, holders of
Series B Preferred Stock shall have a number of votes per share
determined by dividing the Liquidation Value of such share by
$50.00.
(a) Voting Rights Related to Unpaid Dividends.
(1) If on the date used to determine stockholders of record for
any meeting of stockholders for the election of directors, accrued
dividends on the shares of Series B Preferred Stock or any
Parity Stock shall not have been paid in an aggregate amount
equal to or greater than two quarterly dividends on the shares
of Series B Preferred Stock or such Parity Stock at the time
outstanding, then, and in any such event, the number of
Directors then constituting the entire Board of Directors of the
Corporation shall automatically be increased by two Directors
and the holders of shares of Series B Preferred Stock and the
holders of shares of Parity Stock, voting together as a single
class, shall be entitled at such meeting to fill such newly
created directorships. Such right to vote as a single class to
elect two Directors shall, when vested, continue until all
dividends in default on the shares of Series B Preferred Stock
and such Parity Stock, as the case may be, shall have been paid
in full and, when so paid, such right to elect two Directors
separately as a class shall cease, subject, always, to the same
provisions for the vesting of such right to elect two Directors
separately as a class in the case of future dividend defaults.
(2) So long as any shares of Series B Preferred Stock are
outstanding the number of Directors of the Corporation shall at
all times be such that the exercise, by the holders of shares of
Series B Preferred Stock and the holders of shares of Parity
Stock, of the right to elect Directors under the circumstances
provided in paragraph (1) of this subclause (a) will not
contravene any provisions of the Maryland General Corporation
Law or the Charter of the Corporation.
(3) Directors elected pursuant to paragraph (1) of this
subclause (a) shall serve until the earlier of (A) the next
annual meeting of the stockholders of the Corporation and the
election (by the holders of shares of Series B Preferred Stock
and Parity Stock) and qualification of their respective
successors or (B) the date upon which all dividends in default
on the shares of Series B Preferred Stock and such Parity Stock
shall have been paid in full. Directors elected pursuant to
paragraph (1) of this subclause (a) may be removed by, and shall
not be removed except by, the vote of the holders of record of
the outstanding shares of Series B Preferred Stock and Parity
Stock, voting together as a single class without regard to
Series, at a meeting of the stockholders, or the holders of
shares of Series B Preferred Stock and Parity Stock, called for
that purpose. If, prior to the end of the term of any Director
elected as aforesaid, a vacancy in the office of such Director
shall occur during the continuance of a default in dividends on
the shares of Series B Preferred Stock or such Parity Stock by
reason other than removal, such vacancy shall be filled for the
unexpired term by the appointment by the remaining Director
elected as aforesaid of a new Director for the unexpired term of
such former Director.
(b) Additional Capital Stock, etc. The Corporation
shall not, without the affirmative consent or approval of the
holders of shares representing at least 66-2/3% of the Series B
Preferred Stock then outstanding, voting as a single class (such
consent or approval to be given by written consent in lieu of a
meeting or by vote at a meeting called for such purpose for
which notice shall have been given to the holders of the Series
B Preferred Stock): (i) authorize the issuance of any new, or
increase the authorized number of shares of any existing, class
of capital stock of the Corporation which would be senior or
superior as to dividends and upon liquidation to the Series B
Preferred Stock, (ii) increase the number of shares of Preferred
Stock authorized in the Charter or create any other class of
stock (or any other Series of Preferred Stock) ranking on a
parity with the Series B Preferred Stock, 11% Preferred Stock,
Series C Preferred Stock and any other Parity Stock (which other
Parity Stock, together with the Series C Preferred Stock, shall
not exceed $170,000,000 in Liquidation Value plus an additional
$25,500,000 in Liquidation Value of such stock which may be
issued pursuant to an underwriter's over-allotment option)
issued or issuable as part of the Total Equity Financing (as
defined below) as to dividends and upon liquidation, (iii)
reissue any shares of Series B Preferred Stock that have been
redeemed or (iv) take any action to cause any amendment,
alteration or repeal of any of the provisions of the Charter
that would materially adversely affect the rights of holders of
Series B Preferred Stock.
(vi) Conversion Rights. (a) Optional Conversion of Series B
Preferred Stock. The holder of a share of Series B Preferred
Stock shall have the right, at such holder's option, at any time
or from time to time to convert such share of Series B
Preferred Stock into such number of fully paid and
nonassessable shares of Common Stock (the "Conversion Shares")
as is obtained by dividing the Liquidation Value by $12.025,
being a price equal to the sum of (i) the average of the closing
price for Common Stock on the New York Stock Exchange for each
of the 20 consecutive trading days immediately preceding the
date of issue of the Series B Preferred Stock (the "Average
Price") plus (ii) 15% of the Average Price (the "Initial
Conversion Price").
(b) If at any time after the date hereof and prior to
June 1, 1992 the Corporation (i) shall have issued or sold any
convertible security or instrument convertible into Common Stock
at less than the Initial Conversion Price or (ii) shall have
issued or sold any Common Stock at a price per share less than
the Average Price or (iii) shall have issued or sold warrants,
options or rights to purchase Common Stock at a price such that
the sum of such price and the price at which such instrument
maybe exercised is less than the Initial Conversion Price, then
the Initial Conversion Price shall be adjusted to (xx) the price
at which such convertible security or instrument may be
exercised or (yy) the sale price of such Common Stock plus 15%
of such sale price or (zz) the sum of the price of such
instrument and its exercise price, respectively; provided,
however, that there shall not be taken into account for the
purposes of such adjustment (A) stock, options or rights issued
to the officers or key employees of the Corporation and of its
subsidiaries or the issuance of any securities pursuant to
employee stock purchase plans or (B) any sale or issuance of
such securities, instruments, capital stock or warrants that
yields Gross Proceeds (including further proceeds, if any, upon
the exercise thereof) of less than $15,000,000 in the aggregate;
provided, further, however that in any case the Initial
Conversion Price shall not be less than $10.00. If the Initial
Conversion Price should be adjusted pursuant to clause (xx),
(yy) or (zz) above prior to December 31, 1991 and such
adjustment would result in the Series B Preferred Stock being
convertible into more shares of Common Stock than the
Corporation has authorized and reserved for such purpose, then
no such adjustment shall be made at such time; provided,
however, that the Corporation shall use its best efforts to
increase the number of authorized and reserved shares of Common
Stock to a number sufficient to effect such adjustment as
promptly as practicable; provided, further, however, that any
adjustment not made as a result of this sentence shall be made
immediately upon the increase of authorized shares of Common
Stock. The provisions of this paragraph (b) shall be of no
further force and effect and the adjustments to the Initial
Conversion Price required by this paragraph shall not be made
for any event that occurs from and after the date, if any, that
the Total Equity Financing (as hereinafter defined) exceeds
$250,000,000.
For the purposes of this clause (vi) of this Article Second,
"Total Equity Financing" shall at any date mean Gross Proceeds
(calculated using the Liquidation Value with respect to the
Series B Preferred Stock) from the sale, on and after the date
of issuance of the Series B Preferred Stock, of capital stock of
the Corporation (including Series B Preferred Stock and Series C
Preferred Stock, but excluding the issuance of any 11% Preferred
Stock) or any other securities convertible into or exchangeable
for capital stock of the Corporation.
(c) If the Initial Conversion Price would have been
reduced to less than $10.00 pursuant to any provision of clause
(vi) (b) above but for the provisos therein prohibiting any
Initial Conversion Price below $10.00 (the Initial Conversion
Price as so adjusted without regard to any prohibition on a
price below $10.00, being referred to as the "Fully Adjusted
Conversion Price"), the Corporation shall, without additional
consideration therefor, issue a number of shares of its 11%
Preferred Stock to each holder of Series B Preferred Stock
calculated pursuant to the following formula: Fully Adjusted
Conversion Price multiplied by Incremental Shares multiplied by
0.5, divided by $10,000. For the purposes of this paragraph (c)
"Incremental Shares" shall mean (A) that number of shares of
Common Stock that each holder of Series B Preferred Stock would
have received upon conversion of such Series B Preferred Stock
if the Initial Conversion Price had been the Fully Adjusted
Conversion Price, less (B) that number of shares of Common Stock
each holder will receive upon conversion assuming an Initial
Conversion Price of $10.00.
Initial Conversion Price and Fully Adjusted Conversion Price,
individually or collectively, as applicable, are hereinafter
referred to as the "Conversion Price." The Conversion Shares and
the Conversion Price are subject to certain adjustments as set
forth herein, and the terms Conversion Shares and Conversion
Price as used herein shall as of any time be deemed to include
all such adjustments to be given effect as of such time in
accordance with the terms hereof.
Upon the exercise of the option of the holder of any shares of
Series B Preferred Stock to convert Series B Preferred Stock
into Common Stock, the holder of such shares of Series B
Preferred Stock to be converted shall surrender the certificates
representing the shares of Series B Preferred Stock so to be
converted in the manner provided in clause (vi)(d) below.
(d) Delivery of Stock Certificates; No Fractional
Shares. The holder of any shares of Series B Preferred Stock may
exercise the conversion right pursuant to clause (vi) (a) above
by delivering to the Corporation during regular business hours
at the office of the Corporation the certificate or certificates
for the shares to be converted, duly endorsed or assigned either
in blank or to the Corporation (if required by it), accompanied
by written notice stating that such holder elects to convert
such shares. Conversion shall be deemed to have been effected
on the date when the aforesaid delivery is made, and such date
is referred to herein as the "Conversion Date." As promptly as
practicable thereafter the Corporation shall issue and deliver
to or upon the written order of such holder to the place
designated by such holder, a certificate or certificates for the
number of full shares of Common Stock to which such holder is
entitled and a check or cash in respect of any fractional
interest in a share of Common Stock, as provided below, payable
with respect to the shares of Series B Preferred Stock so
converted; provided, however, that in the case of a conversion
in connection with liquidation, no such certificates need be
issued. The person in whose name the certificate or
certificates for Common Stock are to be issued shall be deemed
to have become the stockholder of record in respect of such
Common Stock on the applicable Conversion Date unless the
transfer books of the Corporation are closed on that date, in
which event such holder shall be deemed to have become the
stockholder of record in respect of such Common Stock on the
next succeeding date on which the transfer books are open, but
the Conversion Price shall be that in effect on the Conversion
Date. Upon conversion of only a portion of the number of shares
covered by a certificate representing shares of Series B
Preferred Stock surrendered for conversion, the Corporation
shall issue and deliver to or upon the written order of the
holder of the certificate so surrendered for conversion, at the
expense of the Corporation, a new certificate covering the
number of shares of Series B Preferred Stock representing the
unconverted portion of the certificate so surrendered. If the
new certificate or certificates are to be issued to a person who
is not the registered holder of the certificate delivered for
conversion, any transfer taxes applicable to the transaction
shall be paid by such transferee.
(e) No Fractional Shares of Common Stock. (i) No
fractional shares of Common Stock shall be issued upon
conversion of shares of Series B Preferred Stock. Instead of
any fractional share of Common Stock which would otherwise be
issuable upon conversion of any shares of Series B Preferred
Stock, the Corporation shall pay a cash adjustment in respect
of such fractional interest in an amount equal to the then
current Market Price (as defined in clause (vi)(f)(8) below) of
a share of Common Stock multiplied by such fractional interest.
The holders of fractional interests shall not be entitled to any
rights as stockholders of the Corporation in respect of such
fractional interests. In determining the number of shares of
Common Stock and the payment, if any, in lieu of fractional
shares that a holder of Series B Preferred Stock shall receive,
the total number of shares of Series B Preferred Stock
surrendered for conversion by such holder shall be aggregated.
(ii) The Corporation shall forthwith upon conversion of all
or any portion of the Series B Preferred Stock pay all dividends
accrued on such Series B Preferred Stock to the date of such
conversion.
(f) Adjustment of Conversion Price Upon Issuance of
Common Stock. If and whenever (i) after the date hereof and
prior to June 1, 1992, the Total Equity Financing shall have
yielded Gross Proceeds in excess of $250,000,000 and the
Corporation shall thereafter take any of the actions described
in subclauses (i), (ii) or (iii) of clause (b) above, (except
(xx) upon conversion of the Series B Preferred Stock (yy)
issuances subject to subclauses (A) and (B) of the first proviso
set forth in clause (b) and (zz) the term "Average Price" in
subclause (ii) of clause (b) shall mean the Conversion Price as
then in effect); or (ii) at any time after the date hereof the
Corporation takes any of the actions described in paragraphs (1)
through (4) below involving the deemed issuance of shares of
Common Stock for a consideration per share less than the Market
Price on the day immediately prior to such deemed issue or sale,
then, forthwith upon such actual or deemed issue or sale, as the
case may be, the Conversion Price shall be reduced (but not
increased, except as otherwise specifically provided in
paragraph (3) below) to the price (calculated to the nearest
cent) (or, where an event may occur which would require an
adjustment under more than one provision hereof, to the lower of
the prices) determined as follows:
(A) in the case of taking any of the actions described above
in subclause (i) of this clause (f), by dividing (i) an amount
equal to the sum of (A) the aggregate number of shares of Common
Stock outstanding immediately prior to such issue or sale
multiplied by the then existing Conversion Price and (B) the
consideration, if any, received by the Corporation upon such
issue or sale (determined, in the case of warrants, options,
rights or convertible securities, on the basis described below
in paragraphs (1) and (2) as the Rights Formula and the
Convertible Formula), by (ii) the aggregate number of shares of
Common Stock of all classes outstanding immediately after such
issue or sale (determined, in the case of warrants, options,
rights or convertible securities, on the basis described below
in paragraphs (1) and (2) as the Rights Formula and the
Convertible Formula); and
(B) in the case of taking any of the actions described above
in subclause (ii) of this clause (f), by multiplying the
Conversion Price in effect immediately prior to the time of such
deemed issue or sale by a fraction, the numerator of which shall
be the sum of (i) the aggregate number of shares of Common Stock
outstanding immediately prior to such issue or sale multiplied
by the Market Price on the day immediately prior to such issue
or sale plus (ii) the consideration received by the Corporation
upon such issue or sale, and the denominator of which shall be
the product of (iii) the aggregate number of shares of Common
Stock of all classes outstanding immediately after such issue or
sale, multiplied by (iv) the Market Price on the day immediately
prior to such issue or sale.
No adjustment of the Conversion Price, however, shall be made
in an amount less than $.10 per share, but any such lesser
adjustment shall be carried forward and taken into account at
the time of and together with the next subsequent adjustment.
For the purposes of subclause (ii) of this clause (vi)(f), the
following paragraphs (1) through (4) shall also be applicable;
and for purposes of this clause (vi)(f) generally, the following
paragraphs (5) through (10) shall be applicable:
(1) Issuance of Rights or Options - In case at any time after
the date hereof the Corporation shall in any manner grant
(whether directly or by assumption in a merger or otherwise,
except in the circumstances described in clause (vi)(g) below)
any rights to subscribe for or to purchase, or any options for
the purchase of, Common Stock or any stock or securities
convertible into or exchangeable for Common Stock (such
convertible or exchangeable stock or securities being herein
called "Convertible Securities"), whether or not such rights or
options or the right to convert or exchange any such Convertible
Securities are immediately exercisable, and the price per share
for which Common Stock is issuable upon the exercise of such
rights or options or upon conversion or exchange of such
Convertible Securities (determined by dividing (i) the total
amount, if any, received or receivable by the Corporation as
consideration for the granting of such rights or options, plus
the minimum aggregate amount of additional consideration, if
any, payable to the Corporation upon the exercise of such rights
or options, plus, in the case of such rights or options which
relate to Convertible Securities, the minimum aggregate amount
of additional consideration, if any, payable upon the issue or
sale of such Convertible Securities and upon the conversion or
exchange thereof, by (ii) the total maximum number of shares of
Common Stock issuable upon the exercise of such rights or
options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such rights
or options (the "Rights Formula")) shall be less than the Market
Price, determined as of the date of granting such rights or
options, then the total maximum number of shares of Common Stock
issuable upon the exercise of such rights or options or upon
conversion or exchange of all such Convertible Securities
issuable upon the exercise of such rights or options shall (as
of the date of granting of such rights or options) be deemed to
be outstanding and to have been issued for such price per share.
Except as provided in paragraph (3), no further adjustment of
the Conversion Price shall be made upon the actual issue of such
Common Stock or of such Convertible Securities upon exercise of
such rights or options or upon the actual issue of such Common
Stock upon conversion or exchange of such Convertible Securities.
(2) Issuance of Convertible Securities - In case at any time
after the date hereof the Corporation shall in any manner issue
(whether directly or by assumption in a merger or otherwise) or
sell any Convertible Securities, whether or not the rights to
exchange or convert thereunder are immediately exercisable, and
the price per share for which Common Stock is issuable upon such
conversion or exchange (determined by dividing (i) the total
amount received or receivable by the Corporation as
consideration for the issue or sale of such Convertible
Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Corporation upon the
conversion or exchange thereof, by (ii) the total maximum number
of shares of Common Stock issuable upon the conversion or
exchange of all such Convertible Securities (the "Convertible
Formula")) shall be less than the Market Price, determined as of
the date of such issue or sale of such Convertible Securities,
then the total maximum number of shares of Common Stock issuable
upon conversion or exchange of all such Convertible Securities
shall (as of the date of the issue or sale of such Convertible
Securities) be deemed to be outstanding and to have been issued
for such price per share; provided, however, that (a) except as
otherwise provided in paragraph (3), no further adjustment of
the Conversion Price shall be made upon the actual issue of such
Common Stock upon conversion or exchange of such Convertible
Securities, and (b) if any such issue or sale of such
Convertible Securities is made upon exercise of any rights to
subscribe for or to purchase or any option to purchase any such
Convertible Securities for which adjustments of the Conversion
Price have been or are to be made pursuant to other provisions
of this clause (vi) (f), no further adjustment of the Conversion
Price shall be made by reason of such issue or sale.
(3) Change in Option Price or Conversion Rate - Upon the
happening of any of the following events, namely, if the
purchase price provided for in any right or option referred to
in paragraph (1), the additional consideration, if any, payable
upon the conversion or exchange of any Convertible Securities
referred to in paragraph (1) or (2), or the rate at which any
Convertible Securities referred to in paragraph (1) or (2) are
convertible into or exchangeable for Common Stock shall change
(other than under or by reason of provisions designed to protect
against dilution), the Conversion Price then in effect hereunder
shall forthwith be readjusted (increased or decreased, as the
case maybe) to the Conversion Price which would have been in
effect at such time had such rights, options or Convertible
Securities still outstanding provided for such changed purchase
price, additional consideration or conversion rate, as the case
may be, at the time initially granted, issued or sold. On the
expiration of any such option or right referred to in paragraph
(1) or the termination of any such right to convert or exchange
any such Convertible Securities referred to in paragraph (1) or
(2), the Conversion Price then in effect hereunder shall
forthwith be readjusted (increased or decreased, as the case may
be) to the Conversion Price which would have been in effect at
the time of such expiration or termination had such right,
option or Convertible Securities, to the extent outstanding
immediately prior to such expiration or termination, never been
granted, issued or sold, and the Common Stock issuable
thereunder shall no longer be deemed to be outstanding. If the
purchase price provided for in any such right or option
referred to in paragraph (1) or the rate at which any
Convertible Securities referred to in paragraph (1) or (2) are
convertible into or exchangeable for Common Stock shall be
reduced at any time under or by reason of provisions with
respect thereto designed to protect against dilution, then in
case of the delivery of shares of Common Stock upon the exercise
of any such right or option or upon conversion or exchange of
any such Convertible Securities, the Conversion Price then in
effect hereunder shall, if not already adjusted, forthwith be
adjusted to such amount as would have obtained had such right,
option or Convertible Securities never been issued as to such
shares of Common Stock and had adjustments been made upon the
issuance of the shares of Common Stock delivered as aforesaid,
but only if as a result of such adjustment the Conversion Price
then in effect hereunder is thereby reduced.
(4) Stock Dividends - In case at any time the Corporation
shall declare a dividend or make any other distribution upon any
class or series of stock of the Corporation payable in shares of
Common Stock or Convertible Securities, any shares of Common
Stock or Convertible Securities, as the case may be, issuable in
payment of such dividend or distribution shall be deemed to have
been issued or sold without consideration.
(5) Consideration for Stock - Anything herein to the contrary
notwithstanding, in case at any time any shares of Common Stock
or Convertible Securities or any rights or options to purchase
any such Common Stock or Convertible Securities shall be issued
or sold for cash, the consideration received therefor shall be
deemed to be the amount received by the Corporation therefor,
without deduction therefrom of any expenses incurred or any
underwriting discounts, commissions or concessions paid or
allowed by the Corporation in connection therewith.
In case at any time any shares of Common Stock or any class of
Convertible Securities or any rights or options to purchase any
such shares of Common Stock or Convertible Securities shall be
issued or sold for a consideration other than cash, the amount
of the consideration other than cash received by the Corporation
shall be deemed to be the fair value of such consideration as
determined reasonably and in good faith by the Board of
Directors of the Corporation, without deduction of any expenses
incurred or any underwriting discounts, commissions or
concessions paid or allowed by the Corporation in connection
therewith. In case at any time any shares of Common Stock or
any class or Convertible Securities or any rights or options to
purchase such shares of Common Stock or Convertible Securities
shall be issued in connection with any merger or consolidation
in which the Corporation is the surviving Corporation, the
amount of consideration received therefor shall be deemed to be
the fair value as determined reasonably and in good faith by the
Board of Directors of the Corporation of such portion of the
assets and business of the nonsurviving Corporation as such
Board may determine to be attributable to such shares of Common
Stock, Convertible Securities, rights or options, as the case
may be. In case at any time any rights or options to purchase
any shares of Common Stock or Convertible Securities shall be
issued in connection with the issue and sale of other securities
of the Corporation, together comprising one integral transaction
in which no consideration is allocated to such rights or options
by the parties thereto, such rights or options shall be deemed
to have been issued for an amount of consideration equal to the
fair value thereof as determined reasonably and in good faith by
the Board of Directors of the Corporation.
(6) Record Date - In case the Corporation shall take a record
of the holders of its Common Stock for the purpose of entitling
them (i) to receive a dividend or other distribution payable in
shares of Common Stock or in Convertible Securities, or (ii) to
subscribe for or purchase shares of Common Stock or Convertible
Securities, then such record date shall be deemed to be the date
of the issue or sale of the shares of Common Stock deemed to
have been issued or sold as a result of the declaration of such
dividend or the making of such other distribution or the date of
the granting of such right of subscription or purchase,as the
case may be.
(7) Treasury Shares - The number of shares of Common Stock
outstanding at any given time shall not include shares owned or
held by or for the account of the Corporation, and the
disposition of any such shares shall be considered an issue or
sale of Common Stock for the purposes of this clause (vi)(f).
(8) Definition of Market Price - Unless otherwise set forth
in these Articles, "Market Price" shall mean, for any day, the
last sale price of the Common Stock on the principal national
securities exchange on which the Common Stock may at the time
be listed, or, if there shall have been no sales on any such
exchange on any such day, the average of the bid and asked
prices at the end of such day, or, if the Common Stock shall not
be so listed, the average of the bid and asked prices at the end
of the day in the domestic over-the-counter market. If at any
time the Common Stock is not listed on any exchange or quoted in
the domestic over-the-counter market, the "Market Price" shall
be deemed to be the higher of (aa) the book value thereof, as
determined (in accordance with generally accepted accounting
principles consistent with those then being applied by the
Corporation) by any firm of independent public accountants
(which may be the regular auditors of the Corporation) of
recognized national standing selected by the Board of Directors
of the Corporation, as of the last day of the month ending
within 31 days preceding the date as of which the determination
is to be made, and (bb) the fair value thereof, as determined in
good faith by the Board of Directors of the Corporation.
(9) Determination of Market Price under Certain
Circumstances- Anything herein to the contrary notwithstanding,
in case at any time after the date hereof the Corporation shall
issue any shares of Common Stock or Convertible Securities, or
any rights or options to purchase any such Common Stock or
Convertible Securities, in connection with the acquisition by
the Corporation of the stock or assets of any other Corporation
or the merger of any other Corporation into the Corporation
under circumstances where on the date of the issuance of such
shares of Common Stock or Convertible Securities or such rights
or options the consideration received for such Common Stock or
deemed to have been received for the Common Stock into which
such Convertible Securities or such rights or options are
convertible is less than the Market Price of the Common Stock
but on the date the number of shares of Common Stock or
Convertible Securities (or in the case of Convertible Securities
other than stock, the aggregate principal amount of Convertible
Securities) or the number of such rights or options was
determined (as set forth in a binding agreement between the
Corporation and the other party to the transaction) the
consideration received for such Common Stock or deemed to have
been received for the Common Stock into which such Convertible
Securities or such rights or options are convertible would not
have been less than the Market Price thereof, such shares of
Common Stock shall not be deemed to have been issued for less
than the Market Price of the Common Stock.
(10) Adjustment to Determination of Market Price. When making
the calculations and determinations described in clause (vi) (f)
(1) through clause (vi) (f) (9) hereof, the issuance to officers
or key employees of the Corporation and of its subsidiaries of
shares of Common Stock or warrants, options or rights for Common
Stock issued pursuant to any instruments or agreements or plans,
or shares issuable to employees under employee stock purchase
plans, shall not be taken into account.
(g) Liquidating Dividends; Purchase Rights.
(i) In case at any time after the date hereof the Corporation shall
declare a dividend upon the shares of Common Stock of any class payable
otherwise than in shares of Common Stock or Convertible
Securities, otherwise than out of consolidated earnings or
consolidated earned surplus (determined in accordance with
generally accepted accounting principles, but excepting
quarterly Common Stock dividends at the rate of $.05 per share
or increases therein out of consolidated net income of the
Corporation determined in accordance with generally accepted
accounting principles for the period from the end of the last
fiscal year to the date of the most recent consolidated
quarterly financial statements of the Corporation as at the time
of the declaration of the dividend), and otherwise than in the
securities to which the provisions of clause (ii) below apply,
the Corporation shall pay over to each holder of Series B
Preferred Stock, upon conversion thereof on or after the
dividend payment date, the securities and other property
(including cash) which such holder would have received (together
with all distributions thereon) if such holder had converted the
Series B Preferred Stock held by it on the record date fixed in
connection with such dividend, and the Corporation shall take
whatever steps are necessary or appropriate to keep in reserve
at all times such securities and other property as shall be
required to fulfill its obligations hereunder in respect of the
shares issuable upon the exercise or conversion of all the
Series B Preferred Stock.
(ii) If at any time or from time to time on or after the date
hereof, the Corporation shall grant, issue or sell any options
or rights (other than Convertible Securities) to purchase stock,
warrants, securities or other property pro rata to the holders
of Common Stock of all classes ("Purchase Rights"), and if the
holder shall be entitled to an adjustment pursuant to clause
(vi) (f) above, then in lieu of such adjustment, and if deemed
by the Board of Directors to be not materially adverse to the
interests of the holders of Series B Preferred Stock, the
Corporation shall reserve for distribution to holders of Series
B Preferred Stock upon conversion of the same and upon the
terms applicable to such Purchase Rights, the aggregate Purchase
Rights which such holder could have acquired if such holder had
held the number of shares of Common Stock issuable upon
conversion of such Series B Preferred Stock immediately prior to
the time or times at which the Corporation granted, issued or
sold such Purchase Rights.
(h) Subdivision or Combination of Stock. In case the
Corporation shall at any time subdivide its outstanding shares
of Common Stock into a greater number of shares, the Conversion
Price in effect immediately prior to such subdivision shall be
proportionately reduced, and conversely, in case the outstanding
shares of Common Stock of the Corporation shall be combined into
a smaller number of shares, the Conversion Price in effect
immediately prior to such combination shall be proportionately
increased.
(i) Changes in Common Stock. If any capital
reorganization or reclassification of the capital stock of the
Corporation, or consolidation or merger of the Corporation with
another Corporation, or the sale, transfer or other disposition
of all or substantially all of its properties to another
Corporation, shall be effected, then, as a condition of such
reorganization, reclassification, consolidation, merger, sale,
transfer or other disposition, lawful and adequate provision
shall be made whereby each holder of Series B Preferred Stock
shall thereafter have the right to purchase and receive upon the
basis and upon the terms and conditions herein specified and in
lieu of the shares of the Common Stock of the Corporation
immediately theretofore issuable upon conversion of the Series B
Preferred Stock, such shares of stock, securities or properties
as may be issuable or payable with respect to or in exchange for
a number of outstanding shares of such Common Stock equal to the
number of shares of such Common Stock immediately theretofore
issuable upon conversion of the Series B Preferred Stock had
such reorganization, reclassification, consolidation, merger,
sale, transfer or other disposition not taken place, and in any
such case appropriate provisions shall be made with respect to
the rights and interests of each holder of Series B Preferred
Stock to the end that the provisions hereof (including without
limitation provisions for adjustment of the Conversion Price)
shall thereafter be applicable, as nearly equivalent as may be
practicable in relation to any shares of stock, securities or
properties thereafter deliverable upon the exercise thereof.
The Corporation shall not effect any such consolidation, merger,
sale, transfer or other disposition, unless prior to or
simultaneously with the consummation thereof the successor
corporation (if other than the Corporation) resulting from such
consolidation or merger or the corporation purchasing or
otherwise acquiring such properties shall assume, by written
instrument executed and mailed or delivered to the holders of
Series B Preferred Stock at the last address of such holders
appearing on the books of the Corporation, the obligation to
deliver to such holders such shares of stock, securities or
properties as, in accordance with the foregoing provisions, such
holders may be entitled to acquire. The above provisions of
this subparagraph shall similarly apply to successive
reorganizations, reclassifications, consolidations, mergers,
sales, transfers, or other dispositions.
(j) Certain Events. If any event occurs as to which in
the opinion of the Board of Directors of the Corporation the
other provisions of this clause (vi) are not strictly applicable
or if strictly applicable would not fairly protect the
conversion rights of the holders of the Series B Preferred Stock
in accordance with the essential intent and principles of such
provisions, then such Board of Directors shall appoint a firm of
independent certified public accountants (which may be the
regular auditors of the Corporation) of recognized national
standing, which shall give their opinion upon the adjustment, if
any, on a basis consistent with such essential intent and
principles, necessary to preserve, without dilution, the rights
of the holders of the Series B Preferred Stock. Upon receipt of
such opinion by the Board of Directors, the Corporation shall
forthwith make the adjustments described therein; provided,
however, that no such adjustment shall have the effect of
increasing the Conversion Price as otherwise determined pursuant
to this clause (vi) except in the event of a combination of
shares of the type contemplated in clause (vi)(h) and then in no
event to an amount larger than the Conversion Price as adjusted
pursuant to clause (vi) (h).
(k) Prohibition of Certain Actions. The Corporation
will not (i) authorize or issue, or agree to authorize or issue,
any shares of its capital stock of any class preferred as to
dividends or as to the distribution of assets upon voluntary or
involuntary liquidation, dissolution or winding-up of the
Corporation unless the rights of the holders thereof shall be
limited to a fixed sum or percentage of par value in respect of
participation in dividends and in the distribution of such
assets, or (ii), except in accordance with clause (vi)(b), take
any action which would result in any adjustment of the
Conversion Price if the total number of shares of Common Stock
issuable after such action upon conversion of all of the Series
B Preferred Stock would exceed the total number of shares of
Common Stock then authorized by the Corporation's Charter.
(l) Stock to be Reserved. Except as otherwise provided
in clause (vi) (b) hereof, the Corporation will at all times
reserve and keep available out of its authorized Common Stock,
solely for the purpose of issue upon the conversion of Series B
Preferred Stock as herein provided, such number of shares of
Common Stock as shall then be issuable upon the conversion of
all outstanding Series B Preferred Stock, and the Corporation
will maintain at all times all other rights and privileges
sufficient to enable it to fulfill all its obligations
hereunder. The Corporation covenants that all shares of Common
Stock which shall be so issuable shall, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable, free
from preemptive or similar rights on the part of the holders of
any shares of capital stock or securities of the Corporation,
and without limiting the generality of the foregoing, the
Corporation covenants that it will from time to time take all
such action as may be requisite to assure that the par value, if
any, per share of the Common Stock is at all times equal to or
less than the then effective Conversion Price. The Corporation
will use its best efforts to take all such action as may be
necessary to assure that such shares of Common Stock may be so
issued without violation by the Corporation of any applicable
law or regulation, or of any requirements of any domestic
securities exchange upon which the Common Stock may be listed.
(m) Registration and Listing of Common Stock. If any
shares of Common Stock required to be reserved for purposes of
conversion of Series B Preferred Stock hereunder require
registration with or approval of any governmental authority
under any Federal or state law (other than the Securities Act of
1933 or any state "blue sky" law) before such shares may be
issued upon conversion, the Corporation will, at its expense and
as expeditiously as possible, use its best efforts to cause such
shares to be duly registered or approved, as the case may be.
If and so long as the Common Stock is listed on any national
securities exchange, the Corporation will, at its expense, use
its best efforts to obtain promptly and maintain the approval
for listing on each such exchange upon official notice of
issuance, of shares of Common Stock issuable upon conversion of
the then outstanding Series B Preferred Stock and maintain the
listing of such shares after their issuance; and the Corporation
will also use its best efforts to list on such national
securities exchange, to register under the Securities Exchange
Act of 1934 and to maintain such listing of, any other
securities that at any time are issuable upon conversion of the
Series B Preferred Stock, if and at the time that any securities
of the same class shall be listed on such national securities
exchange by the Corporation.
(n) Closing of Books. The Corporation will at no time
close its transfer books against the transfer of any Preferred
Stock or of any shares of Common Stock issued or issuable upon
the conversion of any Series B Preferred Stock in any manner
which interferes with the timely conversion of such Series B
Preferred Stock.
(o) Statement of Adjustment of Conversion Price.
Whenever the Conversion Price shall be adjusted as provided in
clause (vi) (f) above, the Corporation shall forthwith file at
its office a statement, signed by its independent certified
public accountants, showing in detail the facts requiring such
adjustment and the Conversion Price that shall be in effect
after such adjustment. The Corporation shall also cause a copy
of such statement to be sent by certified mail, return receipt
requested, to each holder of shares of Series B Preferred Stock
to such holder's address appearing on the Corporation's records.
Where appropriate, such copy may be given in advance and may be
included as part of a notice required to be mailed under the
provisions of clause (vi) (p) below.
(p) Notice. In the event the Corporation shall propose
to take any action of the types described in clause (vi)(f)
above, the Corporation shall give notice to each holder of
shares of Series B Preferred Stock, in the manner set forth in
clause (vi) (o) above, which notice shall specify the record
date, if any, (or the method of determining the same) with
respect to any such action and the date (or the method of
determining the same) on which such action is to take place.
Such notice shall also set forth such facts with respect thereto
as shall be reasonably necessary to indicate the effect of such
action (to the extent such effect may be known at the date of
such notice) on the Conversion Price and the number, kind or
class of shares or other securities or property which shall be
deliverable or purchasable upon the occurrence of such action or
deliverable upon conversion of shares of Series B Preferred
Stock. In the case of any action which would require the fixing
of a record date, such notice shall be given at least 20 days
prior to the date so fixed, and in case of all other action,
such notice shall be given at least 30 days prior to the taking
of such proposed action.
(q) Taxes. The Corporation shall pay all documentary,
stamp or other transactional taxes attributable to the issuance
or delivery of shares of capital stock of the Corporation upon
conversion of any shares of Series B Preferred Stock.
THIRD: The terms of the 11% Preferred Stock are as
follows:
(i) Designation and Amount. The designation of the Series of
Preferred Stock described in clause (ii) of Article First hereof
shall be "11% Preferred Stock" (the "11% Preferred Stock"). The
number of shares of 11% Preferred Stock shall initially be 1,000.
(ii) Dividends. (a) Rate, etc. The holders of shares of 11%
Preferred Stock shall be entitled to receive, when, as and if
declared by the Board of Directors out of the funds legally
available therefor, annual dividends from the date of issue
thereof at the rate of $1,100.00 per share, calculated on the
basis of a 360-day year of 12 30-day months, accruing on a daily
basis, payable quarterly, in arrears, on each Dividend Payment
Date in each year commencing on the first Dividend Payment Date
subsequent to the issuance of any shares of such 11% Preferred
Stock. Such dividends shall be cumulative with respect to each
share from the date of original issuance, whether or not earned
or declared.
(b) Rank, etc. The 11% Preferred Stock shall rank on a
parity with the Corporation's $4.10 Series A Convertible
Exchangeable Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and any other Parity Stock as to dividends and
upon liquidation. Unless full cumulative dividends on all
outstanding shares of 11% Preferred Stock or any other class of
Parity Stock have been paid or are contemporaneously declared
and paid (or declared and a sum sufficient for the payment
thereof is set apart for such payment), the Corporation will not
(1) declare or pay any dividend on the Common Stock of the
Corporation or on any other class of Junior Stock or make any
payment on account of, or set apart money for, a sinking or
other analogous fund for the purchase, redemption or other
retirement of, any Junior Stock or make any distribution in
respect thereof, either directly or indirectly and whether in
cash or property or in obligations or shares of the Corporation
(other than in shares of Junior Stock) or (2) purchase any
shares of 11% Preferred Stock or Parity Stock (except for
consideration payable in Junior Stock) or redeem fewer than all
of the shares of 11% Preferred Stock or Parity Stock then
outstanding. Unless and until all dividends accrued and payable
but unpaid on the 11% Preferred Stock and any Parity Stock at
the time outstanding have been paid in full, all dividends
declared by the Corporation upon such 11% Preferred Stock or
Parity Stock shall be declared pro rata with respect to all 11%
Preferred Stock and Parity Stock then outstanding, so that the
amounts of any dividends declared on the 11% Preferred Stock and
such Parity Stock shall in all cases bear to each other the
same ratio that, at the time of such declaration, all accrued
and payable but unpaid dividends on the 11% Preferred Stock and
such other Parity Stock, respectively, bear to each other.
(iii) Liquidation. (a) Preference on Liquidation. In the
event of any liquidation, dissolution or winding up of the
affairs of the Corporation (any or all of such events, a
"liquidation"), whether voluntary or involuntary, the holders of
shares of 11% Preferred Stock then outstanding shall be
entitled, pari passu as if members of a single class of
securities with the holders of other Parity Stock, to be paid
out of the assets of the Corporation, before any payment shall
be made to the holders of the Junior Stock or the holders of any
other capital stock of the Corporation, an amount equal to
$10,000 per share of such 11% Preferred Stock plus an amount
equal to the dividends accrued and unpaid thereon to the payment
date.
(b) Insufficient Assets. If, upon any liquidation of
the Corporation, the assets of the Corporation are insufficient
to pay the holders of shares of the Parity Stock then
outstanding the full amounts to which they shall be entitled,
such assets shall be distributed to the holders of the Parity
Stock pro rata in proportion to the amounts to which they shall
be entitled.
(c) Rights of Other Holders. In the event of any
liquidation, after payment shall have been made to the holders
of the 11% Preferred Stock and other Parity Stock of all
preferential amounts to which they shall be entitled, the
holders of shares of Junior Stock and other capital stock of the
Corporation shall receive such amounts as to which they are
entitled by the terms thereof.
(d) Consolidation, Merger or Sale of Assets. Neither a
consolidation or merger of the Corporation with or into any
other Corporation, nor a sale or transfer of all or
substantially all of the Corporation's assets for cash or
securities nor a statutory share exchange in which stockholders
of the Corporation may participate shall be considered a
liquidation, dissolution or winding-up of the Corporation within
the meaning of this clause (iii).
(iv) Redemption. (a) Mandatory Redemption. On June 1, 2001,
the Corporation will redeem the 11% Preferred Stock then
outstanding at a redemption price equal to $10,000 per share,
together with dividends accrued thereon to the date of
redemption.
(b) Optional Redemption. The 11% Preferred Stock shall
be subject to redemption, at the option of the Corporation, in
whole or from time to time in part, at any time on or after June
1, 1994 at a redemption price equal to $10,000 per share, plus
the Redemption Premium (as hereinafter defined), together with
dividends accrued thereon to the date of redemption.
For the purposes of this clause (iv) "Redemption Premium"
shall mean:
Period
June 1, 1994 to May 31, 1995 $770
June 1, 1995 to May 31, 1996 660
June 1, 1996 to May 31, 1997 550
June 1, 1997 to May 31, 1998 440
June 1, 1998 to May 31, 1999 330
June 1, 1999 to May 31, 2000 220
June 1, 2000 to May 31, 2001 110
June 1, 2001 and thereafter 0
(v) Voting Rights. Excepting the rights specified below in
this clause (v), the holders of the 11% Preferred Stock shall
not be entitled to any voting rights. For purposes of this
clause (v) and in any case where holders of the 11% Preferred
Stock are entitled to vote upon any matter together with holders
of Parity Stock as a single class, holders of 11% Preferred
Stock have a number of votes per share determined by dividing
$10,000 by $50.00.
(a) Voting Rights Relating to Unpaid Dividends. (1) If
on the date used to determine stockholders of record for any
meeting of stockholders for the election of directors, accrued
dividends on the shares of 11% Preferred Stock or any Parity
Stock shall not have been paid in an aggregate amount equal to
or greater than two quarterly dividends on the shares of 11%
Preferred Stock or such Parity Stock at the time outstanding,
then, and in any such event, the number of Directors then
constituting the entire Board of Directors of the Corporation
shall automatically be increased by two Directors and the
holders of shares of 11% Preferred Stock and the holders of
shares of Parity Stock, voting together as a single class, shall
be entitled at such meeting to fill such newly created
directorships. Such right to vote as a single class to elect
two Directors shall, when vested, continue until all dividends
in default on the shares of 11% Preferred Stock and such Parity
Stock, as the case may be, shall have been paid in full and,
when so paid, such right to elect two Directors separately as a
class shall cease, subject, always, to the same provisions for
the vesting of such right to elect two Directors separately as
a class in the case of future dividend defaults.
(2) So long as any shares of 11% Preferred Stock are
outstanding the number of Directors of the Corporation shall at
all times be such that the exercise, by the holders of shares of
11% Preferred Stock and the holders of shares of Parity Stock,
of the right to elect Directors under the circumstances provided
in paragraph (1) of this subclause (a) will not contravene any
provisions of the Maryland General Corporation Law or the
Charter of the Corporation.
(3) Directors elected pursuant to paragraph (1) of this
subclause (a) shall serve until the earlier of (A) the next
annual meeting of the stockholders of the Corporation and the
election (by the holders of shares of 11% Preferred Stock and
Parity Stock) and qualification of their respective successors
or (B) the date upon which all dividends in default on the
shares of 11% Preferred Stock and such Parity Stock shall have
been paid in full. Directors elected pursuant to paragraph (1)
of this subclause (a) may be removed by, and shall not be
removed except by, the vote of the holders of record of the
outstanding shares of 11% Preferred Stock and Parity Stock,
voting together as a single class without regard to Series, at a
meeting of the stockholders, or the holders of shares of 11%
Preferred Stock and Parity Stock, called for that purpose. If,
prior to the end of the term of any Director elected as
aforesaid, a vacancy in the office of such Director shall occur
during the continuance of a default in dividends on the shares
of 11% Preferred Stock or such Parity Stock by reason other than
removal, such vacancy shall be filled for the unexpired term by
the appointment by the remaining director elected as aforesaid
of a new Director for the unexpired term of such former Director.
(b) Additional Capital Stock, etc. The Corporation
shall not, without the affirmative consent or approval of the
holders of shares representing at least 66- 2/3% of the 11%
Preferred Stock and Parity Stock then outstanding, voting as a
single class (such consent or approval to be given by written
consent in lieu of a meeting or by vote at a meeting called for
such purpose for which notice shall have been given to the
holders of the 11% Preferred Stock and Parity Stock): (i)
authorize the issuance of any new, or increase the authorized
number of shares of any existing, class of capital stock of the
Corporation which would be senior or superior as to dividends
and upon liquidation to the 11% Preferred Stock, (ii) increase
the number of shares of Preferred Stock authorized in the
charter or create any other class of stock (but not any other
series of Preferred Stock) ranking on a parity with the 11%
Preferred Stock, Series B Preferred Stock and Parity Stock as to
dividends and upon liquidation, (iii) reissue any shares of 11%
Preferred Stock that have been redeemed or (iv) take any action
to cause any amendment, alteration or repeal of any of the
provisions of the Corporation's Charter that would materially
adversely affect the rights of holders of 11% Preferred Stock.
(vi) Exchange for Depositary Shares. The shares of 11%
Preferred Stock shall be subject to exchange, in whole or in
part, at the option of the holder thereof exercisable at any
time and from time to time in part, upon 30 days written notice
to the Corporation specifying the number of shares of 11%
Preferred Stock to be so exchanged. The Corporation shall
accept deposit of such shares and hold them in trust for the
benefit of the holders making such deposit and shall deliver to
such holders in exchange therefor depositary shares of the
Corporation (the "Depositary Shares") of equal aggregate
liquidation value to the shares of 11% Preferred Stock delivered
for deposit, each such Depositary Share having a liquidation
value of $25.00. On each Dividend Payment Date with respect to
the 11% Preferred Stock, upon any redemption thereof, and upon
any liquidation, dissolution or winding-up of the Corporation,
the holders of each Depositary Share shall be paid, from the
proceeds of any such dividend, redemption or payment upon
liquidation, dissolution or winding-up payable with respect to
the shares of 11% Preferred Stock so deposited, the portion of
such proceeds allocable to the Depositary Shares held by such
holder.
IN WITNESS WHEREOF, USF&G Corporation has caused these
presents to be signed in its name and on its behalf by its
Chairman of the Board and President and witnessed by its
Secretary on May 31, 1991.
WITNESS: USF&G Corporation
WILLIAM F. SPLIEDT By: NORMAN P. BLAKE, JR.
- ------------------ --------------------
William F. Spliedt Norman P. Blake, Jr.
Secretary Chairman of the Board
and President
THE UNDERSIGNED, Chairman of the Board and President of
USF&G Corporation, who executed on behalf of the Corporation
Articles Supplementary of which this certificate is made a part,
hereby acknowledges in the name and on behalf of said
Corporation the foregoing Articles Supplementary to be the
corporate act of said Corporation and hereby certifies that the
matters and facts set forth herein with respect to the
authorization and approval thereof are true in all material
respects under the penalties of perjury.
NORMAN P. BLAKE, JR.
--------------------
Norman P. Blake, Jr.
Chairman of the Board
and President
<PAGE>
ARTICLES SUPPLEMENTARY
$5.00 SERIES C CUMULATIVE CONVERTIBLE PREFERRED STOCK
OF
USF&G CORPORATION
USF&G CORPORATION, a Maryland corporation, having its principal
office in Baltimore City, Maryland (the "Corporation"), hereby
certifies to the Maryland State Department of Assessments and
Taxation that:
FIRST: Pursuant to authority expressly vested in the Board of
Directors of the Corporation by Article SEVENTH of the Charter
of the Corporation, the Board of Directors has duly divided and
classified 3,800,000 shares of the Preferred Stock of the
Corporation into a series designated $5.00 Series C Cumulative
Convertible Preferred Stock and has provided for the issuance of
such series.
SECOND: The terms of the $5.00 Series C Cumulative Convertible
Preferred Stock are as follows:
(1) Designation and Amount.
The designation of said series of the Preferred Stock shall be
"$5.00 Series C Cumulative Convertible Preferred Stock" (the
"Series C Preferred Stock"). The number of shares of Series C
Preferred Stock shall initially be 3,800,000, subject to
increase or decrease by action of the Board of Directors
effectuated by further Articles Supplementary.
(2) Dividends.
(a) The holders of record of Series C Preferred Stock, on such
respective dates as shall be determined by the Board of
Directors in advance of the payment of each dividend provided
for herein, shall be entitled to receive, as and when declared
by the Board of Directors out of assets of the Corporation which
are by law available for the payment of dividends, cumulative
preferential cash dividends, at the rate of $5.00 per share per
annum payable quarterly on January 31, April 30, July 31, and
October 31 of each year, commencing on July 31, 1991 (each such
day being hereinafter called a "dividend date" and each
quarterly period ending on a dividend date being hereinafter
called a "dividend period"), which dividends on each share of
Series C Preferred Stock shall accrue from the date of issue
thereof. Each such dividend shall be payable to the holders of
record as they appear on the stock books of the Corporation on
such record dates, not exceeding forty-five (45) days preceding
the payment dates thereof, as shall be fixed by the Board of
Directors of the Corporation. Dividends on the Series C
Preferred Stock for any period greater or less than a full
dividend period shall be computed on the basis of a 360-day year
consisting of twelve 30-day months. Dividends on the Series C
Preferred Stock for each full dividend period shall be computed
by dividing the annual dividend rate by four.
(b) Dividends on the Series C Preferred Stock shall be
cumulative, whether or not in any dividend period or periods
there shall be funds of the Corporation legally available for
the payment of such dividends or whether or not earned or
declared.
(c) Accumulations of dividends on any shares of Series C
Preferred Stock shall not bear interest.
(d) All dividends declared on the Series C Preferred Stock for
any dividend period and on any class or series of stock ranking
on a parity with the Series C Preferred Stock as to dividends
and upon liquidation ("Parity Stock") shall be declared pro rata
so that the amounts of dividends per share declared for such
period on the Series C Preferred Stock and on any classes of
Parity Stock that were outstanding during such period shall in
all cases bear to each other the same proportions that the
respective dividend rates of such stock for such period bear to
each other.
(e) The Corporation shall not (i) declare or pay dividend or
other distribution with respect to any junior stock of the
Corporation or (ii) redeem or set apart funds for the purchase
or redemption of any junior stock through a sinking fund or
otherwise, unless (A) all cumulating and accrued dividends with
respect to the Series C Preferred Stock have been paid or funds
have been set apart for payment of such dividends and (B)
sufficient funds have been set apart for the payment of the
dividend for the current dividend period with respect to the
Series C Preferred Stock.
(f) As used herein the term "dividends" does not include
dividends payable solely in shares of junior stock, or rights to
holders of junior stock to subscribe for or purchase any junior
stock.
(g) As used herein, the phrase "set apart" in respect of the
payment of dividends or redemption prices shall require deposit
of any funds in a bank or trust company in a separate deposit
account maintained for the benefit of the holders of the Series
C Preferred Stock.
(h) As used herein, the term "junior stock" means the Common
Stock and any other class of capital stock of the Corporation
now or hereafter issued and outstanding which ranks junior in
priority to the Series C Preferred Stock as to dividends and
upon liquidation.
(i) As used herein, the term "cumulating or accrued" in
respect of dividends with respect to the Series C Preferred
Stock means an amount equal to dividends thereon at the rate of
$5.00 per share per annum, computed from the date on which such
dividends commenced to cumulate, and cumulating on each dividend
date thereafter, less the aggregate amount of all dividends
previously paid with respect to such Series C Preferred Stock.
(3) Liquidation Preference.
(a) The amount which the holders of Series C Preferred Stock
shall be entitled to receive in the event of any liquidation,
dissolution or winding up of the Corporation, whether voluntary
or involuntary, shall be $50 per share plus an amount per share
equal to all dividends cumulating or accrued and unpaid thereon
to the date of such liquidation, dissolution or winding up, and
no more.
(b) Upon any such liquidation, dissolution or winding up, the
preferential amounts with respect to the Series C Preferred
Stock and any class of Parity Stock shall be distributed pro
rata in accordance with the aggregate preferential amounts of
the Series C Preferred Stock and such other classes of Parity
Stock, if any, out of or to the extent of the net assets of the
Corporation legally available for such distribution, before any
distributions are made with respect to any junior stock.
(c) Neither a consolidation or merger of the Corporation with
or into any corporation nor a merger of any other corporation
with or into the Corporation, nor a sale or transfer of all or
substantially all of the Corporation's assets for cash or
securities nor a statutory share exchange in which stockholders
of the Corporation may participate shall be considered a
liquidation or dissolution or winding-up of the Corporation
within the meaning of this paragraph (3).
(4) Redemption.
(a) At any time on and after June 13, 1994 all the Series C
Preferred Stock, or any part thereof, at any time outstanding,
may be redeemed by the Corporation, at any time or from time to
time at its election expressed by resolution of the Board of
Directors upon not less than 30 nor more than 60 days previous
notice to the holders of record of the Series C Preferred Stock
to be redeemed, given by (i) registered or certified mail,
postage prepaid, and (ii) the single publication of such notice
in the The Wall Street Journal or similar daily financial
publication of general circulation in the United States, at the
redemption prices set forth below during the 12 month periods
beginning on June 13 of the years shown below, in each case plus
accrued and unpaid dividends to the date fixed for redemption
(the "redemption date").
<TABLE>
<CAPTION>
Year Redemption Price
<S> <C>
1994 $53.50
1995 53.00
1996 52.50
1997 52.00
1998 51.50
1999 51.00
2000 50.50
2001 and thereafter 50.00
</TABLE>
(b) Any notice of redemption mailed to a holder of Series C
Preferred Stock at his address as the same appears on the books
of the Corporation shall be conclusively presumed to have been
given whether or not the holder receives the notice. Each such
notice shall state the redemption date; the number of shares of
Series C Preferred Stock to be redeemed, and, if less than all
shares of Series C Preferred Stock held by such holder are to be
redeemed, the number of such shares to be redeemed from such
holder and the fact that a new certificate or certificates
representing any unredeemed shares shall be issued without cost
to such holder; the redemption price applicable to the shares to
be redeemed; the place or places where such shares are to be
surrendered; and that dividends on shares to be redeemed shall
cease to accrue and accumulate on the redemption date. No
defect in any such notice as to any shares of Series C Preferred
Stock shall affect the validity of the proceedings for the
redemption of any other shares of Series C Preferred Stock.
(c) The Corporation shall not give notice of redemption of
Series C Preferred Stock after the record date for the payment
of any dividend on the Common Stock payable for the dividend
period in which the redemption date occurs unless the record
date for the payment of dividends on the Series C Preferred
Stock is the same as the record date for the payment of
dividends on the Common Stock.
(d) The Corporation may not purchase or redeem less than all
of the outstanding shares of Series C Preferred Stock and any
other series of Parity Stock unless all cumulating or accrued
dividends with respect to the shares of Series C Preferred Stock
and any Parity Stock which shall not be so redeemed or purchased
have either been paid or set aside for payment.
(e) If less than all of the outstanding shares of Series C
Preferred Stock are to be redeemed, the redemption may be made
either pro rata or by lot or in some other equitable manner as
may be prescribed by resolution of the Board of Directors.
(f) Any shares of Series C Preferred Stock called for
redemption pursuant to this paragraph (4) shall not be deemed to
be outstanding for the purposes of voting, determining the total
number of shares entitled to vote, or payment of dividends
thereon on or after the date on which the notice of redemption
is mailed to the holders thereof and a sum sufficient to redeem
such shares has been set apart for payment of the redemption
price upon surrender of the certificates therefor. Any money
set apart for such payment which is not required to redeem such
shares because of conversions shall be promptly returned to the
Corporation. In addition, any money set apart for such payment
which remains unclaimed for a period of six years after the
redemption date shall be repaid to the Corporation upon the
request of the Corporation as expressed by a resolution of the
Board of Directors. The holders of record of the shares so
called for redemption who have not made a claim against such
moneys prior to such repayment to the Corporation shall be
deemed to be unsecured creditors of the Corporation for an
amount equivalent to the amount set apart for payment of the
redemption price and so repaid to the Corporation, but in no
event shall any such holder be entitled to any interest thereon.
The Corporation shall be entitled to receive any interest paid
from time to time on the money so set apart.
(5) Conversion.
(a) Subject to and upon compliance with the provisions of this
paragraph (5), the holder of a share of Series C Preferred
Stock, shall have the right, at his option, at any time after
the issue date thereof, to convert such share into that number
of fully paid and nonassessable shares of Common Stock obtained
by dividing $50.00 by the Conversion Price and by surrender of
such share so to be converted, such surrender to be made in the
manner provided in subparagraph (b) of this paragraph (5);
provided, however, that the right to convert shares called for
redemption pursuant to paragraph (4) shall terminate at the
close of business on the date fixed for such redemption, unless
the Corporation shall default in making payment of the amount
payable upon such redemption.
(b) In order to exercise the conversion privilege, the holder
of each share of Series C Preferred Stock to be converted shall
surrender the certificate representing such share, duly endorsed
or assigned to the Corporation or in blank, at the office of the
transfer agent for the Series C Preferred Stock in the Borough
of Manhattan, City of New York, or at the office of any agent or
agents of the Corporation as may be designated by the Board of
Directors (the "Transfer Agent") accompanied by written notice
to the Corporation that the holder thereof elects to convert the
Series C Preferred Stock. Unless the shares issuable on
conversion are to be issued in the same name as the name in
which such share of Series C Preferred Stock is registered, each
share surrendered for conversion shall be accompanied by
instruments of transfer, in form satisfactory to the
Corporation, duly executed by the holder or such holder's duly
authorized attorney and an amount sufficient to pay any transfer
or similar tax (or evidence reasonably satisfactory to the
Corporation demonstrating that such taxes have been paid). In
the event that some but not all of the shares of the Series C
Preferred Stock represented by certificates surrendered by a
holder are converted, the Corporation shall execute and deliver
to or on the order of the holder, at the expense of the
Corporation, a new certificate representing the number of shares
of Series C Preferred Stock which were not converted.
Upon conversion of the Series C Preferred Stock, (i) no payment
shall be made on account of any dividends cumulating or accrued
and unpaid on such Series C Preferred Stock to the conversion
date, and (ii) no adjustment in the conversion rate will be made
on account of any such dividends. Notwithstanding the
foregoing, if any share of Series C Preferred Stock is converted
after any record date for the payment of a dividends on the
Series C Preferred Stock but before the due date for payment
therefor then (i) such dividend shall be payable on such due
date to the record holder of such share on such record date, and
(ii) such share, when surrendered for conversion, shall be
accompanied by payment of an amount equal to the dividend
payable on such due date on such share (unless such share has
been called for redemption prior to the due date for payment
therefor).
As promptly as practicable after the surrender of the
certificates for shares of Series C Preferred Stock as
aforesaid, the Corporation shall issue and shall deliver at such
office to such holder, or on his written order, a certificate or
certificates for the number of full shares of Common Stock
issuable upon the conversion of such shares in accordance with
the provisions of this paragraph (5), and any fractional
interest in respect of a share of Common Stock arising upon such
conversion shall be settled as provided in subparagraph (c) of
this paragraph (5).
Each conversion shall be deemed to have been effected
immediately prior to the close of business on the date on which
the certificates for shares of Series C Preferred Stock shall
have been surrendered and such notice received by the
Corporation as aforesaid, and the person or persons in whose
name or names any certificate or certificates for shares of
Common Stock shall be issuable upon such conversion shall be
deemed to have become the holder or holders of record of the
shares represented thereby at such time on such date and such
conversion shall be at the Conversion Price in effect at such
time on such date, unless the stock transfer books of the
Corporation shall be closed on that date, in which event such
person or persons shall be deemed to have become such holder or
holders of record at the opening of business on the next
succeeding day on which such stock transfer books are open, but
such conversion shall be at the Conversion Price in effect on
the date upon which such shares shall have been surrendered and
such notice received by the Corporation. All shares of Common
Stock delivered upon conversions of the Series C Preferred Stock
will upon delivery be duly and validly issued and fully paid and
nonassessable, free of all liens and charges and not subject to
any preemptive rights.
(c) No fractional shares or script representing fractions of
shares of Common Stock shall be issued upon conversion of the
Series C Preferred Stock. Instead of any fractional interest in
a share of Common Stock which would otherwise be deliverable
upon the conversion of a share of Series C Preferred Stock, the
Corporation shall pay to the holder of such share an amount in
cash (computed to the nearest cent) based upon the last reported
sales price (as defined in subparagraph (d)(iv) of this
paragraph (5)) of the Common Stock on the date of conversion.
If more than one share shall be surrendered for conversion at
one time by the same holder, the number of full shares of Common
Stock issuable upon conversion thereof shall be computed on the
basis of the aggregate liquidation preference of the shares of
Series C Preferred Stock so surrendered.
(d) The Conversion Price shall be adjusted from time to time as
follows:
(i) In case the Corporation shall after the issue date of
the Series C Preferred Stock (the "Issue Date") (A) pay a
dividend or make a distribution on its Common Stock in shares of
its Common Stock, (B) subdivide its outstanding Common Stock
into a greater number of shares, (C) combine its outstanding
Common Stock into a smaller number of shares or (D) issue any
shares of capital stock by reclassification of its Common Stock,
the Conversion Price in effect immediately prior thereto shall
be adjusted so that the holder of any share of Series C
preferred Stock thereafter surrendered for conversion shall be
entitled to receive the number of shares of Common Stock and
other shares of capital stock, if appropriate, of the
Corporation which such holder would have owned or have been
entitled to receive after the happening of any of the events
described above had such share been converted immediately prior
to the happening of such event or the record date therefor,
whichever is earlier. An adjustment made pursuant to this
clause (i) shall become effective immediately after the close of
business on the record date in the case of a dividend or
distribution (except as provided in subparagraph (i) below) and
shall become effective immediately after the effective date in
the case of a subdivision, combination or reclassification.
(ii) In case the Corporation shall issue after the Issue
Date rights or warrants to all holders of Common Stock entitling
them (for a period expiring within 45 days after the record date
mentioned below) to subscribe for or purchase Common Stock at a
price per share less than the then current market price per
share of Common Stock (as defined in clause (iv) below) at the
record date for the determination of shareholders entitled to
receive such rights or warrants, then in each such case the
Conversion Price in effect immediately prior thereto shall be
adjusted to equal the price determined by multiplying (I) the
Conversion Price in effect immediately prior to the date of
issuance of such rights or warrants by (II) a fraction, the
numerator of which shall be the sum of (A) the number of shares
of Common Stock outstanding on the record date for the issuance
of such rights or warrants and (B), the number of shares which
the aggregate proceeds from the exercise of such rights or
warrants for Common Stock would purchase at such current market
price, and the denominator of which shall be the sum of (A) the
number of shares of Common Stock outstanding on such record date
and (B), the number of additional shares of Common Stock offered
for subscription or purchase. Such adjustment shall be made
successively whenever any such rights or warrants are issued,
and shall become effective immediately after such record date
after the date of issuance thereof. In determining whether any
rights or warrants entitle the holders of Common Stock to
subscribe for or purchase shares of Common Stock at less than
such current market price, there shall be taken into account any
consideration received by the Corporation upon issuance and upon
exercise of such rights or warrants, the value of such consideration,
if other than cash, to be determined by the Board of Directors.
(iii) In case the Corporation shall distribute to all
holders of its Common Stock any shares of capital stock of the
Corporation (other than Common Stock) or evidences of its
indebtedness or assets (excluding cash dividends or
distributions paid from consolidated earnings or consolidated
earned surplus of the Corporation (determined in accordance with
generally accepted accounting principles, but excepting
quarterly Common Stock dividends at the rate of $.05 per share
or increases therein out of consolidated net income of the
Corporation determined in accordance with generally accepted
accounting principles for the period from the end of its most
recent fiscal year to the date of the most recent consolidated
quarterly financial statements of the Corporation as at the time
of the declaration of the dividend (herein called "Normal Cash
Dividends")) or rights or warrants to subscribe for or purchase
any of its securities (excluding those referred to in clause
(ii) above) (any of the foregoing being hereinafter in this
clause (iii) called the "Securities"), then in each such case,
unless the Corporation elects to reserve shares or other units
of such Securities for distribution to the holders of the Series
C Preferred Stock, upon the conversion of the shares of Series C
Preferred Stock, so that any such holder converting shares of
Series C Preferred Stock will receive upon such conversion, in
addition to the shares of the Common Stock to which such holder
is entitled, the amount and kind of such Securities which such
holder would have received if such holder had, immediately prior
to the record date for the distribution of the Securities,
converted its shares of Series C Preferred Stock into Common
Stock (such election to be based upon a determination by the
Board of Directors that such reservation will not materially
adversely affect the interests of any holder of Series C
Preferred Stock in any such reserved Securities), the Conversion
Price shall be adjusted so that the same shall equal the price
determined by multiplying (I) the Conversion Price in effect
immediately prior to the date of such distribution by (II) a
fraction, the numerator of which shall be the current market
price per share (as defined in clause (iv) below) of the Common
Stock on the record date mentioned below less the then fair
market value (as determined by the Board of Directors, whose
determination shall, if made in good faith, be conclusive) of
the portion of the capital stock or assets or evidences of
indebtedness so distributed or of such rights or warrants
applicable to one share of Common Stock, and the denominator of
which shall be the current market price per share (as defined in
clause (iv) below) of the Common Stock. Such adjustment shall
become effective immediately, except as provided in subparagraph
(i) below, after the record date for the determination of
shareholders entitled to receive such distribution.
(iv) For the purpose of any computation under clause (ii)
above, the current market price per share of Common Stock on any
date shall be deemed to be the average of the last reported
sales price for the thirty consecutive Trading Days commencing
forty-five Trading Days before the date in question. For the
purpose of any computation under clause (iii) above, the current
market price per share of Common Stock on any date shall be
deemed to be the average of the last reported sales price for
the ten consecutive Trading Days preceding the record date for
the distribution with respect to which such computation relates.
The last reported sales price for each day shall be the last
reported sales price regular way on The New York Stock Exchange,
or, if not reported for such Exchange, on the Composite Tape,
or, in case no such reported sale takes place one such day, the
average of the reported closing bid and asked quotations on The
New York Stock Exchange, or, if the Common Stock is not listed
on such Exchange or no such quotations are available, the
average of the high bid and low asked quotations in the
over-the-counter market as reported by the National Quotation
Bureau, Incorporated, or similar organization, or, if no such
quotations are available, the fair market value of such class of
stock as determined by a member firm of The New York Stock
Exchange selected by the Corporation.
(v) Notwithstanding anything in clauses (ii) or (iii) above,
if such rights or warrants shall by their terms provide for an
increase or increases with the passage of time or otherwise in
the price payable to the Corporation upon the exercise thereof,
the Conversion Price upon any such increase becoming effective
shall forthwith be readjusted (but to no greater extent than
originally adjusted by reason of such issuance or sale) to
reflect the same. Upon the expiration or termination of such
rights or warrants, if any such rights or warrants shall not
have been exercised, then the Conversion Price thereof shall
forthwith be readjusted and thereafter be the rate which it
would have been had an adjustment been made on the basis that
the only rights or warrants so issued or sold were those so
exercised and they were issued or sold for the consideration
actually received by the Corporation upon such exercise, plus
the consideration, if any, actually received by the Corporation
for the granting of all such rights or warrants whether or not
exercised. An adjustment made pursuant to this clause (v) shall
be made on the next Business Day following the date on which any
such issuance is made and shall be effective immediately after
the close of business on such date. For purposes of clauses
(ii) and (v), the aggregate consideration received by the
Corporation in connection with the issuance of rights or
warrants shall be deemed to be equal to the sum of the aggregate
offering price (before deduction of underwriting discounts or
commissions and expenses payable to third parties) of all such
securities plus the minimum aggregate amount, if any, payable
upon exercise of such rights or warrants.
(vi) No adjustment in the Conversion Price shall be required
unless such adjustment would require an increase or decrease of
at least 1% in such price; provided, however, that any
adjustments which by reason of this subparagraph (vi) are not
required to be made shall be carried forward and taken into
account in any subsequent adjustment; and provided, further, any
adjustment shall be required and made in accordance with the
provisions of this paragraph (5) (other than this clause (vi))
not later than such time as may be required in order to preserve
the tax-free nature of a distribution to the holders of shares
of Common Stock. All calculations under this paragraph (5)
shall be made to the nearest cent (with $.005 being rounded
upward) or to the nearest 1/100 of a share (with .005 of a share
being rounded upward), as the case may be. Anything in this
subparagraph (d) to the contrary notwithstanding, the
Corporation shall be entitled, to the extent permitted by law,
to make such reductions in the Conversion Price, in addition to
those required by this subparagraph (d), as it in its discretion
shall determine to be advisable in order that any stock,
dividends, subdivision of shares, distribution of rights or
warrants to purchase stock or securities, or a distribution of
other assets (other than cash dividends) hereafter made by the
Corporation to its stockholders shall not be taxable.
(e) Notwithstanding any other provision herein to the
contrary, if any Fundamental Change occurs, then the Conversion
Price in effect will be adjusted, in accordance with this
subparagraph (e), immediately after such Fundamental Change. In
addition, in the event of a Common Stock Fundamental Change,
each share of Series C Preferred Stock shall be convertible
solely into common stock of the kind received by holders of
Common Stock as the result of such Common Stock Fundamental
Change (the amount of such common stock to be determined in
accordance with this subparagraph (e)). The Corporation shall
not consent or agree to the occurrence of any Fundamental Change
until the Corporation has entered into an agreement with the
successor or purchasing entity, as the case may be, for the
benefit of the holders of the Series C Preferred Stock, which
shall contain provisions which will enable the holders of the
Series C Preferred Stock to convert into the consideration
received by holders of Common Stock at the Conversion Price
immediately after such Fundamental Change.
For purposes of calculating any adjustment to be made pursuant
to the preceding paragraph in the event of a Fundamental Change,
immediately after such Fundamental Change:
(A) in the case of a Non-Stock Fundamental Change, the
Conversion Price of the shares of Series C Preferred Stock shall
become the lower of (a) the then applicable Conversion Price
(after giving effect to any adjustments required pursuant to
subparagraph (d) of this paragraph (5) and (b) the result
obtained by multiplying the greater of the Applicable Price or
the then applicable Reference Market Price by (i) if such
Non-Stock Fundamental Change occurs on or after June 13, 1994 a
fraction of the numerator of which shall be $50.00 and the
denominator of which shall be the amount at which one share of
Series C Preferred Stock would be redeemed by the Corporation
pursuant to paragraph (4) if the redemption date were the date
of such Non-Stock Fundamental Change (such amount being the sum
of the redemption price set forth in paragraph (4) and any
accrued and accumulated and unpaid dividends); and (ii) if such
Non-Stock Fundamental Change occurs prior to June 13, 1994 a
fraction the numerator of which shall be $50.00 and the
denominator of which shall be the sum of the relevant amount
relating to one share of Series C Preferred Stock during the
twelve-month period beginning on June 13 in each of the
following years within which such Non-Stock Fundamental Change
occurs plus any accrued and accumulated and unpaid dividends:
<TABLE>
<CAPTION>
Year Amount
<S> <C>
1991 $55.00
1992 $54.50
1993 to and including June 12, 1994 $54.00
</TABLE>
(B) in the case of a Common Stock Fundamental Change, the
Conversion Price shall be the then applicable Conversion Price
after giving effect to any adjustment required pursuant to
subparagraph (d) of the paragraph (5) multiplied by a fraction,
the numerator of which is the Purchaser Stock Price and the
denominator of which is the Applied Price.
The provisions of this subparagraph (e) shall similarly apply
to successive Fundamental Changes.
(f) In case the Corporation shall be a party to any
transaction (including without limitation a merger,
consolidation, sale of all or substantially all of the
Corporation's assets, liquidation or recapitalization of the
Common Stock and excluding any transaction as to which
subparagraph d(i) of this paragraph (5) applies, each of the
foregoing being referred to as a "Transaction"), in each case
(except in the case of a Common Stock Fundamental Change) as a
result of which shares of Common Stock shall be converted into
the right to receive stock, securities or other property
(including cash or any combination thereof), each share of
Series C Preferred Stock shall thereafter be convertible into
the kind and amount of shares of stock and other securities and
property receivable (including cash) upon the consummation of
such Transaction by a holder of that number of shares of Common
Stock into which one share of Series C Preferred Stock was
convertible immediately prior to such Transaction (but after
giving effect to any adjustment required by subparagraph (e) of
this paragraph (5) if such Transaction constitutes a Fundamental
Change). The Corporation shall not be a party to any
Transaction unless the terms of such Transaction are consistent
with the provisions of this subparagraph (f) and it shall not
consent or agree to the occurrence of any Transaction until the
Corporation has entered into an agreement with the successor or
purchasing entity, as the case may be, for the benefit of the
holders of the Series C Preferred Stock which will contain
provisions enabling the holders of the Series C Preferred Stock
to convert into the consideration received by holders of Common
Stock at the Conversion Price immediately after such Transaction.
The provisions of this paragraph (f) shall similarly apply to
successive Transactions.
(g) If:
(i) the Corporation shall declare a dividend (or any other
distribution) on the Common Stock (other than in cash out of
consolidated earnings or consolidated earned surplus and Normal
Cash Dividends);
(ii) the Corporation shall authorize the granting to the
holders of the Common Stock of rights or warrants to subscribe
for or purchase any shares of any class or any other rights or
warrants; or
(iii) there shall be any reclassification of the Common Stock
(other than an event to which subparagraph (d)(i) of this
paragraph (5) applies) or any consolidation or merger to which
the Corporation is a party and for which approval of any
stockholders of the Corporation is required, or the sale or
transfer of all or substantially all of the assets of the
Corporation; or
(iv) there shall be any Fundamental Change;
then the Corporation shall cause to be filed with the Transfer
Agent for the Series C Preferred Stock, and shall cause to be
mailed to the holders of shares of the Series C Preferred Stock
at their addresses as shown on the stock books of the
Corporation, as promptly as possible, but at least 15 days,
prior to the applicable date hereinafter specified, a notice
stating (A) the date (or the manner of determining the date) on
which a record is to be taken for the purpose of such dividend,
distribution or rights or warrants, or, if a record is not to be
taken, the date (or the manner of determining the date) as of
which the holders of Common Stock of record to be entitled to
such dividend, distribution or rights or warrants are to be
determined or (B) the date on which such reclassification,
consolidation, merger, sale, transfer or Fundamental Change is
expected to become effective, and the date as of which it is
expected that holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock for securities
or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or Fundamental Change.
Failure to give such notice or any defect therein shall not
affect the legality or validity of the proceedings described in
this paragraph (5).
(h) Whenever the Conversion Price is adjusted, as herein
provided, the Corporation shall promptly file with any transfer
agent for the Series C Preferred Stock, an officers' certificate
setting forth the Conversion Price after such adjustment and
setting forth a brief statement of the facts requiring such
adjustment. Promptly after delivery of such certificate, the
Corporation shall prepare a notice of such adjustment of the
Conversion Price setting forth the adjusted Conversion Price and
the date on which such adjustment became effective and shall
mail such notice of such adjustment of the Conversion Price to
the holder of each share of Series C Preferred Stock at his last
address as shown on the stock books of the Corporation.
(i) In any case in which subparagraph (d) of this paragraph (5)
provides that an adjustment shall become effective immediately
after a record date for an event, the Corporation may defer
until the occurrence of such event (A) issuing to the holder of
any share of Series C Preferred Stock, converted after such
record date and before the occurrence of such event the
additional shares of Common Stock issuable upon such conversion
by reason of the adjustment required by such event over and
above the Common Stock issuable upon such conversion before
giving effect to such adjustment and (B) paying to such holder
any amount in cash in lieu of any fraction pursuant to
subparagraph (c) of this paragraph (5).
(j) For purposes of this paragraph (5), the number of shares of
Common Stock at any time outstanding shall not include any
shares of Common Stock then owned or held by or for the account
of the Corporation.
(k) There shall be no adjustment of the Conversion Price in
case of the issuance of any stock of the Corporation in a
reorganization, acquisition or other similar transaction except
as specifically set forth in this paragraph (5). If any action
or transaction would require adjustment of the Conversion Price
pursuant to more than one subparagraph of this paragraph (5),
only one adjustment shall be made and such adjustment shall be
the amount of adjustment which has the highest absolute value.
(l) In case the Corporation shall take any action affecting the
Common Stock, other than action described in this paragraph (5),
which in the opinion of the Board of Directors would materially
adversely affect the conversion rights of the holders of the
shares of Series C Preferred Stock, the Conversion Price for the
Series C Preferred Stock may be adjusted, to the extent
permitted by law, in such manner, if any, and at such time, as
the Board of Directors may determine to be equitable in the
circumstances. Failure of the Board of Directors to provide for
any such adjustment prior to the effective date of any such
action by the Corporation affecting the Common Stock shall be
evidence that such Board of Directors has determined that it is
equitable to make no adjustment in the circumstances.
(m) The Corporation covenants that it will at all times reserve
and keep available, free from preemptive rights, out of the
aggregate of its authorized but unissued shares of Common Stock,
for the purpose of effecting conversion of the Series C
Preferred Stock, the full number of shares of Common Stock
deliverable upon the conversion of all outstanding shares of
Series C Preferred Stock not theretofore converted.
Before taking any action which would cause an adjustment
reducing the Conversion Price below the then par value (if any)
of the shares of Common Stock deliverable upon conversion of the
Series C Preferred Stock, the Corporation will take any
corporate action which may, in the opinion of its counsel, be
necessary in order that the Corporation may validly and legally
issue fully paid and nonassessable shares of Common Stock at
such adjusted Conversion Price.
The Corporation will endeavor to list the shares of Common
Stock required to be delivered upon conversion of the Series C
Preferred Stock, prior to such delivery, upon each national
securities exchange, if any, upon which the outstanding Common
Stock is listed at the time of delivery.
(n) The Corporation will pay any and all documentary stamp or
similar issue or transfer taxes payable in respect of the issue
or delivery of shares of Common Stock on conversion of the
Series C Preferred Stock, pursuant hereto; provided, however,
that the Corporation shall not be required to pay any tax which
may be payable in respect of any transfer involved in the issue
or delivery of shares of Common Stock in a name other than that
of the holder of the Series C Preferred Stock to be converted
and no such issue or delivery shall be made unless and until the
person requesting such issue or delivery has paid to the
Corporation the amount of any such tax or has established, to
the reasonable satisfaction of the Corporation, that such tax
has been paid.
(o) For purposes of this paragraph (5), the following terms
shall have the meanings indicated:
"Applicable Price" means (i) in the event of a Non-Stock
Fundamental Change in which the holders of the Common Stock
receive only cash, the amount of cash received by the holder of
one share of Common Stock, and (ii) in the event of any other
Non-Stock Fundamental Change or any Common Stock Fundamental
Change, the average of the last reported sales price for the
Common Stock during the ten Trading Days immediately prior to
the record date for the determination of the holders of Common
Stock entitled to receive cash, securities, property or other
assets in connection with such Non-Stock Fundamental Change and
Common Stock Fundamental Change, or, if there is no such record
date, the date upon which the holders of the Common Stock shall
have the right to receive such cash, securities, property or
other assets.
"Common Stock Fundamental Change" means any Fundamental Change
in which more than 50% (by value as determined in good faith by
the Board of Directors) of the consideration received by holders
of Common Stock consists of common stock that for the
consecutive ten Trading Days immediately prior to such
Fundamental Change has been admitted for listing or that
immediately prior to such Common Stock Fundamental Change has
been admitted for listing subject to notice of issuance on a
national securities exchange or quoted on the National Market of
the National Association of Securities Dealers, Inc. Automated
Quotations System.
"Conversion Price" shall mean the conversion price per share
of Common Stock for which the Series C Preferred Stock is
convertible, as such Conversion Price may be adjusted pursuant
to paragraph (5). The initial conversion Price will be $12.025
per share of Common Stock.
"Fundamental Change" means the occurrence of any transaction or
event in connection with a plan pursuant to which all or
substantially all the Common Stock shall be exchanged for,
converted into, acquired for or constitute solely the right to
receive, cash or securities, property or other assets (whether
by means of an exchange offer, liquidation, tender offer,
consolidation, merger, combination, reclassification,
recapitalization or otherwise); provided that, in the case of a
plan involving more than one such transaction or event, for
purposes of adjustment of the Conversion Price, such Fundamental
Change shall be deemed to have occurred when substantially all
of the Common Stock of the Corporation shall be exchanged for,
converted into or acquired for or constitute solely the right to
receive cash, securities, property or other assets, but the
adjustment shall be based upon the consideration which the
holders of Common Stock received in such transaction or event as
a result of which more than 50% of the Common Stock of the
Corporation shall have been exchanged for, converted into or
acquired for or constitute solely the right to receive cash,
securities, property or other assets; provided, further,
however, that such term does not include (i) any such
transaction or event in which the Corporation and/or its
subsidiaries are the issuers of all the cash, securities,
property or other assets exchanged, acquired or otherwise issued
in such transaction or event, or (ii) any such transaction or
event in which the holders of Common Stock receive securities of
an issuer other than the Corporation if, immediately following
such transaction or event, the holders of Common Stock hold a
majority of the securities having the power to vote normally in
the election of directors of such other issuer outstanding
immediately following such transaction or other event.
"Non-Stock Fundamental Change" means any Fundamental Change
other than a Common Stock Fundamental Change.
"Purchaser Stock Price" means, with respect to any Common Stock
Fundamental Change, the average of the last reported sales price
(determined as set forth in subparagraph (d)(iv) of paragraph
(5)) for the common stock, on the principal national securities
exchange or National Market System on which such common stock is
listed, received in such Common Stock Fundamental Change during
the ten days which such exchange or system is open immediately
prior to the record date for the determination of the holders of
Common Stock entitled to receive such common stock, or if there
is no such record date, the date upon which the holders of the
Common Stock shall have the right to receive such common stock;
provided, however, if no such last reported sales price for the
common stock during the last ten days prior to the record date
exists, then the Purchaser Stock Price shall be set at a price
determined in good faith by the Board of Directors.
"Reference Market Price" shall initially mean $6.42 and in the
event of any adjustment to the Conversion Price pursuant to
paragraph (5) other than an adjustment pursuant to subparagraph
(e) thereof, the Reference Market Price shall also be adjusted
so that the ratio of the Reference Market Price to the
Conversion Price after giving effect to any such adjustment
shall always be the same as the ratio of $6.42 to the initial
Conversion Price (without regard to any adjustment thereto).
"Trading Day" means a day on which the principal national
securities exchange or National Market System on which the
Common Stock is listed or admitted to trading (currently the New
York Stock Exchange) is open for the transaction of business or,
if the Common Stock is not listed or admitted to trading on any
national securities exchange or National Market System, a
Business Day.
(6) Voting Rights.
Except as otherwise required by law, holders of shares of
Series C Preferred Stock shall have no voting rights; provided,
however, that:
(a)(i) If on the date used to determine stockholders of record
for any meeting of stockholders for the election of directors,
accrued dividends on the shares of Series C Preferred Stock or
any Parity Stock shall not have been paid in an aggregate amount
equal to or greater than two quarterly dividends on the shares
of Series C Preferred Stock or such Parity Stock at the time
outstanding, then and in any such event, the number of Directors
then constituting the entire Board of Directors of the
Corporation shall automatically be increased by two Directors
and the holders of shares of Series C Preferred Stock and the
holders of shares of Parity Stock, voting together as a single
class, shall be entitled at such meeting to fill such newly
created directorships. Such right to vote as a single class to
elect two Directors shall, when vested, continue until all
dividends in default on the shares of Series C Preferred Stock
and such Parity Stock, as the case may be, shall have been paid
in full and, when so paid, such right to elect two Directors
separately as a class shall cease, subject, always, to the same
provisions for the vesting of such right to elect two Directors
separately as a class in the case of future dividend defaults.
(ii) So long as any shares of Series C Preferred Stock are
outstanding the number of Directors of the Corporation shall at
all times be such that the exercise, by the holders of shares of
Series C Preferred Stock and the holders of shares of Parity
Stock, of the right to elect Directors under the circumstances
provided in clause (i) of this subparagraph (a) will not
contravene any provisions of the Maryland General Corporation
Law or the Charter of the Corporation.
(iii) Directors elected pursuant to clause (i) of this
subparagraph (a) shall serve until the earlier of (x) the next
annual meeting of the stockholders of the Corporation and the
election (by the holders of shares of Series C Preferred Stock
and Parity Stock) and qualification of their respective
successors or (y) the date upon which all dividends in default
on the shares of Series C Preferred Stock and such Parity Stock
shall have been paid in full. Directors elected pursuant to
clause (i) of this subparagraph (a) may be removed by, and shall
not be removed except by, the vote of the holders of record of
the outstanding shares of Series C Preferred Stock and Parity
Stock, voting together as a single class without regard to
series, at a meeting of the stockholders, or the holders of
shares of Series C Preferred Stock and Parity Stock, called for
that purpose. If, prior to the end of the term of any Director
elected as aforesaid, a vacancy in the office of such Director
shall occur during the continuance of a default in dividends on
the shares of Series C Preferred Stock or such Parity Stock by
reason other than removal, such vacancy shall be filled for the
unexpired term by the appointment by the remaining Director
elected as aforesaid of a new Director for the unexpired term of
such former Director.
(b)(i) Without the affirmative vote of the holders of at least
two-thirds of the votes entitled to be cast by the outstanding
shares of Series C Preferred Stock and Parity Stock, voting as a
single class, the Corporation may not:
(A) amend any provision of the Charter which would
materially adversely affect the voting powers (except as such voting
powers may be affected by the authorization of any new series of
Parity Stock having the same voting rights as the Series C Preferred
Stock or by the authorization of any other shares of any class which
are not entitled to vote together with the Series C Preferred Stock
in any class vote) or other rights or preferences of holders of the
shares of Series C Preferred Stock; or
(B) authorize or create any class of stock senior to the
Series C Preferred Stock as to dividends and upon liquidation.
(ii) Without the affirmative vote of the holders of at least a
majority of the votes entitled to be cast by the outstanding
shares of Series C Preferred Stock and Parity Stock, voting
together as a single class, the Corporation may not increase the
number of shares of Preferred Stock authorized in Article
SEVENTH of the Charter or create any other class of capital
stock of the Corporation ranking on a parity with the Preferred
Stock as to dividends and upon liquidation.
(c) For purposes of this paragraph (6) each share of Series C
Preferred Stock shall have one vote per share. Parity Stock
shall have the number of votes per share specified in the
Charter documents governing such Parity Stock.
(7) Reacquired Shares.
Shares of Series C Preferred Stock converted, redeemed, or
otherwise purchased or acquired by the Corporation shall be
restored to the status of authorized but unissued shares of
Preferred Stock without designation as to series.
(8) No Sinking Fund.
Shares of Series C Preferred Stock are not subject to the
operation of a sinking fund.
IN WITNESS WHEREOF, USF&G Corporation has caused these presents
to be signed in its name and on its behalf by its Chairman of
the Board and President and witnessed by its Secretary on June
18, 1991.
Witness: USF&G CORPORATION
William F. Spliedt Norman P. Blake, Jr.
Secretary Chairman of the Board and President
[CORPORATE SEAL]
THE UNDERSIGNED, Chairman of the Board and President of USF&G
Corporation, who executed on behalf of the Corporation Articles
Supplementary of which this certificate is made a part, hereby
acknowledges in the name and on behalf of said Corporation the
foregoing Articles Supplementary to be the corporate act of said
Corporation and hereby certifies that the matters and facts set
forth herein with respect to the authorization and approval
thereof are true in all material respects under the penalties of
perjury.
Norman P. Blake, Jr.
Chairman of the Board and President
<PAGE>
USF&G CORPORATION
ARTICLES OF AMENDMENT
USF&G CORPORATION, a Maryland corporation, having its principal
office in Baltimore City, Maryland (which is hereinafter called
the "Corporation"), hereby certifies to the State Department of
Assessments and Taxation of Maryland that:
FIRST: The Charter of the Corporation is hereby amended by
deleting Article SIXTH of the Articles of Incorporation in its
entirety and in lieu thereof substituting the following:
"SIXTH: The total number of shares of stock of all classes
which the Corporation has authority to issue is 252,000,000
having an aggregate par value of $1,200,000,000 of which
240,000,000 shares of the par value of $2.50 per share,
amounting in aggregate par value to $600,000,000, shall be
Common Stock, and 12,000,000 shares of the par value of $50.00
per share, amounting in aggregate par value to $600,000,000,
shall be Preferred Stock."
SECOND: (a) As of immediately before the amendment the total
number of shares of stock of all classes which the Corporation
has authority to issue is 132,000,000, having an aggregate par
value of $900,000,000, of which 120,000,000 shares of the par
value of $2.50 per share, amounting to an aggregate par value of
$300,000,000, designated as Common Stock, and 12,000,000 shares
of the par value of $50.00 per share, amounting to an aggregate
par value of $600,000,000, designated as Preferred Stock.
(b) As amended, the total number of shares of stock of all
classes which the Corporation has authority to issue is
252,000,000, having an aggregate par value of $1,200,000,000, of
which 240,000,000 shares of the par value of $2.50 per share,
amounting in aggregate par value to $600,000,000, shall be
Common Stock, and 12,000,000 shares of the par value of $50.00
per share, amounting in aggregate par value to $600,000,000,
shall be Preferred Stock.
(c) The aggregate par value of all shares having a par value
is $900,000,000 before the amendment and $1,200,000,000 as
amended.
(d) The shares of stock of the Corporation are divided into
classes, but the descriptions of each class of stock of the
Corporation are not changed by the amendment.
THIRD: The foregoing amendment to the Charter of the
Corporation has been advised by the Board of Directors and
approved by the stockholders of the Corporation.
FOURTH: The foregoing amendment to the Charter of the
Corporation shall be effective at the time these Articles of
Amendment are accepted for recording by the Maryland State
Department of Assessments and Taxation.
IN WITNESS WHEREOF, USF&G CORPORATION has caused these presents
to be signed in its name and on its behalf by its Chairman of
the Board and President and witnessed by its Secretary on May 7,
1992.
WITNESS: USF&G CORPORATION
By
John F. Hoffen, Jr. Norman P. Blake, Jr.
Secretary Chairman of the Board and
President
CERTIFICATION
THE UNDERSIGNED, Chairman of the Board and President of USF&G
Corporation, who executed on behalf of the Corporation the
foregoing Articles of Amendment of which this certificate is
made a part, hereby acknowledges in the name and on behalf of
said Corporation the foregoing Articles of Amendment to be the
corporate act of said Corporation and hereby certifies that to
the best of his knowledge, information, and belief the matters
and facts set forth therein with respect to the authorization
and approval thereof are true in all material respects under the
penalties of perjury.
Norman P. Blake, Jr.
Chairman of the Board and
President
USF&G CORPORATION
AND
CHEMICAL BANK,
TRUSTEE
INDENTURE
Dated as of January 28, 1994
___________________
Subordinated Debt Securities
USF&G CORPORATION
Reconciliation and tie between certain Sections of
this Indenture, dated as of January 28, 1994, and
Sections 310 through 318, inclusive, of
the Trust Indenture Act of 1939:
Trust Indenture Indenture
Act Section Section
Section 310(a)(1) 609
(a)(2) 609
(a)(3) Not Applicable
(a)(4) Not Applicable
(b) 608
610
Section 311(a) 613
(b) 613
Section 312(a) 701
702(a)
(b) 702(b)
(c) 702(c)
Section 313(a) 703(a)
(b) 703(a)
(c) 703(a)
(d) 703(b)
Section 314(a) 704
(a)(4) 101
1004
(b) Not Applicable
(c)(1) 102
(c)(2) 102
(c)(3) Not Applicable
(d) Not Applicable
(e) 102
Section 315(a) 601
_________________
NOTE: This reconciliation and tie shall not, for any purpose, be
deemed to be a part of the Indenture.
(b) 602
(c) 601
(d) 601
(e) 514
Section 316(a) 101
(a)(1)(A) 502
512
(a)(1)(B) 513
(a)(2) Not Applicable
(b) 508
(c) 104(c)
Section 317(a)(1) 503
(a)(2) 504
(b) 1003
Section 318(a) 107
TABLE OF CONTENTS
PAGE
PARTIES 1
RECITALS OF THE COMPANY 1
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 101. Definitions 1
Act 2
Authenticating Agent 2
Board of Directors 2
Board Resolution 2
Business Day 2
Commission 2
Common Stock 2
Company 3
Company Request 3
conversion price 3
Corporate Trust Office 3
Corporation 3
Covenant Defeasance 3
Debt 3
Defaulted Interest 4
Defeasance 4
Depositary 4
Event of Default 4
Exchange Act 4
Floating or Adjustable Rate Provision 4
Floating or Adjustable Rate Security 4
Foreign Government Obligations 4
Global Security 4
Hedging Obligations 4
Holder 4
Indenture 4
interest 5
Intercompany Debt 5
Interest Payment Date 5
Maturity 5
Notice of Default 5
- --------------
Note: This table of contents shall not, for any purpose, be
deemed to be part of the Indenture.
Officers' Certificate 5
Opinion of Counsel 5
Original Issue Discount Security 5
Outstanding 5
Paying Agent 6
Place of Payment 6
Predecessor Security 7
Principal Insurance Subsidiary 7
Proceeding 7
Redemption Date 7
Redemption Price 7
Regular Record Date 7
Responsible Officer 7
Securities 7
Security Register 7
Senior Debt 8
Special Record Date 8
Stated Maturity 8
Subsidiary 8
Trustee 8
Trust Indenture Act 8
U.S. Government Obligations 8
Vice President 9
Section 102. Compliance Certificates and Opinions 9
Section 103. Form of Documents Delivered to Trustee 9
Section 104. Acts of Holders; Record Dates 10
Section 105. Notices, Etc., to Trustee and Company 11
Section 106. Notice to Holders; Waiver 12
Section 107. Conflict with Trust Indenture Act 12
Section 108. Effect of Headings and Table of Contents 12
Section 109. Successors and Assigns 12
Section 110. Separability Clause 13
Section 111. Benefits of Indenture 13
Section 112. Governing Law 13
Section 113. Legal Holidays 13
Section 114. Personal Liability from Incorporators;
Stockholders 13
ARTICLE TWO
SECURITY FORMS
Section 201. Forms Generally 14
Section 202. Form of Face of Security 14
Section 203. Form of Reverse of Security 16
Section 204. Form of Legend for Global Securities 21
Section 205. Form of Trustee's Certificate of Authentication 21
Section 206. Form of Conversion Notice 22
ARTICLE THREE
THE SECURITIES
Section 301. Amount Unlimited; Issuable in Series 23
Section 302. Denominations 26
Section 303. Execution, Authentication, Delivery and Dating 26
Section 304. Temporary Securities 28
Section 305. Registration, Registration of Transfer and
Exchange 29
Section 306. Mutilated, Destroyed, Lost and Stolen Securities 30
Section 307. Payment of Interest; Interest Rights Preserved 31
Section 308. Persons Deemed Owners 32
Section 309. Cancellation 33
Section 310. Computation of Interest 33
ARTICLE FOUR
SATISFACTION AND DISCHARGE
Section 401. Satisfaction and Discharge of Indenture 33
Section 402. Application of Trust Fund 35
ARTICLE FIVE
REMEDIES
Section 501. Events of Default 35
Section 502. Acceleration of Maturity; Rescission and
Annulment 38
Section 503. Collection of Indebtedness and Suits for
Enforcement by Trustee 39
Section 504. Trustee May File Proofs of Claim 40
Section 505. Trustee May Enforce Claims Without Possession of
Securities 40
Section 506. Application of Money Collected 41
Section 507. Limitation on Suits 41
Section 508. Unconditional Right of Holders to Receive
Principal, Premium and Interest 42
Section 509. Restoration of Rights and Remedies 42
Section 510. Rights and Remedies Cumulative 42
Section 511. Delay or Omission Not Waiver 43
Section 512. Control by Holders 43
Section 513. Waiver of Past Defaults 44
Section 514. Undertaking for Costs 44
ARTICLE SIX
THE TRUSTEE
Section 601. Certain Duties and Responsibilities 44
Section 602. Notice of Defaults 45
Section 603. Certain Rights of Trustee 45
Section 604. Not Responsible for Recitals or Issuance of
Securities 46
Section 605. May Hold Securities 46
Section 606. Money Held in Trust 47
Section 607. Compensation and Reimbursement 47
Section 608. Disqualification; Conflicting Interests 48
Section 609. Corporate Trustee Required; Eligibility 48
Section 610. Resignation and Removal; Appointment of Successor 48
Section 611. Acceptance of Appointment by Successor 50
Section 612. Merger, Conversion, Consolidation or Succession
to Business 51
Section 613. Preferential Collection of ClaimsAgainst Company 51
Section 614 Appointment of Authenticating Agent 51
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 701. Company to Furnish Trustee Names and
Addresses of Holders 53
Section 702. Preservation of Information; Communications
to Holders 53
Section 703. Reports by Trustee 54
Section 704. Reports by Company 54
ARTICLE EIGHT
CONSOLIDATION, MERGER, OR SALE OF ASSETS
Section 801. Company May Consolidate, Etc., Only on Certain
Terms 54
Section 802. Successor Substituted 55
ARTICLE NINE
SUPPLEMENTAL INDENTURES
Section 901. Supplemental Indentures Without Consent of
Holders 56
Section 902. Supplemental Indentures with Consent of Holders 57
Section 903. Execution of Supplemental Indentures 59
Section 904. Effect of Supplemental Indentures 59
Section 905. Conformity with Trust Indenture Act 59
Section 906. Reference in Securities to Supplemental
Indentures 59
Section 907. Waiver of Compliance by Holders 60
Section 908. Subordination Unimpaired 60
ARTICLE TEN
COVENANTS
Section 1001. Payment of Principal, Premium and Interest 60
Section 1002. Maintenance of Office or Agency 60
Section 1003. Money for Securities Payments to Be Held
in Trust 61
Section 1004. Statement by Officers as to Default 62
Section 1005. Limitations on Liens on Common Stock of
Principal Insurance Subsidiaries 62
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
Section 1101. Applicability of Article 62
Section 1102. Election to Redeem; Notice to Trustee 63
Section 1103. Selection by Trustee of Securities to Be
Redeemed 63
Section 1104. Notice of Redemption 64
Section 1105. Deposit of Redemption Price 64
Section 1106. Securities Payable on Redemption Date 65
Section 1107. Securities Redeemed in Part 65
ARTICLE TWELVE
CONVERSION OF SECURITIES
Section 1201. Applicability of Article 66
Section 1202. Exercise of Conversion Privilege 66
Section 1203. No Fractional Shares 67
Section 1204. Adjustment of Conversion Price 68
Section 1205. Notice of Certain Corporate Actions 68
Section 1206. Reservation of Shares of Common Stock 69
Section 1207. Payment of Certain Taxes Upon Conversion 69
Section 1208. Nonassessability 69
Section 1209. Effect of Consolidation or Merger on
Conversion Privilege 70
Section 1210. Duties of Trustee Regarding Conversion 71
Section 1211. Repayment of Certain Funds Upon Conversion 71
ARTICLE THIRTEEN
DEFEASANCE AND COVENANT DEFEASANCE
Section 1301. Company's Option to Effect Defeasance or
Covenant Defeasance 71
Section 1302. Defeasance and Discharge 72
Section 1303. Covenant Defeasance 72
Section 1304. Conditions to Defeasance or Covenant Defeasance 73
Section 1305. Deposited Money and U.S. Government Obligations
or Foreign Government Obligations to be Held
In Trust; Other Miscellaneous Provisions 76
Section 1306. Reinstatement 76
ARTICLE FOURTEEN
SINKING FUNDS
Section 1401. Applicability of Article 77
Section 1402. Satisfaction of Sinking Fund Payments
with Securities 77
Section 1403. Redemption of Securities for Sinking Fund 78
ARTICLE FIFTEEN
SUBORDINATION OF SECURITIES
Section 1501. Securities Subordinate to Senior Debt 78
Section 1502. Payment Over of Proceeds Upon Dissolution, Etc. 78
Section 1503. Prior Payment to Senior Debt Upon Acceleration
of Securities 80
Section 1504. No Payment When Senior Debt in Default 80
Section 1505. Payment Permitted If No Default 81
Section 1506. Subrogation to Rights of Holders of Senior Debt 81
Section 1507. Provisions Solely to Define Relative Rights 82
Section 1508. Trustee to Effectuate Subordination 82
Section 1509. No Waiver of Subordination Provisions 82
Section 1510. Notice to Trustee 83
Section 1511. Reliance on Judicial Order or Certificate of
Liquidating Agent 84
Section 1512. Trustee Not Fiduciary For Holders of Senior
Debt 84
Section 1513. Rights of Trustee as Holder of Senior Debt;
Preservation of Trustee's Rights 84
Section 1514. Article Applicable to Paying Agents 84
Section 1515. Defeasance of This Article Fifteen 84
Section 1516. Certain Conversions Deemed Payment 85
TESTIMONIUM 86
SIGNATURES AND SEALS 86
ACKNOWLEDGEMENTS 87
INDENTURE, dated as of January 28, 1994, between
USF&G CORPORATION, a Maryland corporation (herein called the
"Company"), having its principal office at 100 Light Street,
Baltimore, Maryland 21202, and CHEMICAL BANK , a New York
corporation, as Trustee (herein called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the execution and delivery of
this Indenture to provide for the issuance from time to time of
its debentures, notes or other evidences of indebtedness (herein
called the "Securities"), to be issued in one or more series as
in this Indenture provided.
All things necessary to make this Indenture a valid agreement of
the Company, in accordance with its terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually agreed, for
the equal and proportionate benefit of all Holders of the
Securities or of series thereof, as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 101. Definitions.
For all purposes of this Indenture and of any indenture
supplemental hereto, except as otherwise expressly provided or
unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned
to them in this Article and include the plural as well as the
singular;
(2) all other terms used herein which are defined in the Trust
Indenture Act or the Securities Act of 1933, as amended, either
directly or by reference therein, have the meanings assigned to
them therein;
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted
accounting principles, and, except as otherwise herein expressly
provided, the term "generally accepted accounting principles"
with respect to any computation required or permitted hereunder
shall mean such accounting principles as are generally accepted
at the date of such computation;
(4) the words "Article" and "Section" refer to an Article and
Section, respectively, of this Indenture; and
(5) the words "herein", "hereof" and "hereunder" and other words
of similar import refer to this Indenture as a whole and not to
any particular Article, Section or other subdivision.
"Act", when used with respect to any Holder, has the
meaning specified in Section 104.
"Authenticating Agent" means any Person authorized by the Trustee
pursuant to Section 614 to act on behalf of the Trustee to authenticate
Securities of one or more series.
"Board of Directors" means either (i) the board of directors
of the Company, the executive committee of such board of directors
or any other duly authorized committee of directors and/or officers
appointed by such board of directors or executive committee, or (ii)
one or more duly authorized officers of the Company to whom the board of
directors of the Company or a committee thereof has delegated
the authority to act with respect to the matters contemplated by
this Indenture.
"Board Resolution" means (i) a copy of a resolution certified
by the Corporate Secretary or an Assistant Corporate Secretary of
the Company to have been duly adopted by the Board of Directors or
a committee thereof and to be in full force and effect on the date
of such certification or (ii) a certificate signed by the authorized
officer or officers of the Company to whom the board of directors of
the Company or a committee thereof has delegated its authority (as
described in the definition of Board of Directors), and in each case,
delivered to the Trustee.
"Business Day", when used with respect to any Place of
Payment, means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in that
Place of Payment are authorized or obligated by law, regulation
or executive order to close.
"Commission" means the Securities and Exchange Commission,
as from time to time constituted, created under the Exchange Act,
or, if at any time after the execution of this instrument such
Commission is not existing and performing the duties now assigned
to it under the Trust Indenture Act, then the body performing such
duties at such time.
"Common Stock" means, with respect to the Company, its common
stock, $2.50 par value per share, or any other shares of capital
stock of the Company into which the Common Stock shall be
reclassified or changed and with respect to any Principal Insurance
Subsidiary, stock of any class, however designated, except stock
which is non-participating beyond fixed dividend and liquidation
preferences and the holders of which have either no voting rights
or limited voting rights entitling them, only in the case of certain
contingencies, to elect less than a majority of the directors
(or persons performing similar functions) of such Principal
Insurance Subsidiary, and shall include securities of any class,
however designated, which are convertible into such Common Stock.
"Company" means the Person named as the "Company" in the first
paragraph of this instrument until a successor Person shall have
become such pursuant to the applicable provisions of this Indenture,
and thereafter "Company" shall mean such successor Person.
"Company Request" or "Company Order" means a written request
or order signed in the name of the Company by (i) any two of the
following individuals: the Chairman, the President, an Executive
Vice President or a Vice President, or (ii) by one of the foregoing
individuals and by any other Vice President, the Treasurer, an
Assistant Treasurer, the Corporate Secretary or an Assistant Corporate
Secretary or any other individual authorized by the Board of Directors for
such purpose, and delivered to the Trustee.
"conversion price" means the amount of Common Stock issuable
upon conversion of any Securities and, in the case of any specific
series of Securities, may be expressed in terms of either a
conversion price or a conversion rate.
"Corporate Trust Office" means the principal office of the
Trustee at which at any particular time its corporate trust
business shall be administered.
"Corporation" means a corporation, association, company,
joint-stock company, partnership or business trust.
"Covenant Defeasance" has the meaning specified in Section 1303.
"Debt" means (without duplication and without
regard to any portion of principal amount that has not accrued
and to any interest component thereof (whether accrued or
imputed) that is not due and payable) with respect to any
Person, whether recourse is to all or a portion of the assets of
such Person and whether or not contingent, (i) every obligation
of such Person for money borrowed, (ii) every obligation of such
Person evidenced by bonds, debentures, notes or other similar
instruments, including obligations incurred in connection with
the acquisition of property, assets or businesses, (iii) every
reimbursement obligation of such Person with respect to letters
of credit, bankers' acceptances or similar facilities issued for
the account of such Person, (iv) every obligation of such Person
issued or assumed as the deferred purchase price of property or
services (but excluding trade accounts payable or accrued
liabilities arising in the ordinary course of business), (v)
every capital lease obligation of such Person, (vi) every
Hedging Obligation, (vii) every obligation of others secured by
a lien on any asset of such Person, whether or not such
obligation is assumed by such Person, (viii) every obligation of
the type referred to in clauses (i) through (vii) of another
Person and all dividends of another Person the payment of which,
in either case, such Person has guaranteed or is responsible or
liable, directly or indirectly, as obligor or otherwise, and
(ix) any and all deferrals, renewals, extensions and refundings
of, or amendments, modifications or supplements to any liability
of the kind described in any of the preceding clauses (i)
through (viii).
"Defaulted Interest" has the meaning specified in Section 307.
"Defeasance" has the meaning specified in Section 1302.
"Depositary" means, with respect to Securities of any series
issuable in whole or in part in the form of one or more Global
Securities, a clearing agency registered under the Exchange Act
that is designated to act as Depositary for such Securities as
contemplated by Section 301.
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" means the Securities Exchange Act of 1934,
as amended from time to time, and any successor statute thereto.
"Floating or Adjustable Rate Provision" means a formula or provision,
specified in or pursuant to a Board Resolution or an indenture
supplemental hereto, providing for the determination, whether
pursuant to objective factors or pursuant to the sole discretion
of any Person (including the Company), and periodic adjustment
of the interest rate borne by a Floating or Adjustable Rate
Security.
"Floating or Adjustable Rate Security" means any Security which
provides for interest thereon at a periodic rate that may vary from time to
time over the term thereof in accordance with a Floating or
Adjustable Rate Provision.
"Foreign Government Obligations" has the meaning specified in
Section 1304.
"Global Security" means a Security that evidences all or
part of the Securities of any series and is authenticated and
delivered to, and registered in the name of, the Depositary for such
Securities or a nominee thereof.
"Hedging Obligations" means, with respect to any Person,
all obligations of such Person under (i) interest rate swap
agreements, interest rate cap agreements and interest rate
collar agreements, (ii) foreign exchange contracts, currency swap
agreements or similar agreements, and (iii) other agreements or
arrangements designed to protect such Person against fluctuations, or
otherwise to establish financial hedges in respect of, exchange rates,
currency rates or interest rates.
"Holder" means a Person in whose name a Security
is registered in the Security Register.
"Indenture" means this instrument as originally executed or
as it may from time to time be supplemented or amended by one or
more indentures supplemental hereto entered into pursuant to the
applicable provisions hereof, including, for all purposes of this
instrument, and any such supplemental indenture, the provisions of
the Trust Indenture Act that are deemed to be a part of and govern this
instrument and any such supplemental indenture, respectively.
The term "Indenture" shall also include the terms of particular
series of Securities established as contemplated by Section 301.
"interest", when used with respect to an Original Issue
Discount Security which by its terms bears interest only after
Maturity, means interest payable after Maturity.
"Intercompany Debt" means Debt of the Company to United
States Fidelity and Guaranty Company and its subsidiaries.
"Interest Payment Date", when used with respect to any Security,
means the Stated Maturity of an instalment of interest on such Security.
"Maturity", when used with respect to any Security, means
the date on which the principal of such Security or an instalment
of principal becomes due and payable as therein or herein provided,
whether at the Stated Maturity or by declaration of acceleration,
call for redemption or otherwise.
"Notice of Default" means a written notice of the kind
specified in Section 501(4).
"Officers' Certificate" means a certificate signed by (i)
any two of the following individuals: the Chairman, the President,
an Executive Vice President or a Vice President, or (ii) by one of
the foregoing individuals and by any other Vice President, the
Treasurer, an Assistant Treasurer, the Corporate Secretary or an
Assistant Corporate Secretary, of the Company, or any other individual
authorized by the Board of Directors for such purpose, and delivered
to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who
may be an employee of or counsel to the Company or other counsel,
and who is reasonably satisfactory to the Trustee.
"Original Issue Discount Security" means any Security which
provides for an amount less than the principal amount thereof to be
due and payable upon a declaration of acceleration of the Maturity
thereof pursuant to Section 502.
"Outstanding", when used with respect to Securities, means,
as of the date of determination, all Securities theretofore
authenticated and delivered under this Indenture, except:
(i) Securities theretofore cancelled by the Trustee or
delivered to the Trustee for cancellation;
(ii) Securities for whose payment or redemption money in the
necessary amount has been theretofore deposited with the Trustee
or any Paying Agent (other than the Company) in trust or set
aside and segregated in trust by the Company (if the Company
shall act as its own Paying Agent) for the Holders of such
Securities; provided that, if such Securities are to be
redeemed, notice of such redemption has been duly given pursuant
to this Indenture or provision therefor satisfactory to the
Trustee has been made;
(iii) Securities as to which Defeasance has been effected
pursuant to Section 1302; and
(iv) Securities which have been paid pursuant to Section 306 or
in exchange for or in lieu of which other Securities have been
authenticated and delivered pursuant to this Indenture, other
than any such Securities in respect of which there shall have
been presented to the Trustee proof satisfactory to it that such
Securities are held by a bona fide purchaser in whose hands such
Securities are valid obligations of the Company;
provided, however, that in determining whether the Holders of
the requisite principal amount of the Outstanding Securities
have given any request, demand, authorization, direction,
notice, consent or waiver hereunder, (A) the principal amount of
an Original Issue Discount Security that shall be deemed to be
Outstanding shall be the amount of the principal thereof that
would be due and payable as of the date of such determination
upon acceleration of the Maturity thereof pursuant to Section
502, (B) the principal amount of a Security denominated in one
or more foreign currencies or currency units shall be the U.S.
dollar equivalent, determined in the manner provided as
contemplated by Section 301 on the date of original issuance of
such Security, of the principal amount (or, in the case of an
Original Issue Discount Security, the U.S. dollar equivalent on
the date of original issuance of such Security of the amount
determined as provided in (A) above) of such Security, and (C)
Securities owned by the Company or any other obligor upon the
Securities or any Subsidiary of the Company or of such other
obligor shall be disregarded and deemed not to be Outstanding,
except that, in determining whether the Trustee shall be
protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only
Securities which the Trustee knows to be so owned shall be so
disregarded. Securities so owned which have been pledged in
good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgee's
right so to act with respect to such Securities and that the
pledgee is not the Company or any other obligor upon the
Securities or any Subsidiary of the Company or of such other
obligor.
"Paying Agent" means any Person authorized
by the Company to pay the principal of or any premium or
interest on any Securities on behalf of the Company.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated
organization or government or any agency or political
subdivision thereof.
"Place of Payment", when used with respect to the Securities
of any series, means the place or places where the principal of and
any premium and interest on the Securities of that series are payable
as specified as contemplated by Section 301.
"Predecessor Security" of any particular Security means every
previous Security evidencing all or a portion of the same debt as that
evidenced by such particular Security; and, for the purposes of this
definition, any Security authenticated and delivered under Section 306 in
exchange for or in lieu of a mutilated, destroyed, lost or
stolen Security shall be deemed to evidence the same debt as the
mutilated, destroyed, lost or stolen Security.
"Principal Insurance Subsidiary" means only United States
Fidelity and Guaranty Company and Fidelity and Guaranty Life
Insurance Company, and any other Subsidiary of the Company which
shall hereafter succeed by merger or otherwise to a major part of
the business of one or more of the Principal Insurance Subsidiaries. The
decision as to whether a Subsidiary shall have succeeded to a
major part of the business of one or more of the Principal
Insurance Subsidiaries shall be made in good faith by the board
of directors of the Company or a committee thereof by the
adoption of a resolution so stating, and the Company shall
within 30 days of the date of the adoption of such resolution
deliver to the Trustee a copy thereof, certified by the
Corporate Secretary or an Assistant Corporate Secretary of the
Company.
"Proceeding" has the meaning specified in Section 1502.
"Redemption Date", when used with respect to any Security to
be redeemed, means the date fixed for such redemption by or pursuant
to this Indenture.
"Redemption Price", when used with respect to any Security
to be redeemed, means the price at which it is to be redeemed
pursuant to this Indenture.
"Regular Record Date" for the interest payable on any Interest
Payment Date on the Securities of any series means the date specified
for that purpose as contemplated by Section 301.
"Responsible Officer", when used with respect to the Trustee,
means the chairman or any vice-chairman of the board of directors,
the chairman or any vice-chairman of the executive committee of the
board of directors, the chairman of the trust committee, the president,
any vice president, the secretary, any assistant secretary, the
treasurer, any assistant treasurer, the cashier, any assistant
cashier, any trust officer or assistant trust officer, the
controller or any assistant controller or any other officer of
the Trustee customarily performing functions similar to those
performed by any of the above designated officers and also
means, with respect to a particular corporate trust matter, any
other officer to whom such matter is referred because of his or
her knowledge of and familiarity with the particular subject.
"Securities" has the meaning stated in the first recital
of this Indenture and more particularly means any
Securities authenticated and delivered under this Indenture.
"Security Register" and "Security Registrar" have the
respective meanings specified in Section 305.
"Senior Debt" means the principal of (and premium, if any) and
interest, if any, (including interest accruing on or after the filing
of any petition in bankruptcy or for reorganization relating to the
Company to the extent that such claim for post-petition interest is
allowed in such proceeding) payable on, and fees, expenses, reimbursement
obligations, indemnity obligations and other amounts due on or
in connection with any Debt, incurred, assumed or guaranteed by
the Company whether on or prior to the date of the Indenture or
thereafter incurred, assumed or guaranteed, unless, in the
instrument creating or evidencing the same or pursuant to which
the same is outstanding, it is provided that such obligations
are not superior in right of payment to the Securities or to
other Debt which is pari passu with, or subordinated to the
Securities; provided, however, that Senior Debt shall not be
deemed to include (i) the Securities, (ii) intercompany debt of
the Company to any Subsidiary other than United States Fidelity
and Guaranty Company and its subsidiaries or (iii) Intercompany
Debt in excess of $250,000,000.
"Special Record Date" for the payment of any Defaulted
Interest means a date fixed by the Trustee pursuant to Section 307.
"Stated Maturity", when used with respect to any Security or any
instalment of principal thereof or interest thereon, means the date
specified in such Security as the fixed date on which the principal of
such Security or such instalment of principal or interest is due and payable.
"Subsidiary" means a corporation more than 50% of the voting
power of which is controlled, directly or indirectly, by the Company
or by one or more other Subsidiaries, or by the Company and one or
more other Subsidiaries. For the purposes of this definition,
"voting power" means the power to vote for the election of directors,
whether at all times or only so long as no senior class of stock has
such voting power by reason of any contingency.
"Trustee" means the Person named as the "Trustee" in the
first paragraph of this instrument until a successor Trustee shall
have become such pursuant to the applicable provisions of this Indenture,
and thereafter "Trustee" shall mean or include each Person who is then a
Trustee hereunder, and if at any time there is more than one
such Person, "Trustee" as used with respect to the Securities of
any series shall mean the Trustee with respect to Securities of
that series.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as
in force at the date as of which this instrument was executed;
provided, however, that in the event the Trust Indenture Act of 1939
is amended after such date, "Trust Indenture Act" means, to the extent
required by any such amendment, the Trust Indenture Act of 1939 as
so amended.
"U.S. Government Obligations" has the meaning specified in Section 1304.
"Vice President", when used with respect to the Company or the
Trustee, means any vice president, whether or not designated by a
number or a word or words added before or after the title "vice president".
"Section 102. Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee to
take any action under any provision of this Indenture, the
Company shall furnish to the Trustee such certificates and
opinions as may be required under the Trust Indenture Act. Each
such certificate or opinion shall be given in the form of an
Officers' Certificate, if to be given by an officer of the
Company, or an Opinion of Counsel, if to be given by counsel,
and shall comply with the requirements of the Trust Indenture
Act and any other requirements set forth in this Indenture.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (excluding
certificates provided for in Section 1004) shall include:
(1) a statement that each individual signing such certificate
or opinion has read such covenant or condition and the
definitions herein relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or
opinions contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such individual,
such individual has made such examination or investigation as is
necessary to enable such individual to express an informed
opinion as to whether or not such covenant or condition has been
complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
Section 103. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified
by, or covered by an opinion of, any specified Person, it is not
necessary that all such matters be certified by, or covered by
the opinion of, only one such Person, or that they be so
certified or covered by only one document, but one such Person
may certify or give an opinion with respect to some matters and
one or more other such Persons as to other matters, and any such
Person may certify or give an opinion as to such matters in one
or several documents.
Any certificate or opinion of an officer of the Company may be
based, insofar as it relates to legal matters, upon a
certificate or opinion of, or representations by, counsel,
unless such officer knows, or in the exercise of reasonable care
should know, that the certificate or opinion or representations
with respect to the matters upon which its certificate or
opinion is based are erroneous. Any such certificate or opinion
of counsel may be based, insofar as it relates to factual
matters, upon a certificate or opinion of, or representations
by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the
possession of the Company, unless such counsel knows, or in the
exercise of reasonable care should know, that the certificate or
opinion or representations with respect to such matters are
erroneous.
Any certificate, statement or opinion of an officer of the
Company or of counsel may be based, insofar as it relates to
accounting matters, upon a certificate, opinion or
representation by an accountant or firm of accountants in the
employ of the Company, unless such officer or counsel, as the
case may be, knows, or in the exercise of reasonable care should
know, that the certificate, opinion or representation with
respect to such accounting matters upon which its certificate,
statement or opinion may be based is erroneous.
Where any Person is required to make, give or execute two or
more applications, requests, consents, certificates, statements,
opinions or other instruments under this Indenture, they may,
but need not, be consolidated and form one instrument.
"Section 104. Acts of Holders; Record Dates.
(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided or permitted by this
Indenture to be given or taken by Holders may be embodied in and
evidenced by one or more instruments of substantially similar
tenor signed by such Holders in person or by agent duly
appointed in writing; and, except as herein otherwise expressly
provided, such action shall become effective when such
instrument or instruments are delivered to the Trustee and,
where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act"
of the Holders signing such instrument or instruments. Proof of
execution of any such instrument or of a writing appointing any
such agent shall be sufficient for any purpose of this Indenture
and (subject to Section 601) conclusive in favor of the Trustee
and the Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any
such instrument or writing may be proved in any reasonable
manner which the Trustee deems sufficient.
(c) The Company may, in the circumstances permitted by the
Trust Indenture Act, fix any day as the record date for the
purpose of determining the Holders of Outstanding Securities of
any series entitled to give or take any request, demand,
authorization, direction, notice, consent, waiver or other
action, or to vote on any action, authorized or permitted to be
given or taken by Holders of Outstanding Securities of such
series. If not set by the Company prior to the first
solicitation of a Holder of Securities of such series made by
any Person in respect of any such action, or, in the case of any
such vote, prior to such vote, the record date for any such
action or vote shall be the 30th day (or, if later, the date of
the most recent list of Holders required to be provided pursuant
to Section 701) prior to such first solicitation or vote, as the
case may be. With regard to any record date for action to be
taken by the Holders of one or more series of Securities, only
the Holders of Securities of such series on such date (or their
duly designated proxies) shall be entitled to give or take, or
vote on, the relevant action.
(d) The ownership of Securities shall be proved by the Security
Register or by a certificate of the Security Registrar.
(e) Any request, demand, authorization, direction, notice,
consent, waiver or other Act of the Holder of any Security shall
bind every future Holder of the same Security and the Holder of
every Security issued upon the registration of transfer thereof
or in exchange therefor or in lieu thereof in respect of
anything done, omitted or suffered to be done by the Trustee or
the Company in reliance thereon, whether or not notation of such
action is made upon such Security.
(f) Without limiting the foregoing, a Holder entitled hereunder
to give or take any action hereunder with regard to any
particular Security may do so with regard to all or any part of
the principal amount of such Security or by one or more duly
appointed agents each of which may do so pursuant to such
appointment with regard to all or any different part of such
principal amount.
"Section 105. Notices, Etc., to Trustee and Company".
Any request, demand, authorization, direction, notice, consent,
waiver or Act of Holders or other document provided or permitted
by this Indenture to be made upon, given or furnished to, or
filed with,
(1) the Trustee by any Holder or by the Company shall be
sufficient for every purpose hereunder if made, given, furnished
or filed in writing to or with the Trustee at 450 West 33rd
Street, New York, New York 10001, Attention: Corporate Trust
Group, 15th Floor, or
(2) the Company by the Trustee or by any Holder shall be
sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if in writing and mailed, first-class
postage prepaid, to the Company addressed to it at the address
of its principal office specified in the first paragraph of this
instrument, Attention: Treasurer, (until another address is
furnished in writing to the Trustee by the Company).
"Section 106. Notice to Holders; Waiver".
Where this Indenture provides for notice to Holders of any
event, such notice shall be sufficiently given (unless otherwise
herein expressly provided) if in writing and mailed, first-class
postage prepaid, to each Holder affected by such event, at its
address as it appears in the Security Register, not later than
the latest date (if any), and not earlier than the earliest date
(if any), prescribed for the giving of such notice; provided,
however, that the Company or the Trustee, upon a good faith
determination that mailing is in the circumstances impractical,
may give such notice by any other method which, in the
reasonable belief of the Company or, in the case of the Trustee,
of the Company and the Trustee, is likely to be received by the
Holders. In any case where notice to Holders is given by mail,
neither the failure to mail such notice, nor any defect in any
notice so mailed, to any particular Holder shall affect the
sufficiency of such notice with respect to other Holders. Where
this Indenture provides for notice in any manner, such notice
may be waived in writing by the Person entitled to receive such
notice, either before or after the event, and such waiver shall
be the equivalent of such notice. Waivers of notice by Holders
shall be filed with the Trustee, but such filing shall not be a
condition precedent to the validity of any action taken in
reliance upon such waiver.
In case by reason of the suspension of regular mail service or
by reason of any other cause it shall be impracticable to give
such notice by mail, then such notification as shall be made
with the approval of the Trustee shall constitute a sufficient
notification for every purpose hereunder.
Section 107. Conflict with Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with a
provision of the Trust Indenture Act that is required under such
Act to be a part of and govern this Indenture, the latter
provision shall control. If any provision of this Indenture
modifies or excludes any provision of the Trust Indenture Act
that may be so modified or excluded, the latter provision shall
be deemed to apply to this Indenture as so modified or to be
excluded, as the case may be.
Section 108. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of
Contents are for convenience only and shall not affect the
construction hereof.
Section 109. Successors and Assigns.
All covenants and agreements in this Indenture by the Company
shall bind its successors and assigns, whether so expressed or
not.
Section 110. Separability Clause.
In case any provision in this Indenture or in the Securities
shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall
not in any way be affected or impaired thereby.
Section 111. Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or
implied, shall give to any Person, other than the parties hereto
and their successors hereunder and the Holders, any benefit or
any legal or equitable right, remedy or claim under this
Indenture.
Section 112. Governing Law.
This Indenture and the Securities shall be governed by and
construed in accordance with the laws of the State of New York,
but without regard to principles of conflicts of laws.
Section 113. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date or
Stated Maturity of any Security or the last day on which a
Holder has the right to convert a Security at a particular
conversion price shall not be a Business Day at any Place of
Payment, then (notwithstanding any other provision of this
Indenture or of the Securities (other than a provision of the
Securities of any series which specifically states that such
provision shall apply in lieu of this Section)) payment of
interest or principal (and premium, if any) or conversion need
not be made at such Place of Payment on such date, but may be
made on the next succeeding Business Day at such Place of
Payment with the same force and effect as if made on the
Interest Payment Date or Redemption Date, or at the Stated
Maturity, provided that no interest shall accrue with respect to
such payment for the period from and after such Interest Payment
Date, Redemption Date or Stated Maturity, as the case may be.
Section 114. Personal Immunity from Liability for
Incorporators, Stockholders, Etc.
No recourse shall be had for the payment of the principal of or
premium, if any, or interest, if any, on any Security, or for
any claim based thereon, or otherwise in respect of any
Security, or based on or in respect of this Indenture or any
indenture supplemental hereto, against any incorporator, or
against any past, present or future stockholder, director or
officer, as such, of the Company or of any successor
corporation, whether by virtue of any constitution, statute or
rule of law, or by the enforcement of any assessment or penalty
or otherwise, all such liability being expressly waived and
released as a condition of, and as consideration for, the
execution of this Indenture and the issue of the Securities.
ARTICLE TWO
SECURITY FORMS
Section 201. Forms Generally.
The Securities of each series shall be in substantially the form
set forth in this Article, or in such other form as shall be
established by or pursuant to a Board Resolution or in one or
more indentures supplemental hereto, in each case with such
appropriate insertions, omissions, substitutions and other
variations as are required or permitted by this Indenture, and
may have such letters, numbers or other marks of identification
and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange or
as may, consistent herewith, be determined by the officers
executing such Securities, as evidenced by their execution of
the Securities. If the form of Securities of any series is
established by action taken pursuant to a Board Resolution, a
copy of an appropriate record of such action shall be certified
by the Corporate Secretary or an Assistant Corporate Secretary
of the Company and delivered to the Trustee at or prior to the
delivery of the Company Order contemplated by Section 303 for
the authentication and delivery of such Securities.
The definitive Securities shall be printed, lithographed or
engraved on steel engraved borders or may be produced in any
other manner, all as determined by the officers executing such
Securities, as evidenced by their execution of such Securities.
Section 202. Form of Face of Security.
(Insert any legend required by the Internal Revenue Code and the
regulations thereunder.)
USF&G CORPORATION
No. _____________________ $___________________
USF&G CORPORATION, a Maryland corporation (herein called the
"Company", which term includes any successor Person under the
Indenture hereinafter referred to), for value received, hereby
promises to pay to ------------ or registered
assigns, the principal sum of --------- dollars (if
other than Dollars, substitute other currency or currency units)
(if the Security is to bear interest prior to Maturity, insert--,
and to pay interest thereon from -----------------------
or from the most recent Interest Payment Date to which interest
has been paid or duly provided for, semi-annually on
- ------------------ and --------------- in each year) (if
other than semi-annual payments, insert frequency of payments
and payment dates), commencing --------------, at (if the
Security is to bear interest at a fixed rate, insert -- the rate
of -----% per annum) (if the Security is a Floating or Adjustable
Rate Security, insert -- a rate per annum computed-determined
in accordance with, -- insert defined name of Floating or
Adjustable Rate Provision set forth below) (if the security is
to bear interest at a rate determined with reference to an
index, refer to description of index below) until the principal
hereof is paid or made available for payment (if applicable,
insert -- , and (to the extent that the payment of such interest
shall be legally enforceable) at the rate of ------% per annum on
any overdue principal and premium and on any overdue instalment
of interest.) The interest so payable, and punctually paid or
duly provided for, on any Interest Payment Date will, as
provided in such Indenture, be paid to the Person in whose name
this Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date
for such interest, which shall be the ------------- or -----------
(whether or not a Business Day), as the case may
be, next preceding such Interest Payment Date. Any such
interest not so punctually paid or duly provided for will
forthwith cease to be payable to the Holder on such Regular
Record Date and may either be paid to the Person in whose name
this Security (or one or more Predecessor Securities) is
registered at the close of business on a Special Record Date for
the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to Holders of Securities
of this series not less than 10 days prior to such Special
Record Date, or be paid at any time in any other lawful manner
not inconsistent with the requirements of any securities
exchange on which the Securities of this series may be listed,
and upon such notice as may be required by such exchange, all as
more fully provided in said Indenture.
The indebtedness evidenced by this Security is, to the extent
provided in the Indenture, subordinate and subject in right of
payment to the prior payment in full of all Senior Debt, and
this Security is issued subject to the provisions of the
Indenture with respect thereto. Each Holder of this Security,
by accepting the same, (a) agrees to and shall be bound by such
provisions, (b) authorizes and directs the Trustee on his behalf
to take such action as may be necessary or appropriate to
effectuate the subordination so provided and (c) appoints the
Trustee his attorney-in-fact for any and all such purposes.
(If the Securities are Floating or Adjustable Rate Securities
with respect to which the principal of or any premium or
interest may be determined with reference to an index, insert
the text of the Floating or Adjustable Rate Provision.)
(If the Security is not to bear interest prior to Maturity,
insert -- The principal of this Security shall not bear interest
except in the case of a default in payment of principal upon
acceleration, upon redemption or at Stated Maturity and in such
case the overdue principal of this Security shall bear interest
at the rate of ------% per annum compounded semi-annually (to the
extent that the payment of such interest shall be legally
enforceable), which shall accrue from the date of such default
in payment to the date payment of such principal, including
interest thereon, has been made or duly provided for. All
interest on any overdue principal shall be payable on demand.
Any such interest on any overdue principal that is not so paid
on demand shall bear interest at the rate of -------% per annum
(to the extent that the payment of such interest shall be
legally enforceable), which shall accrue from the date of such
demand for payment to the date payment of such interest has been
made or duly provided for, and such interest shall also be
payable on demand.)
Payment of the principal of (and premium, if any) and (if
applicable, insert -- any such interest on this Security) will
be made at the office or agency of the Company maintained for
that purpose in -----------------, in such coin or currency
of the United States of America (if the Security is denominated
in a currency other than U.S. dollars, specify other currency or
currency unit in which payment of the principal of and any
premium or interest may be made] as at the time of payment is
legal tender for payment of public and private debts (if
applicable, insert -- ; provided, however, that at the option of
the Company payment of interest may be made by check mailed to
the address of the Person entitled thereto as such address shall
appear in the Security Register).
Reference is hereby made to the further provisions of this
Security set forth on the reverse hereof, which further
provisions shall for all purposes have the same effect as if set
forth at this place.
Unless the certificate of authentication hereon has been
executed by the Trustee referred to on the reverse hereof by
manual signature, this Security shall not be entitled to any
benefit under the Indenture or be valid or obligatory for any
purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be
duly executed under its corporate seal.
Dated: USF&G CORPORATION
By:________________________________
Attest:
_______________________________
Section 203. Form of Reverse of Security.
This Security is one of a duly authorized issue of
securities of the Company (herein called the "Securities"), issued
and to be issued in one or more series under an Indenture, dated as
of __________ (herein called the "Indenture"), between the Company
and _________, as Trustee (herein called the "Trustee", which term
includes any successor trustee under the Indenture), to which
Indenture and all indentures supplemental thereto reference is
hereby made for a statement of the respective rights, limitations
of rights, obligations, duties and immunities thereunder of the
Company, the Trustee and the Holders of the Securities and of the
terms upon which the Securities are, and are to be, authenticated
and delivered. This Security is one of the series designated on the
face hereof(, limited in aggregate principal amount to $_________).
(If applicable, insert -- The Securities of this series are subject
to redemption upon not less than 30 days' nor more than 60 days'
notice by mail, (if applicable, insert -- (1) on _______ in any
year commencing with the year ____ and ending with the year ______
through operation of the sinking fund for this series at a
Redemption Price equal to 100% of the principal amount, and (2))
at any time on or after ______, 19__), as a whole or in part,
at the election of the Company, at the following Redemption
Prices (expressed as percentages of the principal amount): If
redeemed (on or before ______, __%, and if redeemed) during the
12-month period beginning ______ of the years indicated,
Redemption Redemption
Year Price Year Price
and thereafter at a Redemption Price equal to ___% of the principal
amount, together in the case of any such redemption (if applicable,
insert -- (whether through operation of the sinking fund or
otherwise)) with accrued interest to the Redemption Date, but
interest installments whose Stated Maturity is on or prior to such
Redemption Date will be payable to the Holders of such Securities,
or one or more Predecessor Securities, of record at the close of
business on the relevant Record Dates referred to on the face
hereof, all as provided in the Indenture.)
(If applicable, insert -- The Securities of this series are
subject to redemption upon not less than 30 days' nor more than
60 days' notice by mail, (1) on ________ in any year commencing
with the year ____ and ending with the year ____ through
operation of the sinking fund for this series at the Redemption
Prices for redemption through operation of the sinking fund
(expressed as percentages of the principal amount) set forth
in the table below, and (2) at any time on or after______, as a
whole or in part, at the election of the Company, at the
Redemption Prices for redemption otherwise than through
operation of the sinking fund (expressed as percentages of the
principal amount) set forth in the table below: If redeemed
during the 12-month period beginning ______ of the years indicated,
Redemption Price Redemption Price For
For Redemption Redemption Otherwise
Through Operation Than Through Operation
Year of the Sinking Fund of the Sinking Fund
and thereafter at a Redemption Price equal to ___% of the principal
amount, together in the case of any such redemption (whether
through operation of the sinking fund or otherwise) with accrued
interest to the Redemption Date, but interest installments whose
Stated Maturity is on or prior to such Redemption Date will be
payable to the Holders of such Securities, or one or more
Predecessor Securities, of record at the close of business on
the relevant Record Dates referred to on the face hereof, all as
provided in the Indenture.)
(The sinking fund for this series provides for the
redemption on _______ in each year beginning with the year ____
and ending with the year ____ of (not less than $_______
("mandatory sinking fund") and not more than $______) aggregate
principal amount of Securities of this series. Securities of
this series acquired or redeemed by the Company otherwise than
through (mandatory) sinking fund payments may be credited against
subsequent (mandatory) sinking fund payments otherwise required
to be made in the inverse order in which they become due.)
(If the Security is subject to redemption, insert --
In the event of redemption of this Security in part only, a new
Security or Securities of this series and of like tenor for the
unredeemed portion hereof will be issued in the name of the Holder
hereof upon the cancellation hereof.]
The Indenture contains provisions for defeasance at
any time of (1) the entire indebtedness of this Security or
(2) certain restrictive covenants and Events of Default with
respect to this Security, in each case upon compliance with
certain conditions set forth in the Indenture.
[If the Security is convertible into Common Stock
of the Company, insert -- Subject to the provisions of the
Indenture, the Holder of this Security is entitled, at its
option, at any time on or before _______ (except that, in case
this Security or any portion hereof shall be called for
redemption, such right shall terminate with respect to this
Security or portion hereof, as the case may be, so called for
redemption at the close of business on the date fixed for
redemption as provided in the Indenture unless the Company
defaults in making the payment due upon redemption), to convert
the principal amount of this Security (or any portion hereof
which is $1,000 or an integral multiple thereof), into fully
paid and non-assessable shares (calculated as to each conversion
to the nearest 1/100th of a share) of the Common Stock of the
Company, as said shares shall be constituted at the date of
conversion, at the conversion price of $_____ principal amount of
Securities for each share of Common Stock, or at the adjusted
conversion price in effect at the date of conversion determined
as provided in the Indenture, upon surrender of this Security,
together with the conversion notice hereon duly executed, to the
Company at the designated office or agency of the Company in
__________________, accompanied (if so required by the Company)
by instruments of transfer, in form satisfactory to the Company
and to the Trustee, duly executed by the Holder or by its duly
authorized attorney in writing. Such surrender shall, if made
during any period beginning at the close of business on a Regular
Record Date and ending at the opening of business on the Interest
Payment Date next following such Regular Record Date (unless this
Security or the portion being converted shall have been called for
redemption on a Redemption Date during such period), also be
accompanied by payment in funds acceptable to the Company of an
amount equal to the interest payable on such Interest Payment Date
on the principal amount of this Security then being converted.
Subject to the aforesaid requirement for payment and, in the case
of a conversion after the Regular Record Date next preceding any
Interest Payment Date and on or before such Interest Payment
Date, to the right of the Holder of this Security (or any
Predecessor Security) of record at such Regular Record Date to
receive an installment of interest (with certain exceptions
provided in the Indenture), no adjustment is to be made on
conversion for interest accrued hereon or for dividends on shares
of Common Stock issued on conversion. The Company is not
required to issue fractional shares upon any such conversion,
but shall make adjustment therefor in cash on the basis of the
current market value of such fractional interest as provided
in the Indenture. The conversion price is subject to adjustment
as provided in the Indenture. In addition, the Indenture provides
that in case of certain consolidations, mergers or share exchanges
to which the Company is a party or the sale of substantially all of
the assets of the Company, the Indenture shall be amended, without
the consent of any Holders of Securities, so that this Security,
if then outstanding, will be convertible thereafter, during the
period this Security shall be convertible as specified above, only
into the kind and amount of securities, cash and other property
receivable upon the consolidation, merger, share exchange or
sale by a holder of the number of shares of Common Stock into
which this Security might have been converted immediately prior
to such consolidation, merger, share exchange or sale (assuming
such holder of Common Stock failed to exercise any rights of
election and received per share the kind and amount received
per share by a plurality of non-electing shares) (, assuming if
such consolidation, merger, share exchange or sale is prior to
_________, 19__, that this Security were convertible at the time
of such consolidation, merger, share exchange or sale at the
initial conversion price specified above as adjusted from _____,
19__ to such time pursuant to the Indenture. In the event of
conversion of this Security in part only, a new Security or
Securities for the unconverted portion hereof shall be issued in
the name of the Holder hereof upon the cancellation hereof.)
(If the Security is convertible into other securities
of the Company, specify the conversion features.)
(If the Security is not an Original Issue Discount
Security, insert -- If an Event of Default with respect to
Securities of this series shall occur and be continuing, the
principal of the Securities of this series may be declared due
and payable in the manner and with the effect provided in
the Indenture.)
(If the Security is an Original Issue Discount
Security, insert-- If an Event of Default with respect to
Securities of this series shall occur and be continuing, an
amount of principal of the Securities of this series may be
declared due and payable in the manner and with the effect
provided in the Indenture. Such amount shall be equal to --
insert formula for determining the amount. Upon payment (i) of
the amount of principal so declared due and payable and (ii) of
interest on any overdue principal and overdue interest (in each
case to the extent that the payment of such interest shall be
legally enforceable), all of the Company's obligations in respect
of the payment of the principal of and interest, if any, on the
Securities of this series shall terminate.)
The Indenture permits, with certain exceptions as
therein provided, the amendment thereof and the modification of
the rights and obligations of the Company and the rights of the
Holders of the Securities of each series to be affected under the
Indenture at any time by the Company and the Trustee with the
consent of the Holders of a majority in principal amount of the
Securities at the time Outstanding of each series to be affected.
The Indenture also contains provisions permitting the Holders of
specified percentages in principal amount of the Securities of
each series at the time Outstanding, on behalf of the Holders of
all Securities of such series, to waive compliance by the Company
with certain provisions of the Indenture and certain past defaults
under the Indenture and their consequences. Any such consent or
waiver by the Holder of this Security shall be conclusive and
binding upon such Holder and upon all future Holders of this
Security and of any Security issued upon the registration of
transfer hereof or in exchange hereof or in lieu hereof, whether
or not notation of such consent or waiver is made upon this Security.
No reference herein to the Indenture and no provision
of this Security or of the Indenture shall alter or impair the
obligation of the Company, which is absolute and unconditional,
to pay the principal of and any premium and interest on this
Security at the times, place and rates, and in the coin or
currency, herein prescribed.
As provided in the Indenture and subject to certain
limitations therein set forth, the transfer of this Security is
registerable in the Security Register, upon surrender of this
Security for registration of transfer at the office or agency of
the Company in any place where the principal of and any premium
and interest on this Security are payable, duly endorsed by, or
accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar duly
executed by, the Holder hereof or his attorney duly authorized
in writing, and thereupon one or more new Securities of this
series and of like tenor, of authorized denominations and for
the same aggregate principal amount, will be issued to the
designated transferee or transferees.
The Securities of this series are issuable only in
registered form without coupons in denominations of $_____ and
any integral multiple thereof. As provided in the Indenture and
subject to certain limitations therein set forth, Securities of
this series are exchangeable for a like aggregate principal
amount of Securities of this series and of like tenor of a
different authorized denomination, as requested by the Holder
surrendering the same.
No service charge shall be made for any such
registration of transfer or exchange, but the Company may
require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith.
Prior to due presentment of this Security for
registration of transfer, the Company, the Trustee and any
agent of the Company or the Trustee may treat the Person in
whose name this Security is registered as the owner hereof for
all purposes, whether or not this Security is overdue, and
neither the Company, the Trustee nor any such agent shall be
affected by notice to the contrary.
No recourse shall be had for the payment of the
principal of (and premium, if any) or interest on this Security,
or for any claim based hereon, or otherwise in respect hereof,
or based on or in respect of the Indenture or any indenture
supplemental thereto, against any incorporator, stockholder,
officer or director, as such, past, present or future, of the
Company or of any successor corporation, whether by virtue of
any constitution, statute or rule of law, or by the enforcement
of any assessment or penalty or otherwise, all such liability
being, by the acceptance hereof and as part of the consideration
for the issue hereof, expressly waived and released.
All terms used in this Security which are defined
in the Indenture shall have the meanings assigned to them in the
Indenture.
Section 204. Form of Legend for Global Securities.
Every Global Security authenticated and delivered
hereunder shall bear a legend in substantially the following
form or such other legends as may be required:
This Security is a Global Security within
the meaning of the Indenture hereinafter referred
to and is registered in the name of a Depositary
or a nominee thereof. This Security may not be
transferred to, or registered or exchanged for
Securities registered in the name of, any Person
other than the Depositary or a nominee thereof
and no such transfer may be registered, except
in the limited circumstances described in the
Indenture.
Every Security authenticated and delivered
upon registration of transfer of, or in exchange
for or in lieu of, this Security shall be a Global
Security subject to the foregoing, except in such
limited circumstances.
Section 205. Form of Trustee's Certificate of Authentication.
The Trustee's certificate of authentication shall be
in substantially the following form:
This is one of the Securities of the series
designated therein referred to in the within-mentioned
Indenture.
___________________________________
As Trustee
By_________________________________
Authorized Officer
Section 206. Form of Conversion Notice.
To USF&G Corporation
The undersigned owner of this Security hereby
irrevocably exercises the option to convert this Security, or
portion hereof (which is $1,000 or an integral multiple thereof)
below designated, into shares of Common Stock of the Company
in accordance with the terms of the Indenture referred to in
this Security, and directs that the shares issuable and
deliverable upon the conversion, together with any check in
payment for fractional shares and any Securities representing
any unconverted principal amount hereof, be issued and delivered
to the registered holder hereof unless a different name has
been indicated below. If this Notice is being delivered on a
date after the close of business on a Regular Record Date and
prior to the opening of business on the related Interest Payment
Date (unless this Security or the portion thereof being converted
has been called for redemption on a Redemption Date within such
period), this Notice is accompanied by payment, in funds acceptable
to the Company, of an amount equal to the interest payable on such
Interest Payment Date of the principal of this Security to be
converted. If shares are to be issued in the name of a person
other than the undersigned, the undersigned will pay all transfer
taxes payable with respect hereto. Any amount required to be
paid by the undersigned on account of interest accompanies this
Security.
Principal Amount to be Converted
(in an integral multiple of
$1,000, if less than all):
$____________
Dated _________________________
__________________________
Signature
Signature(s) must be guaranteed
by a commercial bank or trust
company or a member firm of a
national stock exchange if
shares of Common Stock are to
be delivered, or Securities
to be issued, other than to and
in the name of the registered holder.
____________________________
Signature Guarantee
Fill in for registration of shares of Common Stock
and Security if to be issued otherwise than to the registered holder.
______________________________ Social Security or other Taxpayer
(Name) Identifying Number_________________
______________________________
(Address)
______________________________
Please print Name and
Address (including zip
code number)
ARTICLE THREE
THE SECURITIES
Section 301. Amount Unlimited; Issuable in Series.
The aggregate principal amount of Securities which may
be authenticated and delivered under this Indenture is unlimited.
The Securities may be issued in one or more series.
There shall be established in or pursuant to a Board Resolution
or established in one or more indentures supplemental hereto,
prior to the issuance of Securities of any series,
(1) the title of the Securities of the
series (which shall distinguish the Securities of
the series from Securities of any other series);
(2) any limit upon the aggregate
principal amount of the Securities of the series
which may be authenticated and delivered under this
Indenture (except for Securities authenticated and
delivered upon registration of transfer of, or in
exchange for, or in lieu of, other Securities of the
series pursuant to Sections 304, 305, 306, 906 or
1107 and except for any Securities which, pursuant
to Section 303, are deemed never to have been
authenticated and delivered hereunder);
(3) the Person to whom any interest on a
Security of the series shall be payable, if other
than the Person in whose name that Security (or
one or more Predecessor Securities) is registered
at the close of business on the Regular Record Date
for such interest;
(4) the date or dates on which the
principal of the Securities of the series is payable;
(5) the rate or rates at which the Securities
of the series shall bear interest, if any, or the
Floating or Adjustable Rate Provision pursuant to which
such rates shall be determined, the date or dates from
which such interest shall accrue, the Interest Payment
Dates on which any such interest shall be payable and
the Regular Record Date for any interest payable on
any Interest Payment Date;
(6) whether the Securities of the series
would be secured pursuant to Section 901(6);
(7) the place or places where the principal
of and any premium and interest on Securities of the
series shall be payable;
(8) the period or periods within which,
the price or prices at which (including premium, if
any) and the terms and conditions upon which Securities
of the series may be redeemed, in whole or in part, at
the option of the Company pursuant to a sinking fund
or otherwise;
(9) the obligation, if any, of the Company
to redeem or purchase Securities of the series pursuant
to any sinking fund or analogous provisions or at the
option of a Holder thereof and the period or periods
within which, the price or prices at which and the
terms and conditions upon which Securities of the
series shall be redeemed or purchased, in whole or
in part, pursuant to such obligation;
(10) the terms of any right to convert
Securities of the series into shares of Common Stock
of the Company or other securities or property;
(11) if other than denominations of $1,000
and any integral multiple thereof, the denominations
in which Securities of the series shall be issuable;
(12) the currency or currencies, including
composite currencies, or currency units in which
payment of the principal of and any premium and
interest on any Securities of the series shall be
payable if other than the currency of the United
States of America and the manner of determining the
equivalent thereof in the currency of the United
States of America for purposes of the definition of
"Outstanding" in Section 101;
(13) if the amount of payments of principal
of or any premium or interest on any Securities of the
series may be determined with reference to one or more
indices, the manner in which such amounts shall be
determined;
(14) if the principal of or any premium or
interest on any Securities of the series is to be
payable, at the election of the Company or a Holder
thereof, in one or more currencies, including composite
currencies, or currency units other than that or those
in which the Securities are stated to be payable, the
currency, currencies, including composite currencies,
or currency units in which payment of the principal
of and any premium and interest on Securities of such
series as to which such election is made shall be
payable, and the periods within which and the terms
and conditions upon which such election is to be made;
(15) if other than the principal amount
thereof, the portion of the principal amount of
Securities of the series which shall be payable
upon declaration of acceleration of the Maturity
thereof pursuant to Section 502 or provable under
any applicable federal or state bankruptcy or similar
law pursuant to Section 503;
(16) if and as applicable, that the
Securities of the series shall be issuable in whole
or in part in the form of one or more Global Securities
and, in such case, the Depositary or Depositaries for
such Global Security or Global Securities and any
circumstance other than those set forth in Section 305
in which any such Global Security may be transferred
to, and registered and exchanged for Securities
registered in the name of, a Person other than the
Depositary for such Global Security or a nominee thereof
and in which any such transfer may be registered;
(17) any other event or events of default
applicable with respect to the Securities of the series
in addition to those provided in Section 501(1) through (7);
(18) any other covenant or warranty included
for the benefit of Securities of the series in addition
to (and not inconsistent with) those included in this
Indenture for the benefit of Securities of all series,
or any other covenant or warranty included for the
benefit of Securities of the series in lieu of any
covenant or warranty included in this Indenture for
the benefit of Securities of all series, or any provision
that any covenant or warranty included in this Indenture
for the benefit of Securities of all series shall not be
for the benefit of Securities of the series, or any
combination of such covenants, warranties or provisions;
(19) any restriction or condition on the
transferability of the Securities of the series;
(20) any authenticating or paying agents,
registrars, conversion agents or any other agents
with respect to the Securities of the series; and
(21) any other terms of the series (which
terms shall not be inconsistent with the provisions of
this Indenture, except as permitted by Section 901(5)).
All Securities of any one series shall be substantially
identical except as to denomination and except as may otherwise be
provided in or pursuant to the Board Resolution referred to above
or in any such indenture supplemental hereto.
If any of the terms of the series are established by
action taken pursuant to a Board Resolution, a copy of such action
shall be delivered to the Trustee.
Section 302. Denominations.
The Securities of each series shall be issuable in
registered form without coupons in such denominations as shall
be specified as contemplated by Section 301. In the absence of
any such provisions with respect to the Securities of any series,
the Securities of such series shall be issuable in denominations
of $1,000 and any integral multiple thereof.
Section 303. Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the
Company by its Chairman, its President, any Executive Vice
President, any Vice President, its Treasurer or Assistant
Treasurer, under its corporate seal reproduced thereon
attested by its Corporate Secretary or one of its Assistant
Corporate Secretaries. The signature of any of these officers
on the Securities may be manual or facsimile.
The seal of the Company may be in the form of a
facsimile thereof and may be impressed, affixed, imprinted or
otherwise reproduced on the Securities. Securities bearing the
manual or facsimile signatures of individuals who were at any
time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased
to hold such offices prior to the authentication and delivery of
such Securities or did not hold such offices at the date of such
Securities. Minor typographical and other minor errors in the
text of any Security or minor defects in the seal or facsimile
signature on any Security shall not affect the validity or
enforceability of such Security if it has been duly authenticated
and delivered by the Trustee.
At any time and from time to time after the execution and
delivery of this Indenture, the Company may deliver Securities of
any series executed by the Company to the Trustee for authentication,
together with a Company Order for the authentication and delivery
of such Securities, and the Trustee in accordance with the Company
Order shall authenticate and deliver such Securities. If the form
or terms of the Securities of the series have been established in
or pursuant to one or more Board Resolutions as permitted by Sections
201 and 301, in authenticating such Securities, and accepting the
additional responsibilities under this Indenture in relation to such
Securities, the Trustee shall be entitled to receive, and (subject
to Section 601) shall be fully protected in relying upon, an Opinion
of Counsel stating,
(a) if the form of such Securities
has been established by or pursuant to a Board
Resolution as permitted by Section 201, that such
form has been established in conformity with the
provisions of this Indenture;
(b) if the terms of such Securities
have been established by or pursuant to a Board
Resolution as permitted by Section 301, that such
terms have been established in conformity with the
provisions of this Indenture; and
(c) that such Securities, when authenticated
and delivered by the Trustee and issued by the Company
in the manner and subject to any conditions specified
in such Opinion of Counsel, will constitute valid and
legally binding obligations of the Company enforceable
in accordance with their terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization,
moratorium, rehabilitation and similar laws of general
applicability relating to or affecting creditors'
rights generally or the rights of creditors of insurance
companies or insurance holding companies generally and
to general equity principles.
The Trustee shall have the right to decline to
authenticate and deliver any Securities under this Section if the
Trustee, being advised by counsel, determines that such action may
not lawfully be taken or if the Trustee in good faith by its board
of directors, executive committee, or a trust committee of
directors or responsible officers of the Trustee shall determine
that such action would expose the Trustee to personal liability to
existing Holders of Securities.
Notwithstanding the provisions of Section 301 and of
the preceding paragraph, if all Securities of a series are not
to be originally issued at one time, it shall not be necessary
to deliver the Board Resolution otherwise required pursuant to
Section 301 or the Company Order and Opinion of Counsel otherwise
required pursuant to such preceding paragraph at or prior to the
time of authentication of each Security of such series if such
documents are delivered at or prior to the authentication upon
original issuance of the first Security of such series to be issued.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under
this Indenture or be valid or obligatory for any purpose unless
there appears on such Security a certificate of authentication
substantially in the form provided for herein executed by the
Trustee by manual signature, and such certificate upon any
Security shall be conclusive evidence, and the only evidence,
that such Security has been duly authenticated and delivered
hereunder. Notwithstanding the foregoing, if any Security
shall have been authenticated and delivered hereunder but
never issued and sold by the Company, and the Company shall
deliver such Security to the Trustee for cancellation as
provided in Section 309, for all purposes of this Indenture
such Security shall be deemed never to have been authenticated
and delivered hereunder and shall never be entitled to the
benefits of this Indenture.
Section 304. Temporary Securities.
Pending the preparation of definitive Securities of
any series, the Company may execute, and upon Company Order the
Trustee shall authenticate and deliver, temporary Securities
which are printed, lithographed, typewritten, mimeographed or
otherwise produced, in any authorized denomination, substantially
of the tenor of the definitive Securities in lieu of which they
are issued and with such appropriate insertions, omissions,
substitutions and other variations as the officers executing
such Securities may determine, as evidenced by their execution
of such Securities. Every temporary Security shall be executed
by the Company and authenticated by the Trustee upon the same
conditions and in substantially the same manner, and with like
effect, as the definitive Securities.
If temporary Securities of any series are issued, the
Company will cause definitive Securities of that series to be
prepared without unreasonable delay. After the preparation of
definitive Securities of such series, the temporary Securities
of such series shall be exchangeable for definitive Securities
of such series upon surrender of the temporary Securities of
such series at the office or agency of the Company in a Place of
Payment for that series, without charge to the Holder. Upon
surrender for cancellation of any one or more temporary Securities
of any series, the Company shall execute and the Trustee shall
authenticate and deliver in exchange therefor one or more
definitive Securities of the same series, of any authorized
denominations and of a like aggregate principal amount and
tenor. Until so exchanged the temporary Securities of any
series shall in all respects be entitled to the same benefits
under this Indenture as definitive Securities of such series
and tenor.
Section 305. Registration, Registration of Transfer and Exchange.
The Company shall cause to be kept at the Corporate
Trust Office of the Trustee a register (the register maintained
in such office and in any other office or agency of the Company
in a Place of Payment being herein sometimes collectively
referred to as the "Security Register") in which, subject to
such reasonable regulations as it or the Trustee may prescribe,
the Company shall provide for the registration of Securities and
of transfers of Securities. The Trustee is hereby appointed
"Security Registrar" for the purpose of registering Securities
and transfers of Securities as herein provided.
Upon surrender for registration of transfer of any
Security of any series at the office or agency in a Place of
Payment for that series, the Company shall execute, and the
Trustee shall authenticate and deliver, in the name of the
designated transferee or transferees, one or more new
Securities of the same series, of any authorized denominations
and of a like aggregate principal amount and tenor.
At the option of the Holder, Securities of any series
may be exchanged for other Securities of the same series, of any
authorized denominations and of a like aggregate principal amount
and tenor, upon surrender of the Securities to be exchanged at
such office or agency. Whenever any Securities are so surrendered
for exchange, the Company shall execute, and the Trustee shall
authenticate and deliver, the Securities which the Holder making
the exchange is entitled to receive and bearing numbers not
contemporaneously outstanding.
All Securities issued upon any registration of transfer
or exchange of Securities shall be the valid obligations of the
Company, evidencing the same debt, and entitled to the same
benefits under this Indenture, as the Securities surrendered
upon such registration of transfer or exchange.
Every Security presented or surrendered for registration
of transfer, exchange, redemption or payment shall (if so required
by the Company or the Trustee) be duly endorsed, or be accompanied
by a written instrument of transfer in form satisfactory to the
Company and the Security Registrar duly executed, by the Holder
thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration
of transfer or exchange of Securities, but the Company or the
Trustee may require payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of
Securities, other than exchanges pursuant to Section 304, 906
or 1107 not involving any transfer.
Neither the Company nor the Trustee shall be required
(i) to issue, register the transfer of or exchange Securities of
any series during a period beginning at the opening of business
15 days before the day of the mailing of a notice of redemption
of Securities of that series selected for redemption under
Section 1103 and ending at the close of business on the day of
such mailing, or (ii) to register the transfer of or exchange
any Security so selected for redemption in whole or in part,
except the unredeemed portion of any Security being redeemed
in part.
Notwithstanding any other provision in this Indenture,
no Global Security may be transferred to, or registered or
exchanged for Securities registered in the name of, any Person
other than the Depositary for such Global Security or any
nominee thereof, and no such transfer may be registered,
unless (1) such Depositary (A) notifies the Company and the
Trustee that it is unwilling or unable to continue as Depositary
for such Global Security or (B) ceases to be a clearing agency
registered under the Exchange Act, (2) the Company executes and
delivers to the Trustee a Company Order that such Global Security
shall be so transferable, registrable and exchangeable, and such
transfers shall be registrable, (3) there shall have occurred and
be continuing an Event of Default with respect to the Securities
evidenced by such Global Security or (4) there shall exist such
other circumstances, if any, as have been specified for this
purpose as contemplated by Section 301. Notwithstanding any
other provision in this Indenture, a Global Security to which
the restriction set forth in the preceding sentence shall have
ceased to apply may be transferred only to, and may be registered
and exchanged for Securities registered only in the name or names
of, such Person or Persons as the Depositary for such Global
Security shall have directed and no transfer thereof other than
such a transfer may be registered.
Every Security authenticated and delivered upon
registration of transfer of, or in exchange for or in lieu of,
a Global Security to which the restriction set forth in the
first sentence of the preceding paragraph shall apply, whether
pursuant to this Section, Section 304, 306, 906 or 1107 or
otherwise, shall be authenticated and delivered in the form
of, and shall be, a Global Security.
Section 306. Mutilated, Destroyed, Lost and Stolen Securities.
If there shall be delivered to the Company and the
Trustee (i) a mutilated Security, or (ii) evidence to their
satisfaction of the destruction, loss or theft of any Security
and in either case such security or indemnity as may be required
by either of them to save each of them and any agent of either
of them harmless, then, in the absence of notice to the Company
or the Trustee that such Security has been acquired by a bona
fide purchaser, the Company shall execute and the Trustee shall
authenticate and deliver, in lieu of any such mutilated, destroyed,
lost or stolen Security, a new Security of the same series and
of like tenor and principal amount and bearing a number not
contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen
Security has become or is about to become due and payable, the
Company in its discretion may, instead of issuing a new
Security, pay such Security.
Upon the issuance of any new Security under this
Section, the Company or the Trustee may require the payment
of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any
other expenses (including the fees and expenses of the
Trustee) connected therewith.
Every new Security of any series issued pursuant
to this Section in lieu of any destroyed, lost or stolen
Security shall constitute an original additional contractual
obligation of the Company, whether or not the destroyed,
lost or stolen Security shall be at any time enforceable
by anyone, and shall be entitled to all the benefits of
(but shall be subject to all the limitations of rights
set forth in) this Indenture equally and proportionately
with any and all other Securities of that series duly
issued hereunder.
The provisions of this Section are exclusive and
shall preclude (to the extent lawful) all other rights and
remedies with respect to the replacement or payment of
mutilated, destroyed, lost or stolen Securities.
Section 307. Payment of Interest; Interest Rights Preserved.
Except as otherwise provided as contemplated by
Section 301 with respect to any series of Securities, interest
on any Security which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be
paid to the Person in whose name that Security (or one or
more Predecessor Securities) is registered at the close of
business on the Regular Record Date for such interest.
Any interest on any Security of any series which
is payable, but is not punctually paid or duly provided for,
on any Interest Payment Date (herein called "Defaulted
Interest") shall forthwith cease to be payable to the Holder
on the relevant Regular Record Date by virtue of having been
such Holder, and such Defaulted Interest may be paid by the
Company, at its election in each case, as provided in Clause
(1) or (2) below:
(1) The Company may elect to make
payment of any Defaulted Interest to the Persons
in whose names the Securities of such series (or
their respective Predecessor Securities) are
registered at the close of business on a Special
Record Date for the payment of such Defaulted
Interest, which shall be fixed in the following
manner. The Company shall notify the Trustee
in writing of the amount of Defaulted Interest
proposed to be paid on each Security of such
series and the date of the proposed payment, and
at the same time the Company shall deposit with
the Trustee an amount of money equal to the
aggregate amount proposed to be paid in respect
of such Defaulted Interest or shall make
arrangements satisfactory to the Trustee for such
deposit prior to the date of the proposed payment,
such money when deposited to be held in trust for
the benefit of the Persons entitled to such
Defaulted Interest as in this Clause provided.
Thereupon the Trustee shall fix a Special Record
Date for the payment of such Defaulted Interest
which shall be not more than 15 days and not less
than 10 days prior to the date of the proposed
payment and not less than 15 days after the
receipt by the Trustee of the notice of the
proposed payment. The Trustee shall promptly
notify the Company of such Special Record Date
and, in the name and at the expense of the
Company, shall cause notice of the proposed
payment of such Defaulted Interest and the
Special Record Date therefor to be mailed,
first-class postage prepaid, to each Holder of
Securities of such series at its address as it
appears in the Security Register, not less than
10 days prior to such Special Record Date.
Notice of the proposed payment of such Defaulted
Interest and the Special Record Date therefor
having been so mailed, such Defaulted Interest
shall be paid to the Persons in whose names the
Securities of such series (or their respective
Predecessor Securities) are registered at the
close of business on such Special Record Date
and shall no longer be payable pursuant to the
following Clause (2).
(2) The Company may make payment of
any Defaulted Interest on the Securities of any
series in any other lawful manner not inconsistent
with the requirements of any securities exchange
on which such Securities may be listed, and upon
such notice as may be required by such exchange,
if, after notice given by the Company to the
Trustee of the proposed payment pursuant to this
Clause, such manner of payment shall be deemed
practicable by the Trustee.
Subject to the foregoing provisions of this Section,
each Security delivered under this Indenture upon registration
of transfer of or in exchange for or in lieu of any other
Security shall carry the rights to interest accrued and unpaid,
and to accrue, which were carried by such other Security.
Subject to the provisions of Section 1202, in the
case of any Security which is converted after any Regular
Record Date and on or prior to the next succeeding Interest
Payment Date (other than any Security the principal of (or
premium, if any, on) which shall become due and payable,
whether at a Stated Maturity or by declaration of acceleration,
call for redemption, or otherwise, prior to such Interest
Payment Date), interest whose Stated Maturity is on such
Interest Payment Date shall be payable on such Interest
Payment Date notwithstanding such conversion and such interest
(whether or not punctually paid or duly provided for) shall be
paid to the person in whose name that Security (or any one or
more Predecessor Securities) is registered at the close of
business on such Regular Record Date. Except as otherwise
expressly provided in the immediately preceding sentence, in
the case of any Security which is converted, interest whose
Stated Maturity is after the date of conversion of such
Security shall not be payable.
Section 308. Persons Deemed Owners.
Prior to due presentment of a Security for
registration of transfer, the Company, the Trustee and any
agent of the Company or the Trustee may treat the Person in
whose name such Security is registered as the owner of such
Security for the purpose of receiving payment of principal
of and any premium and (subject to Section 307) any interest
on such Security and for all other purposes whatsoever,
whether or not such Security be overdue, and neither the
Company, the Trustee nor any agent of the Company or the
Trustee shall be affected by notice to the contrary.
Section 309. Cancellation.
All Securities surrendered for payment, redemption,
registration of transfer or exchange or for credit against
any sinking fund or analogous payment or for conversion shall,
if surrendered to any Person other than the Trustee, be
delivered to the Trustee and shall be promptly cancelled
by it. The Company may at any time deliver to the Trustee
for cancellation any Securities previously authenticated
and delivered hereunder which the Company may have acquired
in any manner whatsoever, and may deliver to the Trustee
(or to any other Person for delivery to the Trustee) for
cancellation any Securities previously authenticated hereunder
which the Company has not issued and sold, and all Securities
so delivered shall be promptly cancelled by the Trustee.
No Securities shall be authenticated in lieu of or in exchange
for any Securities cancelled as provided in this Section, except
as expressly permitted by this Indenture. All cancelled
Securities shall be destroyed by the Trustee and a certificate
of destruction shall be sent to the Company, unless otherwise
instructed by the Company. Acquisition by the Company of any
Security shall not operate as a redemption or satisfaction of
the indebtedness represented by such Security unless and until
the same is delivered to the Trustee for cancellation.
Section 310. Computation of Interest.
Except as otherwise specified as contemplated by
Section 301 for Securities of any series, interest on the
Securities of each series shall be computed on the basis
of a 360-day year of twelve 30-day months.
ARTICLE FOUR
SATISFACTION AND DISCHARGE
Section 401. Satisfaction and Discharge of Indenture.
This Indenture shall upon Company Request cease to
be of further effect (except as to any surviving rights of
conversion, registration of transfer or exchange of Securities
of a series herein expressly provided for) with respect to
Securities of any series, and the Trustee, at the expense of
the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture with respect to
a series, when
(1) either
(A) all Securities of such series
theretofore authenticated and delivered (other than
(i) Securities which have been destroyed, lost or
stolen and which have been replaced or paid as
provided in Section 306 and (ii) Securities of such
series for whose payment money has theretofore been
deposited in trust or segregated and held in trust
by the Company and thereafter repaid to the Company
or discharged from such trust, as provided in
Section 1003) have been delivered to the Trustee
for cancellation; or
(B) all such Securities of such
series not theretofore delivered to the Trustee for
cancellation
(i) have become due and
payable, or
(ii) will become due and
payable at their Stated Maturity within one year, or
(iii) are to be called for
redemption within one year under arrangements reasonably
satisfactory to the Trustee for the giving of notice
of redemption by the Trustee in the name, and at the
expense, of the Company,
and the Company, in the case of (i), (ii) or (iii)
above, has irrevocably deposited or caused to be
deposited with the Trustee in trust for the purpose
(A) money (either in United States dollars or such
other currency or currency unit in which the Securities
of any series may be payable) in an amount, or (B) U.S.
Government Obligations (or Foreign Government Obligations
if the Securities are denominated in a foreign currency
or currencies) that through the scheduled payment of
principal and interest in respect thereof in accordance
with their terms will provide, not later than one day
before the due date of any payment, money in an amount,
or (C) a combination thereof, sufficient to pay and
discharge the entire indebtedness on such Securities of
such series not theretofore delivered to the Trustee
for cancellation, for principal of (and premium, if any)
and interest to the date of such deposit (in the case
of Securities of such series which have become due
and payable) or to the Stated Maturity or Redemption
Date, as the case may be;
(2) the Company has paid or caused to be
paid all other sums payable hereunder by the Company
including, but not limited to, all amounts due the
Trustee under Section 607; and
(3) the Company has delivered to the
Trustee an Officers' Certificate and an Opinion of
Counsel, each stating that all conditions precedent
herein provided for relating to the satisfaction and
discharge of this Indenture with respect to such
series have been complied with.
In the event there are Securities of two or more
series outstanding hereunder, the Trustee shall be required to
execute an instrument acknowledging satisfaction and discharge
of this Indenture only if requested to do so with respect to
Securities of a particular series as to which it is Trustee
and if the other conditions thereto are met. In the event
that there are two or more Trustees hereunder, then the
effectiveness of any such instrument shall be conditioned
upon receipt of such instruments from all Trustees hereunder.
Notwithstanding the satisfaction and discharge of
this Indenture with respect to a particular series, the
obligations of the Company to the Trustee under Section 607,
the obligations of the Trustee to any Authenticating Agent
under Section 614 and, if money shall have been deposited
with the Trustee pursuant to subclause (B) of Clause (1) of
this Section, the obligations of the Trustee under Section
402 and the last paragraph of Section 1003 shall survive
until there are no Securities Outstanding with respect to
a particular series and the obligations of the Company and
the Trustee with respect to all other series of Securities
shall survive.
Section 402. Application of Trust Fund.
Subject to provisions of the last paragraph of
Section 1003, all amounts deposited with the Trustee pursuant
to Section 401 shall be held in trust and applied by it, in
accordance with the provisions of the Securities and this
Indenture, to the payment, either directly or through any
Paying Agent (including the Company acting as its own Paying
Agent) as the Trustee may determine, to the Persons entitled
thereto, of the principal and any premium and interest for
whose payment such funds have been deposited with the Trustee.
Money deposited pursuant to this Section not in violation of
this Indenture shall not be subject to claims of the holders
of Senior Debt under Article Fifteen.
ARTICLE FIVE
REMEDIES
Section 501. Events of Default.
"Event of Default" whenever used with respect to
Securities of a series means any one of the following event
s and such other events as may be established with respect
to the Securities of such series as contemplated by Section
301 hereof (whether or not it shall be occasioned by the
provisions of Article Fifteen):
(1) Default in the payment of any
instalment of interest upon any of the Securitie
s of such series as and when the same shall become
due and payable, and continuance of such default
for a period of 30 days; or
(2) Default in the payment of the
principal of or premium, if any, on any of the
Securities of such series as and when the same
shall become due and payable either at maturity,
upon redemption, by declaration or otherwise; or
(3) Default in the making of any sinking
fund payment, whether mandatory or optional, as and
when the same shall become due and payable by the
terms of the Securities of such series; or
(4) Failure on the part of the Company
duly to observe or perform in any material respect
any other of the covenants or agreements on the
part of the Company contained in this Indenture
or in the Securities (other than those set forth
exclusively in the terms of any other particular
series of Securities established as contemplated
by this Indenture for the benefit of such other
series) and written notice of such failure, stating
that such notice is a "Notice of Default" hereunder,
and requiring the Company to remedy the same, shall
have been given by registered or certified mail,
return receipt requested, to the Company by the
Trustee, or to the Company and the Trustee by the
holders of at least 25% in aggregate principal
amount of the Outstanding Securities of that series,
and such failure shall have continued unremedied
for a period of 90 days after the date of the
Company's receipt of such Notice of Default; or
(5) An event of default, as defined in
any indenture or instrument evidencing or under which
the Company or any Principal Insurance Subsidiary
shall have outstanding indebtedness for borrowed
money in a principal amount in excess of $50,000,000,
shall happen and be continuing and such indebtedness
shall have been accelerated so that the same shall be
or become due and payable prior to the date on which
the same would otherwise have become due and payable
or the Company or any Principal Insurance Subsidiary
shall default in the payment at final maturity of
outstanding indebtedness for borrowed money in a
principal amount in excess of $50,000,000, and such
acceleration or default at maturity shall not be
waived, rescinded or annulled within 30 days after
written notice thereof, stating that such notice is
a "Notice of Default" hereunder, shall have been
given to the Company by the Trustee (if such event
be known to it), or to the Company and the Trustee
by the holders of at least 25% in aggregate principal
amount of the Outstanding Securities of that series;
provided, however, that if such acceleration under
such indenture or instrument or default at maturity
shall be remedied or cured by the Company or Principal
Insurance Subsidiary, or waived, rescinded or annulle
d by the requisite holders of such indebtedness, then
the Event of Default hereunder by reason thereof shall
be deemed likewise to have been thereupon remedied,
cured or waived without further action upon the part
of either the Trustee or any of the Holders; and
provided further, that, subject to the provisions
of Sections 601 and 602, the Trustee shall not be
charged with knowledge of any such default unless
written notice thereof shall have been given to the
Trustee by the Company, by the holder of any such
indebtedness or an agent of the holder of any such
indebtedness, by the trustee then acting under any
such indenture or other instrument under which such
default shall have occurred, or by the holders of at
least 25% in aggregate principal amount of the
Outstanding Securities of that series; or
(6) A decree or order by a court having
jurisdiction in the premises shall have been entered
adjudging the Company or any Principal Insurance
Subsidiary a bankrupt or insolvent, or approving as
properly filed a petition seeking reorganization,
arrangement, adjustment or composition of the Company
or any Principal Insurance Subsidiary under any
applicable Federal or State bankruptcy or similar
law, and such decree or order shall have continued
undischarged and unstayed for a period of 90 days;
or a decree or order of a court having jurisdiction
in the premises for the appointment of a receiver,
liquidator, trustee, assignee, sequestrator or similar
official in bankruptcy or insolvency of the Company
or any Principal Insurance Subsidiary or of all or
substantially all of its property, or for the winding
up or liquidation of its affairs, shall have been
entered, and such decree or order shall have continued
undischarged and unstayed for a period of 90 days; or
(7) The Company or any Principal Insurance
Subsidiary shall institute proceedings to be adjudicated
a voluntary bankrupt, or shall consent to the filing of
a bankruptcy proceeding against it, or shall file a
petition or answer or consent seeking reorganization,
arrangement, adjustment or composition under any
applicable Federal or State bankruptcy or similar law,
or shall consent to the filing of any such petition,
or shall consent to the appointment of a receiver,
liquidator, trustee, assignee, sequestrator or similar
official in bankruptcy or insolvency of the Company or
any Principal Insurance Subsidiary or of all or
substantially all of its property, or shall make an
assignment for the benefit of creditors, or shall admit
in writing its inability to pay its debts generally as
they become due and its willingness to be adjudged a
bankrupt, or corporate action shall be taken by the
Company or any Principal Insurance Subsidiary in
furtherance of any of the aforesaid purposes.
Section 502. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default with respect to Securities of
any series at the time Outstanding occurs and is continuing, then
in every such case the Trustee or the Holders of not less than 25%
in principal amount of the Outstanding Securities of that series
may declare the principal amount (or, if any of the Securities of
that series are Original Issue Discount Securities, such portion
of the principal amount of such Securities as may be specified in
the terms thereof) of all of the Securities of that series to be
due and payable immediately, by a notice in writing to the Company
(and to the Trustee if given by Holders), and upon any such
declaration such principal amount (or specified amount) shall
become immediately due and payable; provided, however, that
if an Event of Default specified in Section 501(6) or (7) occurs
and is continuing, such principal amount of all such Securities
shall ipso facto become and be immediately due and payable
without any declaration or other act on the part of the Trustee
or any Holders; provided, further, that, except in the case of
a default in the payment of the principal of (or premium, if any)
or interest on any Security or in the payment of any sinking fund
payment, the Trustee shall be protected in withholding such notice
if and so long as the board of directors, the executive committee
or a trust committee of directors and/or Responsible Officers of
the Trustee in good faith determine that the withholding of such
notice is in the interests of the Holders of such Securities.
At any time after such a declaration of acceleration with respect
to Securities of any series has been made and before a judgment
or decree for payment of the money due has been obtained by the
Trustee as hereinafter in this Article provided, the Holders of
a majority in principal amount of the Outstanding Securities of
that series, by written notice to the Company and the Trustee,
may waive all defaults and may rescind and annul such
declaration and its consequences if
(1) the Company has paid or deposited with the
Trustee a sum sufficient to pay
(A) all overdue interest on all
Securities of that series,
(B) the principal of (and premium, if
any, on) any Securities of that series which have
become due otherwise than by such declaration of
acceleration and any interest thereon at the rate
or rates prescribed therefor in such Securities,
(C) to the extent that payment of such
interest is lawful, interest upon overdue interest
at the rate or rates prescribed therefor in such
Securities, and
(D) all sums paid or advanced by the
Trustee hereunder and the reasonable compensation,
expenses, disbursements and advances of the Trustee,
its agents and counsel except such costs and expenses
as are a result of negligence or bad faith on the
part of the Trustee;
and
(2) all Events of Default with respect to
Securities of that series, other than the
non-payment of the principal of and interest,
if any, on the Securities of that series which
have become due solely by such declaration of
acceleration, have been cured or waived as
provided in Section 513.
No such rescission shall affect any subsequent default or
impair any right consequent thereon.
Section 503. Collection of Indebtedness and Suits for
Enforcement by Trustee.
The Company covenants that if
(1) default is made in the payment of any
interest on any Security when such interest becomes
due and payable and such default continues for a
period of 30 days, or
(2) default is made in the payment of the
principal of (or premium, if any, on) any Security
at the Maturity thereof,
the Company will, upon written demand of the Trustee, pay to it,
for the benefit of the Holders of such Securities, the whole
amount then due and payable on such Securities for principal
and any premium and interest and, to the extent that payment
of such interest shall be legally enforceable, interest on
any overdue principal and premium and on any overdue interest,
at the rate or rates prescribed therefor in such Securities,
and, in addition thereto, such further amount as shall be
sufficient to cover the costs and expenses of collection,
including the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel, except
such costs and expenses as are a result of negligence or bad
faith on the part of the Trustee. Until such demand is made
by the Trustee, the Company may pay the principal of and
premium, if any, and interest, if any, on the Securities of
any series to the registered holders, whether or not the
Securities of such series are overdue.
If an Event of Default with respect to Securities
of any series occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the
rights of the Holders of Securities of such series by such
appropriate judicial proceedings as the Trustee shall deem
most effectual to protect and enforce any such rights, whether
for the specific enforcement of any covenant or agreement in
this Indenture or in aid of the exercise of any power granted
herein, or to enforce any other proper remedy.
Section 504. Trustee May File Proofs of Claim.
In case of any judicial proceeding relative to the
Company (or any other obligor upon the Securities), its property
or its creditors, the Trustee shall be entitled and empowered,
by intervention in such proceeding or otherwise, to take any
and all actions authorized under the Trust Indenture Act in
order to have claims of the Holders and the Trustee allowed
in any such proceeding. In particular, the Trustee shall be
authorized to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute
the same; and any custodian, receiver, assignee, trustee,
liquidator, sequestrator or other similar official in any
such judicial proceeding is hereby authorized by each Holder
to make such payments to the Trustee and, in the event that
the Trustee shall consent to the making of such payments
directly to the Holders, to pay to the Trustee any amount
due it for the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel, and any
other amounts due the Trustee under Section 607 except such
costs and expenses, as are a result of negligence or bad faith
on the part of the Trustee.
No provision of this Indenture shall be deemed to
authorize the Trustee to authorize or consent to or accept or
adopt on behalf of any Holder any plan of reorganization,
arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof or to authorize the
Trustee to vote in respect of the claim of any Holder in any
such proceeding; provided, however, that the Trustee may, on
behalf of the Holders, vote for the election of a trustee in
bankruptcy or similar official and be a member of a creditors'
or other similar committee.
Section 505. Trustee May Enforce Claims Without Possession
of Securities.
All rights of action and claims under this Indenture
or the Securities may be prosecuted and enforced by the Trustee
without the possession of any of the Securities or the
production thereof in any proceeding relating thereto, and
any such proceeding instituted by the Trustee shall be brought
in its own name as trustee of an express trust, and any recovery
of judgment shall, after provision for the payment of the
reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel except such costs and
expenses, as are a result of negligence or bad faith on the
part of the Trustee, be for the ratable benefit of the Holders
of the Securities in respect of which such judgment has been
recovered.
Section 506. Application of Money Collected.
Any money collected by the Trustee pursuant to this
Article shall be applied in the following order, at the date or
dates fixed by the Trustee and, in case of the distribution of
such money on account of principal or any premium or interest,
upon presentation of the Securities and the notation thereon
of the payment if only partially paid and upon surrender thereof
if fully paid:
FIRST: To the payment of all amounts
due the Trustee under Section 607;
SECOND: Subject to Article 15, to the
payment of the amounts then due and unpaid
for principal of and any premium and interest
on the Securities in respect of which or for
the benefit of which such money has been
collected, ratably, without preference or
priority of any kind, according to the
amounts due and payable on such Securities
for principal and any premium and interest,
respectively; and
THIRD: To the payment of the remainder,
if any, to the Company.
Section 507. Limitation on Suits.
No Holder of any Security of any series shall have
any right to institute any proceeding, judicial or otherwise,
with respect to this Indenture, or for the appointment of a
receiver or trustee, or for any other remedy hereunder, unless
(1) such Holder has previously given
written notice to the Trustee of a continuing
Event of Default with respect to the Securities
of that series;
(2) the Holders of not less than 25% in
principal amount of the Outstanding Securities
of that series shall have made written request
to the Trustee to institute proceedings in
respect of such Event of Default in its own
name as Trustee hereunder;
(3) such Holder or Holders have offered
to the Trustee indemnity reasonably satisfactory
in form and substance to the Trustee against the
costs, expenses and liabilities to be incurred
in compliance with such request;
(4) the Trustee for 60 days after its
receipt of such notice, request and offer of
indemnity has failed to institute any such
proceeding; and
(5) no direction inconsistent with such
written request has been given to the Trustee
during such 60-day period by the Holders of a
majority in principal amount of the Outstanding
Securities of that series;
it being understood and intended that no one or more of such
Holders shall have any right in any manner whatever by virtue
of, or by availing of, any provision of this Indenture to
affect, disturb or prejudice the rights of any other of such
Holders, or to obtain or to seek to obtain priority or
preference over any other of such Holders or to enforce any
right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all of
such Holders.
Section 508. Unconditional Right of Holders to Receive
Principal, Premium and Interest.
Notwithstanding any other provision in this
Indenture, but subject to Article 15, the Holder of any
Security shall have the right, which is absolute and
unconditional, to receive payment of the principal of
and any premium and (subject to Section 307) any interest
on such Security on the Stated Maturity or Maturities
expressed in such Security (or, in the case of redemption,
on the Redemption Date) and to convert such Securities in
accordance with Article Twelve and to institute suit for
the enforcement of any such payment or such right of
conversion, and such rights shall not be impaired without
the consent of such Holder.
Section 509. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any
proceeding to enforce any right or remedy under this Indenture
and such proceeding has been discontinued or abandoned for
any reason, or has been determined adversely to the Trustee or
to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and
the Holders shall be restored severally and respectively to
their former positions hereunder and thereafter all rights and
remedies of the Trustee and the Holders shall continue as
though no such proceeding had been instituted.
Section 510. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the
replacement or payment of mutilated, destroyed, lost or stolen
Securities in the last paragraph of Section 306, no right or
remedy herein conferred upon or reserved to the Trustee or to
the Holders is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent
permitted by law, be cumulative and in addition to every
other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise,
shall not prevent the concurrent assertion or employment of
any other appropriate right or remedy.
Section 511. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder
of any Securities to exercise any right or remedy accruing upon
any Event of Default shall impair any such right or remedy or
constitute a waiver of any such Event of Default or an
acquiescence therein. Subject to Section 507, every right
and remedy given by this Article or by law to the Trustee or
to the Holders may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee or by the
Holders, as the case may be.
Section 512. Control by Holders.
The Holders of a majority in principal amount
of the Outstanding Securities of any series shall have the
right to direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee, with
respect to the Securities of such series, provided that
(1) such direction shall not be in
conflict with any rule of law or with this
Indenture, shall not expose the Trustee to
personal liability and shall not unduly
prejudice Holders not joining therein, and
(2) the Trustee may take any other
action deemed proper by the Trustee which
is not inconsistent with such direction.
Upon receipt by the Trustee of any such direction
with respect to Securities of any series, a record date shall
be set for determining the Holders of Outstanding Securities
of such series entitled to join in such direction, which
record date shall be the close of business on the day the
Trustee receives such direction. The Holders of Outstanding
Securities of such series on such record date (or their duly
appointed agents), and only such Persons, shall be entitled
to join in such direction, whether or not such Holders remain
Holders after such record date; provided that, unless such
direction shall have become effective by virtue of Holders
of at least a majority in principal amount of Outstanding
Securities of such series on such record date (or their
duly appointed agents) having joined therein on or prior
to the 90th day after such record date, such direction
shall automatically and without any action by any Person
be cancelled and of no further effect.Nothing in this
paragraph shall prevent a Holder (or a duly appointed
agent thereof) from giving, before or after the expiration
of such 90-day period, a direction contrary to or different
from, or, after the expiration of such period, identical
to, a direction that has been cancelled pursuant to the
proviso to the preceding sentence, in which event a new
record date in respect thereof shall be set pursuant to
this paragraph.
Section 513. Waiver of Past Defaults.
The Holders of not less than a majority in principal
amount of the Outstanding Securities of any series may on behalf
of the Holders of all the Securities of such series waive any
past default hereunder with respect to such series and its
consequences, except a default
(1) in the payment of the principal of or any
premium or interest on any Security of such series, or
(2) in respect of a covenant or provision
hereof which under Article Nine cannot be modified
or amended without the consent of the Holder of
each Outstanding Security of such series affected.
Upon any such waiver, such default shall cease to exist,
and any Event of Default arising therefrom shall be deemed to have
been cured, for every purpose of this Indenture; but no such waiver
shall extend to any subsequent or other default or impair any right
consequent thereon.
Section 514. Undertaking for Costs.
In any suit for the enforcement of any right or remedy
under this Indenture, or in any suit against the Trustee for any
action taken, suffered or omitted by it as Trustee, a court may
require any party litigant in such suit to file an undertaking
to pay the costs of such suit, and may assess costs against any
such party litigant, in the manner and to the extent provided in
the Trust Indenture Act.
ARTICLE SIX
"THE TRUSTEE"
Section 601. Certain Duties and Responsibilities.
The duties and responsibilities of the Trustee shall be as
provided by the Trust Indenture Act. Notwithstanding the
foregoing, no provision of this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur any
financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers, if
it shall have reasonable grounds for believing that repayment of
such funds or adequate indemnity against such risk or liability
is not reasonably assured to it. Whether or not therein
expressly so provided, every provision of this Indenture
relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the
provisions of this Section.
Section 602. Notice of Defaults.
If a default occurs hereunder with respect to Securities of any
series, the Trustee shall give the Holders of Securities of such
series notice of such default as and to the extent provided by
the Trust Indenture Act; provided, however, that in the case of
any default of the character specified in Section 501(4) with
respect to Securities of such series, no such notice to Holders
shall be given until at least 30 days after the occurrence
thereof. For the purpose of this Section, the term "default"
means any event which is, or after notice or lapse of time or
both would become, an Event of Default with respect to
Securities of such series.
Section 603. Certain Rights of Trustee.
Subject to the provisions of Section 601:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence
of indebtedness or other paper or document believed by it to be
genuine and to have been signed or presented by the proper party
or parties;
(b) any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or Company
Order and any resolution of the Board of Directors may be
sufficiently evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or
established prior to taking, suffering or omitting any action
hereunder, the Trustee (unless other evidence be herein
specifically prescribed) may, in the absence of bad faith on its
part, rely upon an Officers' Certificate;
(d) the Trustee may consult with counsel and the written advice
of such counsel or any Opinion of Counsel shall be full and
complete authorization and protection in respect of any action
taken, suffered or omitted by it hereunder in good faith and in
reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the
request or direction of any of the Holders pursuant to this
Indenture, unless such Holders shall have offered to the Trustee
security or indemnity reasonably satisfactory in form and
substance to the Trustee against the costs, expenses and
liabilities which might be incurred by it in compliance with
such request or direction;
(f) prior to the occurrence of an Event of Default and after
the remedy or waiver of all Events of Default, the Trustee shall
not be bound to make any investigation into the facts or matters
stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other
paper or document, but the Trustee, in its discretion, may make
such further inquiry or investigation into such facts or matters
as it may see fit, and, if the Trustee shall determine to make
such further inquiry or investigation, it shall upon reasonable
notice to the Company be entitled to examine the books, records
and premises of the Company, personally or by agent or attorney
at a time and place acceptable to the Company; and
(g) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by
or through agents or attorneys and the Trustee shall not be
responsible for any misconduct or negligence on the part of any
agent or attorney appointed with due care by it hereunder.
Section 604. Not Responsible for Recitals or
Issuance of Securities.
The recitals contained herein and in the Securities, except the
Trustee's certificates of authentication, shall be taken as the
statements of the Company, and the Trustee or any Authenticating
Agent assumes no responsibility for their correctness. The
Trustee makes no representations as to the validity or
sufficiency of this Indenture or of the Securities. The Trustee
or any Authenticating Agent shall not be accountable for the use
or application by the Company of Securities or the proceeds
thereof.
Section 605. May Hold Securities.
The Trustee, any Authenticating Agent, any Paying Agent, any
Security Registrar or any other agent of the Company, in its
individual or any other capacity, may become the owner or
pledgee of Securities and, subject to Sections 608 and 613, may
otherwise deal with the Company with the same rights it would
have if it were not Trustee, Authenticating Agent, Paying Agent,
Security Registrar or such other agent.
Section 606. Money Held in Trust.
Money held by the Trustee in trust hereunder need not be
segregated from other funds except to the extent required by
law. The Trustee shall be under no liability for interest on
any money received by it hereunder except as otherwise agreed in
writing with the Company.
Section 607. Compensation and Reimbursement.
The Company agrees
(1) to pay to the Trustee from time to time reasonable
compensation for all services rendered by it hereunder (which
compensation shall not be limited by any provision of law in
regard to the compensation of a trustee of an express trust);
(2) except as otherwise expressly provided herein, to reimburse
the Trustee upon its written request for all reasonable
expenses, disbursements and advances incurred or made by the
Trustee in accordance with any provision of this Indenture
(including the reasonable compensation, and reasonable expenses
and disbursements of its agents and outside counsel), except any
such expense, disbursement or advance as may be attributable to
its negligence or bad faith; and
(3) to indemnify the Trustee for, and to hold it harmless
against, any loss, liability or expense incurred without
negligence or bad faith on its part, arising out of or in
connection with the acceptance or administration of the trust or
trusts hereunder, including the reasonable costs and expenses of
defending itself against any claim or liability in connection
with the exercise or performance of any of its powers or duties
hereunder.
To secure the Company's payment obligations in this Section 607,
the Trustee shall have a lien prior to the Securities on all
assets or money held or collected by the Trustee, in its
capacity as Trustee (but not in any other capacity), except
assets or money held in trust to pay principal of (premium, if
any) or interest on particular Securities.
When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 5.01(6) or (7) occurs,
such expenses and the compensation for such services are
intended to constitute expenses of administration under any
bankruptcy, insolvency or other similar law.
Section 608. Disqualification; Conflicting Interests.
If the Trustee has or shall acquire a conflicting interest
within the meaning of the Trust Indenture Act, the Trustee shall
either eliminate such interest or resign, to the extent and in
the manner provided by, and subject to the provisions of, the
Trust Indenture Act and this Indenture.
Section 609. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be a
Person that is eligible pursuant to the Trust Indenture Act to
act as such and has a combined capital and surplus of at least
$50,000,000 or is a subsidiary of a corporation which shall be a
Person that has a combined capital and surplus of at least
$50,000,000 and which unconditionally guarantees the obligations
of the Trustee hereunder. If such Person publishes reports of
condition at least annually, pursuant to law or to the
requirements of said supervising or examining authority, then
for the purposes of this Section, the combined capital and
surplus of such Person shall be deemed to be its combined
capital and surplus as set forth in its most recent report of
condition so published. If at any time the Trustee shall cease
to be eligible in accordance with the provisions of this
Section, it shall resign immediately in the manner and with the
effect hereinafter specified in this Article.
Section 610. Resignation and Removal; Appointment
of Successor.
(a) No resignation or removal of the Trustee and no appointment
of a successor Trustee pursuant to this Article shall become
effective until the acceptance of appointment by the successor
Trustee in accordance with the applicable requirements of
Section 611.
(b) The Trustee may resign at any time with respect to the
Securities of one or more series by giving written notice
thereof to the Company. If the instrument of acceptance by a
successor Trustee required by Section 611 shall not have been
delivered to the Trustee within 30 days after the giving of such
notice of resignation, the resigning Trustee may petition any
court of competent jurisdiction for the appointment of a
successor Trustee with respect to the Securities of such series.
(c) The Trustee may be removed at any time with respect to the
Securities of any series by Act of the Holders of a majority in
principal amount of the Outstanding Securities of such series,
delivered to the Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 608 after
written request therefor by the Company or by any Holder who has
been a bona fide Holder of a Security for at least six months, or
(2) the Trustee shall cease to be eligible under Section 609
and shall fail to resign after written request therefor by the
Company or by any such Holder, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or
of its property shall be appointed or any public officer shall
take charge or control of the Trustee or of its property or
affairs for the purpose of rehabilitation, conservation or
liquidation,
then, in any such case, (i) the Company by a Board Resolution
may remove the Trustee with respect to all Securities, or (ii)
subject to Section 514, any Holder who has been a bona fide
Holder of a Security for at least six months may, on behalf of
itself and all others similarly situated, petition any court of
competent jurisdiction for the removal of the Trustee with
respect to all Securities and the appointment of a successor
Trustee or Trustees.
(e) If the Trustee shall resign, be removed or become incapable
of acting, or if a vacancy shall occur in the office of Trustee
for any cause, with respect to the Securities of one or more
series, the Company, by a Board Resolution, shall promptly
appoint a successor Trustee or Trustees with respect to the
Securities of that or those series (it being understood that any
such successor Trustee may be appointed with respect to the
Securities of one or more or all of such series and that at any
time there shall be only one Trustee with respect to the
Securities of any particular series) and shall comply with the
applicable requirements of Section 611. If, within one year
after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee with respect to
the Securities of any Series shall be appointed by Act of the
Holders of a majority in principal amount of the Outstanding
Securities of such series delivered to the Company and the
retiring Trustee, the successor Trustee so appointed shall,
forthwith upon its acceptance of such appointment in accordance
with the applicable requirements of Section 611, become the
successor Trustee with respect to the Securities of such series
and to that extent supersede the successor Trustee appointed by
the Company. If no successor Trustee with respect to the
Securities of any Series shall have been so appointed by the
Company or the Holders and accepted appointment in the manner
required by Section 611, any Holder who has been a bona fide
Holder of a Security of such series for at least six months may,
on behalf of itself and all others similarly situated, petition
any court of competent jurisdiction for the appointment of a
successor Trustee with respect to the Securities of such series.
(f) The Company shall give notice of each resignation and each
removal of the Trustee with respect to the Securities of any
series and each appointment of a successor Trustee with respect
to the Securities of any series to all Holders of Securities of
such series in the manner provided in Section 106. Each notice
shall include the name of the successor Trustee with respect to
the Securities of such series and the address of its Corporate
Trust Office.
Section 611. Acceptance of Appointment by Successor.
(a) In case of the appointment hereunder of a successor Trustee
with respect to all Securities, every such successor Trustee so
appointed shall execute, acknowledge and deliver to the Company
and to the retiring Trustee an instrument accepting such
appointment, and thereupon the resignation or removal of the
retiring Trustee shall become effective and such successor
Trustee, without any further act, deed or conveyance, shall
become vested with all the rights, powers, trusts and duties of
the retiring Trustee; but, on the request of the Company or the
successor Trustee, such retiring Trustee shall, upon payment of
its charges and all other amounts due it under Section 607,
execute and deliver an instrument transferring to such successor
Trustee all the rights, powers and trusts of the retiring
Trustee and shall duly assign, transfer and deliver to such
successor Trustee all property and money held by such retiring
Trustee hereunder, subject nevertheless to its lien, if any,
provided for in Section 607.
(b) In case of the appointment hereunder of a successor Trustee
with respect to the Securities of one or more (but not all)
series, the Company, the retiring Trustee and each successor
Trustee with respect to the Securities of such series shall
execute and deliver an indenture supplemental hereto wherein
each successor Trustee shall accept such appointment and which
(1) shall contain such provisions as shall be necessary or
desirable to transfer the rights, powers, trust and duties of
the retiring Trustee with respect to the Securities of that or
those series to which the appointment of such successor Trustee
relates, (2) if the retiring Trustee is not retiring with
respect to all Securities, shall contain such provisions as
shall be deemed necessary or desirable to confirm that all the
rights, powers, trusts and duties of the retiring Trustee with
respect to the Securities of that or those series as to which
the retiring Trustee is not retiring shall continue to be vested
in the retiring Trustee, and (3) shall add to or change any of
the provisions of this Indenture as shall be necessary to
provide for or facilitate the administration of the trusts
hereunder by more than one Trustee, it being understood that
nothing herein or in such supplemental indenture shall
constitute such Trustee co-trustees of the same trust and that
each such Trustee shall be trustee of a trust or trusts
hereunder separate and apart from any trust or trusts hereunder
administered by any other such Trustee; and upon the execution
and delivery of such supplemental indenture the resignation or
removal of the retiring Trustee shall become effective to the
extent provided therein and each such successor Trustee, without
any further act, deed or conveyance, shall become vested with
all the rights, powers, trusts and duties of the retiring
Trustee with respect to the Securities of that or those series
to which the appointment of such successor Trustee relates; but,
on request of the Company or any successor Trustee, such
retiring Trustee shall duly assign, transfer and deliver to such
successor Trustee all property and money held by such retiring
Trustee hereunder with respect to the Securities of that or
those series to which the appointment of such successor Trustee
relates, subject nevertheless to its lien, if any, provided for
in Section 607.
(c) Upon request of any such successor Trustee, the Company
shall execute any and all instruments for more fully and
certainly vesting in and confirming to such successor Trustee
all such rights, powers and trusts referred to in paragraphs (a)
and (b) of this Section, as the case may be.
(d) No successor shall accept its appointment unless at the
time of such acceptance such successor Trustee shall be
qualified and eligible under this Article.
Section 612. Merger, Conversion, Consolidation
or Succession to Business.
Any corporation into which the Trustee may be merged or
converted or with which it may be consolidated, or any
corporation resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate
trust business of the Trustee, shall be the successor of the
Trustee hereunder, provided such corporation shall be otherwise
qualified and eligible under this Article, without the execution
or filing of any paper or any further act on the part of any of
the parties hereto. In case any Securities shall have been
authenticated, but not delivered, by the Trustee then in office,
any successor by merger, conversion or consolidation to such
authenticating Trustee may adopt such authentication and deliver
the Securities so authenticated with the same effect as if such
successor Trustee had itself authenticated such Securities.
Section 613. Preferential Collection of
Claims Against Company.
If and when the Trustee shall be or become a creditor of the
Company (or any other obligor upon the Securities), the Trustee
shall be subject to the provisions of the Trust Indenture Act
regarding the collection of claims against the Company (or any
such other obligor).
Section 614. Appointment of Authenticating Agent.
The Trustee may with the consent of the Company appoint an
Authenticating Agent or Agents with respect to one or more
series of Securities which shall be authorized to act on behalf
of the Trustee to authenticate Securities of such series issued
upon original issue and upon exchange, registration of transfer,
partial conversion or partial redemption thereof or pursuant to
Section 306, and Securities so authenticated shall be entitled
to the benefits of this Indenture and shall be valid and
obligatory for all purposes as if authenticated by the Trustee
hereunder. Wherever reference is made in this Indenture to the
authentication and delivery of Securities by the Trustee or the
Trustee's certificate of authentication, such reference shall be
deemed to include authentication and delivery on behalf of the
Trustee by an Authenticating Agent and a certificate of
authentication executed on behalf of the Trustee by an
Authenticating Agent. Each Authenticating Agent shall be
acceptable to the Company and shall at all times be a
corporation organized and doing business under the laws of the
United States of America, any State thereof or the District of
Columbia, authorized under such laws to act as Authenticating
Agent, having a combined capital and surplus of not less than
$50,000,000 and subject to supervision or examination by Federal
or State authority. If such Authenticating Agent publishes
reports of condition at least annually, pursuant to law or to
the requirements of said supervising or examining authority,
then for the purposes of this Section, the combined capital and
surplus of such Authenticating Agent shall be deemed to be its
combined capital and surplus as set forth in its most recent
report of condition so published. If at any time an
Authenticating Agent shall cease to be eligible in accordance
with the provisions of this Section, such Authenticating Agent
shall resign immediately in the manner and with the effect
specified in this Section.
Any corporation into which an Authenticating Agent may be merged
or converted or with which it may be consolidated, or any
corporation resulting from any merger, conversion or
consolidation to which such Authenticating Agent shall be a
party, or any corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall
continue to be an Authenticating Agent, provided such
corporation shall be otherwise eligible under this Section,
without the execution or filing of any paper or any further act
on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written
notice thereof to the Trustee and to the Company. The Trustee
or the Company may at any time terminate the agency of an
Authenticating Agent by giving written notice thereof to such
Authenticating Agent and to the Company or the Trustee, as the
case may be. Upon receiving such a notice of resignation or
upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance
with the provisions of this Section, the Trustee may appoint a
successor Authenticating Agent which shall be acceptable to the
Company and shall mail written notice of such appointment by
first-class mail, postage prepaid, to all Holders of Securities
of the series with respect to which such Authenticating Agent
will serve, as their names and addresses appear in the Security
Register. Any successor Authenticating Agent upon acceptance of
its appointment hereunder shall become vested with all the
rights, powers and duties of its predecessor hereunder, with
like effect as if originally named as an Authenticating Agent.
No successor Authenticating Agent shall be appointed unless
eligible under the provisions of this Section.
The Trustee agrees to pay to each Authenticating Agent from time
to time reasonable compensation for its services under this
Section, and the Trustee shall be entitled to be reimbursed for
such payments, subject to the provisions of Section 607.
If an appointment with respect to one or more series is made
pursuant to this Section, the Securities of such series may have
endorsed thereon, in addition to the Trustee's certificate of
authentication, an alternative certificate of authentication in
the following form:
This is one of the Securities of the series designated therein
referred to in the within-mentioned Indenture.
CHEMICAL BANK,
As Trustee
By________________________________,
As Authenticating Agent
By________________________________,
Authorized Officer
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 701. Company to Furnish Trustee Names and
Addresses of Holders.
The Company will furnish or cause to be furnished to the Trustee
(a) semi-annually, not later than 10 days after each Regular
Record Date in each year, a list for each series of Securities,
in such form as the Trustee may reasonably require, of the names
and addresses of the Holders of Securities of such series as of
the preceding Regular Record Date, and
(b) at such other times as the Trustee may request in writing,
within 30 days after the receipt by the Company of any such
request, a list of similar form and content as of a date not
more than 15 days prior to the time such list is furnished;
provided no such list need be furnished if the Trustee shall be
the Security Registrar.
Section 702. Preservation of Information;
Communications to Holders.
(a) The Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of Holders
contained in the most recent list furnished to the Trustee as
provided in Section 701 and the names and addresses of Holders
received by the Trustee in its capacity as Security Registrar.
The Trustee may destroy any list furnished to it as provided in
Section 701 upon receipt of a new list so furnished.
(b) The rights of the Holders to communicate with other Holders
with respect to their rights under this Indenture or under the
Securities, and the corresponding rights and privileges of the
Trustee, shall be as provided by the Trust Indenture Act.
(c) Every Holder of Securities, by receiving and holding the
same, agrees with the Company and the Trustee that neither the
Company nor the Trustee nor any agent of either of them shall be
held accountable by reason of any disclosure of information as
to names and addresses of Holders made pursuant to the Trust
Indenture Act.
Section 703. Reports by Trustee.
(a) The Trustee shall transmit to Holders such reports
concerning the Trustee and its actions under this Indenture as
may be required pursuant to the Trust Indenture Act at the times
and in the manner provided pursuant thereto. To the extent that
any such report is required by the Trust Indenture Act with
respect to any 12 month period, such report shall cover the 12
month period ending May 15 and shall be transmitted by the next
succeeding July 15.
(b) A copy of each such report shall, at the time of such
transmission to Holders, be filed by the Trustee with each stock
exchange upon which any Securities are listed, with the
Commission and with the Company. The Company will notify the
Trustee when any Securities are listed on any stock exchange.
Section 704. Reports by Company.
The Company shall file with the Trustee and the Commission, and
transmit to Holders, such information, documents and other
reports, and such summaries thereof, as may be required pursuant
to the Trust Indenture Act at the times and in the manner
provided pursuant to such Act; provided that any such
information, documents or reports required to be filed with the
Commission pursuant to Section 13 or 15(d) of the Exchange Act
shall be filed with the Trustee within 15 days after the same is
so required to be filed with the Commission.
ARTICLE EIGHT
CONSOLIDATION, MERGER, OR SALE OF ASSETS
Section 801. Company May Consolidate, Etc., Only on
Certain Terms.
The Company shall not consolidate with or merge into any other
Person or convey, transfer, lease or sell its properties and
assets as, or substantially as, an entirety to any Person, and
the Company shall not permit any Person to consolidate with or
merge into the Company, unless:
(1) in case the Company shall consolidate with or merge into
another Person or convey, transfer, lease or sell its properties
and assets as, or substantially, as an entirety to any Person,
the Person formed by such consolidation or into which the
Company is merged or the Person which acquires by conveyance,
transfer, lease or sale the properties and assets of the Company
as, or substantially as, an entirety shall be a corporation,
partnership or trust, shall be organized and validly existing
under the laws of the United States of America, any State
thereof or the District of Columbia and shall expressly assume,
by an indenture supplemental hereto, executed and delivered to
the Trustee, in form satisfactory to the Trustee, all of the
obligations of the Company under the Securities, including
without limitation, the due and punctual payment of the
principal of and any premium and interest on all the Securities
and the performance or observance of every covenant of this
Indenture on the part of the Company to be performed or observed
and the conversion rights, if any, shall be provided for in
accordance with Article Twelve, by supplemental indenture
satisfactory in form to the Trustee, executed and delivered to
the Trustee, by the Person (if other than the Company) formed by
such consolidation or into which the Company shall have been
merged or by the corporation which shall have acquired or leased
the Company's assets;
(2) immediately after giving effect to such transaction, no
Event of Default shall have happened and be continuing; and
(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, or conveyance, transfer, lease or sale
and, if a supplemental indenture is required in connection with
such transaction, such supplemental indenture comply with this
Article and that all conditions precedent herein provided for
relating to such transaction have been complied with.
For purposes of the foregoing, the transfer (by lease,
assignment, sale or otherwise) of the properties and assets of
United States Fidelity and Guaranty Company (other than to the
Company or another Subsidiary), which, if such assets were owned
by the Company, would constitute all or substantially all of the
properties and assets of the Company, shall be deemed to be the
transfer of all or substantially all of the properties and
assets of the Company.
Section 802. Successor Substituted.
Upon any consolidation of the Company with, or merger of the
Company into, any other Person or any sale of the properties and
assets of the Company as, or substantially as, an entirety in
accordance with Section 801, the successor Person formed by such
consolidation or into which the Company is merged or to which
such sale is made shall succeed to, and be substituted for, and
may exercise every right and power of, the Company under this
Indenture with the same effect as if such successor Person had
been named as the Company herein, and thereafter, the
predecessor Person shall be relieved of all obligations and
covenants under this Indenture and the Securities.
ARTICLE NINE
SUPPLEMENTAL INDENTURES
Section 901. Supplemental Indentures Without Consent
of Holders.
Without the consent of any Holders, the Company, when authorized
by a Board Resolution, and the Trustee, at any time and from
time to time, may enter into one or more indentures supplemental
hereto, in form satisfactory to the Trustee, for any of the
following purposes:
(1) to evidence the succession of another Person to the Company
and the assumption by any such successor of the covenants of the
Company herein and in the Securities; or
(2) to add to the covenants of the Company for the benefit of
the Holders of all or any series of Securities (and if such
covenants are to be for the benefit of less than all series of
Securities, stating that such covenants are expressly being
included solely for the benefit of such series) or to surrender
any right or power herein conferred upon the Company; or
(3) to add any additional Events of Default; or
(4) to add to or change any of the provisions of this Indenture
to such extent as shall be necessary to permit or facilitate the
issuance of Securities in bearer form, registrable or not
registrable as to principal, and with or without interest
coupons, or to permit or facilitate the issuance of Securities
in uncertificated form, or to permit or facilitate the issuance
of Original Issue Discount Securities; or
(5) to add to, change or eliminate any of the provisions of
this Indenture in respect of one or more series of Securities,
including, without limitation, with respect to any of the
provisions set forth in Article Fifteen, provided that any such
addition, change or elimination (i) shall neither (A) apply to
any Security of any series created prior to the execution of
such supplemental indenture and entitled to the benefit of such
provision nor (B) modify the rights of the Holder of any such
Security with respect to such provision or (ii) shall become
effective only when there is no such Security Outstanding; or
(6) to secure the Securities pursuant to the requirements of
Section 1005, or to otherwise secure the Securities of any
series; or
(7) to establish the form or terms of Securities of any series
as permitted by Sections 201 and 301; or
(8) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Securities
of one or more series and to add to or change any of the
provisions of this Indenture as shall be necessary to provide
for or facilitate the administration of the trusts hereunder by
more than one Trustee, pursuant to the requirements of Section
611(b); or
(9) to cure any ambiguity, to correct or supplement any
provision herein which may be inconsistent with any other
provision herein, or to make any other provisions with respect
to matters or questions arising under this Indenture, provided
that such action pursuant to this clause (9) shall not adversely
affect the interests of the Holders of Securities of any series
in any material respect; or
(10) to make provision with respect to the conversion rights of
Holders pursuant to the requirements of Article Twelve,
including providing for the conversion of the securities into
any security (other than the Common Stock of the Company) or
property of the Company; or
(11) to conform to any mandatory provisions of law.
Section 902. Supplemental Indentures with Consent of
Holders.
With the consent of the Holders of not less than a majority of
principal amount of the Outstanding Securities of each series
affected by such supplemental indenture, by Act of said Holders
delivered to the Company and the Trustee, the Company, when
authorized by a Board Resolution, and the Trustee may enter into
an indenture or indentures supplemental hereto for the purpose
of adding any provisions to or changing in any manner or
eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of the Holders of Securities
of such series under this Indenture; provided, however, that no
such supplemental indenture shall, without the consent of the
Holder of each Outstanding Security affected thereby,
(1) change the Stated Maturity of the principal of, or any
instalment of principal of or interest on, any Security, or
reduce the principal amount thereof or the rate of interest
thereon (including any change in the Floating or Adjustable Rate
Provision pursuant to which such rate is determined that would
reduce such rate for any period) or any premium payable upon the
redemption thereof, or reduce the amount of the principal of an
Original Issue Discount Security that would be due and payable
upon a declaration of acceleration of the Maturity thereof
pursuant to Section 502, or change any Place of Payment where,
or the coin or currency in which, any Security or any premium or
interest thereon is payable, or impair the right to institute
suit for the enforcement of any such payment on or after the
Stated Maturity thereof (or, in the case of redemption, on or
after the Redemption Date), or modify the provisions of this
Indenture with respect to the subordination of the Securities of
any series in a manner adverse to the Holders, or
(2) reduce the percentage in principal amount of the
Outstanding Securities of any series, the consent of whose
Holders is required for any such supplemental indenture, or the
consent of whose Holders is required for any waiver (of
compliance with certain provisions of this Indenture or certain
defaults hereunder and their consequences) provided for in this
Indenture, or
(3) if applicable, make any change that adversely affects the
right to convert any security to which the provisions of Article
Twelve are applicable or, except as provided in this Indenture,
decrease the conversion rate or increase the conversion price of
any such security, or
(4) modify any of the provisions of this Section, Section 513
or Section 907, except to increase any such percentage or to
provide that certain other provisions of this Indenture cannot
be modified or waived without the consent of the Holder of each
Outstanding Security affected thereby, provided, however, that
this clause shall not be deemed to require the consent of any
Holder with respect to changes in the references to "the
Trustee" and concomitant changes in this Section and Section
907, or the deletion of this proviso, in accordance with the
requirements of Sections 611(b) and 901(8).
A supplemental indenture which changes or eliminates any
covenant or other provision of this Indenture which has
expressly been included solely for the benefit of one or more
particular series of Securities, or which modifies the rights of
the Holders of Securities of such series with respect to such
covenant or other provision, shall be deemed not to affect the
rights under this Indenture of the Holders of Securities of any
other series.
It shall not be necessary for any Act of Holders under this
Section to approve the particular form of any proposed
supplemental indenture, but it shall be sufficient if such Act
shall approve the substance thereof.
Section 903. Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the
modifications thereby of the trusts created by this Indenture,
the Trustee shall be entitled to receive, and (subject to
Section 601) shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such
supplemental indenture is authorized or permitted by this
Indenture and, to the extent that such supplemental indenture
establishes the form or terms of Securities of any series,
covering the matters that would be included in the Opinion of
Counsel described in Section 303 if such Securities were
established by Board Resolution. The Trustee may, but shall not
be obligated to, enter into any such supplemental indenture
which affects the Trustee's own rights, duties or immunities
under this Indenture or otherwise.
Section 904. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this
Article, this Indenture shall be modified in accordance
therewith, and such supplemental indenture shall form a part of
this Indenture for all purposes; and every Holder of Securities
theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
Section 905. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article
shall conform to the requirements of the Trust Indenture Act.
Section 906. Reference in Securities to
Supplemental Indentures.
Securities of any series authenticated and delivered after the
execution of any supplemental indenture pursuant to this Article
may, and shall if required by the Trustee, bear a notation in
form approved by the Trustee as to any matter provided for in
such supplemental indenture. If the Company shall so determine,
new Securities of any series so modified as to conform, in the
opinion of the Trustee and the Company, to any such supplemental
indenture may be prepared and executed by the Company and
authenticated and delivered by the Trustee in exchange for
Outstanding Securities of such series.
Section 907. Waiver of Compliance by Holders.
Anything in this Indenture to the contrary notwithstanding, any
of the acts which the Company is required to do, or is
prohibited from doing, by any of the provisions of this
Indenture may, to the extent that such provisions might be
changed or eliminated by a supplemental indenture pursuant to
Section 902 upon consent of holders of not less than a majority
in aggregate principal amount of the then Outstanding Securities
of the series affected, be omitted or done by the Company, if
there is obtained the prior consent or waiver of the holders of
at least a majority in aggregate principal amount of the then
Outstanding Securities of such series.
Section 908. Subordination Unimpaired.
No provision in any supplemental indenture that affects the
superior position of the holders of Senior Debt shall be
effective against holders of Senior Debt.
ARTICLE TEN
COVENANTS
Section 1001. Payment of Principal, Premium and
Interest.
The Company covenants and agrees for the benefit of each series
of Securities that it will duly and punctually pay or cause to
be paid the principal of and any premium and interest on the
Securities of that series in accordance with the terms of the
Securities and this Indenture.
Section 1002. Maintenance of Office or Agency.
So long as any Securities are Outstanding, the Company will
maintain in each Place of Payment for any series of Securities
an office or agency where Securities of that series may be
presented or surrendered for payment, where Securities of that
series may be surrendered for registration of transfer or
exchange, where Securities of that series may be surrendered for
conversion and where notices and demands to or upon the Company
in respect of the Securities of that series and this Indenture
may be served. The Company will give prompt written notice to
the Trustee of the location, and any change in the location, of
such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to
furnish the Trustee with the address thereof, such
presentations, surrenders, notices and demands may be made or
served at the Corporate Trust Office of the Trustee, and the
Company hereby appoints the Trustee as its agent to receive all
such presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more
other offices or agencies where the Securities of one or more
series may be presented or surrendered for any or all such
purposes and may from time to time rescind such designations;
provided, however, that no such designation or rescission shall
in any manner relieve the Company of its obligation to maintain
an office or agency in each Place of Payment for Securities of
any series for such purposes. The Company will give prompt
written notice to the Trustee of any such designation or
rescission and of any change in the location of any such other
office or agency.
Section 1003. Money for Securities Payments to Be Held
in Trust.
If the Company shall at any time act as its own Paying Agent
with respect to any series of Securities, it will, on or before
each due date of the principal of or any premium or interest on
any of the Securities of that series, segregate and hold in
trust for the benefit of the Persons entitled thereto a sum
sufficient to pay the principal and any premium and interest so
becoming due until such sums shall be paid to such Persons or
otherwise disposed of as herein provided and will promptly
notify the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for
any series of Securities, it will, on or prior to each due date
of the principal of or any premium or interest on any Securities
of that series, deposit with a Paying Agent a sum sufficient to
pay such amount, such sum to be held as provided by the Trust
Indenture Act, and (unless such Paying Agent is the Trustee) the
Company will promptly notify the Trustee of its action or
failure so to act.
The Company will cause each Paying Agent for any series of
Securities other than the Trustee to execute and deliver to the
Trustee an instrument in which such Paying Agent shall agree
with the Trustee, subject to the provisions of this Section,
that such Paying Agent will (i) comply with the provisions of
the Trust Indenture Act applicable to it as a Paying Agent and
(ii) during the continuance of any default by the Company (or
any other obligor upon the Securities of that series) in the
making of any payment in respect of the Securities of that
series, and upon the written request of the Trustee, forthwith
pay to the Trustee all sums held in trust by such Paying Agent
for payment in respect of the Securities of that series.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other
purpose, pay, or by Company Order direct any Paying Agent to
pay, to the Trustee all sums held in trust by the Company or
such Paying Agent, such sums to be held by the Trustee upon the
same trusts as those upon which such sums were held by the
Company or such Paying Agent; and, upon such payment by any
Paying Agent to the Trustee, such Paying Agent shall be released
from all further liability with respect to such money.
Any money deposited with the Trustee or any Paying Agent, or
then held by the Company, in trust for the payment of the
principal of or any premium or interest on any Security of any
series and remaining unclaimed for two years after such
principal, premium or interest has become due and payable shall
be paid to the Company on Company Request, or (if then held by
the Company) shall be discharged from such trust; and the Holder
of such Security shall thereafter, as an unsecured general
creditor, look only to the Company for payment thereof, and all
liability of the Trustee or such Paying Agent with respect to
such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease; provided, however, that the
Trustee or such Paying Agent, before being required to make any
such repayment, may at the expense of the Company mail to all
Holders or cause to be published once, in a newspaper published
in the English language, customarily published on each Business
Day and of general circulation in the Borough of Manhattan, the
City of New York, notice that such money remains unclaimed and
that, after a date specified therein, which shall not be less
than 30 days from the date of such mailing or publication, any
unclaimed balance of such money then remaining will be repaid to
the Company.
Section 1004. Statement by Officers as to Default.
The Company will deliver to the Trustee within 120 days after
the end of each fiscal year (which as of the date hereof is
December 31) of the Company ending after the date hereof, a
certificate signed by the Company's principal executive officer,
principal financial officer or principal accounting officer
stating whether or not to the best knowledge of the signer
thereof the Company is in compliance with all terms, conditions
and covenants of this Indenture (without regard to any period of
grace or requirement of notice provided hereunder) and if the
signer has obtained knowledge of any continuing default by the
Company in the performance, observation or fulfillment of any
such term, condition or covenant, specifying each such default
and the nature thereof.
Section 1005. Limitations on Liens on Common Stock of
Principal Insurance Subsidiaries.
As long as any of the Securities remains outstanding, the
Company will not, and will not permit any Principal Insurance
Subsidiary to, issue, assume, incur or guarantee any
indebtedness for borrowed money secured by a mortgage, pledge,
lien or other encumbrance, directly or indirectly, on any of the
Common Stock of a Principal Insurance Subsidiary, which Common
Stock is owned by the Company or by any Principal Insurance
Subsidiary, unless the Securities and, if the Company so elects,
any other indebtedness of the Company ranking on a parity with
the Securities, shall be secured equally and ratably with, or
prior to, such secured indebtedness for borrowed money so long
as it is outstanding.
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
Section 1101. Applicability of Article.
Securities of any series which are redeemable before their
Stated Maturity shall be redeemable in accordance with their
terms and (except as otherwise specified as contemplated by
Section 301 for Securities of any series) in accordance with
this Article.
Section 1102. Election to Redeem; Notice to Trustee.
In case of any redemption at the election of the Company of less
than all the Securities of any series, the Company shall, at
least 60 days prior to the Redemption Date fixed by the Company
(unless a shorter notice shall be satisfactory to the Trustee),
notify the Trustee of such Redemption Date, of the principal
amount of Securities of such series to be redeemed and, if
applicable, of the tenor of the Securities to be redeemed. In
the case of any redemption of Securities prior to the expiration
of any restriction on such redemption provided in the terms of
such Securities or elsewhere in this Indenture, the Company
shall furnish the Trustee with an Officers' Certificate
evidencing compliance with such restriction.
Section 1103. Selection by Trustee of Securities to
Be Redeemed.
If less than all the Securities of any series are to be redeemed
(unless all of the Securities of such series and of a specified
tenor are to be redeemed), the particular Securities to be
redeemed shall be selected not more than 45 days prior to the
Redemption Date by the Trustee, from the Outstanding Securities
of such series not previously called for redemption, by such
method as the Trustee shall deem fair and appropriate and which
may provide for the selection for redemption of portions (equal
to the minimum authorized denomination for Securities of that
series or any integral multiple thereof) of the principal amount
of Securities of such series of a denomination larger than the
minimum authorized denomination for Securities of that series.
If less than all of the Securities of such series and of a
specified tenor are to be redeemed, the particular Securities to
be redeemed shall be selected not more than 45 days prior to the
Redemption Date by the Trustee, from the Outstanding Securities
of such series and specified tenor not previously called for
redemption in accordance with the preceding sentence.
If any Security selected for partial redemption is converted in
part before termination of the conversion right with respect to
the portion of the Security so selected, the converted portion
of such Security shall be deemed (so far as may be) to be the
portion selected for redemption. Securities which have been
converted during a selection of Securities to be redeemed shall
be treated by the Trustee as Outstanding for the purpose of such
selection.
The Trustee shall promptly notify the Company in writing of the
Securities selected for redemption and, in the case of any
Securities selected for partial redemption, the principal amount
thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of
Securities shall relate, in the case of any Securities redeemed
or to be redeemed only in part, to the portion of the principal
amount of such Securities which has been or is to be redeemed.
Notice of Redemption.
Notice of redemption shall be given by first-class mail, postage
prepaid, mailed not less than 30 nor more than 60 days prior to
the Redemption Date, to each Holder of Securities to be
redeemed, at its address appearing in the Security Register.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price,
(3) if less than all the Outstanding Securities of any series
are to be redeemed, the identification (and, in the case of
partial redemption of any Securities, the principal amounts) of
the particular Securities to be redeemed,
(4) that on the Redemption Date the Redemption Price will
become due and payable upon each such Security to be redeemed
and, if applicable, that interest thereon will cease to accrue
on and after said date,
(5) if applicable, the conversion price, and that the date on
which the right to convert the principal of the Securities or
the portions thereof to be redeemed will terminate will be the
Redemption Date and the place or places where such Securities
may be surrendered for conversion,
(6) the place or places where such Securities are to be
surrendered for payment of the Redemption Price, and
(7) that the redemption is for a sinking fund, if such is the
case.
Notice of redemption of Securities to be redeemed at the
election of the Company shall be given by the Company or, at the
Company's request, by the Trustee in the name and at the expense
of the Company.
Section 1105. Deposit of Redemption Price.
On or prior to any Redemption Date, the Company shall deposit
with the Trustee or with a Paying Agent (or, if the Company is
acting as its own Paying Agent, segregate and hold in trust as
provided in Section 1003) an amount of money sufficient to pay
the Redemption Price of, and (except if the Redemption Date
shall be an Interest Payment Date) accrued interest on, all the
Securities which are to be redeemed on that date, other than any
Securities called for redemption on that date which have been
converted prior to the date of such deposit.
If any Security or portion thereof called for redemption is
converted, any money deposited with the Trustee or with any
Paying Agent or so segregated and held in trust for the
redemption of such Security or portion thereof shall (subject to
any right of the Holder of such Security or any Predecessor
Security to receive interest as provided in the last paragraph
of Section 307) be paid to the Company upon Company Request or,
if then held by the Company, shall be discharged from such trust.
Section 1106. Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the
Securities so to be redeemed shall, on the Redemption Date,
become due and payable at the Redemption Price therein
specified, and from and after such date (unless the Company
shall default in the payment of the Redemption Price and accrued
interest) such Securities shall cease to bear interest. Upon
surrender of any such Security for redemption in accordance with
said notice, such Security shall be paid by the Company at the
Redemption Price, together with accrued interest to the
Redemption Date; provided, however, that, unless otherwise
specified as contemplated by Section 301, installments of
interest whose Stated Maturity is on or prior to the Redemption
Date shall be payable to the Holders of such Securities, or one
or more Predecessor Securities, registered as such at the close
of business on the relevant Record Dates according to their
terms and the provisions of Section 307.
If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal and any premium
shall, until paid, bear interest from the Redemption Date at the
rate prescribed therefor in the Security.
Section 1107. Securities Redeemed in Part.
Any Security which is to be redeemed only in part shall be
surrendered at a Place of Payment therefor (with, if the Company
or the Trustee so requires, due endorsement by, or a written
instrument of transfer in form satisfactory to the Company and
the Trustee duly executed by, the Holder thereof or his attorney
duly authorized in writing), and the Company shall execute, and
the Trustee shall authenticate and deliver to the Holder of such
Security without service charge, a new Security or Securities of
the same series and of like tenor, of any authorized
denomination as requested by such Holder, in aggregate principal
amount equal to and in exchange for the unredeemed portion of
the principal of the Security so surrendered.
ARTICLE TWELVE
CONVERSION OF SECURITIES
Section 1201. Applicability of Article.
The provisions of this Article shall be applicable to the
Securities of any series which are convertible into shares of
Common Stock of the Company, and the issuance of such shares of
Common Stock upon the conversion of such Securities, except as
otherwise specified as contemplated by Section 301 for the
Securities of such series.
Section 1202. Exercise of Conversion Privilege.
In order to exercise a conversion privilege, the Holder of a
Security of a series with such a privilege shall surrender such
Security to the Company at the office or agency maintained for
that purpose pursuant to Section 1002, accompanied by written
notice to the Company that the Holder elects to convert such
Security or a specified portion thereof. Such notice shall also
state, if different from the name and address of such Holder,
the name or names (with address) in which the certificate or
certificates for shares of Common Stock which shall be issuable
on such conversion shall be issued. Securities surrendered for
conversion shall (if so required by the Company or the Trustee)
be duly endorsed by or accompanied by instruments of transfer in
forms satisfactory to the Company and the Trustee duly executed
by the registered Holder or its attorney duly authorized in
writing; and Securities so surrendered for conversion during the
period from the close of business on any Regular Record Date to
the opening of business on the next succeeding Interest Payment
Date (excluding Securities or portions thereof called for
redemption during such period) shall also be accompanied by
payment in funds acceptable to the Company of an amount equal to
the interest payable on such Interest Payment Date on the
principal amount of such Security then being converted, and such
interest shall be payable to such registered Holder
notwithstanding the conversion of such Security, subject to the
provisions of Section 307 relating to the payment of Defaulted
Interest by the Company. As promptly as practicable after the
receipt of such notice and of any payment required pursuant to a
Board Resolution and, subject to Section 303, set forth, or
determined in the manner provided, in an Officers' Certificate,
or established in one or more indentures supplemental hereto
setting forth the terms of such series of Security, and the
surrender of such Security in accordance with such reasonable
regulations as the Company may prescribe, the Company shall
issue and shall deliver, at the office or agency at which such
Security is surrendered, to such Holder or on its written order,
a certificate or certificates for the number of full shares of
Common Stock issuable upon the conversion of such Security (or
specified portion thereof), in accordance with the provisions of
such Board Resolution, Officers' Certificate or supplemental
indenture, and cash as provided therein in respect of any
fractional share of such Common Stock otherwise issuable upon
such conversion. Such conversion shall be deemed to have been
effected immediately prior to the close of business on the date
on which such notice and such payment, if required, shall have
been received in proper order for conversion by the Company and
such Security shall have been surrendered as aforesaid (unless
such Holder shall have so surrendered such Security and shall
have instructed the Company to effect the conversion on a
particular date following such surrender and such Holder shall
be entitled to convert such Security on such date, in which case
such conversion shall be deemed to be effected immediately prior
to the close of business on such date) and at such time the
rights of the Holder of such Security as such Security Holder
shall cease and the person or persons in whose name or names any
certificate or certificates for shares of Common Stock of the
Company shall be issuable upon such conversion shall be deemed
to have become the Holder or Holders of record of the shares
represented thereby. Except as set forth above and subject to
the final paragraph of Section 307, no payment or adjustment
shall be made upon any conversion on account of any interest
accrued on the Securities surrendered for conversion or on
account of any dividends on the Common Stock of the Company
issued upon such conversion.
In the case of any Security which is converted in part only,
upon such conversion the Company shall execute and the Trustee
shall authenticate and deliver to or on the order of the Holder
thereof, at the expense of the Company, a new Security or
Securities of the same series, of authorized denominations, in
aggregate principal amount equal to the unconverted portion of
such Security.
Section 1203. No Fractional Shares.
No fractional share of Common Stock of the Company shall be
issued upon conversions of Securities of any series. If more
than one Security shall be surrendered for conversion at one
time by the same Holder, the number of full shares which shall
be issuable upon conversion shall be computed on the basis of
the aggregate principal amount of the Securities (or specified
portions thereof to the extent permitted hereby) so surrendered.
If, except for the provisions of this Section 1203, any Holder
of a Security or Securities would be entitled to a fractional
share of Common Stock of the Company upon the conversion of such
Security or Securities, or specified portions thereof, the
Company shall pay to such Holder an amount in cash equal to the
current market value of such fractional share computed, (i) if
such Common Stock is listed or admitted to unlisted trading
privileges on a national securities exchange, on the basis of
the last reported sale price regular way on such exchange on the
last trading day prior to the date of conversion upon which such
a sale shall have been effected, or (ii) if such Common Stock is
not at the time so listed or admitted to unlisted trading
privileges on a national securities exchange, on the basis of
the average of the bid and asked prices of such Common Stock in
the over-the-counter market, on the last trading day prior to
the date of conversion, as reported by the National Association
of Securities Dealers Automated Quotation System, or if not so
available, the fair market price as determined by the Board of
Directors. For purposes of this Section, "trading day" shall
mean each Monday, Tuesday, Wednesday, Thursday and Friday other
than any day on which the Common Stock is not traded on the New
York Stock Exchange, or if the Common Stock is not traded on the
New York Stock Exchange, on the principal exchange or market on
which the Common Stock is traded or quoted.
Section 1204. Adjustment of Conversion Price.
The conversion price of Securities of any series that is
convertible into Common Stock of the Company shall be adjusted
for any stock dividends, stock splits, reclassification,
combinations or similar transactions in accordance with the
terms of the supplemental indenture or Board Resolutions setting
forth the terms of the Securities of such series.
Whenever the conversion price is adjusted, the Company shall
compute the adjusted conversion price in accordance with terms
of the applicable Board Resolution or supplemental indenture and
shall prepare an Officers' Certificate setting forth the
adjusted conversion price and showing in reasonable detail the
facts upon which such adjustment is based, and such certificate
shall forthwith be filed at each office or agency maintained for
the purpose of conversion of Securities pursuant to Section 1002
and, if different, with the Trustee. The Company shall
forthwith cause a notice setting forth the adjusted conversion
price to be mailed, first class postage prepaid, to each Holder
of Securities of such series at its address appearing on the
Security Register and to any conversion agent other than the
Trustee.
Section 1205. Notice of Certain Corporate Actions.
In case:
(a) the Company shall declare a dividend (or any other
distribution) on its Common Stock (other than dividends or
distributions which will not require an adjustment of the
conversion price of Securities of any series pursuant to Section
1204); or
(b) the Company shall authorize the granting to the holders of
its Common Stock of rights, options or warrants to subscribe for
or purchase any shares of capital stock of any class or of any
other rights (other than any such grant for which approval of
any shareholders of the Company is required or which will not
require an adjustment of the conversion price of Securities of
any series pursuant to Section 1204); or
(c) of any reclassification of the Common Stock of the Company
(other than a subdivision or combination of its outstanding
shares of Common Stock, or any consolidation, merger or share
exchange to which the Company is a party and for which approval
of any shareholders of the Company is required or which will not
require an adjustment of the conversion price of Securities of
any series pursuant to Section 1204), or of the sale of all or
substantially all of the assets of the Company; or
(d) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company;
then the Company shall cause to be filed with the Trustee, and
shall cause to be mailed to all Holders at their last addresses
as they shall appear in the Securities Register, at least 20
days (or 10 days in any case specified in clause (a) or (b)
above) prior to the applicable record date hereinafter
specified, a notice stating (i) the date on which a record is to
be taken for the purpose of such dividend, distribution, rights,
options or warrants, or, if a record is not to be taken, the
date as of which the holders of Common Stock of record to be
entitled to such dividend, distribution, rights, options or
warrants are to be determined, or (ii) the date on which such
reclassification, consolidation, merger, share exchange, sale,
dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected that holders
of Common Stock of record shall be entitled to exchange their
shares of Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger,
share exchange, sale, dissolution, liquidation or winding up.
If at any time the Trustee shall not be the conversion agent, a
copy of such notice shall also forthwith be filed by the Company
with the conversion agent.
Section 1206. Reservation of Shares of Common Stock.
The Company shall at all times reserve and keep available, free
from preemptive rights, out of its authorized but unissued
Common Stock, for the purpose of effecting the conversion of
Securities, the full number of shares of Common Stock of the
Company then issuable upon the conversion of all outstanding
Securities of any series that have conversion rights.
Section 1207. Payment of Certain Taxes Upon Conversion.
The Company will pay any and all taxes that may be payable in
respect of the issue or delivery of shares of its Common Stock
on conversion of Securities pursuant hereto. The Company shall
not, however, be required to pay any tax which may be payable in
respect of any transfer involved in the issue and delivery of
shares of its Common Stock in a name other than that of the
Holder of the Security or Securities to be converted, and no
such issue or delivery shall be made unless and until the person
requesting such issue has paid to the Company the amount of any
such tax, or has established, to the satisfaction of the
Company, that such tax has been paid.
Section 1208. Nonassessability.
The Company covenants that all shares of its Common Stock which
may be issued upon conversion of Securities will upon issue in
accordance with the terms hereof be duly and validly issued and
fully paid and nonassessable.
Section 1209. Effect of Consolidation
or Merger on Conversion Privilege.
In case of any consolidation of the Company with, or merger of
the Company into or with any other Person, or in the case of a
statutory share exchange to which the Company is a party or in
case of any sale or conveyance of all or substantially all of
the properties or assets of the Company (including cash), the
Company or the Person formed by such consolidation or the Person
into which the Company shall have been merged or the Person
which shall have acquired such assets, or the surviving entity
in such share exchange, as the case may be, shall execute and
deliver to the Trustee a supplemental indenture providing that
the Holder of each Security then outstanding of any series that
is convertible into Common Stock of the Company shall have the
right, which right shall be the exclusive conversion right
thereafter available to said Holder (until the expiration of the
conversion right of such Security), to convert such Security
into the kind and amount of shares of stock or other securities
or property (including cash) receivable upon such consolidation,
merger, share exchange, conveyance or sale by a holder of the
number of shares of Common Stock of the Company into which such
Security might have been converted immediately prior to such
consolidation, merger, share exchange, conveyance or sale,
subject to compliance with the other provisions of this
Indenture, such Security and such supplemental indenture. Such
supplemental indenture shall provide for adjustments which shall
be as nearly equivalent as may be practicable to the adjustments
provided for in such Security. The above provisions of this
Section shall similarly apply to successive consolidations,
mergers, share exchanges, conveyances or sales. It is expressly
agreed and understood that anything in this Indenture to the
contrary notwithstanding, if, pursuant to such merger,
consolidation, share exchange, conveyance or sale, holders of
outstanding shares of Common Stock of the Company do not receive
shares of common stock of the surviving corporation but receive
other securities, cash or other property or any combination
thereof, Holders of Securities shall not have the right to
thereafter convert their Securities into common stock of the
surviving corporation or the corporation which shall have
acquired such assets, but rather, shall have the right upon such
conversion to receive the other securities, cash or other
property receivable by a holder of the number of shares of
Common Stock of the Company into which the Securities held by
such holder might have been converted immediately prior to such
consolidation, merger, share exchange, conveyance or sale, all
as more fully provided in the first sentence of this Section
1209. Anything in this Section 1209 to the contrary
notwithstanding, the provisions of this Section 1209 shall not
apply to a merger or consolidation of another corporation with
or into the Company or any share exchange to which the Company
is a party pursuant to which both of the following conditions
are applicable: (i) the Company is the surviving or successor
corporation and (ii) the outstanding shares of Common Stock of
the Company are not changed or converted into any other
securities or property (including cash) or changed in number or
character or reclassified pursuant to the terms of such merger,
consolidation or share exchange.
As evidence of the kind and amount of shares of stock or other
securities or property (including cash) into which Securities
may properly be convertible after any such consolidation,
merger, share exchange, conveyance or sale, or as to the
appropriate adjustments of the conversion prices applicable with
respect thereto, the Trustee shall be furnished with and may
accept the certificate or opinion of an independent certified
public accountant with respect thereto; and, in the absence of
bad faith on the part of the Trustee, the Trustee may
conclusively rely thereon, and shall not be responsible or
accountable to any Holder of Securities for any provision in
conformity therewith or approved by such independent certified
accountant which may be contained in said supplemental indenture.
Section 1210. Duties of Trustee Regarding Conversion.
Neither the Trustee nor any conversion agent shall at any time
be under any duty or responsibility to any Holder of Securities
of any series that is convertible into Common Stock of the
Company to determine whether any facts exist which may require
any adjustment of the conversion price, or with respect to the
nature or extent of any such adjustment when made, or with
respect to the method employed, whether herein or in any
supplemental indenture, any resolutions of the Board of
Directors or written instrument executed by one or more officers
of the Company provided to be employed in making the same.
Neither the Trustee nor any conversion agent shall be
accountable with respect to the validity or value (or the kind
or amount) of any shares of Common Stock of the Company, or of
any securities or property, which may at any time be issued or
delivered upon the conversion of any Securities and neither the
Trustee nor any conversion agent makes any representation with
respect thereto. Subject to the provisions of Section 601,
neither the Trustee nor any conversion agent shall be
responsible for any failure of the Company to issue, transfer or
deliver any shares of its Common Stock or stock certificates or
other securities or property upon the surrender of any Security
for the purpose of conversion or to comply with any of the
covenants of the Company contained in this Article Twelve or in
the applicable supplemental indenture, resolutions of the Board
of Directors or written instrument executed by one or more duly
authorized officers of the Company.
Section 1211. Repayment of Certain Funds Upon Conversion.
Any funds which at any time shall have been deposited by the
Company or on its behalf with the Trustee or any other paying
agent for the purpose of paying the principal of, and premium,
if any, and interest, if any, on any of the Securities
(including funds deposited for the sinking fund referred to in
Article Three hereof) and which shall not be required for such
purposes because of the conversion of such Securities as
provided in this Article Twelve shall after such conversion be
repaid to the Company by the Trustee upon the Company's written
request.
ARTICLE THIRTEEN
DEFEASANCE AND COVENANT DEFEASANCE
Section 1301. Company's Option to Effect
Defeasance or Covenant Defeasance.
The Company may elect, at any time, to have either Section 1302
or Section 1303 applied to the Outstanding Securities of any
series, upon compliance with the conditions set forth below in
this Article Thirteen.
Section 1302. Defeasance and Discharge.
Upon the Company's exercise of the option provided in Section
1301 to have this Section 1302 applied to the Outstanding
Securities of any series, the Company shall be deemed to have
been discharged from its obligations, and the provisions of
Article Fifteen shall cease to be effective, with respect to the
Outstanding Securities of such series as provided in this
Section on and after the date the conditions set forth in
Section 1304 are satisfied (hereinafter called "Defeasance").
For this purpose, such Defeasance means that the Company shall
be deemed to have paid and discharged the entire indebtedness
represented by the Outstanding Securities of such series and to
have satisfied all its other obligations under the Securities of
such series and this Indenture insofar as the Securities of such
series are concerned (and the Trustee, at the expense of the
Company, shall execute proper instruments acknowledging the
same), subject to the following which shall survive until
otherwise terminated or discharged hereunder: (1) the rights of
Holders of Securities of such series to receive, solely from the
trust fund described in Section 1304 and as more fully set forth
in such Section, payments in respect of the principal of and any
premium and interest on such Securities of such series when
payments are due, (2) the Company's obligations with respect to
the Securities of such series under Sections 304, 305, 306, 1002
and 1003, (3) the rights, powers, trusts, duties and immunities
of the Trustee hereunder, including, without limitation, its
rights under Section 607 and (4) this Article Thirteen.
Subject to compliance with this Article Thirteen, the Company
may exercise its option provided in Section 1301 to have this
Section 1302 applied to the Outstanding Securities of any series
notwithstanding the prior exercise of its option provided in
Section 1301 to have Section 1303 applied to the Outstanding
Securities of such series.
Section 1303. Covenant Defeasance.
Upon the Company's exercise of the option provided in Section
1301 to have this Section 1303 applied to the outstanding
Securities of any series, (1) the Company shall be released from
its obligations under Section 1005 and Section 801 and any
provision of a supplemental indenture specified for release
pursuant to the terms thereof and (2) the occurrence of any
event specified in Sections 501(3), 501(4) (with respect to
Section 1005 and Section 801) and 501(5) shall be deemed not to
be or result in an Event of Default, and (3) the provisions of
Article Fifteen shall cease to be effective, in each case with
respect to the Outstanding Securities of such series as provided
in this Section on and after the date the conditions set forth
in Section 1304 are satisfied (hereinafter called "Covenant
Defeasance"). For this purpose, such Covenant Defeasance means
that the Company may omit to comply with and shall have no
liability in respect of any term, condition or limitation set
forth in any such specified Section (to the extent so specified
in the case of Section 501(4)), whether directly or indirectly
by reason of any reference elsewhere herein to any such Section
or by reason of any reference in any such Section to any other
provision herein or in any other document, but the remainder of
this Indenture and the Securities of such series shall be
unaffected thereby.
Section 1304. Conditions to Defeasance or
Covenant Defeasance.
The following shall be the conditions to application of either
Section 1302 or Section 1303 to the Outstanding Securities of
any series:
(1) The Company shall irrevocably have deposited or caused to
be deposited with the Trustee (or another trustee that satisfies
the requirements contemplated by Section 609 and agrees to
comply with the provisions of this Article Thirteen applicable
to it) as trust funds in trust for the purpose of making the
following payments, specifically pledged as security for, and
dedicated solely to, the benefit of the Holders of Outstanding
Securities of such series, (A) in the case of Securities of such
series denominated in U.S. dollars, (i) money in an amount, or
(ii) U.S. Government Obligations that through the scheduled
payment of principal and interest in respect thereof in
accordance with their terms will provide, not later than one day
before the due date of any payment, money in an amount, or (iii)
a combination thereof, in each case sufficient, in the opinion
of a nationally recognized firm of independent public
accountants expressed in a written certification thereof
delivered to the Trustee, to pay and discharge, and which shall
be applied by the Trustee (or any such other qualifying trustee)
to pay and discharge, the principal of and any premium and
interest on the Securities of such series on the respective
Stated Maturities, in accordance with the terms of this
Indenture and the Securities of such series. As used herein,
"U.S. Government Obligation" means (x) any security that is (i)
a direct obligation of the United States of America for the
payment of which full faith and credit of the United States of
America is pledged or (ii) an obligation of a Person controlled
or supervised by and acting as an agency or instrumentality for
the United States of America the payment of which is
unconditionally guaranteed as a full faith and credit obligation
by the United States of America, which, in either case (i) or
(ii), is not callable or redeemable at the option of the issuer
thereof, and (y) any depositary receipt issued by a bank (as
defined in Section 3(a)(2) of the Securities Act of 1933, as
amended) as custodian with respect to any specific payment of
principal of or interest on any such U.S. Government Obligation
specified in Clause (x) and held by such custodian for the
account of the holder of such depositary receipt, or with
respect to any specific payment of principal of or interest on
any such U.S. Government Obligation, provided that (except as
required by law) such custodian is not authorized to make any
deduction from the amount payable to the Holder of such
depositary receipt from any amount received by the custodian in
respect of the U.S. Government Obligation or the specific
payment of principal or interest evidenced by such depositary
receipt; or (B) in the case of Securities of such series
denominated in a currency other than the U.S. dollar, (i) money
in such currency in an amount, or (ii) Foreign Government
Obligations that through the scheduled payment of principal and
interest in respect thereof in accordance with their terms will
provide, not later than one day before the due date of any
payment, money in such currency in an amount, or (iii) a
combination thereof, in each case sufficient, in the opinion of
a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the
Trustee, to pay and discharge, and which shall be applied by the
Trustee (or any such other qualifying trustee) to pay and
discharge, the principal of and any premium and interest on the
Securities of such series on the respective Stated Maturities,
in accordance with the terms of this Indenture and the
Securities of such series. As used herein, "Foreign Government
Obligation" means (x) any security that is (i) a direct
obligation of the government that issued such currency for the
payment of which full faith and credit of such government is
pledged or (ii) an obligation of a Person controlled or
supervised by and acting as an agency or instrumentality for
such government the payment of which is unconditionally
guaranteed as a full faith and credit obligation by such
government, which, in either case (i) or (ii), is not callable
or redeemable at the option of the issuer thereof, and (y) any
depositary receipt issued by a bank (as defined in Section
3(a)(2) of the Securities Act of 1933, as amended) as custodian
with respect to any specific payment of principal of or interest
on any such Foreign Government Obligation specified in Clause
(x) and held by such custodian for the account of the holder of
such depositary receipt, or with respect to any specific payment
of principal of or interest on any such Foreign Government
Obligation, provided that (except as required by law) such
custodian is not authorized to make any deduction from the
amount payable to the Holder of such depositary receipt from any
amount received by the custodian in respect of the Foreign
Government Obligation or the specific payment of principal or
interest evidenced by such depositary receipt.
(2) In the case of an election under Section 1302, the Company
shall have delivered to the Trustee an Opinion of Counsel
stating that the Holders of the Outstanding Securities of such
series will not recognize gain or loss for Federal income tax
purposes as a result of the deposit, Defeasance and discharge to
be effected with respect to the Securities of such series and
will be subject to Federal income tax on the same amount, in the
same manner and at the same times as would be the case if such
deposit, Defeasance and discharge were not to occur.
(3) In the case of an election under Section 1303, the Company
shall have delivered to the Trustee an Opinion of Counsel to the
effect that the Holder of the Outstanding Securities of such
series will not recognize gain or loss for Federal income tax
purposes as result of the deposit and Covenant Defeasance to be
effected with respect to the Securities of such series and will
be subject to Federal income tax on the same amount, in the same
manner and at the same times as would be the case if such
deposit and Covenant Defeasance were not to occur.
(4) The Company shall have delivered to the Trustee an
Officers' Certificate to the effect that the Securities of such
series, if then listed on any securities exchange, will not be
delisted as a result of such deposit.
(5) No Event of Default or event that (after notice or lapse of
time or both) would become an Event of Default shall have
occurred and be continuing at the time of such deposit or, with
regard to any Event of Default or any such event specified in
Sections 501(6) and 501(7), at any time on or prior to the 90th
day after the date of such deposit (it being understood that
this condition shall not be deemed satisfied until after such
90th day).
(6) The Company shall have delivered to the Trustee an
Officer's Certificate and an Opinion of Counsel, each stating
that all conditions precedent with respect to such Defeasance or
Covenant Defeasance have been complied with.
(7) Such Defeasance or Covenant Defeasance shall not result in
the trust arising from such deposit constituting an investment
company within the meaning of the Investment Company Act of
1940, as amended, unless such trust shall be qualified under
such Act or exempt from regulation thereunder.
(8) At the time of such deposit: (A) no default in the payment
of principal of (or premium, if any) or interest on any Senior
Debt shall have occurred and be continuing or (B) no other event
of default with respect to any Senior Debt shall have occurred
and be continuing and shall have resulted in such Senior Debt
becoming or being declared due and payable prior to the date on
which it would otherwise have become due and payable, or, in the
case of either Clause (A) or Clause (B) above, each such default
or event of default shall have been cured or waived or shall
have ceased to exist.
Section 1305. Deposited Money and U.S. Government Obligations or Foreign
Government Obligations to be Held In Trust; Other Miscellaneous
Provisions.
Subject to the provisions of the last paragraph of Section 1003,
all money and U.S. Government Obligations or Foreign Government
Obligations (including the proceeds thereof) deposited with the
Trustee or other qualifying trustee (solely for purposes of this
Section and Section 1306, the Trustee and any such other trustee
are referred to collectively as the "Trustee") pursuant to
Section 1304 in respect of the Securities of any Defeasible
Series shall be held in trust and applied by the Trustee, in
accordance with the provisions of the Securities of such series
and this Indenture, to the payment, either directly or through
any such Paying Agent (including the Company acting as its own
Paying Agent) as the Trustee may determine, to the Holders of
Securities of such series, of all sums due and to become due
thereon in respect of principal and any premium and interest,
but money so held in trust need not be segregated from other
funds except to the extent required by law. Money so held in
trust shall not be subject to the provisions of Article Fifteen.
The Company shall pay and indemnify the Trustee against any tax,
fee or other charge imposed on or assessed against the U.S.
Government Obligations or Foreign Government Obligations
deposited pursuant to Section 1304 or the principal and interest
received in respect thereof.
Anything in this Article Thirteen to the contrary
notwithstanding, the Trustee shall deliver or pay to the Company
from time to time upon Company Request any money or U.S.
Government Obligations or Foreign Government Obligations held by
it as provided in Section 1304 with respect to Securities of any
Defeasible Series that, in the opinion of a nationally
recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee, are in
excess of the amount thereof that would then be required to be
deposited to effect an equivalent Defeasance or Covenant
Defeasance with respect to the Securities of such series.
Section 1306. Reinstatement.
If the Trustee or the Paying Agent is unable to apply any money
in accordance with this Article Thirteen with respect to the
Securities of any series by reason of any order or judgment of
any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, then the Company's
obligations under this Indenture and the Securities of such
series shall be revived and reinstated as though no deposit had
occurred pursuant to this Article Thirteen with respect to
Securities of such series until such time as the Trustee or
Paying Agent is permitted to apply all money held in trust
pursuant to Section 1305 with respect to Securities of such
series in accordance with this Article Thirteen; provided,
however, that if the Company makes any payment of principal of
or any premium or interest on any Security of such series
following the reinstatement of its obligations, the Company
shall be subrogated to the rights of the Holders of Securities
of such series to receive such payment from the money so held in
trust.
ARTICLE FOURTEEN
SINKING FUNDS
Section 1401. Applicability of Article.
The provisions of this Article shall be applicable to any
sinking fund for the retirement of Securities of a series except
as otherwise specified as contemplated by Section 301 for
Securities of such series.
The minimum amount of any sinking fund payment provided for by
the terms of Securities of any series is herein referred to as a
"mandatory sinking fund payment", and any payment in excess of
such minimum amount provided for by the terms of Securities of
any series is herein referred to as an "optional sinking fund
payment". If provided for by the terms of Securities of any
series, the cash amount of any sinking fund payment may be
subject to reduction as provided in Section 1402. Each sinking
fund payment shall be applied to the redemption of Securities of
any series as provided for by the terms of Securities of such
series.
Section 1402. Satisfaction of Sinking Fund
Payments with Securities.
The Company (1) may deliver Outstanding Securities of a series
(other than any previously called for redemption) and (2) may
apply as a credit Securities of a series which have been
converted pursuant to Article Twelve or Securities of a series
which have been acquired or redeemed either at the election of
the Company pursuant to the terms of such Securities or through
the application of permitted optional sinking fund payments
pursuant to the terms of such Securities or otherwise, in each
case in satisfaction of all or any part of any sinking fund
payment with respect to the Securities of such series required
to be made pursuant to the terms of such Securities as provided
for by the terms of such series; provided that such Securities
have not been previously so credited. Such Securities shall be
received and credited for such purpose by the Trustee at the
Redemption Price specified in such Securities for redemption
through operation of the sinking fund and the amount of such
sinking fund payment shall be reduced accordingly.
Section 1403. Redemption of Securities for Sinking Fund.
Not less than 45 days prior to each sinking fund payment date
for any series of Securities, the Company will deliver to the
Trustee an Officers' Certificate specifying the amount of the
next ensuing sinking fund payment for that series pursuant to
the terms of that series, the portion thereof, if any, which is
to be satisfied by payment of cash and the portion thereof, if
any, which is to be satisfied by delivering and crediting
Securities of that series pursuant to Section 1402 and will also
deliver to the Trustee any Securities to be so delivered. Not
less than 30 nor more than 45 days before each such sinking fund
payment date the Trustee shall select the Securities to be
redeemed upon such sinking fund payment date in the manner
specified in Section 1103 and cause notice of the redemption
thereof to be given in the name of and at the expense of the
Company in the manner provided in Section 1104. Such notice
having been duly given, the redemption of such Securities shall
be made upon the terms and in the manner stated in Sections 1106
and 1107.
ARTICLE FIFTEEN
SUBORDINATION OF SECURITIES
Section 1501. Securities Subordinate to Senior Debt.
The Company covenants and agrees, and each Holder of a Security,
by its acceptance thereof, likewise covenants and agrees, that,
to the extent and in the manner hereinafter set forth in this
Article (subject to the provisions of Article Four and Article
Thirteen), the payment of the principal of (and premium, if any)
and interest on each and all of the Securities are hereby
expressly made subordinate and subject in right of payment to
the prior payment in full of all amounts then due and payable in
respect of all Senior Debt.
Section 1502. Payment Over of Proceeds Upon
Dissolution, Etc.
In the event of (a) any insolvency or bankruptcy case or
proceeding, or any receivership, liquidation, arrangement,
reorganization, debt restructuring or other similar case or
proceeding in connection therewith, relative to the Company, or
its creditors as such, or to its assets, or (b) any liquidation,
dissolution or other winding up of the Company, whether
voluntary or involuntary and whether or not involving insolvency
or bankruptcy, or (c) any assignment for the benefit of
creditors or any other marshalling of assets and liabilities of
the Company, then and in any such event specified in (a), (b) or
(c) above (each such event, if any, herein sometimes referred to
as a "Proceeding") the holders of Senior Debt shall be entitled
to receive payment in full of all amounts due or to become due
on or in respect of all Senior Debt, or provision shall be made
for such payment in cash or cash equivalents or otherwise in a
manner satisfactory to the holders of Senior Debt, before the
Holders of the Securities are entitled to receive any payment or
distribution of any kind or character, whether in cash, property
or securities (including any payment or distribution which may
be payable or deliverable by reason of the payment of any other
Debt of the Company subordinated to the payment of the
Securities, such payment or distribution being hereinafter
referred to as "Junior Subordinated Payment"), on account of
principal of (or premium, if any) or interest on the Securities
or on account of the purchase or other acquisition of Securities
by the Company or any Subsidiary and to that end the holders of
Senior Debt shall be entitled to receive, for application to the
payment thereof, any payment or distribution of any kind or
character, whether in cash, property or securities, including
any Junior Subordinated Payment, which may be payable or
deliverable in respect of the Securities in any such Proceeding.
In the event that, notwithstanding the foregoing provisions of
this Section, the Trustee or the Holder of any Security shall
have received any payment or distribution of assets of the
Company of any kind or character, whether in cash, property or
securities, including any Junior Subordinated Payment, before
all Senior Debt is paid in full or payment thereof is provided
for in cash or cash equivalents or otherwise in a manner
satisfactory to the holders of Senior Debt, and if such fact
shall, at or prior to the time of such payment or distribution,
have been made known to the Trustee or, as the case may be, such
Holder, then and in such event such payment or distribution
shall be paid over or delivered forthwith to the trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee,
agent or other Person making payment or distribution of assets
of the Company for application to the payment of all Senior Debt
remaining unpaid, to the extent necessary to pay all Senior Debt
in full, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Debt. Any taxes
that have been withheld or deducted from any payment or
distribution in respect of the Securities, or any taxes that
ought to have been withheld or deducted from any such payment or
distribution that have been remitted to the relevant taxing
authority, shall not be considered to be an amount that the
Trustee or the Holder of any Security receives for purposes of
this Section.
For purposes of this Article only, the words "any payment or
distribution of any kind or character, whether in cash, property
or securities" shall not be deemed to include shares of stock of
the Company as reorganized or readjusted, or securities of the
Company or any other corporation provided for by a plan of
reorganization or readjustment which securities are subordinated
in right of payment to all then outstanding Senior Debt to
substantially the same extent as the Securities are so
subordinated as provided in this Article. The consolidation of
the Company with, or the merger of the Company into, another
Person or the liquidation or dissolution of the Company
following the sale of all or substantially all of its properties
and assets as an entirety to another Person or the liquidation
or dissolution of the Company following the sale of all or
substantially all of its properties and assets as an entirety to
another Person upon the terms and conditions set forth in
Article Eight shall not be deemed a Proceeding for the purposes
of this Section if the Person formed by such consolidation or
into which the Company is merged or the Person which acquires by
sale such properties and assets as an entirety, as the case may
be, shall, as a part of such consolidation, merger, or sale
comply with the conditions set forth in Article Eight.
Section 1503. Prior Payment to Senior Debt
Upon Acceleration of Securities.
In the event that any Securities are declared due and payable
before their Stated Maturity, then and in such event the holders
of the Senior Debt outstanding at the time such Securities so
become due and payable shall be entitled to receive payment in
full of all amounts due on or in respect of such Senior Debt, or
provision shall be made for such payment in cash or cash
equivalents or otherwise in a manner satisfactory to the holders
of Senior Debt, before the Holders of the Securities are
entitled to receive any payment (including any payment which may
be payable by reason of the payment of any other indebtedness of
the Company being subordinated to the payment of the Securities)
by the Company on account of the principal of (or premium, if
any) or interest on the Securities or on account of the purchase
or other acquisition of Securities by the Company or any
Subsidiary; provided, however, that nothing in this Section
shall prevent the satisfaction of any sinking fund payment in
accordance with Article Fourteen by delivering and crediting
pursuant to Section 1402 Securities which have been acquired
(upon redemption or otherwise) prior to such declaration of
acceleration or which have been converted pursuant to Article
Twelve.
In the event that, notwithstanding the foregoing, the Company
shall make any payment to the Trustee or the Holder of any
Security prohibited by the foregoing provisions of this Section,
and if such fact shall, at or prior to the time of such payment,
have been made known to the Trustee or, as the case may be, such
Holder, then and in such event such payment shall be paid over
and delivered forthwith to the Company.
The provisions of this Section shall not apply to any payment
with respect to which Section 1502 would be applicable.
Section 1504. No Payment When Senior Debt in Default.
(a) In the event and during the continuation of any default in
the payment of principal of (or premium, if any) or interest or
any other payment on any Senior Debt, or in the event that any
event of default with respect to any Senior Debt shall have
occurred and be continuing and shall have resulted in such
Senior Debt becoming or being declared due and payable prior to
the date on which it would otherwise have become due and
payable, unless and until such event of default shall have been
cured or waived or shall have ceased to exist and such
acceleration shall have been rescinded or annulled, or (b) in
the event any judicial proceeding shall be pending with respect
to any such default in payment or such event of default, then no
payment (including any payment which may be payable by reason of
the payment of any other indebtedness of the Company being
subordinated to the payment of the Securities) shall be made by
the Company on account of principal of (or premium, if any) or
interest on the Securities or on account of the purchase or
other acquisition of Securities by the Company or any
Subsidiary; provided, however, that nothing in this Section
shall prevent the satisfaction of any sinking fund payment in
accordance with Article Fourteen by delivering and crediting
pursuant to Section 1402 Securities which have been acquired
(upon redemption or otherwise) prior to such default in payment
or event of default or which have been converted pursuant to
Article Twelve.
In the event that, notwithstanding the foregoing, the Company
shall make any payment to the Trustee or the Holder of any
Security prohibited by the foregoing provisions of this Section,
and if such fact shall, at or prior to the time of such payment,
have been made known to the Trustee or, as the case may be, such
Holder, then and in such event such payment shall be paid over
and delivered forthwith to the Company.
The provisions of this Section shall not apply to any payment
with respect to which Section 1502 would be applicable.
Section 1505. Payment Permitted If No Default.
Nothing contained in this Article or elsewhere in this Indenture
or in any of the Securities shall prevent (a) the Company, at
any time except during the pendency of any Proceeding referred
to in Section 1502 or under the conditions described in Sections
1503 and 1504, from making payments at any time of principal of
(and premium, if any) or interest on the Securities, or (b) the
application by the Trustee of any money deposited with it
hereunder to the payment of or on account of the principal of
(and premium, if any) or interest on the Securities or the
retention of such payment by the Holders, if, at the time of
such application by the Trustee, it did not have knowledge that
such payment would have been prohibited by the provisions of
this Article.
Section 1506. Subrogation to Rights of Holders of
Senior Debt.
Subject to the payment in full of all Senior Debt, or the
provision for such payment in cash or cash equivalents or
otherwise in a manner satisfactory to the holders of Senior
Debt, the Holders of the Securities shall be subrogated to the
extent of the payments or distributions made to the holders of
such Senior Debt pursuant to the provisions of this Article
(equally and ratably with the holders of all indebtedness of the
Company which by its express terms is subordinated to
indebtedness of the Company to substantially the same extent as
the Securities are subordinated to the Senior Debt and is
entitled to like rights of subrogation by reason of any payments
or distributions made to holders of such Senior Debt) to the
rights of the holders of such Senior Debt to receive payments or
distributions of cash, property and securities applicable to the
Senior Debt until the principal of (and premium, if any) and
interest on the Securities shall be paid in full. If the
Trustee or the Holders of the Securities are not for any reason
entitled to be subrogated to the rights of holders of Senior
Debt in respect of such payment or distribution, then the
Trustee or the Holders of the Securities may require each holder
of Senior Debt to whom any such payment or distribution is made
as a condition to such payment or distribution to assign its
Senior Debt to the extent of such payment or distribution and
all rights with respect thereto to the Trustee on behalf of the
Holders. Such assignment shall not be effective until such time
as all Senior Debt has been paid in full or payment thereof
provided for. For purposes of such subrogation or assignment,
no payments or distributions to the holders of the Senior Debt
of any cash, property or securities to which the Holders of the
Securities or the Trustee would be entitled except for the
provisions of this Article, and no payments over pursuant to the
provisions of this Article to the holders of Senior Debt by
Holders of the Securities or the Trustee, shall, as among the
Company, its creditors other than holders of Senior Debt, and
the Holders of the Securities, be deemed to be a payment or
distribution by the Company to or on account of the Senior Debt.
Section 1507. Provisions Solely to Define Relative
Rights.
The provisions of this Article are and are intended solely for
the purpose of defining the relative rights of the Holders of
the Securities on the one hand and the holders of Senior Debt on
the other hand. Nothing contained in this Article or elsewhere
in this Indenture or in the Securities is intended to or shall
(a) impair, as among the Company, its creditors other than
holders of Senior Debt, and the Holders of the Securities, the
obligations of the Company, which are absolute and unconditional
(and which, subject to the rights under this Article of the
holders of Senior Debt are intended to rank equally with all
other general unsecured obligations of the Company), to pay to
the Holders of the Securities the principal of (and premium, if
any) and interest on the Securities as and when the same shall
become due and payable in accordance with their terms; or (b)
affect the relative rights against the Company of the Holders of
the Securities and creditors of the Company other than the
holders of Senior Debt; or (c) prevent the Trustee or the Holder
of any Security from exercising all remedies otherwise permitted
by applicable law upon default under this Indenture including,
without limitation, filing and voting claims in any Proceeding,
subject to the rights, if any, under this Article of the holders
of Senior Debt to receive cash, property or securities otherwise
payable or deliverable to the Trustee or such Holder.
Section 1508. Trustee to Effectuate
Subordination.
Each Holder of a Security by his or her acceptance thereof
authorizes and directs the Trustee on his or her behalf to take
such action as may be necessary or appropriate to acknowledge or
effectuate the subordination provided in this Article and
appoints the Trustee his or her attorney-in-fact for any and all
such purposes.
Section 1509. No Waiver of Subordination
Provisions.
No right of any present or future holder of any Senior Debt to
enforce subordination as herein provided shall at any time in
any way be prejudiced or impaired by (i) any amendment of or
addition or supplement to any Senior Debt or any instrument or
agreement relating thereto (unless otherwise expressly provided
therein) or (ii) any act or failure to act on the part of the
Company or by any act or failure to act, in good faith, by any
such holder, or by any noncompliance by the Company with the
terms, provisions and covenants of this Indenture, regardless of
any knowledge thereof that any such holder may have or be
otherwise charged with.
Without in any way limiting the generality of the foregoing
paragraph, the holders of Senior Debt may, at any time and from
time to time, without the consent of or notice to the Trustee or
the Holders of the Securities, without incurring responsibility
to the Holders of the Securities, and without impairing or
releasing the subordination provided in this Article or the
obligations hereunder of the Holders of the Securities to the
holders of Senior Debt, do any one or more of the following: (i)
change the manner, place or terms of payment or extend the time
of payment of, or renew or alter or increase, Senior Debt, or
otherwise amend or supplement in any manner Senior Debt or any
instrument evidencing the same or any agreement under which
Senior Debt is outstanding; (ii) sell, exchange, release or
otherwise deal with any property pledged, mortgaged or otherwise
securing Senior Debt; (iii) release any Person liable in any
manner for the collection of Senior Debt; and (iv) exercise or
refrain from exercising any rights against the Company and any
other Person.
Section 1510. Notice to Trustee.
The Company shall give prompt written notice to the Trustee of
any fact known to the Company which would prohibit the making of
any payment to or by the Trustee in respect of the Securities.
Notwithstanding the provisions of this Article or any other
provision of this Indenture, the Trustee shall not be charged
with knowledge of the existence of any facts which would
prohibit the making of any payment to or by the Trustee in
respect of the Securities, unless and until the Trustee shall
have received written notice thereof from the Company or a
holder of Senior Debt or from any trustee, agent or
representative therefor; and, prior to the receipt of any such
written notice, the Trustee, subject to the provisions of
Section 601, shall be entitled in all respects to assume that no
such facts exist; provided, however, that if the Trustee shall
not have received the notice provided for in this Section at
least two Business Days prior to the date upon which by the
terms hereof any money may become payable for any purpose
(including, without limitation, the payment of the principal of
(and premium, if any) or interest on any Security), then,
anything herein contained to the contrary notwithstanding, the
Trustee shall have full power and authority to receive such
money and to apply the same to the purpose for which such money
was received and shall not be affected by any notice to the
contrary which may be received by it within two Business Days
prior to such date.
Subject to the provisions of Section 601, the Trustee shall be
entitled to rely on the delivery to it of a written notice by a
Person representing himself or herself to be a holder of Senior
Debt (or a trustee, agent or representative therefor) to
establish that such notice has been given by a holder of Senior
Debt (or a trustee, agent or representative therefor). In the
event that the Trustee determines in good faith that further
evidence is required with respect to the right of any Person as
a holder of Senior Debt to participate in any payment or
distribution pursuant to this Article, the Trustee may request
such Person to furnish evidence to the reasonable satisfaction
of the Trustee as to the amount of Senior Debt held by such
Person, the extent to which such Person is entitled to
participate in such payment or distribution and any other facts
pertinent to the rights of such Person under this Article, and
if such evidence is not furnished, the Trustee may defer any
payment to such Person pending judicial determination as to the
right of such Person to receive such payment.
Section 1511. Reliance on Judicial Order
or Certificate of Liquidating Agent.
Upon any payment or distribution of assets of the Company
referred to in this Article, the Trustee, subject to the
provisions of Section 601, and the Holders of the Securities
shall be entitled to rely upon any order or decree entered by
any court of competent jurisdiction in which such Proceeding is
pending, or a certificate of the trustee in bankruptcy,
receiver, liquidating trustee, custodian, assignee for the
benefit of creditors, agent or other Person making such payment
or distribution, delivered to the Trustee or to the Holders of
Securities, for the purpose of ascertaining the Persons entitled
to participate in such payment or distribution, the holders of
the Senior Debt and other indebtedness of the Company, the
amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to
this Article.
Section 1512. Trustee Not Fiduciary For Holders of
Senior Debt.
The Trustee, in its capacity as trustee under this Indenture,
shall not be deemed to owe any fiduciary duty to the holders of
Senior Debt and shall not be liable to any such holders if it
shall in good faith mistakenly pay over or distribute to Holders
of Securities or to the Company or to any other Person cash,
property or securities to which any holders of Senior Debt shall
be entitled by virtue of this Article or otherwise.
Section 1513. Rights of Trustee as Holder of Senior Debt;
Preservation of Trustee's Rights.
The Trustee in its individual capacity shall be entitled to all
the rights set forth in this Article with respect to any Senior
Debt which may at any time be held by it, to the same extent as
any other holder of Senior Debt, and nothing in this Indenture
shall deprive the Trustee of any of its rights as such holder.
Nothing in this Article shall apply to claims of, or payments
to, the Trustee under or pursuant to Section 607.
Section 1514. Article Applicable to Paying Agents.
In case at any time any Paying Agent other than the Trustee
shall have been appointed by the Company and be then acting
hereunder, the term "Trustee" as used in this Article shall in
such case (unless the context otherwise requires) be construed
as extending to and including such Paying Agent within its
meaning as fully for all intents and purposes as if such Paying
Agent were named in this Article in addition to or in place of
the Trustee.
Section 1515. Defeasance of This Article Fifteen.
The subordination of the Securities provided by this Article
Fifteen is expressly made subject to the provisions for
defeasance or covenant defeasance in Article Thirteen and,
anything herein to the contrary notwithstanding, upon the
effectiveness of any such defeasance or covenant defeasance, the
Securities then outstanding shall thereupon cease to be
subordinated pursuant to this Article Fifteen.
Section 1516. Certain Conversions Deemed Payment.
For the purposes of this Article only, (1) the issuance and
delivery of junior securities upon conversion of Securities in
accordance with Article Twelve shall not be deemed to constitute
a payment or distribution on account of the principal of (or
premium, if any) or interest on Securities or on account of the
purchase or other acquisition of Securities, and (2) the
payment, issuance or delivery of cash, property or securities
(other than junior securities) upon conversion of a Security
shall be deemed to constitute payment on account of the
principal of such security. For the purposes of this Section,
the term "junior securities" means (a) shares of any stock of
any class of the Company, (b) securities of the Company which
are subordinated in right of payment to all Senior Debt which
may be outstanding at the time of issuance or delivery of such
securities to substantially the same extent as, or to a greater
extent than, the Securities are so subordinated as provided in
this Article and (c) any securities into which Securities become
convertible pursuant to Section 1209 which are securities of a
Person required to enter into a supplemental indenture pursuant
to such Section (or Section 801) and are either (x) shares of
any stock of any class of such Person, or (y) securities of such
Person which are subordinated in right of payment to all Senior
Debt which may be outstanding at the time of issuance or
delivery of such securities to substantially the same extent as,
or to a greater extent than, the Securities are so subordinated
as provided in this Article. Nothing contained in this Article
or elsewhere in this Indenture or in the Securities is intended
to or shall impair, as among the Company, its creditors other
than holders of Senior Debt and the Holders of the Securities,
the right, which is absolute and unconditional, of the Holder of
any Security to convert such Security in accordance with Article
Twelve.
This instrument may be executed in any number of counterparts,
each of which so executed shall be deemed to be an original, but
all such counterparts shall together constitute but one and the
same instrument.
_____________
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed, and their respective corporate
seals to be hereunto affixed and attested, all as of the day and
year first above written.
USF&G CORPORATION
By______________________________
Name:
Title:
Attest:
_________________________________
CHEMICAL BANK, as Trustee
By____________________________
Name:
Title:
Attest:
________________________________
STATE OF _________________)
) ss.:
COUNTY OF ________________)
On the _____ day of _________, 1994, before me personally came
____________________________, to me known, who, being by me duly
sworn, did depose and say that (s)he is
_____________________________ of USF&G CORPORATION, one of the
corporations described in and which executed the foregoing
instrument; that (s)he knows the seal of said corporation; that
the seal affixed to said instrument is such corporate seal; that
it was so affixed by authority of the Board of Directors of said
corporation, and that (s)he signed her/his name thereto by like
authority.
__________________________________
STATE OF _________________)
) ss.:
COUNTY OF _______________)
On the ____ day of __________, 1994, before me personally came
__________________________, to me known, who, being by me duly
sworn, did depose and say that (s)he is
___________________________ of CHEMICAL BANK, one of the
corporations described in and which executed the foregoing
instrument; that (s)he knows the seal of said corporation; that
the seal affixed to said instrument is such corporate seal; that
it was so affixed by authority of the Board of Directors of said
corporation, and that (s)he signed her/his name thereto by like
authority.
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed, and their respective corporate
seals to be hereunto affixed and attested, all as of the day and
year first above written.
USF&G CORPORATION
By______________________________
Name:
Title:
Attest:
_________________________________
CHEMICAL BANK, as Trustee
By____________________________
Name:
Title:
Attest:
________________________________
STATE OF _________________)
) ss.:
COUNTY OF ________________)
On the _____ day of _________, 1994, before me personally came
____________________________, to me known, who, being by me duly
sworn, did depose and say that (s)he is
_____________________________ of USF&G CORPORATION, one of the
corporations described in and which executed the foregoing
instrument; that (s)he knows the seal of said corporation; that
the seal affixed to said instrument is such corporate seal; that
it was so affixed by authority of the Board of Directors of said
corporation, and that (s)he signed her/his name thereto by like
authority.
___________________________________
STATE OF _________________)
) ss.:
COUNTY OF ________________)
On the _____ day of _________, 1994, before me personally came
____________________________, to me known, who, being by me duly
sworn, did depose and say that (s)he is
_____________________________ of CHEMICAL BANK, one of the
corporations described in and which executed the foregoing
instrument; that (s)he knows the seal of said corporation; that
the seal affixed to said instrument is such corporate seal; that
it was so affixed by authority of the Board of Directors of said
corporation, and that (s)he signed her/his name thereto by like
authority.
__________________________________
STOCK OPTION AGREEMENT
UNDER THE
STOCK OPTION PLAN OF ____
AGREEMENT made as of the ____ day of _____________, by and
between USF&G Corporation (the "Corporation"), and
________________ (the "Option Holder").
WHEREAS, the Corporation has adopted the Stock Option Plan of
______ (the "Plan"); and
WHEREAS, by action of the Compensation Committee of the Board of
Directors of the Corporation (the "Committee"), the Option
Holder has been selected to participate in, and designated as a
Key Person under the Plan, and has this day been granted an
Option thereunder;
NOW, THEREFORE, THIS AGREEMENT WITNESSETH: That in
consideration of the mutual promises and representations herein
contained and of other good and valuable consideration, the
Corporation and the Option Holder agree as follows:
1. The Corporation grants to the Option Holder the right
and option to purchase _____________________________(_____)
shares of the Common Stock of the Corporation at a
price of ______________________ Dollars ($_____) per share,
exercisable only as follows: up to 33 1/3% of the shares
may be purchased at any time before expiration of the Option and
after one year from the date hereof; up to 66 2/3% of the shares
may be purchased at any time before expiration of the Option and
after two years from the date hereof; and all of such shares may
be purchased at any time before expiration of the Option and
after three years from the date hereof; provided, however, that
all such shares may be purchased at any time after the
occurrence of a Fundamental Corporate Transaction as defined in
section 6 and in the Plan. The Option will expire on the date
ten (10) years and one day from the date hereof, subject to
earlier termination as provided herein or in the Plan.
2. This Agreement is subject to restrictions and
limitations set forth in the Plan, a copy of which is incorporated
by reference and made a part hereof. Pursuant to the Plan, but without
altering any of the provisions thereof: It is agreed that this
Option shall only be exercisable while the Option Holder is
employed by the Corporation or one of its subsidiaries, except
that:
(a) If the Option Holder retires under criteria established by
the Compensation Committee or becomes permanently disabled,
this Option may be exercised by him not later than one (1)
year after the date of such retirement or onset of permanent
disability, but only as to the vested shares eligible for
purchase under Section 1 as of the retirement date or date
of permanent disability; and
(b) If the Option Holder shall die and on the date of his
death was entitled to exercise this Option, this Option
may be exercised not later than one (1) year after his
death by his executor or administrator or other person at
the time entitled by law to his rights under this Option,
but only as to the vested shares eligible for purchase under
Section 1 at the date of death,
(c) The Committee, in its sole discretion, may permit the
Option Holder to settle this Option in lieu of exercise
if the participant becomes permanently disabled or as a
death benefit in accordance with the terms and conditions
of Article V of the Plan, and
(d) The Committee, in its sole discretion, may permit payment
of the option price to be by surrender of unrestricted
shares of the Common Stock of the Corporation (at their
then market value on the date of exercise), or by a
combination of cash, check and such surrendered shares.
3. It is agreed that in no event shall this Option be
exercisable by anyone after the expiration of ten (10) years and
one day after the date it is granted.
4. This Option shall be exercisable for the whole amount
then exercisable, at any time during the option period, or for any
part of the amount then exercisable (but not as to less than
ten (10) shares at any one time unless the exercise is to exhaust
this Option) from time to time during such period.
5. When an Option Holder desires to exercise his option
under the Plan, notice shall be given in writing to the Corporation
(Attn.: Corporate Secretary) of the number of shares to be
purchased and the date that the purchase is to be consummated.
Except as otherwise provided hereby, payment of the purchase
price is to be by check or money order and should accompany the
written notice of exercise.
6. For purposes of this Section and Section 1, a
"Fundamental Corporate Transaction" shall be and be deemed to occur on the
date (i) of the first purchase of shares of the Common Stock of
the Corporation pursuant to a tender offer or an exchange offer
(other than one made by the Corporation or holding company for
the Corporation) for all or any part of the Corporation's Common
Stock, (ii) of approval of the stockholders of the Corporation
of a merger, consolidation, sale, statutory or other share
exchange, or disposition of all or substantially all of the
Corporation's assets in which the Corporation (or holding
company for the Corporation) will not survive as a
publicly-owned corporation operating the business it operated
prior to such transaction or (iii) on which any entity, person
or group acquires beneficial ownership of shares of the
Corporation's Common Stock (whether in one or a series of
transactions), directly or indirectly, amounting to 30% or more
of the outstanding shares of such class. A "holding company for
the Corporation" means, in the foregoing, an entity that becomes
a holding company for the Corporation without altering or
planning to alter in any material respect the stockholders of
the Corporation or the business of the Corporation and its
subsidiaries as a whole, other than a case in which an
acquisition of another company by the Corporation or the holding
company is being accomplished concurrently.
7. This Option shall be non-transferable and non-assignable
except that this Option may be transferred by testamentary
instrument or by the laws of descent and distribution.
8. Upon exercise of this Option, Option Holder shall pay to
the Corporation, or shall authorize the Corporation to withhold in
accordance with applicable law from any compensation payable to
him, any taxes required to be withheld by federal, state or
local law as a result of the exercise of the Option.
9. This Agreement may be simultaneously executed in two
counterparts, each of which when so executed shall be deemed
to be an original; but such counterparts shall together
constitute but one and the same instrument.
10. This Agreement is not a contract of employment, and
shall not be construed to limit the right of the Corporation or a
subsidiary, as applicable, to terminate the Option Holder's
employment at any time, with or without cause.
11. The terms of this Agreement are also subject to any
additional requirements or limitations as set forth in
the Plan.
IN WITNESS WHEREOF, the parties hereto have duly executed or
caused this Agreement to be executed on the day and year first
above written.
USF&G CORPORATION
By____________________________
Senior Vice President
____________________________
Option Holder
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of November 10, 1993, between
USF&G CORPORATION, a Maryland corporation (the "Corporation"),
and NORMAN P. BLAKE, JR. (the "Executive").
W I T N E S S E T H:
Pursuant to an Employment Agreement dated November 20, 1990
(the "Initial Employment Agreement"), the Executive is serving as
the Corporation's Chief Executive Officer having chief executive
responsibility with respect to the affairs of the Corporation and
such other specific responsibilities and duties as may be
assigned to him from time to time by the Board of Directors. The
Corporation desires to assure the Corporation the continued
benefits of the Executive's expertise and knowledge after the
expiration of the employment period specified by the Initial
Employment Agreement. The Executive, in turn, desires to
continue full-time employment with the Corporation on the terms
provided herein upon the expiration of the employment period
specified by the Initial Employment Agreement.
Accordingly, in consideration of the mutual covenants and
representations contained herein, the parties hereto agree as
follows:
1. Full-time Employment of Executive.
1.1. Duties and Status.
(a) The Corporation hereby engages the Executive as a
full-time executive employee for the period (the "Employment
Period") specified in paragraph 4, and the Executive accepts
such employment, on the terms and conditions set forth in
this Agreement. During the Employment Period, the Executive
shall exercise such authority and perform such executive
duties as are commensurate with the duties of the Chief
Executive Officer of the Corporation.
(b) During the Employment Period, the Executive shall
(i) devote his full time and efforts to the business of the
Corporation and will not engage in consulting work or any
trade or business for his own account or for or on behalf of
any other person, firm or corporation which competes or
conflicts or interferes with the performance of his duties
hereunder in any way and (ii) accept such additional office
or offices to which he may be elected by the Board of
Directors of the Corporation, provided that the performance
of the duties of such office or offices shall be consistent
with the scope of the duties provided for in subparagraph
(a) of this paragraph 1.1. The foregoing shall not preclude
the Executive from devoting a reasonable amount of his time
to civic and charitable affairs or to the supervision of his
personal investments nor from serving on boards of directors
in accordance with the Corporation's policies, provided such
activities do not unreasonably interfere with the
performance of the Executive's duties under this Agreement.
(c) The Executive shall be required to perform the
services and duties provided for in subparagraph (a) of this
paragraph 1.1 only at the location of the principal
executive offices of the Corporation in the Baltimore
metropolitan area. The Executive shall be entitled to
vacation, leave of absence, and leave for illness or
temporary disability in accordance with the policies of the
Corporation in effect, which shall not be less favorable
than those in effect at the date of this Agreement; and any
leave on account of illness or temporary disability which is
short of total disability, as defined in the Corporation's
long-term disability insurance plan ("Total Disability") and
which has lasted for a continuous period of less than one
hundred and eighty (180) consecutive days, shall not
constitute a breach by the Executive of his obligations
hereunder.
1.2. Compensation and General Benefits. As compensation for
his services under this Agreement, the Executive shall be
compensated as follows:
(a) The Corporation shall pay the Executive an annual
base salary of not less than (i) $850,000 per annum for the
first twelve months of the Employment Period, (ii) $900,000
per annum for the next twelve months thereof, (iii) $950,000
per annum for the remainder of the Employment Period. Such
base salary shall be payable in periodic equal installments
which are no less frequent than the periodic installments in
effect for salaries of senior executives of the Corporation
immediately prior to the effective date of this Agreement.
Such salary shall be subject to normal periodic review at
least annually for increases based on the policies of the
Corporation and contributions to the enterprise.
(b) The Corporation shall also pay the Executive
incentive bonuses of such amounts as are determined from
time to time by the Board of Directors based on criteria
to be established by the Board, provided, however, that
all bonuses shall be determined using as the Executive's
annual base salary the Executive's Salary of Record which,
for purposes of the Agreement, shall mean the Executive's
base salary stated in the Initial Employment Agreement for
the twelve-month period ending November 26, 1993 (One
Million, Forty-One Thousand, Two Hundred Eighty-Five
Dollars ($1,041,285)), increased annually for each
twelve-month period thereafter by a percentage determined
by the Board based solely on the Executive's performance,
but which percentage shall not be less than the average
percentage increase in annual base salary for the four (4)
executives most senior in rank of the Corporation other
than the Executive, unless for any twelve-month period the
Compensation Committee of the Board of Directors shall
provide the Executive with a written statement of the
specific reasons, based solely on the Executive's
performance, for a lesser or no increase for such period.
(c) The Executive shall be eligible to participate
in such profit-sharing, stock option, bonus, incentive and
performance award programs which provide opportunities to
receive compensation which are the greater of the
opportunities (i) available to the Executive on the date
of this Agreement or (ii) then provided to executives with
senior authority and duties (and in any event not less
than those provided to executives of lower rank). All
such programs shall provide benefits to the Executive
using as Executive's annual base salary his Salary of
Record. In considering annual awards, stock options and
other incentive compensation, the stock options for a
total of three hundred thousand (300,000) shares of Common
Stock of the Corporation granted on November 10, 1993,
shall be disregarded for all purposes.
(d) In addition to and except for the matters
governed by this Agreement, the Executive shall be
entitled to receive employee benefits, including, without
limitation, pension, disability, group life, sickness,
accident and health insurance programs and split-dollar life
insurance programs, and perquisites provided by the Corporation
to executives which are the greater of the employee benefits and
perquisites (i) comparable to those available to the Executive on
the date of this Agreement or (ii) then provided to executives with
senior authority or duties (and in any event not less than
those provided to executives with lower rank). All such
programs shall provide benefits to the Executive
determined using as the Executive's base salary his Salary
of Record. It is understood and recognized by the
Corporation and the Executive that, with respect to
pension benefits, it is not possible to include the
Executive in the Corporation's qualified pension plan with
full credit for service in his prior organization and
accordingly, the Corporation and the Executive have
entered into, and the Corporation agrees to continue, an
unfunded supplemental retirement agreement and a First
Amendment thereto (the "Executive's Supplemental
Retirement Agreement") designed to provide benefits on an
unfunded basis after three (3) years and four (4) months
of service from the date of the Initial Employment
Agreement of the greater of (i) benefits under the
Corporation's qualified and comparable supplemental plans
for senior executives, as if the Executive had then been
employed by the Corporation for purposes of those plans
for twenty-five (25) years or (ii) benefits of equivalent
value to those under the existing arrangements of the
Executive with his immediately preceding employer for
twenty-five (25) years of service or deemed service, in
each case based upon his actual compensation levels under
his employment with the Corporation (excluding for that
purpose the Signing Bonus and the Additional Bonus, but
using his Salary of Record rather than his actual base
salary for any twelve-month period for which the former is
greater), and net of any retirement benefits received from
any prior employer. References in this Agreement to
pension benefits refer to that arrangement.
(e) At least annually during the Employment
Period, the Executive shall receive a written statement of
all benefits and deferred compensation earned or accrued
for the year and accrued and unpaid through the date of
the statement.
2. Competition; Confidential Information. The Executive
and the Corporation recognize that due to the nature of
his association with the Corporation and of his engagements hereunder,
and the relationship of the Executive to the Corporation hereunder, the
Executive has had access to and has acquired, will have access to and
will acquire, and will assist in developing, confidential and proprietary
information relating to the business and operations of the Corporation
and its affiliates, including, without limiting the generality of the
foregoing, information with respect to their present and
prospective products, systems, customers, agents, processes, and
sales and marketing methods. The Executive acknowledges that
such information has been and will continue to be of central
importance to the business of the Corporation and its affiliates
and that disclosure of it to or its use by others could cause
substantial loss to the Corporation. The Executive and the
Corporation also recognize that an important part of the
Executive's duties will be to develop good will for the
Corporation and its affiliates through his personal contact with
customers, agents and others having business relationships with
the Corporation and its affiliates, and that there is a danger
that this good will, a proprietary asset of the Corporation and
its affiliates, may follow the Executive if and when his
relationship with the Corporation is terminated. The Executive
accordingly agrees as follows:
2.1. Non-Competition.
(a) During the Employment Period (notwithstanding
any early termination by the Corporation under paragraph
4.3 hereof) or until December 31, 1998, in the event of a
termination by the Corporation for cause under paragraph
4.2 hereof, the Executive will not, directly or
indirectly, either individually or as owner, partner,
agent, employee, consultant or otherwise, except for the
account of and on behalf of the Corporation or its
affiliates engage in any activity competitive with the
business of the Corporation or its affiliates, nor will
he, in competition with the Corporation or its affiliates,
solicit or otherwise attempt to establish for himself or
any other person, firm or entity, any business
relationships with any person, firm or corporation which
was, at any time during the Employment Period or the
employment period under the Initial Employment Agreement,
a customer of the Corporation or one of its affiliates.
(b) The provisions of subparagraph (a) of this
paragraph 2.1 may be extended, at the option of the
Corporation (exercised by written notice within fifteen
(15) days prior to the expiration of the Employment
Period), for a period of either one (l) or two (2) years from
the expiration of the Employment Period, if (i) the Corporation
offers at any time not more than sixty (60) days nor less than
thirty (30) days prior to the expiration of the Employment Period
to continue the employment of the Executive under this Agreement
for a period of either one (l) or two (2) years from the
expiration of the Employment Period, as the case can be,
(ii) the Executive declines to accept such continuation of
employment and (iii) the Corporation pays the Executive,
at the time of such election, a lump sum amount equal to
the highest annual base salary provided by paragraph 1.2
of this Agreement during the Employment Period, multiplied
by the number of years of such extension; provided, that
the Executive shall not be bound by such election at any
time if the Corporation is in violation of any of its
obligations under this Agreement and thereafter.
(c) Nothing in this paragraph 2 shall be construed
to prevent the Executive from owning, as an investment,
not more than 1% of a class of equity securities issued by
any competitor of the Corporation or its affiliates and
publicly traded and registered under Section 12 of the
Securities Exchange Act of 1934.
2.2. Trade Secrets. The Executive will keep
confidential any trade secrets or confidential or proprietary
information of the Corporation and its affiliates which are now
known to him or which hereafter may become known to him as a
result of his employment or association with the Corporation and
shall not at any time directly or indirectly disclose any such
information to any person, firm or corporation, or use the same
in any way other than in connection with the business of the
Corporation or its affiliates during and at all times after the
expiration of the Employment Period. For purposes of this
Agreement, "trade secrets or confidential or proprietary
information" means information unique to the Corporation or any
of its affiliates which has a significant business purpose and is
not known or generally available from sources outside the
Corporation or any of its affiliates or typical of industry
practice.
3. Corporation's Remedies for Breach. It is
recognized that damages in the event of breach of paragraph 2 by
the Executive would be difficult, if not impossible, to
ascertain, and it is therefore agreed that the Corporation, in
addition to and without limiting any other remedy or right it may
have, shall have the right to an injunction or other equitable
relief in any court of competent jurisdiction, enjoining any such
breach, and the Executive hereby waives any and all defenses he may
have on the ground of lack of jurisdiction or competence of the court
to grant such an injunction or other equitable relief. The existence
of this right shall not preclude any other rights and remedies at law or
in equity which the Corporation may have.
4. Employment Period.
4.1. Duration. Subject to paragraph 7 hereof, the
Employment Period shall commence as of the close of the business
day on November 26, 1995, and shall continue until the earliest
of (i) December 31, 1998; (ii) the Executive's death or Total
Disability; or (iii) a termination by the Corporation for cause
under Paragraph 4.2 hereof.
4.2. Termination For Cause. The Executive's employment
under this Agreement may be terminated by the Board of Directors
of the Corporation for cause. As used in this Agreement a
termination for cause shall mean the Executive's termination for
gross negligence, commission of a felony, incompetence, fraud or
dishonesty involving the Corporation's assets, misconduct
materially detrimental to business of the Corporation, or
intentional failure to perform his duties hereunder or under the
Initial Employment Agreement or any other material breach by the
Executive of this Agreement (including Paragraph 2 hereof) or the
Initial Employment Agreement (including paragraph 2 thereof).
The Corporation shall notify the Executive in writing at least
thirty days in advance of any proposed termination for cause
indicating in detail the specific reasons for such termination
and shall extend to the Executive the opportunity during such
thirty days to cure the breach or misconduct if the same is
capable of being cured.
4.3. Termination Without Cause. In the event the
Executive's employment with the Corporation is terminated without
cause during the Employment Period or during the employment
period specified by the Initial Employment Agreement, the
Executive will be entitled to receive the compensation and
benefits described in paragraph 1.2(a), (c), and (d) of this
Agreement for the unexpired remainder of the Employment Period.
In such event, the Executive shall not be required to mitigate
the amount of any payment or benefit to which he may be entitled
under this Agreement by seeking other employment, nor shall any
such amount be reduced by remuneration earned from other sources.
5. Legal Costs. The Executive shall be entitled to
consult with counsel with respect to the Executive's rights hereunder,
and the Corporation agrees to pay the reasonable fees
and expenses of independent counsel for the Executive in advising
him or in bringing any proceedings, or in defending any
proceedings, involving the Executive's rights under this
Agreement or in the negotiation of the terms hereof, such right
to reimbursement to be contingent upon the presentment by the
Executive of written billings for such reasonable fees and
expenses.
6. Notices. Any notices, requests, demands and other
communications provided for by this Agreement shall be sufficient
if in writing and if sent by registered or certified mail to the
Executive at the last address he has filed in writing with the
Corporation or, in the case of the Corporation, at its principal
executive offices.
7. Binding Agreement. This Agreement shall be binding
upon the Executive and the Corporation on and after the date of
this Agreement. This Agreement shall take effect as of the close
of the business day on November 26, 1995, if the Executive is
employed by the Corporation pursuant to the Initial Employment
Agreement on such date, or his employment with the Corporation
has been terminated before such date by the Corporation without
cause pursuant to paragraph 4.3 of the Initial Employment
Contract. The rights and obligations of the Corporation under
this Agreement shall inure to the benefit of and shall be binding
upon the Corporation and any successor of the Corporation as
defined in the Maryland General Corporation Law as now in effect;
provided, that this Agreement may not be assigned by the
Corporation without the consent of the Executive, and in the case
of a successor by transfer of all or substantially all of the
assets of the Corporation, or any other successor in which the
Corporation does not cease to exist by operation of the
transaction in question as a matter of law, the Corporation shall
not be relieved of its obligations hereunder.
8. Entire Agreement. This Agreement constitutes the
entire understanding of the Executive and the Corporation with
respect to the subject matter hereof and supersedes any and all
prior understandings written or oral. This Agreement may not be
changed, modified, or discharged orally, but only by an
instrument in writing signed by the parties. The Executive's
failure to insist upon strict compliance with any provision
hereof shall not be deemed to be a waiver of such provision or
any other provision hereof. This Agreement shall be governed by
the laws of the State of Maryland and the invalidity or
unenforceability of any provisions hereof shall in no way affect
the validity or enforceability of any other provision.
9. Arbitration. Any disputes hereunder which cannot
be resolved by negotiations between the Corporation and the
Executive shall be submitted to, and determined by, arbitration
in accordance with the Commercial Arbitration Rules of the
American Arbitration Association, and the parties agree to be
bound by the final award of the arbitrator in any such
proceeding. The arbitrator shall apply the laws of the State of
Maryland. Arbitration may be held in Baltimore, Maryland or such
other place as the parties hereto may mutually agree. Judgment
upon the award by the arbitrator may be entered in any court
having jurisdiction thereof.
IN WITNESS WHEREOF, the parties have executed and
delivered this Agreement as of the date first above written.
WITNESS: USF&G CORPORATION
JOHN A. MACCOLL DAN L. HALE
Dan L. Hale,
Executive Vice President
EXECUTIVE
THERESA L. ABATO NORMAN P. BLAKE, JR.
Norman P. Blake, Jr.
STOCK OPTION AGREEMENT
AGREEMENT made as of the 10th day of November 1993, by and
between USF&G Corporation (the "Corporation") and Norman P.
Blake, Jr. (the "Option Holder").
WHEREAS, the Corporation has adopted the Stock Incentive Plan
of 1991 (such plan, as currently constituted and as hereinafter
amended or restated, is referred to herein as the "Plan"); and
WHEREAS, by action of the Compensation Committee of the Board
of Directors of the Corporation (the "Committee"), the Option
Holder has been selected to participate in, and designated as a
Key Person under the Plan, and has this day been granted an
Option thereunder on the terms and conditions set forth in this
Agreement, subject only to shareholder approval of amendments to
the Plan increasing the number of shares of Common Stock of the
Corporation issuable to the Option Holder under the Plan;
NOW, THEREFORE, THIS AGREEMENT WITNESSETH: That in
consideration of the mutual promises and representations herein
contained and of other good and valuable consideration, the
Corporation and the Option Holder agree as follows:
1. The Corporation grants to the Option Holder the right and
option under the Plan to purchase one hundred fifty thousand
(150,000) shares of the Common Stock of the Corporation at a
price of Thirteen Dollars ($13.00) per share, exercisable on and
after December 31, 1998, provided the Option Holder is employed
by the Corporation or one of its subsidiaries through December
31, 1998. This grant is effective November 10, 1998, subject
to the conditions as set forth in Section 10 of this Agreement.
2. This Option shall become exercisable before December 31,
1998, only:
(a) After the Option Holder dies, retires under
criteria established by the Committee or is determined by the
Committee to be permanently disabled;
(b) After the Option Holder's employment with the
Corporation is terminated by the Corporation other than for
cause, as defined in the then applicable employment agreement
between the Option Holder and the Corporation; and
(c) After the occurrence of a Fundamental Corporate
Transaction. For purposes of this Section a "Fundamental
Corporate Transaction" shall be and be deemed to occur on the
date (i) of the first purchase of shares of Common Stock of the
Corporation pursuant to a tender offer or an exchange offer
(other than one made by the Corporation or holding company for
the Corporation) for all or any part of the Corporation's
Common Stock, (ii) of approval of the stockholders of the
Corporation of a merger, consolidation, sale, statutory or
other share exchange, or disposition of all or substantially
all of the Corporation's assets in which the Corporation (or
holding company for the Corporation) will not survive as a
publicly-owned corporation operating the business it operated
prior to such transaction or (iii) on which any entity, person
or group acquires beneficial ownership of shares of the
Corporation's Common Stock (whether in one or a series of
transactions), directly or indirectly, amounting to 30% or more
of the outstanding shares of such class. A "holding company
for the Corporation" means, in the foregoing, an entity that
becomes a holding company for the Corporation without altering
or planning to alter in any material respect the stockholders
of the Corporation or the business of the Corporation and its
subsidiaries as a whole, other than a case in which an
acquisition of another company by the Corporation or the
holding company is being accomplished concurrently.
3. The term of the Option is ten (10) years and one (1) day.
Once the Option becomes exercisable, it shall remain exercisable
throughout the term of the Option regardless of (i) whether or
not the Option Holder remains in the employ of the Corporation
or (ii) the activities of the Option Holder after he has
terminated employment with the Corporation, provided, that the
Option shall become nonexercisable and be cancelled only if the
Option Holder violates Section 2 of the Employment Agreement
dated November 20, 1993, or the Employment Agreement dated
November 10, 1993, as determined under Section 9 of such
Employment Agreements. The Option may be exercised after the
Option Holder's death and during the term of the Option by the
person to whom the Option passes or is transferred in accordance
with Section 6 of this Agreement. In no event shall this Option
be exercisable by anyone after the expiration of ten (10) years
and one (1) day after the date it is granted.
4. At such time as this Option becomes exercisable, it shall be
exercisable for the whole amount or for any part of the amount
of shares of Common Stock subject to the Option, but not for
less than ten (10) shares at any one time unless the exercise is
to exhaust this Option.
5. When the Option Holder desires to exercise this Option,
notice shall be given in writing to the Corporation (Attn:
Corporate Secretary) of the number of shares to be purchased and
the date that the purchase is to be consummated. Full payment
of the option price shall accompany the notice. The Committee,
in its sole discretion, may permit payment of the option price
to be by surrender of unrestricted shares of the Common Stock of
the Corporation (at their then market value on the date of
exercise), or by a combination of cash, check and such
surrendered shares.
6. This Option shall be non-transferable and non-assignable
except that this Option may be transferred by testamentary
instrument or by the laws of descent and distribution or
pursuant to a qualified domestic relations order to the extent
permitted under the Plan.
7. Upon exercise of this Option, Option Holder shall pay to the
Corporation, or shall authorize the Corporation to withhold in
accordance with applicable law from any compensation payable to
him, any taxes required to be withheld by federal, state or
local law as a result of the exercise of the Option.
8. This Agreement may be simultaneously executed in two
counterparts, each of which when so executed shall be deemed to
be an original, but such counterparts shall together constitute
but one and the same instrument.
9. This Agreement is not a contract of employment or a
modification of any written contract of employment, and shall
not be construed to limit the right of the Corporation or a
subsidiary, as applicable, to terminate the Option Holder's
employment at any time, with or without cause, if and to the
extent otherwise allowed by law or under any applicable contract
of employment.
10. This Agreement is effective November 10, 1993, subject to
the condition that the shareholders of the Corporation approve
amendments to the Plan increasing the number of shares of Common
Stock issuable to the Option Holder under the Plan.
Notwithstanding anything to the contrary in this Agreement, this
Option shall not become exercisable unless and until the
shareholders of the Corporation approve such amendments to the
Plan. The terms of this Agreement are subject to any additional
requirements or limitations set forth in the Plan. All
capitalized terms in this Agreement not otherwise defined herein
shall have the meaning assigned by the Plan.
IN WITNESS WHEREOF, the parties hereto have duly executed or
caused this Agreement to be executed as of the day and year
first specified above.
USF&G CORPORATION
DAN L. HALE
Dan L. Hale,
Executive Vice President
OPTION HOLDER
NORMAN P. BLAKE, JR.
Norman P. Blake, Jr.
STOCK OPTION AGREEMENT
AGREEMENT made as of the 10th day of November 1993, by
and between USF&G Corporation (the "Corporation") and Norman P.
Blake, Jr. (the "Option Holder").
WHEREAS, the Corporation has adopted the Stock Incentive
Plan of 1991 (such plan, as currently constituted and as
hereinafter amended or restated, is referred to herein as the
"Plan"); and
WHEREAS, by action of the Compensation Committee of the
Board of Directors of the Corporation (the "Committee"), the
Option Holder has been selected to participate in, and designated
as a Key Person under the Plan, and has this day been granted an
Option thereunder on the terms and conditions set forth in this
Agreement, subject only to shareholder approval of amendments to
the Plan increasing the number of shares of Common Stock of the
Corporation issuable to the Option Holder under the Plan;
NOW, THEREFORE, THIS AGREEMENT WITNESSETH: That in
consideration of the mutual promises and representations herein
contained and of other good and valuable consideration, the
Corporation and the Option Holder agree as follows:
1. The Corporation grants to the Option Holder the
right and option under the Plan to purchase one hundred fifty
thousand (150,000) shares of the Common Stock of the Corporation
at a price of Sixteen Dollars and Twenty-Five Cents ($16.25) per
share, exercisable on and after December 31, 1998, provided the
Option Holder is employed by the Corporation or one of its
subsidiaries through December 31, 1998. This grant is effective
November 10, 1998, subject to the conditions as set forth in
Section 10 of this Agreement.
2. This Option shall become exercisable before
December 31, 1998, only:
(a) After the Option Holder dies, retires under
criteria established by the Committee or is determined by the
Committee to be permanently disabled;
(b) After the Option Holder's employment with the
Corporation is terminated by the Corporation other than for cause,
as defined in the then applicable employment agreement between the
Option Holder and the Corporation; and
(c) After the occurrence of a Fundamental Corporate
Transaction. For purposes of this Section a "Fundamental
Corporate Transaction" shall be and be deemed to occur on the date
(i) of the first purchase of shares of Common Stock of the
Corporation pursuant to a tender offer or an exchange offer (other
than one made by the Corporation or holding company for the
Corporation) for all or any part of the Corporation's Common
Stock, (ii) of approval of the stockholders of the Corporation of
a merger, consolidation, sale, statutory or other share exchange,
or disposition of all or substantially all of the Corporation's
assets in which the Corporation (or holding company for the
Corporation) will not survive as a publicly-owned corporation
operating the business it operated prior to such transaction or
(iii) on which any entity, person or group acquires beneficial
ownership of shares of the Corporation's Common Stock (whether in
one or a series of transactions), directly or indirectly,
amounting to 30% or more of the outstanding shares of such class.
A "holding company for the Corporation" means, in the foregoing,
an entity that becomes a holding company for the Corporation
without altering or planning to alter in any material respect the
stockholders of the Corporation or the business of the Corporation
and its subsidiaries as a whole, other than a case in which an
acquisition of another company by the Corporation or the holding
company is being accomplished concurrently.
3. The term of the Option is ten (10) years and one (1)
day. Once the Option becomes exercisable, it shall remain
exercisable throughout the term of the Option regardless of (i)
whether or not the Option Holder remains in the employ of the
Corporation or (ii) the activities of the Option Holder after he
has terminated employment with the Corporation, provided, that the
Option shall become nonexercisable and be cancelled only if the
Option Holder violates Section 2 of the Employment Agreement dated
November 20, 1993, or the Employment Agreement dated November 10,
1993, as determined under Section 9 of such Employment
Agreements.. The Option may be exercised after the Option
Holder's death and during the term of the Option by the person to
whom the Option passes or is transferred in accordance with
Section 6 of this Agreement. In no event shall this Option be
exercisable by anyone after the expiration of ten (10) years and
one (1) day after the date it is granted.
4. At such time as this Option becomes exercisable, it
shall be exercisable for the whole amount or for any part of the
amount of shares of Common Stock subject to the Option, but not
for less than ten (10) shares at any one time unless the exercise
is to exhaust this Option.
5. When the Option Holder desires to exercise this
Option, notice shall be given in writing to the Corporation (Attn:
Corporate Secretary) of the number of shares to be purchased and
the date that the purchase is to be consummated. Full payment of
the option price shall accompany the notice. The Committee, in
its sole discretion, may permit payment of the option price to be
by surrender of unrestricted shares of the Common Stock of the
Corporation (at their then market value on the date of exercise),
or by a combination of cash, check and such surrendered shares.
6. This Option shall be non-transferable and
non-assignable except that this Option may be transferred by
testamentary instrument or by the laws of descent and distribution
or pursuant to a qualified domestic relations order to the extent
permitted under the Plan.
7. Upon exercise of this Option, Option Holder shall
pay to the Corporation, or shall authorize the Corporation to
withhold in accordance with applicable law from any compensation
payable to him, any taxes required to be withheld by federal,
state or local law as a result of the exercise of the Option.
8. This Agreement may be simultaneously executed in two
counterparts, each of which when so executed shall be deemed to be
an original, but such counterparts shall together constitute but
one and the same instrument.
9. This Agreement is not a contract of employment or a
modification of any written contract of employment, and shall not
be construed to limit the right of the Corporation or a
subsidiary, as applicable, to terminate the Option Holder's
employment at any time, with or without cause, if and to the
extent otherwise allowed by law or under any applicable contract
of employment.
10. This Agreement is effective November 10, 1993,
subject to the condition that the shareholders of the Corporation
approve amendments to the Plan increasing the number of shares of
Common Stock issuable to the Option Holder under the Plan.
Notwithstanding anything to the contrary in this Agreement, this
Option shall not become exercisable unless and until the
shareholders of the Corporation approve such amendments to the
Plan. The terms of this Agreement are subject to any additional
requirements or limitations set forth in the Plan. All
capitalized terms in this Agreement not otherwise defined herein
shall have the meaning assigned by the Plan.
IN WITNESS WHEREOF, the parties hereto have duly executed
or caused this Agreement to be executed as of the day and year
first specified above.
USF&G CORPORATION
DAN L. HALE
Dan L. Hale,
Executive Vice President
OPTION HOLDER
NORMAN P. BLAKE, JR.
Norman P. Blake, Jr.
WAIVER
Pursuant to an Employment Agreement dated November 20,
1990 (the "Employment Agreement"), Norman P. Blake, Jr. (the
"Executive") is serving as the Chief Executive Officer of USF&G
Corporation (the "Corporation") based upon the terms and
conditions set forth therein. In consideration of certain stock
options granted by the Corporation to the Executive on
November 10, 1993, the Executive and the Corporation hereby agree
as follows:
1. The Executive hereby waives all rights to
annual base salary under Section 1.2(a) of the
Employment Agreement which exceeds (i) Seven
Hundred and Fifty Thousand Dollars ($750,000) for
the twelve-month period ending November 26, 1994,
and (ii) Eight Hundred Thousand Dollars ($800,000)
for the twelve-month period ending November 26,
1995.
2. Notwithstanding the foregoing waiver of
base salary, all profit sharing, bonuses, insurance
and other benefits and perquisites, stock options,
incentive and other performance awards,
supplemental retirement income and other deferred
compensation provided under Section 1.2 of the
Employment Agreement or otherwise provided by the
Corporation during the remainder of the Employment
Period (as defined in Section 4.1 of the Employment
Agreement) shall continue to be determined using as
the Executive's annual base salary the Executive's
annual base salary under Section 1.2(a) of the
Employment Agreement determined without regard to
this Waiver (One Million, Forty-One Thousand, Two
Hundred Eighty-Five Dollars ($1,041,285) for the
twelve-month period ending November 26, 1993,
increased annually for each twelve-month period
thereafter during the Employment Period by a
percentage based solely on the Executive's
performance, which percentage shall not be less
than the average percentage increase in annual base
salary for the four (4) executives most senior in
rank of the Corporation other than the Executive,
unless for any twelve-month period the Compensation
Committee of the Board of Directors
provides the Executive with a written statement of
the specific reasons, based solely on the
Executive's performance, for a lesser or no annual
increase for such period). In considering annual
awards, stock options and other incentive
compensation, the stock options to acquire three
hundred thousand (300,000) shares of Common Stock
of the Corporation granted to the Executive on
November 10, 1993, as consideration for this Waiver
shall be disregarded.
3. At least annually during the remainder of
the Employment Period, the Executive shall receive
from the Corporation a statement of all benefits
and deferred compensation earned or accrued for the
year and accrued and unpaid through the date of the
statement.
4. This Waiver shall not constitute an
amendment of any portion of the Employment
Agreement.
IN WITNESS WHEREOF, the parties have executed and
delivered this Waiver as of the 10th day of November, 1993.
WITNESS: USF&G CORPORATION
JOHN A. MACCOLL DAN L. HALE
Dan L. Hale,
Executive Vice President
WITNESS: EXECUTIVE
THERESA L. ABATO NORMAN P. BLAKE, JR.
Norman P. Blake, Jr.
FIRST AMENDMENT
TO
USF&G SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT
THIS FIRST AMENDMENT TO USF&G SUPPLEMENTAL EXECUTIVE
RETIREMENT AGREEMENT (this "First Amendment"), made by and between
USF&G (the "Employer") and NORMAN P. BLAKE, JR. (the "Employee").
W I T N E S S E T H:
In order to induce the Employee to continue in the
service of the Employer after November 26, 1995, the Employer
desires to amend the USF&G Supplemental Executive Retirement
Agreement between the Employer and the Employee ("Agreement") to
extend to the Employee certain additional unfunded retirement
benefits.
In consideration of the mutual covenants and promises
contained herein and the Waiver dated November 10, 1993, the
parties agree to the following changes to the Agreement effective
as of the date hereof:
FIRST CHANGE
Section 1.1 of the Agreement is amended to read as
follows:
1.1 Average Compensation - The average
monthly rate of Employee's Compensation, equal to
1/36th of the total amount of his Compensation for
the 36 consecutive Qualifying Months which produce
the highest total. A Qualifying Month shall mean
any month during Employee's employment with the
Corporation which ends prior to his Normal
Retirement Date or earlier termination of
employment. If Employee's employment does not
provide 36 consecutive Qualifying Months as
aforesaid, Compensation for his actual number of
consecutive Qualifying Months will be totaled and
divided by the number of such Qualifying Months.
Any month during which Employee was not actively
employed for the entire period shall be disregarded
for purposes of the foregoing, and the existence of
such months shall be ignored in determining whether
or not Qualifying Months are consecutive.
Compensation shall mean the Employee's earnings
paid by the Corporation as provided and administered
under the Qualified Plan but (i) excluding, for
purposes hereof, any Signing Bonus or Additional
Bonus as defined in the Employment Agreement dated
November 20, 1990, (ii) determined without regard
to the limitations of section 401(a)(17) of the
Internal Revenue Code or any successor provision
and (iii) using as the Employee's annual base
salary his Salary of Record, which, for purposes
of this Agreement, shall be the Employee's base salary
for the twelve-month period ending November 26, 1993
as set forth in the Employment Agreement dated
November 20, 1990 (One Million, Forty-One Thousand,
Two Hundred Eighty-Five Dollars ($1,041,285)), increased
annually for each twelve-month period thereafter by
a percentage specified by the Compensation
Committee of the Board of Directors based solely on
the Employee's performance, but which percentage
shall not be less than average percentage increase
in annual base salary for the four (4) executives
most senior in rank of the Employer other than the
Employee, unless for any twelve-month period the
Compensation Committee of the Board of Directors
shall provide the Employee with a written statement
of the specific reasons, based solely on the
Employee's performance, for a lesser or no annual
increase for such period.
SECOND CHANGE
Section 1.17 of the Agreement is amended to read as
follows:
1.17 Employment Agreement - Until the close
of business on November 26, 1995, the Employment
Agreement between the Employer and the Employee
dated November 20, 1990 and thereafter the
Employment Agreement between the Employer and the
Employee dated November 10, 1993.
THIRD CHANGE
Section 15 of the Agreement is amended to read as
follows:
15. Special Minimum Benefit. Any other
provision of this Agreement to the contrary
notwithstanding, if benefits become payable under
this Agreement for any reason, those benefits will
be at least equal in value to those which would
have been payable under the arrangements of the
Employee with his immediately preceding employer
had the Employee's service with the preceding
employer continued until the date his employment
with the Employer terminated (or until March 31,
1994, if later), provided that (i) such benefits
shall be based upon the Employee's actual
compensation levels under his employment with the
Employer (excluding for that purpose the Signing
Bonus and the Additional Bonus, as defined in the
Employment Agreement dated November 20, 1990, but
using his Salary of Record (as defined in Section
1.1) rather than his actual base salary for any
twelve-month period for which the former is
greater), (ii) in calculating such benefits, any
amendments to the preceding employer's aforesaid
arrangements adopted after the Effective Date
shall be disregarded and (iii) such benefits shall
be reduced by any benefits hereinafter received
under any defined benefit plan or arrangement of
any prior employer.
FOURTH CHANGE
Section 5 of the Agreement is amended to read as follows:
5. Payment of Retirement Benefit.
(a) Employee's retirement benefit shall be
payable as of the first day of each month,
commencing with the month following the Employee's
termination of employment, or, in the case of a
benefit payable pursuant to Section 4, the month in
which his Normal Retirement Date occurs (referred
to in this Section 5 as the "benefit commencement
date"), and shall continue until the last monthly
payment prior to Employee's death; provided that
the Employee may, with the consent of the Pension
Committee, elect to have the benefit to which he
would otherwise be entitled under Section 2 or 3,
as the case may be, paid in a lump sum on the
benefit commencement date. The amount of the lump sum
shall be the actuarial equivalent of the benefit
payable under Section 2 or 3 of this Agreement,
determined without regard to any possible increase
in such benefit under Section 8, and based upon the
interest rate which would be used by the Pension
Benefit Guaranty Corporation on the benefit
commencement date for purposes of valuing immediate
annuities on a plan termination. To elect the lump
sum option, the Employee shall give written notice
to the Pension Committee not later than 30 days
before his benefit commencement date. If the
Employee has not elected to receive a lump sum
payment but is nevertheless deemed for federal
income tax purposes to be in constructive receipt
of a lump sum, the Employee shall be immediately
entitled to receive the remaining portion of his
benefits in a lump sum.
(b) If the Employee is a "covered employee"
within the meaning of section 162(m)(3) of the
Internal Revenue Code on the benefit commencement
date, then no payments which are otherwise required
under paragraph (a) of this Section 5 shall be made
before the first day of the Employer's first fiscal
year commencing after the benefit commencement date
(hereinafter referred to as the "deferred
commencement date"). On the deferred commencement
date, benefit payments shall commence in the manner
provided in paragraph (a) of this Section 5 and the
Employee shall receive a lump sum amount equal to
all payments which, but for this paragraph, would
have been made under paragraph (a) prior to the
deferred commencement date plus interest at 8% per
annum, compounded quarterly, from the date on which
such payments otherwise would have been made under
paragraph (a) until the deferred commencement date.
FIFTH CHANGE
The provisions of Section 6 of the Agreement are amended
to read as follows:
6. Optional Deferral Election.
Notwithstanding the provisions of Section 5,
Employee may, by written notice to the Employer
given not later than 30 days before his Normal
Retirement Date or other commencement of benefits
under this Agreement, elect to defer commencement
of the benefits payable pursuant to Section 2 or 3
until the first day of the month of January in the
calendar year following the year in which
employment termination occurs. If Employee makes
the election described in the preceding sentence,
his first payment shall include all amounts which
would have been paid previously had the election
not been made plus interest at eight percent (8%)
per annum, compounded quarterly, from the date on
which payments otherwise would have been made under
Section 5 until the date on which the first payment
is made hereunder.
SIXTH CHANGE
Section 16 of the Agreement is redesignated as Section 17
and the following is added as new Section 16:
16. Additional Deferred Compensation. In
addition to any other benefits payable to the
Employee under this Agreement, if the Employee's
employment with the Employer terminates for any
reason after December 31, 1998, or his employment
is terminated before such date by the Employer
other than for cause (as defined in the Employment
Agreement), on account of death or disability or
after the occurrence of a Fundamental Corporate
Transaction (as hereinafter defined), the Employer
shall pay the Deferred Compensation Amount
determined under this Section 16 to the Employee
(or, upon death, to the person designated by the
Employee and, in the event there is no such
designation, to the Employee's Beneficiary
hereunder) in a single lump sum payment as soon as
practicable after the end of the Employer's fiscal
year in which such termination of employment
occurs, provided, however, that the Deferred
Compensation Amount determined under this Section
16 shall be paid no later than the date on which
the Employee attains age 60 unless the Employee
elects later payment before the beginning of the
calendar year in which his 60th birthday occurs.
For purposes of this Section 16, the Deferred
Compensation Amount shall be equal to:
(a) the sum of (i) the principal amount
of One Million, Nine Hundred and Fifty
Thousand Dollars ($1,950,000); and
(ii) interest compounded quarterly on such
principal amount and any previously accrued
interest at one hundred twenty percent (120%)
of the applicable Federal long-term rate
(determined in accordance with Section 1274 of
the Internal Revenue Code), beginning on the
date on which the Employee exercises the
option granted to him on November 10, 1993, to
purchase 150,000 shares of the Corporation's
Common Stock at $13.00 per share (the
"Option"), and ending on the date on which the
Deferred Compensation Amount is paid pursuant
to this Section 16. In the event a portion,
but not all, of the Option is exercised,
interest will be credited only with respect to
such portion of the principal amount which
bears the same ratio to the total principal
amount as the number of shares of Common Stock
received upon partial exercise of the Option
bears to the total number of shares subject to
the Option (adjusted, as appropriate, for any
stock dividends, split-ups, recapitalizations
and the like affecting the number of shares of
Common Stock subject to the Option); and
(b) the sum of (i) the product of
(I) the per-share cash dividend payable with
respect to each share of the Corporation's
Common Stock with respect to any dividend
record date on or after November 10, 1993, and
before the date on which the Deferred
Compensation Amount is paid, and (II) the
total number of shares of Common Stock for
which the Option has not been exercised on
such dividend record date (adjusted, as
appropriate, for any stock dividends,
split-ups, recapitalizations and the like
affecting the number of shares of Common Stock
subject to the Option) (such product referred
to as "Dividend Equivalent Amounts") plus
(ii) interest compounded quarterly on Dividend
Equivalent Amounts at one hundred twenty
percent (120%) of the applicable Federal
long-term rate (determined in accordance with
Section 1274 of the Code) from the dividend payment date
corresponding with each such dividend record
date until the date on which the Deferred
Compensation Amount is paid pursuant to this
Section 16.
Notwithstanding the foregoing, if on the date the
Deferred Compensation Amount is to be paid pursuant
to this Section 16, (w) all or any portion of the
Option has not been exercised, and (x) the
thirty-day average of the average of the high and
low sales prices of the Corporation's Common Stock
quoted on the New York Stock Exchange composite
listing or, if the Corporation's Common Stock is
not listed on the New York Stock Exchange composite
listing, the thirty-day average of the fair market
value of the Corporation's Common Stock as
determined pursuant to the plan pursuant to which
the Option was granted (referred to as the "30-day
Average") is less than the option exercise price of
the Option (as adjusted for any stock dividends,
split-ups, recapitalizations and the like affecting
the number of shares of Common Stock subject to the
Option) (referred to as the "Option Price"), then
the Deferred Compensation Amount shall be reduced
by the product of (y) the number of shares for
which the Option has not been exercised on the date
payment is to be made pursuant to this Section 16,
and (z) the difference between the 30-day Average
and the Option Price on such date.
For purposes of this Section a "Fundamental
Corporate Transaction" shall be and be deemed to
occur on the date (i) of the first purchase of
shares of Common Stock of the Employer pursuant to
a tender offer or an exchange offer (other than one
made by the Employer or holding company for the
Employer) for all or any part of the Employer's
Common Stock, (ii) of approval of the stockholders
of the Employer of a merger, consolidation, sale,
statutory or other share exchange, or disposition
of all or substantially all of the Employer's
assets in which the Employer (or holding company
for the Employer) will not survive as a
publicly-owned corporation operating the business
it operated prior to such transaction or (iii) on
which any entity, person or group acquires
beneficial ownership of shares of the Employer's
Common Stock (whether in one or a series of
transactions), directly or indirectly, amounting
to 30% or more of the outstanding shares of such class.
A "holding company for the Employer" means, in the foregoing,
an entity that becomes a holding company for the
Employer without altering or planning to alter in
any material respect the stockholders of the
Employer or the business of the Employer and its
subsidiaries as a whole, other than a case in which
an acquisition of another company by the Employer
or the holding company is being accomplished
concurrently.
IN WITNESS WHEREOF, the parties have executed this First
Amendment as of the 10th day of November, 1993.
WITNESS: USF&G CORPORATION
JOHN A. MACCOLL DAN L. HALE (SEAL)
Dan L. Hale,
Executive Vice President
WITNESS: EMPLOYEE
THERESA L. ABATO NORMAN P. BLAKE, JR. (SEAL)
Norman P. Blake, Jr.
November 19, 1992
Mr. Gary C. Dunton
5 Belgravia Terrace
Farmington, CT 06032
Dear Gary:
It was really a pleasure to have spent time with you over the
past few weeks. It provides me great pleasure to offer you an
opportunity to be a critical part of the new USF&G executive
team. Your job, managing our Commercial Lines operations, is
absolutely critical to our short and long term success. I know
you are the right person to meet this challenge in providing the
leadership we need to develop and implement our long term
business strategy.
The specific terms of your employment are outlined below:
Position: Executive Vice President - Commercial Lines
Salary: $26,250.00 per month, $315,000 on an annualized
basis.
Annual Bonus: Participation in our Management Incentive Plan
at a targeted bonus rate of forty (40%) percent
of earned salary. Guaranteed bonus of $75,000
for 1993 provided you are still on board as of
12/31/93.
Long Term Bonus: Participation in our three (3) year rolling
long term incentive plan, targeted at fifty
(50%) percent of your salary.
Options: 50,000 shares (representing sign-on and 1993
annual options). Options to be approved by
the Compensation Committee of the Board of
Directors and prices as of that date.
Sign On Bonus: We will pay you a special bonus of $125,000 upon
your employment with USF&G. You will also receive
a $75,000 bonus payable upon your employment with
USF&G to offset the forfeitures in your 1992
Aetna bonus.
Annuity: Purchase annuity paying $20,000 annually at age
65 to be cancelled when person vests.
Benefits: Full benefits package, covering medical, dental,
life and disability. Participation in the USF&G
401K "matching" plan.
Relocation: Comprehensive relocation benefits including home
purchase and an eight (8%) percent of salary
relocation bonus.
Also eligible to receive a one-time bonus to
cover any tax liability you may incur from the
sale of your current home and the purchase of
a new home.
Perquisites: Company car allowance, split dollar life
insurance policy, four weeks vacation, free
parking, financial counseling, First Class air
travel, membership at the Caves Valley Country
Club and annual physical.
Severance: If you are terminated during the first two (2)
years of employment other than for performance
reasons, as determined by me, you will receive
a minimum of one (1) years salary as severance.
I am very excited about having you on the USF&G executive team and
working closely with you. I am sure it will be challenging and rewarding.
If you have any questions on these specific items, please call me or Ed Gold
as soon as possible.
Sincerely,
NORMAN P. BLAKE, JR.
Accepted: _____________________ Date: 12/3/92
Gary C. Dunton
USF&G
SUPPLEMENTAL RETIREMENT PLAN
(including amendments adopted through December 31, 1991)
ARTICLE I
Purpose
1.1 This Plan is established to provide supplemental pension
benefits for certain employees of United States Fidelity and
Guaranty Company, a Maryland corporation, and of certain of its
affiliates. The Plan is intended to compensate individuals covered
under the Retirement Pension Plan for U.S.A. Employees of the
United States Fidelity and Guaranty Company to the extent that
benefits under that plan are reduced by the limitations on benefits
payable from tax qualified pension plans set forth in Section 415
of the Internal Revenue Code of 1986, as amended, or by the
limitation on compensation which may be taken into account under
that plan by virtue of Section 401(a)(17) of the Internal Revenue
Code of 1986, as amended.
ARTICLE II
Definitions
2.1 "Basic Plan" means the Retirement Pension Plan for U.S.A.
Employees of the United States Fidelity and Guaranty Company.
2.2 "Committee" means the Pension Committee under the Basic
Plan.
2.3 "Eligible Employee" means any employee of an Employer who is
a participant in the Basic Plan.
2.4 "Employer" means USF&G and any other employer which
participates in the Basic Plan and which adopts the Plan by action
of its Board of Directors.
2.5 "Plan" means this USF&G Supplemental Retirement Plan.
2.6 "USF&G" means United States Fidelity and Guaranty Company or
any company which is a successor as a result of merger,
consolidation, liquidation, transfer of assets, or other
reorganization.
ARTICLE III
Retirement
3.1 Eligibility. An Eligible Employee who retires or otherwise
terminates participation in the Basic Plan after completing ten
(10) continuous years of service under the Basic Plan and attaining
age fifty-five (55) shall be entitled to receive a supplemental
pension benefit under this Plan from the Employer with which the
Eligible Employee was employed at the time the Eligible Employee's
participation in the Basic Plan terminated equal to the difference
between (i) the benefit payable to the Eligible Employee under the
Basic Plan and under any other retirement plan or retirement
program of any Employer and (ii) the benefit which would have been
payable to the Eligible Employee under the Basic Plan in the
absence of the limits on benefits imposed by Section 415 of the
Internal Revenue Code of 1986, as amended, and the limit on
compensation which may be taken into account under the Basic Plan
imposed by Section 401(a)(17) of the Internal Revenue Code of 1986,
as amended. If benefits payable to an Eligible Employee under the
Basic Plan or under any other retirement plan or retirement program
of an Employer are increased after the Eligible Employee's
participation in the Basic Plan terminates, whether due to cost of
living increases in the Section 415 or 401(a)(17) limits or
otherwise, then the benefits under this Plan shall be decreased
accordingly.
3.2 Commencement and Form of Payment. An Eligible Employee's
supplemental pension benefit under this Plan shall commence at the
same time as the Eligible Employee's benefit under the Basic Plan,
and shall be paid to the Eligible Employee in the same form as the
Eligible Employee's benefit under the Basic Plan; provided,
however, that an Eligible Employee may, with the consent of the
Committee, which consent may be granted or withheld in the
Committee's sole discretion, elect to have the benefit to which the
Eligible Employee would otherwise be entitled under this Plan paid
in a lump sum. In such case, the amount of the lump sum shall be
the actuarial equivalent of the benefit payable under this Plan
based upon the interest assumption for actuarial equivalence under
the Basic Plan. To elect this option, the Eligible Employee shall
give written notice to the Committee not later than 30 days before
the Eligible Employee's participation in the Basic Plan terminates.
ARTICLE IV
Death Benefits
4.1 Qualification and Amount. If an Eligible Employee dies
before beginning to receive benefits under this Plan, and if the
surviving spouse of such Eligible Employee is entitled to a death
benefit under the Basic Plan, then the surviving spouse of the
Eligible Employee shall be entitled to receive a death benefit
under this Plan from the Employer with which the Eligible Employee
was employed at the time the Eligible Employee was last an Eligible
Employee equal to the difference between (i) the benefit payable to
such surviving spouse under the Basic Plan and under any other
retirement plan or retirement program of any Employer and (ii) the
benefit which such surviving spouse would have received from the
Basic Plan in the absence of the limits on benefits imposed by
Section 415 of the Internal Revenue Code of 1986, as amended, and
the limits on compensation which may be taken into account under
the Basic Plan imposed by Section 401(a)(17) of the Internal
Revenue Code of 1986, as amended. If benefits payable to an
Eligible Employee's surviving spouse under the Basic Plan or other
retirement plan or retirement program of an Employer are increased
after the Eligible Employee's death, whether due to cost of living
increases in the Section 415 or Section 401(a)(17) limits or
otherwise, then the benefits payable to the surviving spouse under
this Plan shall be decreased accordingly.
4.2 Duration of Payment. The surviving spouse's benefit payable
under Section 4.1 shall commence at the same time as the surviving
spouse's benefit under the Basic Plan and shall continue until the
surviving spouse's benefit under the Basic plan terminates.
ARTICLE V
Administration
5.1 The Committee. The Committee shall administer, construe and
interpret this Plan. No member of the Committee shall be liable
for any act done or determination made in good faith. No member of
the Committee who is a participant in this Plan may vote on matters
affecting the member's specific benefits under this Plan, but any
such member shall otherwise be fully entitled to act in matters
arising out of or affecting this Plan notwithstanding the member's
participation herein. The Committee may, in its discretion,
delegate its duties to any person, including an officer or employee
of any Employer.
5.2 Duties. The construction and interpretation by the
Committee of any provision of this Plan shall be final and
conclusive. The Committee shall determine, subject to the
provisions of this Plan, the Eligible Employees who shall
participate in the Plan from time to time and the amount, if any,
due an Eligible Employee (or the Eligible Employee's surviving
spouse) under this Plan.
5.3 Claims Procedure.
(a) Initial Claim.
If an Eligible Employee or an Eligible Employee's
spouse (hereinafter referred to as a "Claimant") is denied all or
a portion of an expected benefit under this Plan for any reason,
the Eligible Employee or the Eligible Employee's spouse may file a
claim with the Committee. The Committee shall review the claim
itself or appoint a person to review the claim. The Claimant shall
be notified within 60 days after the Claimant's claim is filed
whether the claim is allowed or denied, unless the Claimant
receives written notice prior to the end of the sixty (60) day
period stating that special circumstances require an extension of
the time for decision. The notice of the decision shall be in
writing, sent by mail to the Claimant's last known address, and, if
a denial of the claim, must contain (i) the specific reasons for
the denial, (ii) specific reference to pertinent provisions of the
Plan on which the denial is based, and (iii) if applicable, a
description of any additional information or material necessary to
perfect the claim, an explanation of why such information or
material is necessary, and an explanation of the claims review
procedure.
(b) Review Procedure. A Claimant is entitled to request a
review of any denial of the Claimant's claim by the Committee. The
request for review must be submitted to the Committee in writing
within 60 days after notice of the denial is mailed. Absent a
request for review within the 60-day period, the claim will be
deemed to be conclusively denied. A review of any denial of a
claim shall be conducted by the Committee or its designee in a
manner which complies with applicable regulations of the Department
of Labor.
ARTICLE VI
Miscellaneous Provisions
6.1 Limitation of Rights. Nothing contained in this Plan shall
be construed to limit in any way the right of an Employer to
terminate an Eligible Employee's employment at any time or to be
evidence of any agreement or understanding, express or implied,
that an Employer will employ an Eligible Employee in a particular
position or at any particular rate of remuneration.
6.2 Life Insurance. The Employer in its discretion may apply
for and procure, as owner and for its own benefit, insurance on the
life of an Eligible Employee, in such amounts and in such forms as
the Employer may choose. An Eligible Employee shall have no
interest whatsoever in any such policy or policies, but at the
request of the Employer the Eligible Employee shall submit to
medical examinations and supply such information and execute such
documents as may be required by the insurance company or companies
to whom the Employer has applied for insurance.
6.3 Nonalienation of Benefits. No amounts payable hereunder may
be assigned, pledged, mortgaged or hypothecated and, to the extent
permitted by law, no such amounts shall be subject to legal process
or attachment for the payment of any claims against any person
entitled to receive the same.
6.4 Amendment or Termination of Plan. The Board of Directors of
USF&G may amend this Plan from time to time in any respect, and may
at any time terminate the Plan in its entirety or as it applies to
any Employer; provided, however, that an Eligible Employee's
entitlement to benefits under this Plan may not be terminated or
reduced. This Plan shall terminate automatically if the Basic Plan
terminates, in which event (i) no additional employees shall become
participants in this Plan and (ii) benefits under this Plan shall
be paid in the same manner and at the same time as benefits under
the Basic Plan, regardless of whether Basic Plan benefits are paid
at or before an Eligible Employee's retirement.
6.5 Unfunded Plan. This Plan is unfunded. The obligations of
an Employer with respect to the benefits payable hereunder shall be
paid out of the Employer's general assets and shall not be secured
by any form of trust, escrow or otherwise. The rights of an
Eligible Employee, or the Eligible Employee's surviving spouse, to
benefits under the Plan shall be solely those of an unsecured
creditor of the Employer. Any assets acquired by or held by the
Employer in connection with the liabilities assumed by it pursuant
to the Plan shall not be deemed to be held under any trust for the
benefit of an Eligible Employee, or the Eligible Employee's spouse,
or to be security for the performance of the obligations of the
Employer but shall be, and remain, general, unpledged, and
unrestricted assets of the Employer. No representation shall be
made to any Eligible Employee which is contrary to this Section 6.5
or which in any way suggests that any assets which may be
maintained by the Employer in respect of its obligations under this
Plan will be used solely for that purpose.
6.6 Construction of Plan. This Plan shall be administered and
construed so as to qualify as an "unfunded" plan providing benefits
to a "select group of management or highly compensated employees,"
as those terms are used in the Employee Retirement Income Security
Act of 1974.
6.7 Employer Obligations. Each Employer shall be obligated to
pay benefits under this Plan to its Eligible Employees and no
Employer shall be obligated to fulfill the obligations of any other
Employer under this Plan.
ARTICLE VII
Effective Date
7.1 The foregoing Plan is effective January 1, 1991. It shall
apply to persons in the employ of an Employer on and after that
date. It shall not apply to former employees of any Employer whose
employment terminated before that date. The rights of employees
whose employment terminated before January 1, 1991 shall be
determined under the terms of the Plan which applied when
employment terminated.
IN WITNESS WHEREOF, USF&G has caused this Plan to be executed on
its behalf.
UNITED STATES FIDELITY
AND GUARANTY COMPANY
By
Date:
USF&G Corporation
Exhibit 11 - Computation of Earnings Per Share
<TABLE>
<CAPTION>
For the Years Ended December 31
(dollars in millions except per share data) 1993 1992 1991
<S> <C> <C> <C>
Net Income Available to Common Stock
Primary:
Income (loss) from continuing operations
before cumulative effect of
adopting new accounting standards $ 127 $ 35 $ (144)
Less preferred stock dividend requirements 48 48 37
Income (loss) from continuing operations before
cumulative effect of adopting new accounting standards
available to common stock 79 (13) (181)
Loss from discontinued operations - (7) (32)
Income from cumulative effect of adopting new accounting
standards 38 - -
Net income (loss) available to common stock $ 117 $ (20) $ (213)
Fully diluted:
Income (loss) from continuing operations
before cumulative effect of
adopting new accounting standards $ 127 $ 35 $ (144)
Less preferred stock dividend requirements 16 48 37
Income (loss) from continuing operations before
cumulative effect of adopting new accounting standards
available to common stock 111 (13) (181)
Loss from discontinued operations - (7) (32)
Income from cumulative effect of adopting new accounting
standards 38 - -
Net income (loss) available to common stock $ 149 $ (20) $ (213)
Weighted Average Shares Outstanding
Primary common shares 84,780,283 84,355,431 84,169,091
Fully diluted:
Common shares 84,780,283 84,355,431 84,169,091
Assumed conversion of preferred stock 26,611,211 - -
Assumed exercise of stock options 1,301,361 - -
Total fully diluted 112,692,855 84,355,431 84,169,091
Earnings Per Common Share
Primary (A):
Income (loss) from continuing operations
before cumulative effect of
adopting new accounting standards $ .93 $ (.16) $ (2.15)
Loss from discontinued operations - (.08) (.38)
Income from cumulative effect of adopting new
accounting standards .45 - -
Net income (loss) $ 1.38 $ (.24) $ (2.53)
Fully diluted (B):
Income (loss) from continuing operations
before cumulative effect of
adopting new accounting standards $ .98 $ (.16) $ (2.15)
Loss from discontinued operations - (.08) (.38)
Income from cumulative effect of adopting new
accounting standards .34 - -
Net income (loss) $ 1.32 $ (.24) $ (2.53)
<FN>
(A) Shares issuable under stock options (1,301,361 shares in 1993,
613,974 shares in 1992, and 3,252 shares in 1991) have not been used as
common stock equivalents in the computation of primary earnings
per common share presented on the face of the Consolidated
Statement of Operations because the dilutive effect is not
material.
(B) Fully diluted earnings per common share amounts
are calculated assuming the conversion of all securities whose
contingent issuance would have a dilutive effect on earnings.
The effect of assuming conversion of the preferred stock
(30,959,211 shares in 1992 and 19,068,466 shares in 1991) is
antidilutive and, therefore, the amounts presented in the
Consolidated Statement of Operations for primary and fully
diluted earnings per share are the same. Shares issuable under
stock options (852,627 in 1992 and 3,252 in 1991) have not been
used as common stock equivalents because the dilutive effect is
not material.
</TABLE>
Exhibit 12 - Computation of Ratio of Consolidated Earnings to Fixed
Charges and Preferred Stock Dividends
<TABLE>
<CAPTION>
For the Years Ended December 31
(dollars in millions) 1993 1992 1991
<S> <C> <C> <C>
Fixed Charges
Interest expense $ 41 $ 40 $ 46
Interest capitalized - 8 8
Portion of rents representative of interest 27 28 31
Total fixed charges 68 76 85
Preferred stock dividend requirements (A) 48 48 37
Combined Fixed Charges and Preferred Stock Dividends $116 $124 $ 122
Consolidated Earnings Available for Fixed Charges and
Preferred Stock Dividends
Income (loss) from continuing operations before income taxes and
cumulative effect of adopting new accounting standards $ 99 $ 35 $(141)
Adjustments:
Fixed charges 68 76 85
Less interest capitalized during the period - (8) (8)
Consolidated earnings available for fixed charges and preferred
stock dividends $167 $103 $ (64)
Ratio of Consolidated Earnings to Fixed Charges 2.5 1.4 (B)
Ratio of Consolidated Earnings to Combined Fixed
Charges and Preferred Stock Dividends 1.4 .8 (B)
<FN>
(A) Preferred stock dividend requirements of $48 million in 1993
and 1992 and $37 million in 1991 divided by 100% less the
effective income tax rate of 0% in 1993, 1992, and 1991.
(B) In 1991, earnings were inadequate to cover combined fixed charges
and preferred stock dividends by $186 million, and inadequate to
cover fixed charges by $149 million.
</TABLE>
(COVER)
ANNUAL REPORT
1993
USF&G Corporation
USF&G's new logo, an open door with light
shining through it, represents the energy that is USF&G today
and the clarity, openness, and customer orientation that we
bring to the insurance process. It symbolizes our commitment to
providing superior market-specific products and value-added
services to our agents and our customers. As a totally
revitalized and refocused insurance enterprise, it is
appropriate for USF&G and its people to now be seen in a
different "light."
Our new identity reflects the exhilaration of having
accomplished an arduous repositioning process. We are proud to
celebrate the company we are today.
USF&G Corporation, with assets of $14.3 billion, is composed of
property/casualty and life insurance subsidiaries. The principal
subsidiary is United States Fidelity and Guaranty Company, one
of the nation's largest property/casualty insurers, founded in
1896. Life insurance products and annuities are written through
Fidelity and Guaranty Life Insurance Company, founded in 1959.
USF&G provides a wide variety of quality commercial, personal,
fidelity/surety, life, and reinsurance products targeted to meet
the diverse insurance needs of its customers.
<PAGE> 1
Contents
Financial Highlights 3
Chairman's Letter 5
Discussion of Operations 11
Interview with Management 25
Product Line Overview 28
Investments 30
Capitalization 32
Index to Financial Information 33
Directors and Committees of the Board 83
Executive Management Committee 84
Officers 85
Regional and Branch Offices 86
Shareholders' Information 88
<PAGE> 2
<TABLE>
Financial Highlights
<CAPTION>
For the Years Ended December 31
(dollars in millions except per share data) 1993 1992 1991
<S> <C> <C> <C>
CONSOLIDATED RESULTS
Revenues $ 3,249 $ 3,660 $ 4,172
Premiums earned 2,456 2,637 3,187
Net investment income 749 817 877
Realized gains on investments 6 148 38
Restructuring charges - (51) (60)
Income (loss) from continuing operations before cumulative
effect of adopting new accounting standards 127 35 (144)
Loss from discontinued operations - (7) (32)
Cumulative effect of adopting new accounting standards 38 - -
Net income (loss) 165 28 (176)
RESULTS PER COMMON SHARE
Income (loss) from continuing operations before cumulative
effect of adopting new accounting standards $ .93 $ (.16) $ (2.15)
Loss from discontinued operations - (.08) (.38)
Cumulative effect of adopting new accounting standards .45 - -
Net income (loss) $ 1.38 $ (.24) $ (2.53)
Dividends declared $ .20 $ .20 $ .20
At December 31
1993 1992 1991
CONSOLIDATED FINANCIAL POSITION
Assets $ 14,335 $ 13,134 $ 14,486
Debt 618 616 677
Shareholders' equity 1,511 1,270 1,323
Debt-to-equity 41% 49% 51%
Book value per share $ 11.66 $ 8.87 $ 9.53
Market price per share 143/4 123/8 71/4
Common shares outstanding 85,009,482 84,512,758 84,273,327
</TABLE>
GRAPH Revenues (in billions)
GRAPH Net Income (in millions except per share data)
GRAPH Balance Sheet Leverage/Liquidity (dollars in billions)
<PAGE> 3
PHOTO (caption)
Chairman, President, and
Chief Executive Officer
Norman P. Blake, Jr.
<PAGE> 4
Chairman's Letter
The year 1993 constituted the culmination of the restructuring
efforts to "fix the foundation" of USF&G since my arrival in
November 1990. As illustrated in the chart below, the
restructuring and rebuilding of our company involves a
three-phase process. The earnings dynamic is depicted as we
progress through each stage of development. We are sharply
focused on winning in the insurance business and, accordingly,
have divested unrelated businesses which constituted a diffusion
of resources and a drag on earnings. A strong management team
and a highly talented cadre of professionals have been
assembled. Well defined market and product line operating
strategies have been developed and are being implemented to best
leverage our newly established competitive strengths. Our 1993
earnings performance is a reflection of our sharp business focus
and new competitiveness.
1993 Performance
We earned $165 million of net income in 1993,
compared with $28 million in 1992. On a per common share basis
after payment of preferred dividends, we earned $1.38 in 1993
compared with a loss of $.24 in 1992. The primary driver of this
improvement was the growth in consolidated operating income.
Earnings were further enhanced by a net benefit of $66 million
as a result of the adoption of new accounting standards as well
as related tax benefits. USF&G defines operating income as
income from continuing operations before income taxes, realized
gains, and the cumulative effect of adopting new accounting
standards. Consolidated operating income in 1993 was $93
million, which compared quite favorably with a $113 million
operating loss in 1992. The property/casualty company is the
primary earnings driver of USF&G Corporation. It earned $182
million in operating income in 1993, representing a dramatic
improvement over a loss of $3 million in 1992. The 1992 results
were adversely affected by $80 million of net losses
attributable to Hurricane Andrew as well as $46 million in
restructuring charges.
The fundamental factor responsible for the increase in
property/casualty operating income was the substantial
improvement in underwriting results. The 1993 statutory loss
ratio was 75.4, which was 6.6 points lower than the 82.0 loss
ratio in 1992. Even excluding the losses attributable to
Hurricane Andrew, the loss ratio was lowered by 3.6 points from
an adjusted 1992 loss ratio of 79.0. This improvement was
achieved as a result of
GRAPH (caption)
USF&G is now entering the "Build with Vision" phase of its restructuring
and rebuilding process.
<PAGE> 5
effective product/market mix management,
improved agency relationships, and better risk management (loss
control engineering, underwriting, and claim administration).
This achievement is even more significant considering we also
maintained our strong loss reserve position. Principally as a
result of improvement in our loss ratio, our combined ratio
improved from 116.9 in 1992 to 109.1 in 1993.
Other factors favorably influencing earnings growth have been
the substantial lowering of structural costs as well as
increased employee productivity. Since the outset of 1991, we
have reduced the workforce by 48 percent and general and
administrative expenses by 31 percent. Employee productivity, as
measured by revenues per employee, has increased by 37 percent.
We anticipate that the current level of employment will remain
approximately the same for the foreseeable future. Going
forward, emphasis will be given to changing the composition of
our cost structure to achieve greater operating leverage.
Efforts will continue to lower fixed costs while improving
productivity through higher levels of automation. This will
allow us to benefit from higher levels of business without a
proportional increase in costs.
Financial Strength
The significant progress made in 1993 is also reflected in the
strengthening of our consolidated balance sheet. Overall asset
quality, financial leverage, and liquidity have substantially
improved. Our $11.4 billion investment portfolio has been
conservatively managed. Investment-grade fixed-income securities
were 79 percent of total invested assets, compared with 76
percent in 1992, while more volatile assets such as equities,
high-yield bonds, and real estate were maintained in the
aggregate at 15 percent of total invested assets. Real estate
reserves were maintained at $108 million, despite a 28 percent
reduction in nonperforming real estate investments. Currently
real estate reserves are 10 percent of the total portfolio,
which represents a 43 percent coverage of nonperforming real
estate investments. We believe that this is one of the strongest
real estate reserve positions in the industry.
Our property/casualty company has the highest level of statutory
surplus in its history, which is well above risk-based capital
standards established by the National Association of Insurance
Commissioners ("NAIC"). USF&G Company's ratio of loss reserves
to earned premium was raised from 2.2 in 1992 to 2.4 in
GRAPH Operating Income (in millions) (caption)
The increase in operating income is due to improved underwriting performance
in the property/casualty company.
GRAPH Property/Casualty Statutory Combined Ratio (caption)
The improved ratios result from effective product/market mix management
and improved underwriting and claim settlement practices.
<PAGE> 6
1993. We have also substantially lowered the corporation's financial
leverage as measured by the improvement in the debt-to-equity
ratio from 49 percent in 1992 to 41 percent in 1993. Liquidity
has significantly improved as well, and is reflected by the
increase in the fixed charge coverage ratio from 0.8 in 1992 to
1.4 in 1993. Fixed charge coverage is the ratio of earnings to
fixed charges and preferred stock dividends.
Competitiveness
In addition to the substantial improvement in
earnings power and financial strength, USF&G's overall
competitiveness has been enhanced. The skills and competencies
of our organization and management have been significantly
elevated. This was accomplished by intense internal training and
recruiting. The number of training programs and participation
has tripled since 1990. The infusion of external managerial
talent into the organization is equally impressive. Since 1991,
60 percent of all officer-level employees are new to the
company. Each new member of our management team has a proven
track record and has the recognized expertise to be an effective
knowledge leader and change agent. The organization structure
has been transformed as well. Five regional operations have been
established to facilitate the change process as well as to
provide value-added coaching to improve the market
competitiveness of each of our branch operations. Product line
and market segment business units have been formed with
dedicated, highly talented management teams to implement
discrete business strategies. Each branch, region, product, and
market segment business unit has profit and loss responsibility
linked to compensation.
In my opinion, our newly assembled management team is one of the
strongest in the industry. We now have the skills and leadership
capabilities to build a great company that achieves
distinctiveness in the quality of its products and services. We
have enriched our agency plant by focusing on and appointing
high quality agents and terminating unprofitable ones. We have
formed agency advisory councils in each of our branch and
regional locations to enhance our relationships with our agency
force and to ensure our responsiveness to meeting the needs of
our customers. We have developed and implemented expert
underwriting and claims management systems, as well as
significantly upgraded our risk management capabilities. We have been
GRAPH General & Administrative Expenses (in millions) (caption)
A 31% decrease in general and administrative expenses since 1990
favorably influenced earnings.
GRAPH Consolidated Employment & Productivity (in thousands)
(caption) Employment levels decreased by 48% since 1990 contributing
to a 37% improvement in productivity.
<PAGE> 7
intensely involved in developing highly competitive, if not
superior, products and services in all of our product areas. We
are now a highly energized and committed company ready to "build
with vision" and to focus on profitable growth in 1994 and
beyond.
New Identity
Our new logo on the cover of this report announces
our entry into a new era in the history of USF&G. It symbolizes
the emergence of our new culture and commitment to core values
which fuels the creative energies of our people to achieve
greatness. Our former logo has served us well, representing past
accomplishments with distinction and giving honor to those so
instrumental in providing us a proud heritage from which to
build. Yet, with the dramatic transformation of our company and
the newness and diversity of our workforce, it is important to
provide an identification that conveys the meaning of our
culture and unites our organization to achieve a common purpose
of becoming the best. Our new logo accomplishes this objective.
There are two distinctive aspects of our new identity: the open
door, and the light shining through the door. The open door has
direct implications for all of our constituencies.
To our employees, the open door suggests openness, opportunity,
and a boundaryless organization. The only constraint to both
individual and company growth and progress is our own potential
and willingness to strive to achieve. It implies a commitment to
diversity of employment and to providing a work environment and
training opportunities conducive to personal growth and
development. It implies that the basis for advancement in our
high-performance culture is individual performance and adherence
to our core values.
To our agents, the open door means an accessibility and ease of
doing business. It suggests directness and honesty in our
business dealings. It signifies an invitation to our agents to
participate with us as business partners and to provide our
shared customers with the most competitive products and services
available.
To our customers, the open door conveys our responsiveness to
their needs. It means we strive to better understand their needs
and, by doing so, we design, develop, and deliver competitively
superior products and services that are worthy of their
confidence. It implies that we stand ready to serve them when
they need us.
GRAPH Investment Portfolio (dollars in billions) (caption)
Improved asset quality is evidenced by an increase in investment-grade
fixed-income securities.
GRAPH Real Estate Portfolio (dollars in billions) (caption)
Nonperforming real estate investments have decreased while reserve
coverage has steadily improved.
<PAGE> 8
To our shareholders, the open door demonstrates our direct
accountability to the investor to be deserving of the confidence
they have placed in us.
Core Values
The light shining through the door symbolizes the
energy of our people. We are strongly committed to assimilating
our core values into our culture. Employee performance
appraisals incorporate an assessment of an individual's
demonstration of core values and technical abilities. Employee
recognition programs have been developed to identify exemplary
employees who demonstrate these values. It is expected that the
leaders of our company manifest these core values and serve as
effective role models.
Five core values constitute the foundation of our culture:
o Customer First: putting the customer's interests at the
forefront of our actions.
o Integrity: treating people honestly, fairly, and respectfully.
o Professionalism: having the commitment and dedication to
being the best at what we do.
o Innovation: thinking of ways of doing things better by doing
them differently and having the courage to overcome the
resistance to change.
o Teamwork: trusting in one another and
working together as a better way of achieving our common
objectives.
As a company, the people of USF&G are committed to these core
values and creating a culture that both empowers and enables us
to make a difference and, in so doing, gain a sense of ownership
in what we do. We have a cadre of highly competent and committed
employees striving to make our vision reality. I invite you to
review the following sections of this report to gain a further
understanding of the energies and capabilities of our people in
their pursuit of building a company of excellence. I thank you
on behalf of all the employees for the confidence you have
placed in us. Please be assured of our continuing commitment to
making USF&G worthy of your investment.
NORMAN P. BLAKE, JR.
Norman P. Blake, Jr.
Chairman, President, and
Chief Executive Officer
March 4, 1994
<PAGE> 9
PHOTO (caption)
USF&G's commercial insurance business offers its products and
services through a teamwork approach. Here Randall C. Brusewitz,
CFO-Northern Wire Corporation, Merrill, Wisconsin (foreground
right), meets with Peter R. Moncher, USF&G senior loss control
consultant. Joining them are (left to right), Robert F.
McIntyre, account executive-Frank Haack & Associates; Dewey
Plamann, general manager-Northern Wire; William R. Haack,
president-Frank Haack & Associates; and Mary Kraus, USF&G claim
representative.
<PAGE> 10
Commercial Lines
PHOTO (caption)
Commercial Lines Team
Left to right, Glenn Anderson. Seated, Ben
Griffin; Kim Rich. Standing, Peter Bothwell; Bob Mueller; Steve
Lilienthal; and Bob Lamendola.
The commercial insurance business is vital to the financial well
being of American business. At USF&G, it accounts for over
one-half of our total property/casualty ("P/C") premium revenue.
Our vision for USF&G's commercial insurance operation is to
become so superior at what we do-providing insurance products
and related services-that knowledgeable independent agents and
customers will actively seek USF&G.
USF&G is becoming a premier commercial insurer by dedicating
itself to being customer- focused and delivering superior
products and services through a teamwork approach that truly
benefits customers. This dedication is the foundation upon which
we are building our long-term business strategy to achieve
profitable growth.
Customer focus means creating a formula for success that is
uniquely meaningful for each of our targeted customer segments.
Since our book of business encompasses three distinct
customer/market segments (middle market commercial P/C, small
business commercial P/C, and fidelity/surety), customer focus
means organizing and approaching these markets as three distinct
businesses.
Our teamwork approach to these markets requires highly-talented
teams of underwriting, loss control, claim, and marketing
personnel working closely with our agents to attract,
underwrite, service, and retain our accounts.
This team concept
also applies to the development of superior coverages, pricing,
and service programs for our targeted customers.
Customer focus and teamwork make all of our important
constituents winners. Commercial insurance customers win because
we research their needs and develop customer-tailored products
and services to meet those needs. Our agents win as we provide
them with more competitive products and marketing support. USF&G
employees win by becoming more productive in serving target
market customers as a result of intensified training programs.
USF&G shareholders win as earnings grow because we are serving
customer needs in a more focused and disciplined fashion.
Middle Market Commercial
USF&G's targeted middle market
commercial P/C segment consists of medium to large businesses
that generate annual premium ranging from $25,000 to $1 million
or more. Nationwide, approximately one million businesses make
up this $50 billion market. Its size and diversity offers USF&G
tremendous opportunities to specialize and grow. Middle market
premiums account for approximately 79 percent of our total
commercial premium, excluding fidelity/surety, but less than 31
percent of our accounts. The most important element in this
business is understanding the risks and pricing them
individually. The game is won or lost based on loss containment
from the company's perspective and on product differentiation
and superior service levels from the customers' perspective. Our
strategy is to become a superior underwriter and provider of
targeted, value-added products and services for our middle
market customers.
<PAGE> 11
PHOTO (caption)
USF&G's fidelity/surety operations have been among the leaders
of the bonding industry since our founding in 1896. This road
and bridge interchange project in Norton, Virginia, is bonded
out of our Charleston, West Virginia, branch office. Meeting at
the construction site to discuss the progress of the project are
(left to right), Tony Stanchina, president-Friedlander Company;
Frank Oliver, USF&G bond manager; and John Conkwright, VP
operations-Vecellio and Grogan of Beckley, West Virginia.
<PAGE>12
During 1993, we made major progress in implementing our middle
market strategy. The company created three business units to
lead our efforts in penetrating the manufacturing, contracting,
and service industries. In the field, 30 commercial lines middle
market underwriting departments now focus exclusively on
penetrating the middle market in their territories. We launched
extensive sales efforts with close to 3,900 USF&G agents to
stimulate new middle market production, led by our
corporate-wide "Operation Play Ball" campaign. We made
substantial investments in technical training and in new product
development, including the introduction of our new "Five Star
Restaurant Program," our "Precision Design Program for
Manufacturers" and our soon-to-be-released "Blueprint Program
for Contractors." The combination of these efforts enabled us to
gain momentum in targeted middle market production in 1993 and
laid a firm foundation for future success.
Small Business Commercial
USF&G's targeted small business
commercial P/C market consists of over five million small
businesses nationwide that generate average annual premiums of
$5,000. While many companies are moving away from this market
due to the lower premiums and high processing costs per
transaction, USF&G is tackling this opportunity head on. Our
strategy is designed to earn USF&G a leading role in this $30
billion market. Small commercial business represents about 21
percent of our commercial premium, excluding fidelity/surety,
yet almost 69 percent of our accounts. The most important
elements for success in this business are to: (1) lower per unit
transaction costs for the agent and USF&G, (2) reduce the cost
of complexity by offering standardized product packages, and (3)
improve the quality of service in terms of timeliness and
reliability. Five regional processing hubs, staffed with
underwriting and administrative specialists, are now in
operation, eliminating much of the burden of backroom processing
previously placed on our branches. Further enhancements in work
flow processing and quality of service are receiving the highest
priority to facilitate an improvement in the ease of doing
business with our agents.
During 1993, our small business commercial market segment made
substantial progress in increasing productivity and reducing
both its operating costs and expense ratio.
Fidelity/Surety
Our fidelity/surety business provides bonding
products and services to thousands of construction contractors,
commercial businesses, financial institutions, and individual
customers. Fidelity/surety continues to produce excellent
financial results indicative of strong underwriting skills.
Accomplishments in 1993 included strengthening our
customer/market focus to help us grow, centralizing and
upgrading our claim operations, and reducing expenses by
incorporating more technology in processing business. Our main
focus in 1993 was to set the base for continued profitable
growth. We plan to capitalize upon those efforts in 1994.
USF&G's commercial lines operation is energized and has
assembled the best people in the business who are building some
of the most competitive products and services. We are determined
to win in our chosen target markets.
<PAGE>13
PHOTO (caption)
With USF&G's ActionPlus, our customers are only a telephone call
away from emergency roadside services. Loretta Karkoff of
Naperville, Illinois (driver), tells Keith Rademacher, P.A.R.
Insurance Services, and Kathleen Pagnano, USF&G Claim manager,
how pleased she is with the service ActionPlus provided to her
family.
<PAGE>14
Personal Lines
PHOTO (caption)
Personal Lines Team
Left to right,
Dick Potter, Paul DiFrancesco, Earnie Hines, and Eileen Auen.
Personal lines insurance products, including auto, property,
watercraft, and umbrella liability coverages, comprise a $112
billion industry. Since the early 1980s, personal insurance has
continued its growth at an annual rate approaching nine percent.
About $40 billion of the total personal lines market is sold
through the independent agency system. Customers choose this
channel to assure appropriate product counseling and review of
their coverages, as well as the highest service levels.
Given the size and growth potential of this industry segment and
USF&G's superior agency franchise, the company is making
significant strategic investments to increase its share of
business in key markets. The strategy for increasing profitable
penetration of existing-and new-agencies includes focused agency
and consumer target marketing, dedicated local sales presence,
expanded product and service portfolios, and enhanced technology
in critical customer service applications.
Focused Target Marketing
To optimize USF&G's presence in markets
which represent the highest profit potential, we work with our
agency partners to target and attract key customer segments by
providing the proper combination of coverage, service, and price.
Dedicated Sales Presence
To fully understand our markets and
support our agents, USF&G has chosen to increase its local,
dedicated sales presence by placing account specialists in key
markets. Account specialists combine local presence and market
knowledge with national product development and marketing
capabilities.
Expanded Products and Services
As customers' needs change, so do
the products and services USF&G offers. Our new Personal Excess
Product protects our customers' assets in these very litigious
times. USF&G's watercraft program has been redesigned to reflect
the increased value and use of pleasure craft today, and our
ActionPlus program puts our claim representatives a phone call
away, 24 hours a day, 365 days a year.
Enhanced Technology
The integration of technology with business
strategy is even more critical in today's information era.
Whether through automated underwriting techniques or through
agency interface which will link our business partners with our
processing systems, USF&G is committed to creatively leveraging
technology to find better solutions for agents and customers
alike.
Personal lines' 1993 financial results have demonstrated the
success of our prior and current initiatives. The most critical
element behind our strategy is the teamwork among the agency,
branch, and home office. With this team now in place, USF&G
intends to continue increasing its share of this dynamic
industry.
<PAGE>15
PHOTO (caption)
USF&G focuses clearly on its customers, making our 30
full-service branches our most important operations. At City Hall
in Meridian, Mississippi, (left to right) the Honorable John
Robert Smith, mayor, meets with Bill Allison, 44-year USF&G
veteran and current consultant; Bruce Martin, Meyer & Rosenbaum,
and Andy Everett, president of our new subsidiary, USF&G
Insurance Company of Mississippi, to express appreciation for
providing superior service in meeting the city's insurance needs.
<PAGE> 16
Field Operations
PHOTO (caption)
Field Operations
Team Left to right,
Gary Dunton. Seated, Ken May, Southwest region; Paul Beil,
Midwest region. Standing, Jim Lewis, Northeast region;
Lee Buck, West region; and Andy Everett, USF&G of Mississippi.
The function of USF&G's Field Operations Department is to bring
the product line strategies to life. 1993 was a year of major
change for USF&G and nowhere was it more evident than in our
field offices.
We are dedicated to having the industry's most professional
people located near our customers and agents. Our 30
full-service branches are essentially local businesses where the
quality of our employees is our most critical success factor.
During the last two years, we upgraded our field personnel
dramatically. Nearly 70 percent of all field managers are new to
their positions and 30 percent of all underwriting technical
employees are new to USF&G. We are now staffed with
knowledgeable, experienced professionals who know their local
markets.
Our branch professionals are empowered to handle most business
at the local level. Through technical and specialized
underwriting, loss control, claim, and marketing training
programs (some of the industry's most extensive), we are
building a knowledge-based organization committed to customer
satisfaction and profitability.
We have organized our branch offices around discrete
customer/market segments. Each branch has profit and loss
responsibility and contains commercial, fidelity/surety, and
personal lines teams. These teams are led by our branch vice
presidents. Our branches are managed by five regional offices
with strong management responsible for territorial strategy
development, resource allocation, and plan execution. Being
close to our markets gives us the flexibility to respond to
market changes, the capacity for superior customer and agent
service, and more complete and local underwriting knowledge.
USF&G's product departments have begun to deliver
state-of-the-art insurance programs to our field operations for
rollout. As a result, our competitiveness in local markets is
improving substantially.
Most importantly, we have significantly strengthened what was
already considered one of the best distribution networks in the
industry-our independent agents. Through the efforts of our
field marketing development managers, our average premium per
current agency is up substantially over 1992. We have created a
strong local, regional, and national agency council network that
allows us to tap the expertise of our agents in developing
market opportunities.
We are an organization on a mission-partnership for profitable
growth and partnership with our product departments and our
agents to meet our customers' needs and to grow profitably.
<PAGE> 17
PHOTO (caption)
When fire destroyed a building at the Monroeville
Industrial Park owned by Samdoz in Pittsburgh, USF&G provided
immediate claim service to meet our customer's needs. Here (left
to right), Charles Murray, USF&G general adjuster; Ken Moir,
Kenco Agency; Domenic Dozzi, VP-Samdoz; and Jim Soeder, USF&G
property claim specialist, examine blueprints at the scene of
the fire.
<PAGE> 18
Claim
PHOTO (caption)
Claim Team
Left to right,
Ken Cihiy. Seated, Tom Salinsky; Jack Hayes.
Standing, Chuck Stapleton; and Tom Trezise.
The claim function is responsible for delivering the value for
which the customer paid. Claim service is frequently the only
measurement of that value.
In 1993, USF&G's Claim Department completed its restructuring,
developed operating strategies, and committed to providing high
standards of service to all of its constituents. The department
defined three roles that add value to USF&G's insurance
operations: (1) managing loss costs, (2) adding claim expertise
to product development, and (3) utilizing high-quality claim
service as a competitive advantage.
The claim function has the primary financial responsibility for
managing loss costs. We consider the entire cost of settling
claims, that is, the actual loss payments as well as the cost of
adjusting the losses. In some areas of the settlement process,
we have dramatically repositioned our efforts. For example,
instead of focusing on reducing legal costs associated with
liability claims, we focused on controlling the loss payments
themselves. This has necessitated hiring attorneys with superior
legal expertise and extensive trial experience. As we
anticipated, claim payments have been reduced and overall legal
costs have decreased as well.
We have also integrated the claim function into the continuum of
product development. This process involved forging alliances
with the home office product line operations and our field
personnel. Throughout the complete life cycle of our products,
our claim people are now involved in product development,
helping to tailor coverages to suit customer needs, risk
selection, and marketing to target customers.
We have begun to utilize USF&G's claim services as a competitive
advantage. The quality of the settlement process is recognized
as a key determinant in both writing and retaining accounts. In
1993, we hired a vendor to assess the base level of our
performance by surveying our agents and customers. Approximately
75 percent of our agents and customers were "very" or
"extremely" satisfied with our claim service. To capitalize on
opportunities to further improve, however, we plan to sample our
customers on a regular basis and to build in a call-back
mechanism to address specific issues. We believe that by
externally evaluating the professionalism of our claim team,
employees' knowledge of specific claim areas, and the quality of
the settlement process, we can build the claim function around
our customers' expectations-not our own yardstick.
USF&G is clearly demonstrating through its energized,
professional claim team that it is a customer-driven insurer,
respectful of protecting company assets.
<PAGE> 19
PHOTO (caption)
By recognizing opportunity and reacting quickly, F&G Re has
underwritten reinsurance in many diverse areas including
satellite launches. Maura Dyer, underwriter-INTEC; Dwight Evans,
SVP-F&G Re, and Doug Morrison, VP-F&G Re stand before a model of
an Atlas rocket and listen as former astronaut Rick Hauck,
president and CEO-INTEC, describes how the rocket is launched
into space.
<PAGE> 20
F&G Re
PHOTO (caption)
F&G Re Team
Left to right,
Paul Ingrey. Seated, Wayne Paglieri; John Berger.
Standing, Dwight Evans; Roland Jackson;
Alan Willemsen; and Dave Skurnick.
The year 1993 marks the tenth year
that F&G Re has underwritten reinsurance on behalf of USF&G in
such diverse areas as satellites, offshore oil rigs,
catastrophe, and financial reinsurance. Our objective has always
been to recognize opportunity early and to react quickly. We
have consistently achieved this objective because we operate in
a marketplace that is global and relatively free of regulation,
and because we are able to move in and out of markets rapidly.
While our premium can fluctuate widely from one year to the
next, we have always met our goal of earning an underwriting
profit. In 1993, we had written premium of $403 million at a
combined ratio of 91.9, producing an underwriting profit of $32
million.
In our decade of operation, we have written reinsurance premiums
of $3.4 billion at an average combined ratio of 94.6. Our
combined ratio of 93.5 over the past 5 years is the best in the
property/casualty reinsurance industry.
F&G Re has truly arrived on the international scene. In 1992,
our international business totaled $19 million. In 1993, our
international business increased to $50 million. We also opened
a liaison office in London last year to better access and
service European business. We hope to see our international
business double in 1994.
We see increasing challenges as we move into our second decade.
One of the basic laws of economics states that the perception of
excess profits will attract capital. This has happened in the
property catastrophe ("CAT") market. Over $4 billion of new
capital has been raised for Bermuda-based CAT reinsurance
companies. Because the property CAT market has been an important
part of our premium and profit, this new competition will make
this market more difficult for us in 1994 and 1995.
We have been recognized as innovators in the financial
reinsurance arena. Recent accounting changes, when coupled with
the new Bermuda capacity on the traditional side are reducing
the demand for these products. Our challenge in 1994 and 1995 is
to identify the need for and to create the next generation of
nontraditional products.
In 1994, we will again strive to achieve well above-average
results in our industry. It is impossible to predict where and
when our next significant opportunities will occur. Our staff of
49 people acts as a highly trained team seeking situations of
excess demand or inadequate supply. We will strive to be the
first to recognize an opportunity and the first to pursue it.
<PAGE> 21
PHOTO (caption)
A key element of F&G Life's new product mix is the Tax-Sheltered
Annuity (TSA) product that provides retirement income for school
teachers and employees of other nonprofit organizations. At
California State University, Long Beach, Dr. Carol Kellett,
director of The Urban Family Initiative, expresses her
satisfaction with the purchase of an F&G Life TSA. Shown with
Carol (left to right) are Donald G. Schlesinger,
CLU-representative of R.W. Durham & Company; Wally Durham,
president-R.W. Durham & Company; and Doug Barone, assistant
secretary-distribution manager, F&G Life.
<PAGE> 22
PHOTO (caption)
Life Insurance Team
Left to right, Ihor Hron; Peter McGlinchy;
Gene Gaines; and Harry Stout.
F&G Life
F&G Life's operations are guided by USF&G's core values of
customer first, integrity, professionalism, innovation, and
teamwork. F&G Life has several additional precepts which govern
its specific operations. These precepts are: (1) positioning the
company as a provider of life insurance products for independent
distributors that have specific expertise in niche markets, (2)
having a unique understanding and responsiveness to the markets
we serve, (3) using technology to be a low-cost producer of
products, (4) establishing F&G Life as an industry leading
provider of service to its agents and policyholders, and (5)
building a portfolio of products that will provide USF&G with
consistent profitability.
F&G Life is maturing after the initial turbulence of
organizational change resulting from the implementation of its
new strategic plan in 1992. All elements of our company were
radically revised including our distribution channels, product
offerings, pricing strategy, administration, and processing
systems. As we follow our distribution-driven strategy, we will
continue to focus on niche markets, identify the best
distributors in these markets, and develop partnerships with
them.
Our sales efforts are divided among three major areas:
tax-sheltered annuities ("TSAs"), structured settlements, and
agency/brokerage business. TSAs are distributed through a
strategic alliance with a nationally recognized broker.
Structured settlements are marketed principally to USF&G
insureds. The agency/ brokerage segment, through which
traditional life insurance products and annuities are
distributed, is managed and supported by F&G Life operations.
USF&G's P/C independent agency system remains one of the primary
foundation blocks in the agency/ brokerage segment.
Going forward, emphasis is being given to balancing the growth
of single premium deferred annuity ("SPDA") business with
increasingly higher levels of more profitable TSA and structured
settlement business. In addition, a variety of product and
market development initiatives are underway to continue to
broaden the scope of the business and to provide a basis of
creating further avenues for growth. We are positioning to
migrate to new distribution niches and channels such as
financial institutions and externally generated structured
settlement annuities. As we develop diversified annuity products
to meet the needs of a growing base of annuity purchasers due to
increased life expectancy, we will also focus on growing the
mortality product lines within our distribution networks.
With a much lower cost structure, a more profitable array of
products, and a rebalanced distribution system, F&G Life will be
positioned for improved profitability.
<PAGE> 23
PHOTO (caption)
Executive Management Committee.
Front row (left to right), Norm Blake, chairman, president and
CEO; Amy Marks, SVP-Human Resources; Dan Hale, EVP and CFO; Gary
Dunton, EVP-Field Operations. Second row (left to right), Glenn
Anderson, EVP-Commercial Lines; John MacColl, SVP-General
Counsel; Paul Ingrey, president-F&G Re; Dick Potter,
SVP-Personal Lines. Third row (left to right), Ken Cihiy,
SVP-Claims; Andy Stern, SVP-Strategic Planning/ Corporate
Marketing; John Sweeney, SVP-Investments; Tom Lewis,
SVP-Information Services; Bob Lamendola, SVP-Fidelity/Surety. Top
row, Ihor Hron, president-F&G Life.
<PAGE> 24
Interview with
Management
PHOTO (caption)
Finance Team
Left to right, Dan Hale. Seated, John Sweeney and Frank Bossle.
Standing, Tom Bradley; Rich Campagna; and Jim Stangroom.
Has the restructuring of USF&G been completed?
Yes, we have completed a series of critical initiatives that
have essentially brought closure to this three-year process.
We have (1) divested noninsurance operations, (2) strengthened
the balance sheet, (3) improved investment portfolio quality,
(4) lowered structural costs, (5) improved the profit characteristics
of our underlying book of business through aggressive product/market mix
management, (6) significantly upgraded management as well as the
overall skill base of the organization, (7) upgraded information
systems effectiveness, and (8) re-engineered our work flow
processes. Recently, we have developed and are in the process of
implementing well-defined product/market segment operating
strategies to gain competitive differentiation. The people of
USF&G have a new corporate culture and a commitment to core
values as a unifying force bringing the organization together to
support common objectives.
What are your top priorities for 1994?
Our goals for 1994 are built upon the strong foundation achieved through the
repositioning initiatives mentioned above. In 1994, we will
strive to: (1) continue to improve underwriting performance
through enhanced risk management and reduction of exposure to
catastrophes, (2) grow profitably through effective execution of
our newly developed product/market strategies and programs by
leveraging our greatly enhanced competitive capabilities, (3)
restructure debt/capital to improve financial leverage and
liquidity, (4) further upgrade systems capabilities to better
support business strategies and to gain a competitive advantage,
and (5) continue to build a high-performance culture through
reinforcement of our core values and development of our human
resources.
How will you grow premium?
The question should perhaps more appropriately be re-phrased to ask
how we will grow premium profitably at this point in the insurance cycle.
We believe that the key to profitable growth in this business lies in
developing segmentation strategies that enable carriers to deliver
additional value to agents and customers as a result of having a
better understanding of their needs. Being closer to customers
and having a more in-depth understanding of the coverages they
need allows us to more appropriately underwrite risks. This is
the only way to be sure we are adequately pricing to cover
exposures.
To focus appropriately on target middle market segments, we have
organized around key manufacturers, contractors, and services
sub-markets and have developed a number of tailored products and
services designed to meet the unique coverage needs of these
important sub-markets. For example, in the manufacturing
segment, we have developed a program with proprietary pricing
and coverages for plastics, fabricated metal, food processing,
paper products, furniture, and apparel businesses.
<PAGE> 25
A number of other new products are on the drawing board for
introduction in 1994 and beyond. We understand that effective
implementation of these programs separates the winners from the
losers. Execution in the field requires additional specialized
training and careful coordination. Several of our new tailored
products have taken more than a year to develop and deliver to
our highly skilled underwriting teams.
Intense focus on local market expertise is as critical as our
product initiatives. We have dramatically increased both
resources and capabilities at the branch level to ensure that we
provide the best field delivery of our products. The
branch-specific marketing and sales strategies being implemented
in 1994 were developed by USF&G personnel who are experts in
their markets' needs and opportunities. Valuable relationships
with our agents allow us to function like a local company with
national "muscle."
Continued focus, innovative product and service development, and
effective field execution will enable USF&G to grow profitably
in the years to come, regardless of the timing of cycle turns.
When do you anticipate the cycle turning?
It is beginning to look as though this turn in the cycle will be very
different from those in the recent past. In 1993, rates hardened in the
catastrophe reinsurance market, the property segment of personal
lines, and in selected commercial lines. Price increases in the
bulk of commercial lines products, however, have lagged
appreciably. At best, the cycle is turning on a phased basis.
Before we can expect to see a more significant hardening of
prices, primary carriers will have to be convinced that they
have insufficient capacity or surplus and that future net
investment income will be inadequate to generate acceptable
levels of profitability. Significant increases in industry
surplus during 1993 may have prolonged the current phase of the
cycle. We believe that additional pressure for increased rate
adequacy should come from lower interest rates combined with the
effect on equity and surplus due to the implementation of the
NAIC's risk-based capital requirements, Statement of Financial
Accounting Standards ("SFAS") No. 115, which requires
marking-to-market a portion of fixed-income investments, and the
recognition of potentially significant reserve needs by carriers
with substantial environmental exposures.
Could you please describe the vision underlying your new
corporate logo?
Our new logo embodies our core values: customer
first, integrity, professionalism, innovation, and teamwork.
These values drive our identity and solidify our sense of
partnership with our agents and customers. The open door with
the light radiating from behind it symbolizes the emergence of a
new culture based on open and honest two-way communications,
boundless opportunities, and the commitment to having our core
values guide all our relationships with agents and insureds.
Could you please explain your regionalization strategy?
Our regionalization strategy was designed to bring greater focus to
winning in the local market. It is the responsibility of a given
region to assist in the development and adequate resourcing of
branch-specific operating plans. Moreover, regions are staffed
with highly skilled technical coaches who work closely with the
branches in the successful execution of their marketing game
plans.
As we have discussed elsewhere, our branches are the most
critical link to success in our markets. The regional structure
allows each branch to be empowered and enabled to win in its
market place-and to be accountable for its results.
Does USF&G need additional capital in order to ensure financial
flexibility in the coming year?
Our P/C statutory surplus
position at year-end 1993 is the highest it has ever been in the
company's history, and we do not feel that we would need to
raise capital in order to grow our lines of business in the
event of a hardening insurance market.
While we have taken great strides to strengthen the integrity of
our balance sheet, we still plan to address both debt and
capital restructuring plans for 1994 and beyond. In March 1994,
we issued $245 million face amount of 15-year zero coupon
convertible subordinated notes. Proceeds totaling $122 million
will be used to retire existing higher-rate debt, resulting in
annual interest savings of approximately $5 million and
increased cash flow of approximately $11 million.
What types of growth opportunities currently exist for USF&G in
the reinsurance arena?
F&G Re had a banner year in 1993 with
premium volume up over 65 percent and an underwriting profit of
over $30 million. Today's sophisticated reinsurance buyers are
demanding higher quality, more technologically advanced and
innovative carriers to service their needs, and that is what F&G
Re has to offer. It is also no secret that property reinsurance
rates are up, particularly in the catastrophe market, and
opportunities exist for talented players to expand
internationally under very profitable circumstances.
<PAGE> 26
Could you please address your life insurance segment's prospects
for growth and profitability?
Over the course of 1992 and 1993,
we strategically transformed F&G Life from essentially a
provider of single premium deferred annuities into a wholesaler
of high value-added products that is better able to capitalize
on the changing demographics of the population. Our new product
offerings, including tax-sheltered annuities, are designed to
offer our customers greater flexibility while improving profit
potential for F&G Life. We have also implemented aggressive cost
controls and have diversified our sales through new distribution
channels. In the structured settlements arena, we have improved
our ability to cross-sell our services to both our internal P/C
clients as well as external customers. All of these efforts are
expected to increase sales and profitability.
What impact will newly introduced accounting rules and
regulations, coupled with NAIC risk based capital ("RBC")
requirements, have on the balance sheets of many insurance
companies?
The new accounting rules impact four categories: (1)
balance sheet valuations, (2) income taxes, (3) employee benefit
plans, and (4) reinsurance. Accounting changes relating to each
of these were adopted by USF&G in 1993. One of the most
significant changes for USF&G and all insurance companies going
forward is the requirement to mark-to-market fixed-income
securities which are classified as available for sale. Insurers'
reported shareholders' equity will become more volatile as the
market values of their investment portfolios decrease as
interest rates rise, and increase as interest rates fall.
While there is general agreement on the necessity for
improvement to the current system of minimum surplus
requirements, it is probably too early to tell how RBC
guidelines will play out. Perhaps they will accelerate the
consolidation within the property/casualty industry among those
companies with low capitalization levels. USF&G has adjusted
capital well above NAIC risk-based capital standards and
supports regulatory efforts to protect the solvency of the
industry.
How does USF&G's personal lines business plan to compete with
the large direct writers?
First of all, we believe that there
continues to be a large segment of consumers who choose to
purchase their personal insurance from independent agents
because of the personalized service and the choice of multiple
carriers. We also recognize that product pricing is critical. In
1993 and going forward, we are addressing both the pricing and
the service issues with product development, increased
efficiencies through enhanced technology, and the appropriate
consumer marketing support for our products. Our efforts are
directed at enabling independent agents to provide superior
service at competitive prices.
In view of the uncertainty concerning the industry's potential
total environmental exposure, how comfortable are you with
USF&G's reserve adequacy?
Fortunately, USF&G has not
historically insured types of businesses with significant
environmental exposures. Generally, we have not provided
liability coverage for large companies engaged in chemical, oil
and gas, asbestos, or hazardous waste activities. Our typical
exposure in this area relates to clean-up costs for accidental
spills involving transportation vehicles. We have a dedicated
environmental claim unit which is responsible for monitoring
potential environmental liabilities, evaluating all incurred
environmental losses, and establishing appropriate case
reserves. In addition, these case reserves are supplemented by
bulk reserves to provide further coverage. We are very
comfortable that this adequately covers our exposure in this
area.
Moreover, independent external actuaries with nationally
prominent firms evaluate the adequacy of our total reserves each
year. At the end of 1993, they opined that our reserves not only
continued to be adequate, but also that our reserve position had
been strengthened over the past three years.
Do you believe that new regulations regarding healthcare reform
will negatively impact USF&G's ability to profitably write
workers compensation business?
The current state-based workers
compensation systems would most likely be endangered by the
provision in the healthcare plan calling for the medical portion
of the workers compensation claims to be assumed by the new
mechanism for healthcare delivery. This affects our ability, as
an insurer, to manage the indemnity portion of the claims.
However, we believe that our highly skilled management team,
coupled with our customer-focused teams dedicated to writing
essentially monoline business, will continue to initiate
strategies allowing us to write new business in markets which
have the most potential for adequate returns.
<PAGE> 27
PRODUCT LINE OVERVIEW
PROPERTY/CASUALTY INSURANCE
Commercial Lines
o 51% of P/C Premiums Written
Middle Market
Products - General, umbrella liability
- Primary, excess, and highly
protected risk (HPR) property
- Inland marine, crime, boiler
- Commercial auto
- Workers compensation
Target Markets Mid-to large-sized businesses:
- Manufacturers, technology
industries
- Contractors
- Transportation
- Financial/educational institutions
- Hospitality
- Real estate holdings
1993 Accomplishments - Built national middle market
organization
- Implemented growth strategies for
target markets
- Launched "Five Star Restaurant
Program" and "Precision Design
Program for Manufacturers"
1994 Strategic Initiatives - Launch "Blueprint Program for
Contractors"
- Continue development of
proprietary programs for target
markets (financial institutions,
technology industries, etc.)
Small Business
Products - Businessowners policies
- Property and inland marine
- General, umbrella liability
- Commercial auto
- Workers compensation
Target Markets Small businesses:
- Service
- Retail
- Wholesale
- Contracting
- Finance/insurance/real estate
1993 Accomplishments - Consolidated processing into five
regional centers
- Achieved significant expense
reductions by streamlining
underwriting and processing
activities
1994 Strategic Initiatives - Increase sales support/service
levels to agencies
- Develop comprehensive small
businessowners program
GRAPH Combined Ratio (Total Commercial Lines segment)
<PAGE> 28
Personal Lines
Products o 27% of P/C Premiums Written
- Auto
- Property
- Watercraft
- Personal excess
Target Markets Individuals/families insuring:
- Homes
- Condominiums
- Automobiles
- Personal articles
1993 Accomplishments - Introduced ActionPlus roadside
program to all auto customers
- Established preferred agent
program to improve service
- Implemented USF&G Plus
competitive auto/homeowners
product
1994 Strategic Initiatives - Enhance critical customer
service/processing applications
- Launch new personal excess and
watercraft programs
- Increase sales from key producers
GRAPH Combined Ratio
Fidelity/Surety
o 5% of P/C Premiums Written
Products - Surety bonds
- Judicial, public official,
miscellaneous bonds
- Financial institution bonds
- Mercantile fidelity bonds
Target Markets - Contractors
- Commercial and community
financial institutions
- Credit unions
- Commercial businesses
1993 Accomplishments - Implemented agency/customer
contact program
- Launched fidelity product for credit
unions
1994 Strategic Initiatives - Expand into other North American
markets
- Identify new markets and develop
products to serve financial
institutions
GRAPH Combined Ratio
F&G Re
o 17% of P/C Premiums Written
Products Treaty reinsurance:
- Risk (traditional)
- Financial
Target Markets Broker market:
- U.S. companies
- Foreign companies
1993 Accomplishments - Increased written premium by 66%
- Increased international premium
by 165%
- Achieved combined ratio of 91.9
- Opened U.K. liaison office and
enhanced global presence
1994 Strategic Initiatives - Identify and respond to market
opportunities with high service
standards/emphasize development
of new financial reinsurance
products
- Increase international business
GRAPH Combined Ratio
LIFE INSURANCE
% of life sales listed below
Products o Structured settlements (39%)
o Tax-sheltered annuities (21%)
o Single-premium deferred
annuities (26%)
o Other annuities (10%)
o Term and universal life (4%)
Target Markets - Individuals above age 55, retirees
- Teachers (K through grade 12)
- Structured settlement candidates
- Individuals requiring income flow
1993 Accomplishments - Achieved balanced, controlled
premium growth
- Implemented new systems
- Expanded products to meet
distribution partners' needs
- Enhanced profitability of new and
existing product lines
- Implemented conservation program
for SPDA business
1994 Strategic Initiatives - Continue controlled, profitable new
business growth
- Expand products to better meet
distributor needs
- Identify new underserved markets
- Maximize profitability of in-force
business
- Continue cost reduction initiatives
GRAPH Strategic Surplus* to Assets (footnote) *Strategic surplus
is the sum of statutory surplus and mandated Asset Valuation Reserve.
<PAGE> 29
Investments
Stimulated by the recognition that inflation was
under control and with the help of an accommodating Federal
Reserve interest rates fell during 1993 to levels not seen in
decades. Short-term rates fell 300 basis points and 30-year
Treasury bonds posted a 20-year low of 5.78 percent in October.
This bull market in bonds produced lower reinvestment rates
which contributed to the decline in our portfolio yield from 7.3
percent in 1992 to 6.7 percent in the fourth quarter of 1993.
Consequently, net investment income declined from $817 million
in 1992 to $749 million in 1993.
However, our portfolio yield and net investment income would
have declined even further without several portfolio
re-positioning actions initiated during the latter part of 1992.
A substantially upgraded asset-liability management process was
developed and implemented which highlighted re-positioning
opportunities that helped increase year-end 1993 unrealized
gains on the fixed-income portfolio to $357 million from $114
million at December 31, 1992.
Our new product line oriented asset-liability management process
drives our investment strategy. To accommodate this
asset-liability management process, we successfully converted to
a state-of-the-art, computer-based investment accounting and
portfolio management system. All assets are now segmented by
line of business, allowing us to manage our investment strategy
to meet individual product line liability payouts. Using
sophisticated asset-liability computer models, capital markets
are analyzed and optimal portfolios are derived to maximize the
profitability of each line of business.
The revised asset allocation mix, based on efficient frontier
analysis for individual product line portfolio segmentation,
indicated that we should substantially reduce exposure to
mortgage-backed securities and increase our commitment to
intermediate and longer-term investment-grade noncallable
corporate bonds. As a result, mortgage-backed bonds were reduced
from $3.8 billion, or 34 percent of invested assets, at year-end
1992 to $2.4 billion, or 22 percent of invested assets, at
year-end 1993. By resisting the potentially higher, though more
volatile, yield of mortgage-backed securities, we were rewarded
with higher total return and a portfolio more oriented toward
stable sources of investment income.
In the future, we will use this new asset-liability management
technology to deploy cash flow and manage portfolio turnover to
navigate each portfolio toward its optimal liability-driven
asset mix.
GRAPH Asset Allocation (caption)
As mortgage-backed securities declined to 22% of invested assets,
investment-grade corporates increased to 55%.
<PAGE> 30
Beginning in 1994, portfolio management will undergo dramatic
changes at all insurance companies as a result of a new
Statement of Financial Accounting Standard, SFAS No. 115.
Historically, insurance companies have reported almost all of
their fixed-income holdings at amortized cost. The justification
for not marking the securities to market was that they would be
held to maturity, therefore, any loss in value over the life of
the bond would be temporary and there was no need to adjust the
values on the balance sheet. SFAS No. 115 requires a significant
deviation from this approach for GAAP accounting. Only
securities where there is the positive intent to hold to
maturity may be carried at amortized cost. The balance of the
portfolio must be reported at fair market value. The major
provisions of SFAS No. 115 are as follows: Effective January 1,
1994, all debt securities must be classified into one of the
following categories.
o Held to Maturity ("HTM") Securities may only be classified as
HTM if the company has the positive intent and the ability to
hold them to maturity. A security cannot be classified as HTM if
it might be sold for traditional portfolio management reasons
such as a need for corporate liquidity, asset-liability
management, changes in the availability and terms of alternative
instruments, changes in prepayment characteristics, or changes
in foreign currency risk. For example, catastrophes might create
a need for corporate liquidity, but under SFAS No. 115,
securities in the HTM account should not be sold to generate
those funds. An inappropriate level of activity in this account
may result in a company losing its ability to classify some or
all of its holdings as HTM. Sales are allowed for credit
deterioration.
o Trading Securities acquired with the intent for
quick resale are held in a trading account. They are carried at
fair market value, and unrealized gains and losses flow through
the income statement.
o Available for Sale ("AFS") All other
securities are designated Available for Sale. The bonds are
reported at fair market value, and hence, fluctuations will
affect shareholders' equity. At the time of sale, the realized
gain or loss is reflected in earnings.
SFAS No. 115 presents a challenge to investment professionals to
manage their portfolios within the constraints imposed by this
standard. During the fourth quarter, we analyzed our
fixed-income portfolio to determine the allocation between HTM
and AFS. The 1993 AFS portfolio represents 43 percent of
invested assets and 50 percent of fixed-income securities. The
unrealized gain on the AFS portfolio was $222 million, which
increased shareholders' equity by the same amount.
Our investment processes have been modified to accommodate and
monitor the effects of these accounting changes. Going forward,
our asset-liability process will continue to be fine tuned in
accordance with the strategic objective of maximizing investment
income and total return.
GRAPH Fixed-Income Securities (in billions) (caption)
The level of securities available for sale will affect book value
as associated unrealized gains (losses) will be carried in
shareholders' equity.
GRAPH Interest Rates (caption)
Investment results have been impacted by the declining interest
rate environment.
<PAGE> 31
Capitalization
USF&G's capitalization increased $243 million
during 1993, principally through growth in shareholders' equity,
and totaled $2.1 billion at year end. As a result, leverage, as
measured by the debt-to-equity ratio, was reduced from 49
percent in 1992 to 41 percent in 1993. Total capitalization for
the years ended December 31 was as follows:
<TABLE>
<CAPTION>
(dollars in millions) 1993 1992 1991
<S> <C> <C> <C>
Corporate debt $ 574 $ 574 $ 617
Real estate and other 44 42 60
Total debt 618 616 677
Preferred equity 520 520 520
Common equity 991 750 803
Shareholders' equity 1,511 1,270 1,323
Total capitalization $2,129 $1,886 $2,000
Debt-to-equity 41% 49% 51%
Debt-to-total capitalization 29 33 34
</TABLE>
Debt USF&G's corporate debt balance was unchanged during 1993.
Real estate debt increased by $2 million during 1993 due to $5
million of additional debt from a change in percentage ownership
of a real estate limited partnership, offset by a $3 million
repayment of debt by the P/C segment. USF&G maintained a
revolving credit facility totaling $700 million during 1993, and
had $375 million in related borrowings outstanding at December
31, 1993. The current facility matures on March 20, 1995.
Medium-term notes totaling $20 million mature on May 9 and 10,
1994.
Outstanding Stock At December 31, 1993, USF&G had outstanding a
total of $520 million in convertible preferred stock, issued in
three series. It also had outstanding 85 million shares of
common stock with a book value of $11.66 per share. Quarterly
dividends of $.05 per share were paid on the common stock during
1993.
Capital Strategy Subject to capital market conditions, USF&G
plans to refinance up to approximately $600 million of debt over
the next two years. In 1994 and early 1995, the $375 million
balance of the $700 million credit facility will be funded with
securities that better meet USF&G's capital requirements. Prior
to the expiration of the existing credit facility, a reduced
credit facility will be negotiated to meet the needs of USF&G as
determined at that time. Where opportunities exist, current debt
will be refinanced at lower rates over longer maturities. As
part of this strategy, in March 1994, USF&G issued $245 million
face amount of 15-year zero coupon convertible subordinated
notes. Proceeds from this offering, totaling $122 million, will
be used to retire existing, higher-rate debt, resulting in
annual interest savings of approximately $5 million, and
increased cash flow of approximately $11 million.
Depending upon the market value of USF&G's common stock,
management may also convert the $190 million of Preferred C
Stock to common equity during 1994 through conversion or a cash
redemption. The $130 million of Preferred B stock is redeemable
at various dates beginning in 1994, subject to stipulations
related to the market value of the common stock.
Policyholders' Surplus Policyholders' surplus ("surplus"),
defined as the excess of assets over liabilities based on
statutory accounting principles, is an important measure of
financial strength. At December 31, 1993, USF&G's P/C subsidiary
reported surplus of $1.5 billion which includes the life
insurance statutory surplus of $316 million. The National
Association of Insurance Commissioners has developed new RBC
standards. RBC is a formula-driven calculation of required
levels of surplus, which considers the risks inherent in the
nature and quality of assets held and types of business written.
These standards will be applied at year-end 1994 for P/C
companies and at year-end 1993 for life insurance companies.
Based on company calculations, the surplus of both the P/C and
life insurance subsidiaries exceeded levels at which any
regulatory attention would be indicated.
<PAGE> 32
USF&G Corporation
Management's Responsibility for Financial Reporting
Financial Statements
Management is responsible for the financial statements and other
information presented in this annual report. The financial statements
are prepared in conformity with generally accepted accounting principles.
Informed judgments and estimates are used to measure transactions not
concluded by year-end.
Internal Controls
Management is also responsible for the system of internal control. The
system of internal control encompasses the organizational structure,
selection and training of personnel, communication and enforcement of
policies and procedures, and an ongoing internal audit program. The
internal controls are designed to provide reasonable assurance that
financial records are reliable for preparing financial statements,
that transactions are completed as authorized, and that assets are
safeguarded. Management and USF&G's internal auditors regularly review
these controls and assess their adequacy and effectiveness.
Audit Committee
The Board of Directors maintains an audit committee of directors who
are not employees of USF&G. The committee meets regularly with
management, internal auditors, and independent auditors to review
internal control and financial reporting matters. Both the internal
and independent auditors have full and free access to the audit committee.
Independent Auditors
USF&G engages Ernst & Young to conduct independent audits of the
financial statements in accordance with generally accepted auditing
standards. Their audits include reviews and tests of internal controls,
transactions, and other information they consider necessary to express
an opinion on the financial statements.
NORMAN P. BLAKE, JR. DAN L. HALE
Norman P. Blake, Jr. Dan L. Hale
Chairman, President, and Executive Vice President
Chief Executive Officer and Chief Financial Officer
February 11, 1994
INDEX TO FINANCIAL INFORMATION
Management's Responsibility for Financial Reporting 33
Management's Discussion and Analysis of
Financial Condition and Results of Operations 34
Eleven-Year Summary of Selected Financial Data 56
Consolidated Statement of Operations 58
Consolidated Statement of Financial Position 59
Consolidated Statement of Cash Flows 60
Consolidated Statement of Shareholders' Equity 61
Notes to Consolidated Financial Statements 62
Report of Independent Auditors 82
<PAGE> 33
USF&G Corporation
Management's Discussion and Analysis of Financial Condition and Results
of Operations
This section provides management's assessment of financial
results and material changes in financial position for USF&G
Corporation and its subsidiaries ("USF&G") and discusses the
results of operations for the 1993 year. The analysis focuses on
the performance of USF&G's business segments and its investment
portfolio. (Note: A glossary of certain terms used in this
discussion can be found at the end of this section. The terms
are italicized the first time they appear in the text.)
INDEX
1. Consolidated Results 34
2. Property/Casualty Insurance Operations 36
3. Life Insurance Operations 42
4. Parent and Noninsurance Operations 44
5. Investments 45
6. Financial Condition 50
7. Liquidity 50
8. Regulation 51
9. Income Taxes 53
10. Glossary of Terms 55
1. Consolidated Results
1.1. SUMMARY OF NET INCOME
The table below shows the major components of net income (loss).
<TABLE>
<CAPTION>
(in millions) 1993 1992 1991
<S> <C> <C> <C>
Income (loss) from continuing operations before
income taxes, realized gains, and cumulative
effect of adopting new accounting standards $ 93 $(113) $(179)
Realized gains on investments, net 6 148 38
Loss from discontinued operations - (7) (32)
Income (loss) from cumulative effect of
adopting new accounting standards:
Income taxes 90 - -
Postretirement benefits (52) - -
Income tax (expense) benefit 28 - (3)
Net income (loss) $165 $ 28 $(176)
</TABLE>
The major factor contributing to the $137 million increase in
net income from 1992 to 1993 was a $200 million improvement in
property/casualty insurance UNDERWRITING RESULTS (refer to
Section 2.2 in this Analysis). Net realized gains on
investments declined by $142 million in 1993 compared with 1992
(refer to Section 5.2 in this Analysis) due to a high level of
gains in 1992 realized primarily to enhance capital and surplus
and to offset the effect of Hurricane Andrew (refer to Section
2.4 in this Analysis). Net income in 1993 also was favorably
impacted by $38 million due to the net effect of the adoption
of certain new accounting standards (refer to Section 1.2 of
this Analysis). Income tax benefits of $28 million were
recognized in 1993 primarily as a result of reducing the
valuation allowance on net deferred tax assets (refer to Section
9 in this Analysis). The improvement in net income from 1991 to
1992 was also driven primarily by improved property/casualty
insurance underwriting results, as well as the increase in
realized gains in 1992.
The table below shows the components of the changes in income
from continuing operations before income taxes, realized gains,
and the cumulative effect of adopting new accounting standards
by major business segment.
<TABLE>
<CAPTION>
(in millions) 1993 1992 1991
<S> <C> <C> <C>
Property/Casualty insurance $182 $ (3) $ (84)
Life insurance (6) (4) 5
Parent and noninsurance (83) (106) (109)
Eliminations - - 9
Income (loss) from continuing operations before
income taxes, realized gains, and cumulative
effect of adopting new accounting standards $ 93 $(113) $(179)
</TABLE>
The $185 million improvement in the property/casualty insurance
segment from 1992 to 1993 occurred as a result of a $72 million
reduction in CATASTROPHE LOSSES and an improvement of $128
million in underwriting results excluding catastrophes due
primarily to product/market mix management and cost containment
strategies (refer to Section 2.2 in this Analysis). These
improvements were partially offset by a $42 million reduction
in investment income. The life insurance segment's decline of $2
million from 1992 to 1993 primarily resulted from declining
investment yields and related declining margins on
interest-sensitive products (refer to Section 3.2 in this
Analysis). The results for parent and noninsurance operations
improved $23 million from 1992 to 1993 primarily due to savings
resulting from the fourth quarter 1992 restructuring of the oil
and gas investment (refer to Section 4 in this Analysis).
Improvement in income from 1991 to 1992 was driven primarily by
improved property/casualty results, especially in commercial
lines. Income comparisons are also affected by restructuring
charges of $51 million in 1992 and $60 million in 1991. There
were no restructuring charges in 1993 (refer to Section 1.3 in
this Analysis).
1.2. NEW ACCOUNTING STANDARDS
Net income for 1993 included the effect of the implementation of two
Statements of Financial Accounting Standards ("SFAS") which resulted
in a net increase of $38 million. SFAS No. 109, "Accounting for Income
Taxes," increased net income by $90 million as a result of the recogni-
tion of net deferred tax assets (refer to Section 9 in this Analysis).
This increase was partially offset by a $52 million charge to net income
for SFAS No. 106, "Employer's Accounting for Postretirement Benefits
Other Than Pensions," as a result of the accrual of a liability for the
cost of healthcare, life insurance, and other retiree benefits.
USF&G adopted two additional accounting standards which had no
effect on net income. SFAS No. 113, "Accounting and Reporting
for Reinsurance of Short-Duration and Long-Duration Contracts,"
increased assets by $1.2 billion with a corresponding increase
in liabilities at December 31, 1993, compared with December 31,
1992. This standard requires reinsurance receivables and prepaid
reinsurance premiums to be reported separately as assets instead
of the previous practice of netting such receivables against
the related loss and unearned premium liabilities. This standard
also establishes the conditions required for a contract to be
accounted for as reinsurance and prescribes income recognition
and reporting standards for those contracts. SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity
Securities," increased the book value of fixed maturities
portfolio classified as "available for sale" and shareholders'
equity by $222 million as a result of unrealized gains in this
portfolio. SFAS No. 115 requires securities classified as
available for sale to be reported at market value with
unrealized gains and losses reported as a component of
shareholders' equity. In addition, the adjustment to the book
value of fixed maturities required by SFAS No. 115 resulted in a
related $30 million decrease in shareholders' equity for life
insurance deferred policy acquisition costs.
1.3. STATUS OF RESTRUCTURING
In 1990, USF&G initiated a broad restructuring program.
Restructuring initiatives began in the fourth quarter of 1990
with charges of $34 million. Net income reflects provisions of
$60 million of restructuring charges in 1991 and $51 million in
1992. There were no restructuring charges in 1993.
Since 1990, USF&G has implemented programs to reduce the cost
structure of the organization by consolidating branch offices,
establishing a regional structure, reducing staff levels, and
eliminating certain advertising and promotional expenses. In
addition, USF&G has implemented plans to dispose of nonstrategic
businesses which resulted in losses from discontinued operations
of $7 million, $32 million, and $136 million in 1992, 1991, and
1990, respectively. The implementation of these restructuring
and cost containment initiatives and the disposition of
discontinued operations have been substantially completed.
General and administrative expenses (which do not include
commissions, premium taxes and claim expenses) have declined by
31 percent from $635 million in 1990 to $437 million in 1993.
Staffing levels have declined by 48 percent from approximately
12,500 employees at December 31, 1990, to approximately 6,500
employees at December 31, 1993.
In 1991, USF&G continued to implement programs to reduce
operating expenses. The additional $60 million of restructuring
charges incurred in 1991 were both a revision to the original
estimates and an expansion of the restructuring program during
the year. The costs were related to additional staff reductions
and branch consolidations and to the disposition of a subsidiary
that developed and marketed computer software to insurance
agencies.
In 1992, the property/casualty segment began to implement a
regionalization strategy to form separate strategic product and
market business units in order to improve marketing and
underwriting operations. The related establishment of regional
offices and further staff reductions resulted in $46 million of
additional restructuring charges. Implementation of these
restructuring strategies is expected to be completed in 1994.
Restructuring charges of $2 million were incurred in 1992,
related to the restructuring of an oil and gas investment. The
life insurance segment incurred restructuring costs of $3
million in 1992 to implement a plan to rebalance distribution
channels and centralize processing activities. The life
insurance and oil and gas investment restructuring actions were
essentially completed in 1992.
2. Property/Casualty Insurance Operations
Property/casualty insurance operations accounted for 85 percent
of USF&G's revenues in 1993 and 67 percent of its assets at December 31,
1993. Financial results for this segment are as follows:
<TABLE>
<CAPTION>
(in millions) 1993 1992 1991
<S> <C> <C> <C>
Premiums earned $2,327 $2,533 $3,018
Losses and loss expenses incurred (1,758) (2,088) (2,545)
Underwriting expenses (796) (872) (988)
Net underwriting loss (227) (427) (515)
Net investment income 433 475 498
Restructuring charges - (46) (52)
Other revenues and expenses (24) (5) (15)
Income (loss) before income taxes, realized
gains, and the cumulative effect of adopting
new accounting standards $ 182 $ (3) $ (84)
</TABLE>
Income (loss) before income taxes, realized gains, and the
cumulative effect of adopting new accounting standards
significantly improved in 1993 primarily due to improved
underwriting results (refer to Section 2.2 of this Analysis).
Net investment income declined primarily due to the lower
interest rate environment in 1993 (refer to Section 5.1 of this
Analysis). Restructuring charges relating to staff reductions
and other cost containment programs affected results in 1991 and
1992. The fluctuations in other revenues and expenses primarily
reflect the decision to eliminate certain policyholders'
dividends in 1992 and the reversal in that year of previously
accrued but unpaid dividends.
2.1. PREMIUMS EARNED
PREMIUMS EARNED totaled $2.3 billion in 1993, compared with $2.5
billion in 1992 and $3.0 billion in 1991. The table below shows the
major components of premiums earned and PREMIUMS WRITTEN.
<TABLE>
<CAPTION>
1993 1992 1991
Premiums Premiums Premiums Premiums Premiums Premiums
(in millions) Earned Written Earned Written Earned Written
<S> <C> <C> <C> <C> <C> <C>
Branch office voluntary
production $1,825 $1,847 $2,172 $1,986 $2,625 $2,523
Voluntary pools and
associations 45 46 41 44 50 51
Involuntary pools and
associations 152 133 163 147 247 247
Assumed Reinsurance 305 403 157 243 96 211
Total $2,327 $2,429 $2,533 $2,420 $3,018 $3,032
</TABLE>
Premiums earned declined 8 percent from 1992 to 1993 and 16
percent from 1991 to 1992 primarily as a result of planned
management actions to reduce premium production in unprofitable
markets and product lines. The decline in premiums earned of 16
percent from 1991 to 1992 was primarily due to the effects of
USF&G's exiting personal lines markets in nine states since
1991, eliminating writing new voluntary workers compensation in
11 states, and reducing exposure to other unprofitable markets.
Such actions, combined with adherence to strict underwriting
standards, led to further declines in premium volume during
1993, but are designed to continue to improve underwriting
results over time. The decrease in premiums has slowed as
strategies are implemented to grow business in targeted areas.
The significant increase in assumed reinsurance premiums in 1993
is due to the strong demand for reinsurance and the higher
premium rates available as a result of the record high
catastrophes in 1992 which led to a reinsurance capacity
shortage in 1993. However, with the formation of several new
reinsurance companies in 1993, capacity has been added to the
reinsurance market, which is expected to generate competitive
pressure in 1994.
The table below shows premiums earned and the statutory LOSS
RATIOS by lines of property/casualty insurance.
<TABLE>
<CAPTION>
1993 1992 1991
Premiums Statutory Premiums Statutory Premiums Statutory
(dollars in millions) Earned % Loss Ratio Earned % Loss Ratio Earned % Loss Ratio
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
COMMERCIAL LINES
Auto $ 399 17% 55.2 $ 442 18% 64.5 $ 531 18% 75.0
General Liability 351 15 80.9 388 15 99.2 487 16 91.1
Property 321 14 60.4 332 13 69.5 370 12 67.1
Workers Compensation 152 7 212.3 318 13 121.0 497 16 128.5
Total Commercial Lines 1,223 53 83.6 1,480 59 86.9 1,885 62 91.6
FIDELITY/SURETY
Fidelity 18 1 56.1 19 1 24.6 21 1 45.2
Surety 100 4 49.5 92 3 33.5 96 3 41.6
Total Fidelity/Surety 118 5 50.5 111 4 32.0 117 4 42.3
PERSONAL LINES
Auto 504 22 70.8 551 22 73.6 658 22 79.6
Homeowners 149 6 73.8 184 7 102.2 207 7 87.0
Property 28 1 66.0 50 2 67.9 55 2 58.4
Total Personal Lines 681 29 71.2 785 31 80.0 920 31 80.0
ASSUMED REINSURANCE
Finite Risk 169 7 70.1 74 3 78.9 32 1 76.1
Traditional Risk 136 6 62.1 83 3 72.8 64 2 17.6
Total Assumed Reinsurance 305 13 67.3 157 6 76.9 96 3 59.1
Total $2,327 100% 75.4 $2,533 100% 82.0 $3,018 100% 84.1
</TABLE>
The above table illustrates the changes in premium mix from 1991
to 1993. Management's focus on reducing exposure to less
profitable lines of insurance has been a key factor in the
improved underwriting results. The most dramatic example is the
workers compensation line which has a cumulative three-year
statutory loss ratio of 139.1 and represented 16 percent of
total property/casualty premiums earned in 1991 but only 7
percent in 1993.
2.2. UNDERWRITING RESULTS
Underwriting results generally represent premiums earned less
incurred losses, loss adjustment expenses, and underwriting
expenses. Property/casualty insurance companies typically have
underwriting losses that are offset by investment income.
Underwriting gains (losses) by major business category are as
follows:
<TABLE>
<CAPTION>
(in millions) 1993 1992 1991
<S> <C> <C> <C>
Commercial $(223) $(343) $(455)
Fidelity/surety (8) 6 11
Personal (28) (110) (97)
Assumed reinsurance 32 20 26
Net underwriting losses $(227) $(427) $(515)
Voluntary $(176) $(390) $(375)
Involuntary (51) (37) (140)
Net underwriting losses $(227) $(427) $(515)
</TABLE>
Consolidated property/casualty GAAP and statutory underwriting
ratios are as follows:
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
GAAP UNDERWRITING RATIOS:
Loss ratio* 75.6 82.4 84.3
Expense ratio* 34.2 34.4 32.7
Combined ratio 109.8 116.8 117.0
STATUTORY UNDERWRITING RATIOS:
Loss ratio 75.4 82.0 84.1
Expense ratio 33.7 34.9 33.1
Combined ratio 109.1 116.9 117.2
<FN>
*See Glossary of Terms
</TABLE>
Underwriting results in 1993 improved by $200 million and $288
million over 1992 and 1991, respectively. The improvements over
1992 and 1991 resulted from lower incurred losses from
catastrophes (refer to Section 2.4 of this Analysis), as well as
management's actions to improve product/market mix, apply
stricter underwriting standards, and improve claims practices.
Excluding catastrophe losses from Hurricane Andrew, which
occurred in 1992, the statutory loss ratio improved 3.6 points
from 1992 to 1993 and 5.1 points from 1991 to 1992. Hurricane
Andrew contributed approximately 3.0 points to the statutory
loss ratio in 1992. Underwriting results in the voluntary
business for 1993 improved $214 million over 1992 and $199
million over 1991. Underwriting losses from INVOLUNTARY BUSINESS
in 1993 were $14 million more than 1992 but were $89 million
less than 1991. The improved overall trend in 1993 and 1992 over
1991 reflects management's actions to reduce exposure to
involuntary business in states with substantial involuntary
market burdens. The increase in involuntary underwriting losses
in 1993 over 1992 is primarily due to an assessment of loss
reserves from involuntary workers compensation insurance pools.
Underwriting results showed improvement despite continuing
competitive pressures, the inflationary claims environment, and
the adverse impact of involuntary markets. Competitive pressures
continue to depress underwriting results, especially in the
pricing of commercial lines products. Competitive pressures
include the historic cyclicality of the property/casualty
insurance industry pricing environment. These cycles are
evidenced by extended periods of overcapacity that adversely
affect premium rates, followed by periods of undercapacity
resulting in rising rates. The industry has experienced an
intense period of price competition since 1987, during which
companies have been unable to charge rates sufficient to offset
rising claim costs. Some industry analysts are beginning to
point to factors such as high catastrophe losses, low interest
rates, and reduced reinsurance capacity as indications that the
underwriting cycle has started to improve. Other analysts
believe that excess surplus capacity still exists in the
industry and that pricing pressure will continue. USF&G is
unable to predict whether or when the property/casualty
insurance cycle will improve but is continuing to manage to
long term objectives that include continued underwriting
improvements without reliance on a significant cycle turn.
Commercial Lines
Commercial lines products include property, auto, inland marine,
workers compensation, and general and umbrella liability coverage
for businesses. The commercial lines business has two distinct
market segments-middle market and small business. USF&G has
further defined the middle market into three strategic business
units: service businesses, contractors, and manufacturers to
better service customers and become more cost efficient.
The following table shows the components of underwriting results
for commercial lines:
<TABLE>
<CAPTION>
(in millions) 1993 1992 1991
<S> <C> <C> <C>
Premiums written $ 1,239 $ 1,355 $1,780
Premiums earned $ 1,223 $ 1,480 $ 1,885
Losses (1,014) (1,299) (1,728)
Expenses (432) (524) (612)
Net underwriting losses $ (223) $ (343) $ (455)
Voluntary $ (187) $ (316) $ (341)
Involuntary (36) (27) (114)
Net underwriting losses $ (223) $ (343) $ (455)
GAAP and statutory underwriting ratios are as follows:
1993 1992 1991
GAAP UNDERWRITING RATIOS:
Loss ratio 83.0 87.8 91.7
Expense ratio 35.3 35.4 32.5
Combined ratio 118.3 123.2 124.2
STATUTORY UNDERWRITING RATIOS:
Loss ratio 83.6 86.9 91.6
Expense ratio 34.7 36.3 33.4
Combined ratio 118.3 123.2 125.0
</TABLE>
Underwriting results in the commercial lines category improved
$120 million over 1992 and $232 million over 1991. This
improvement is primarily the result of the change in the mix of
business, as well as the application of stricter underwriting
standards and lower catastrophe losses.
In commercial lines, the mix of the least profitable line of
business, workers compensation, is decreasing, and the mix of
the two most profitable lines of business, auto and property,
is increasing. Workers compensation represented 12 percent of
premiums earned in commercial lines in 1993, compared with 21
percent in 1992 and 26 percent in 1991, with a cumulative three
year statutory loss ratio in this line of 139.1. Commercial
auto, with a statutory loss ratio of 55.2 in 1993, increased
from 28 percent of commercial lines premiums earned in 1991 to
33 percent in 1993. Commercial property, with a statutory loss
ratio of 60.4 in 1993, increased from 20 percent of commercial
lines premiums earned in 1991 to 26 percent in 1993.
The involuntary business losses were $9 million more in 1993
than in 1992, but were $78 million less than 1991. The improved
involuntary results in 1992 and 1993 compared with 1991 result
primarily from management actions to reduce workers
compensation premiums which led to reduced participation in the
involuntary workers compensation pools. In addition, involuntary
underwriting losses in 1991 were adversely affected by a $20
million involuntary pool assessment related to special reserve
increases from the National Workers Compensation Reinsurance
Pool ("NWCRP").
The statutory loss ratio improved 3.3 points in 1993 from 1992
and 8.0 points in 1993 from 1991. Contributing to this
significant improvement over 1992 were losses incurred from
Hurricane Andrew which were approximately 1.6 points of the
commercial lines 1992 statutory loss ratio. Excluding Hurricane
Andrew, USF&G is still experiencing an improved loss ratio
trend, which management believes is evidence of the positive
effects of the strategies implemented to improve underwriting
results.
Although premiums in the commercial lines business have declined
since 1990, the 9 percent decline in premiums written in 1993
from 1992 was less than the 24 percent and 18 percent declines
in 1992 and 1991, respectively. Excluding workers compensation,
the declines in premiums written are 2 percent, 17 percent, and
14 percent in 1993, 1992, and 1991, respectively. State exits
and other initiatives which began in 1990 to reduce exposure to
unprofitable markets were essentially completed in 1993. During
1994, commercial lines initiatives will focus on penetrating
target markets and implementing new products and services with
the objective of premium growth.
Fidelity/Surety
The fidelity/surety segment provides contract bonds, financial
institution bonds, judicial bonds, and fidelity/surety bonds to
commercial businesses, banks, credit unions, and construction companies.
The following table shows the components of underwriting results
for fidelity/surety:
<TABLE>
<CAPTION>
(in millions) 1993 1992 1991
<S> <C> <C> <C>
Premiums written $120 $109 $116
Premiums earned $118 $111 $117
Losses (59) (36) (41)
Expenses (67) (69) (65)
Net underwriting gains (losses) $ (8) $ 6 $ 11
Voluntary $ (8) $ 6 $ 11
Involuntary - - -
Net underwriting gains (losses) $ (8) $ 6 $ 11
GAAP and statutory underwriting ratios are as follows:
1993 1992 1991
GAAP UNDERWRITING RATIOS:
Loss ratio 50.2 32.3 35.5
Expense ratio 56.6 62.6 55.5
Combined ratio 106.8 94.9 91.0
STATUTORY UNDERWRITING RATIOS:
Loss ratio 50.5 32.0 42.3
Expense ratio 56.4 64.0 56.3
Combined ratio 106.9 96.0 98.6
</TABLE>
Fidelity/surety experienced a decline in underwriting results in
1993 due to increased losses. Premiums earned increased
approximately 6 percent over 1992 and were consistent with 1991.
The increased premiums in 1993 from 1992 related to market
expansion strategies. Losses, however, increased $23 million or
64 percent over 1992, primarily as a result of unfavorable loss
development on a limited number of prior years' claims.
Underwriting expenses have remained generally consistent.
Personal Lines
Personal lines products include auto, homeowners, watercraft
and personal excess insurance for individuals and families.
The following table shows the components of underwriting
results for the personal lines category:
<TABLE>
<CAPTION>
(in millions) 1993 1992 1991
<S> <C> <C> <C>
Premiums written $ 653 $ 726 $ 925
Premiums earned $ 681 $ 785 $ 920
Losses (481) (635) (736)
Expenses (228) (260) (281)
Net underwriting losses $ (28) $(110) $ (97)
Voluntary $ (13) $(100) $ (71)
Involuntary (15) (10) (26)
Net underwriting losses $ (28) $(110) $ (97)
GAAP and statutory underwriting ratios are as follows:
1993 1992 1991
GAAP UNDERWRITING RATIOS:
Loss ratio 70.6 80.9 80.0
Expense ratio 33.5 33.1 30.5
Combined ratio 104.1 114.0 110.5
STATUTORY UNDERWRITING RATIOS:
Loss ratio 71.2 80.0 80.0
Expense ratio 33.9 33.2 30.4
Combined ratio 105.1 113.2 110.4
</TABLE>
Management strategies to reduce exposure in unprofitable markets
and lines of business improved the underwriting results of the
personal lines segment. Strategies that have contributed to the
improvement include reunderwriting the auto book of business,
applying stricter underwriting standards and reducing exposure
in high risk catastrophe areas.
Despite premiums earned decreasing $104 million in 1993 compared
with 1992 and $239 million compared with 1991, underwriting
results improved $82 million in 1993 over 1992 and $69 million
over 1991. The statutory loss ratio improved 8.8 points from
1992 to 1993 (a 3.0 point improvement excluding Hurricane Andrew
in 1992) which management believes is evidence of the positive
effects of strategies implemented to improve underwriting
results.
Underwriting losses from involuntary markets increased $5
million in 1993 compared with 1992, but have improved $11
million compared with 1991. The increase in 1993 losses is due
to unfavorable development on prior years claims and costs
associated with third party administrators managing the
assigned risk involuntary business. The substantially improved
involuntary underwriting results in 1993 and 1992 compared with
1991 was a result of USF&G's strategy, initiated in 1990, to
withdraw from unprofitable markets in order to reduce adverse
loss exposure. Although personal lines premiums have declined
since 1990, the 10 percent decline in premiums written in 1993
was less than the 21 percent in 1992. The premium decreases
primarily resulted from planned management actions to exit
specific states and other unprofitable markets, and to reduce
writings in high risk catastrophe areas. Net premium declines in
1993 also reflect the higher cost of ceded reinsurance. During
1994, personal lines initiatives are expected to result in
growth in selected target markets; however, continued
management of unprofitable markets and high ceded reinsurance
costs is expected to offset premium growth in these selected
markets.
Assumed Reinsurance
Reinsurance products are managed by F&G Re and marketed through
national and international reinsurance brokers. The reinsurance
segment has historically produced underwriting gains.
The following table shows the components of underwriting results
for assumed reinsurance lines:
<TABLE>
<CAPTION>
(in millions) 1993 1992 1991
<S> <C> <C> <C>
Premiums written $ 403 $ 243 $ 211
Premiums earned $ 305 $ 157 $ 96
Losses (204) (118) (40)
Expenses (69) (19) (30)
Net underwriting gains $ 32 $ 20 $ 26
Finite risk $ 9 $ 14 $ 7
Traditional risk 23 6 19
Net underwriting gains $ 32 $ 20 $ 26
GAAP and statutory underwriting ratios are as follows:
1993 1992 1991
GAAP UNDERWRITING RATIOS:
Loss ratio 66.7 75.0 40.9
Expense ratio 22.6 12.1 31.5
Combined ratio 89.3 87.1 72.4
STATUTORY UNDERWRITING RATIOS:
Loss ratio 67.3 76.9 59.1
Expense ratio 24.6 17.0 29.9
Combined ratio 91.9 93.9 89.0
</TABLE>
During 1993, underwriting results in this category were affected
by increased premiums due to the strong demand for reinsurance
caused primarily by the shrinking capacity in the international
property catastrophe market. New accounting requirements as a
result of the issuance of SFAS No. 113 and EITF 93-6 are
expected to cause a substantial reduction in the demand for
finite risk reinsurance.
2.3. LOSSES INCURRED AND LOSS RESERVES
Losses and loss adjustment expenses incurred totaled $1.8 billion
in 1993, compared with $2.1 billion and $2.5 billion in 1992
and 1991, respectively. The reduction is due primarily to lower
catastrophe losses, lower premium volume, and actions taken to
better manage claims and claim costs and reduce exposures in
undesirable markets.
Reserves for unpaid losses and loss expenses totaled $6.3
billion at December 31, 1993, compared with $5.5 billion and
$5.7 billion at the end of 1992 and 1991, respectively. The
impact of adopting SFAS No. 113 increased reserves by $1.2
billion. This new accounting standard eliminated the previous
practice of reporting assets and liabilities net of the effect
of reinsurance. Excluding the effects of SFAS No. 113, reserves
in 1993 declined 7 percent from 1992 and 10 percent from 1991.
This compares to the 8 percent and 23 percent declines in
premiums earned in 1993 compared with 1992 and 1991,
respectively. Reserve levels have also been reduced as a result
of reduced claim activity. The number of outstanding claims at
December 31, 1993, declined by 12 percent compared with year-end
1992. The number of new claims reported (excluding catastrophe
claims) declined 23 percent from 1991 to 1993.
Catastrophes and individually large claims (claims in excess of
$1 million), net of reinsurance, accounted for $245 million,
$268 million, and $302 million of incurred losses in 1993, 1992,
and 1991, respectively (refer to Section 2.4 of this Analysis).
Net of reinsurance, individually large claims and related
claims accounted for $177 million of incurred losses in 1993 and
$128 million and $229 million in 1992 and 1991, respectively.
USF&G seeks to limit its exposure to catastrophe and
individually large claims through the purchase of reinsurance
(refer to Section 2.5 of this Analysis).
USF&G also categorizes environmental, product liability, other
long term exposures such as asbestos and other types of
exposures where multiple claims relate to a similar cause of
loss (excluding catastrophes) as "common circumstance claims."
Total common circumstance claims paid (including loss adjustment
expenses) for the period 1985 through 1993 were $343 million.
Case reserves (exclusive of bulk reserves) outstanding for such
claims were $214 million, $171 million, and $127 million at
December 31, 1993, 1992, and 1991, respectively. USF&G's most
significant common circumstance claim exposures include
negligent construction, environmental, and asbestos claims.
The table below sets forth selected information for each of these
three categories:
<TABLE>
<CAPTION>
Total Claims Paid
from 1985-1993 Case Reserves at
(in millions) (includes LAE) December 31, 1993
<S> <C> <C>
Negligent construction $ 78 $ 74
Environmental 125 61
Asbestos 81 45
</TABLE>
At December 31, 1993, USF&G had 1,200 active files relating to
environmental matters, including 76 coverage disputes. The
number of claims under each file may vary significantly. In
1993, approximately 35 percent of paid environmental claims
related to matters under which a USF&G insured was a potentially
responsible party ("PRP") under the Comprehensive Environmental
Response, Compensation, and Liability Act, commonly referred to
as "Superfund", but many of these PRPs were only peripherally
involved. Management does not believe that USF&G has material
exposure to environmental or asbestos matters in excess of
reserves or relative to other large property/casualty insurers
because USF&G's customer base generally does not include large
manufacturing companies, which tend to incur most of the known
environmental and product liability exposures. Many of USF&G's
environmental claims relate to small industrial or
transportation accidents which individually are unlikely to
involve material exposures. In addition, USF&G has recently
consolidated handling of common circumstance claims into a
specialized unit designed to more effectively manage such claim
exposures.
The above discussion regarding common circumstance claims
relates solely to USF&G's direct business and does not include
exposures assumed through F&G Re or otherwise. Management does
not believe that assumed business which includes common
circumstance claims involves exposures materially in excess of
established reserves.
The level of loss reserves for both current and prior years'
claims is continually monitored and adjusted for changing
economic, social, judicial, and legislative conditions.
Management believes that loss reserves are adequate, but
establishing appropriate reserves, particularly with respect to
environmental or other long term exposure claims which are the
subject of evolving legislative and judicial theories of
liability, is highly judgmental and an inherently uncertain
process.
2.4. CATASTROPHE LOSSES
Gross catastrophe losses totaled $81 million in 1993, compared
with $292 million in 1992. These losses, net of losses ceded to
reinsurers, were $68 million in 1993 compared with $140 million
in 1992. Gross and net catastrophe losses totaled $73 million in
1991 as no losses were ceded. Catastrophe losses, net of reinsurance,
represented 3 percent of premiums earned for the year ended
December 31, 1993, compared with 6 percent and 2 percent for 1992
and 1991, respectively. Catastrophe losses in 1993 included $27 million
from the East Coast blizzard in March. The 1992 losses, the
highest in USF&G's history, were primarily from Hurricane Andrew
in Florida and hailstorms and tornadoes in Kansas and Oklahoma.
The industry as a whole experienced record catastrophe losses in
1992 of approximately $23 billion, over five times the level of
industry losses in 1991 of $4 billion. The catastrophe losses in
1991, the third highest in USF&G's history, resulted from a
series of storms and tornadoes in the South and Midwest,
Hurricane Bob, and the California fires.
2.5. CEDED REINSURANCE
USF&G reinsures portions of its policy risks with other insurance
companies or underwriters. Reinsurance allows USF&G to obtain
indemnification against losses associated with insurance contracts
it has written by entering into a reinsurance contract with another
insurance enterprise (the reinsurer). USF&G pays (cedes) an amount to the
reinsurer who agrees to reimburse USF&G for a specified portion
of any claims paid on business under the reinsured contracts.
Reinsurance gives USF&G the ability to write certain individually
large risks or groups of risks, and control its exposure to losses
by ceding a portion of such large risks. USF&G's ceding reinsurance
agreements are generally structured on a treaty basis whereby all
risks meeting a certain criteria are automatically reinsured. Shrinking
capacity in the reinsurance market and the high catastrophe losses
in recent years have increased prices and reduced the availability of
catastrophe reinsurance. Property catastrophe reinsurance costs
were $30 million in 1993, compared with $26 million and $21 million
in 1992 and 1991, respectively. USF&G's property catastrophe loss
retention levels have increased from $23 million in 1992 to
approximately $50 million in 1993 at greater cost.
2.6. CAPACITY
A key measure of both strength and growth capacity for property/
casualty insurers is the ratio of premiums written to statutory
POLICYHOLDERS' SURPLUS. At year-end 1993, USF&G's premium-to-surplus
ratio was 1.4:1, slightly higher than the industry average of 1.3:1,
and represents an improvement over 1992's ratio of 1.5:1. Insurance
regulators generally accept a ceiling for this ratio of 3.0:1;
therefore, at its current ratio, USF&G has the capacity to grow by
writing new business.
3. Life Insurance Operations
Life insurance operations represented 14 percent of USF&G's revenues
in 1993 and 34 percent of its assets at December 31, 1993. F&G Life's
financial results are as follows:
<TABLE>
<CAPTION>
(in millions) 1993 1992 1991
<S> <C> <C> <C>
Premiums $ 129 $ 104 $ 169
Net investment income 321 349 370
Policy benefits (395) (377) (437)
Underwriting and operating expenses (61) (77) (94)
Other revenues and expenses - - (1)
Restructuring charges - (3) (2)
Income (loss) before income taxes,
realized gains, and the cumulative
effect of adopting new accounting standards $ (6) $ (4) $ 5
</TABLE>
Income (loss) comparisons were affected by increased sales and
lower operating expenses offset by lower investment income in
1993. In 1992, F&G Life repositioned itself to become more
competitive and service oriented. The repositioning resulted in
a broadened product mix and a balanced distribution system. The
revised market strategies, new distribution channels, and
enhanced customer service are the major factors of the increase
in sales in 1993 (refer to Section 3.2 in this Analysis). In
addition, strategic repositioning and management actions to
reduce costs contributed to a 29 percent decline in operating
expenses in 1993 compared with 1992.
3.1. PRODUCTS
F&G Life issues annuity and life insurance products. F&G Life's
principal products are structured settlements, deferred annuities
(including tax sheltered annuities), and other annuity products.
Structured settlements are immediate annuities principally sold to the
property/casualty company in settlement of insurance claims.
Deferred annuity products accumulate cash values to which
interest is credited. In 1993, deferred annuities were credited
with interest rates that ranged between 9.0 and 4.5 percent,
depending upon the year of issue and interest guarantee
duration. The majority of deferred annuities in force were
issued with initial interest guarantees from one to six years,
with most written between 1988 and 1990 with a six year interest
guarantee. The deferred annuities also include provisions for
charges if the annuitant chooses to surrender the policy (see
Section 3.3 of this Analysis). After the interest guarantee
expires, the interest crediting rates can be adjusted annually
on a policy's anniversary date. Deferred annuity products are
sold through independent agents, insurance brokers, and
national wholesale distributors. F&G Life's tax sheltered
annuity products ("TSAs") are deferred annuities that provide
retirement income. Tax sheltered annuities are sold through a
national wholesale distribution network primarily to teachers.
Other annuities sold by F&G Life primarily consist of single
premium immediate annuities ("SPIAs"). SPIAs provide a fixed
stream of payments over a fixed period of time or over an
individual's lifetime.
F&G Life also markets, primarily through independent agents,
universal life ("UL") and term life insurance products. UL
insurance provides a death benefit for the life of the insured
and accumulates cash values to which interest is credited. Term
life insurance provides a fixed death benefit if the insured
dies during the contractual period.
3.2. SALES
The following table shows life insurance and annuity sales
(premiums and deposits) by distribution system and product
type:
<TABLE>
<CAPTION>
(in millions) 1993 1992 1991
<S> <C> <C> <C>
DISTRIBUTION SYSTEM
Direct-structured settlement annuities $ 66 $ 37 $ 71
Independent agencies/insurance brokers 60 60 76
National wholesaler-TSA 35 - -
Member firm/financial institutions 7 7 62
Total $168 $104 $209
PRODUCT TYPE
Structured settlement annuities $ 66 $ 37 $ 71
Single premium deferred annuities 44 33 70
Tax-sheltered annuities 35 - -
Other annuities 17 23 54
Life insurance 6 11 14
Total $168 $104 $209
</TABLE>
Sales in 1993 were favorably affected by F&G Life's refocus on
its marketing and customer service operations. F&G Life's
restructuring replaced high fixed cost marketing programs with
variable cost distribution channels. New products were designed
to meet the needs of targeted customers and to increase sales
opportunities. Since the implementation of the program in 1992,
1993 sales increased 62 percent when compared with 1992. In its
effort to continue the improvement in sales, F&G Life intends to
expand its existing distribution channels while developing
other specialized marketing networks. F&G Life will develop new
products, in concert with its distribution partners, to meet the
needs of its targeted customers. However, given the expectation
of continued low interest rates into 1994 and other market
forces, there is no assurance that the 1993 improved sales trend
will continue. As market interest rates declined in 1992 and
1993, F&G Life likewise lowered the rates offered on its annuity
and universal life insurance policies to maintain adequate
profit margins. F&G Life's 1992 sales declined by 50 percent
from 1991 levels due to the effect of the low interest rate
environment and the residual effects of USF&G's restructuring
efforts and its credit ratings. Current and projected spreads
between investment income and interest credited to policyholders
have narrowed but remain positive. Total life insurance in force
decreased to $12.1 billion in 1993, compared with $12.4 billion
in 1992 and $13.4 billion in 1991. Since 1991, insurance in
force has been affected by the decline in life insurance sales
and an increase in universal life policy surrenders.
3.3. POLICY SURRENDERS
Deferred annuities and universal life products are subject to
surrender. Nearly all of F&G Life's surrenderable annuity policies
allow for the refund of the cash value less a surrender charge.
Surrender charges provide protection against premature policy
surrender. Surrender activity has also been positively affected by
the lower interest rate environment since most of the surrenderable
annuities have guaranteed crediting rates higher than interest rates
currently available. Deferred annuities, which represent 78 percent of
surrenderable business, include surrender charges for periods ranging
from 5 to 10 years. The majority of business in force was issued with
surrender charges that declined from six percent to zero over six years.
Policy surrenders totaled $211 million in 1993, compared with
$192 million in 1992 and $586 million in 1991. Surrender
activity was significantly reduced from the unusually high level
experienced in 1991 when policyholders reacted to negative
public perception of the life insurance industry in general, and
the annuity business in particular, as well as the uncertainty
at that time about USF&G's restructuring efforts. The total
ACCOUNT VALUE of F&G Life's surrenderable annuities was $2.6
billion at December 31, 1993, and approximately $229 million was
surrenderable at current account value (i.e., without surrender
charges) on that date. The surrender charge period on $2.2
billion of F&G Life's single-premium deferred annuity products
expires within the next four years. The surrender charge period
on $751 million expires during 1994. Management has a
conservation program in place to provide holders of policies
maturing with renewal options in an effort to provide them with
investment alternatives within F&G Life. F&G Life's investments
have been structured to provide sufficient liquidity to fund
withdrawals. Management believes that F&G Life, with a LIQUID
ASSETS TO SURRENDER VALUE of surrenderable business of 126
percent at December 31, 1993, continues to maintain a high
degree of liquidity and has the ability to meet surrender
obligations for the foreseeable future.
3.4. DEFERRED POLICY ACQUISITION COSTS ("DPAC")
Costs to acquire and issue life insurance policies are generally
deferred and amortized in future periods. The recoverability of
these amounts is regularly reviewed. In reviewing the assumptions
used to amortize DPAC, management analyzes expected policy surrender
experience, projected investment spreads, and other criteria.
Policy acquisition costs unfavorably affected results as $8 million,
$10 million, and $9 million of normally deferrable costs were
expensed in 1993, 1992, and 1991, respectively, because sales levels
were not sufficient to support the deferral of such costs. In 1992,
$10 million of previously deferred costs were expensed as a result
of management's evaluation and subsequent changes in the estimates
and assumptions used to amortize these costs. Management considered
policy surrenders that, although significantly reduced from 1991
levels, were still considered above "normal," the expectation of
future investment yields, and the spread between investment
yields and interest credited to policyholders. In 1991, the
above normal levels of policy surrenders resulted in the
expensing of $20 million of previously deferred costs, which
were offset by income from surrender charges of $15 million.
High surrender activity or changes in expected profit margins in
future years could have similar negative effects on future
results.
4. Parent and Noninsurance Operations
Parent company interest and other unallocated expenses and net
losses from noninsurance operations were as follows:
<TABLE>
<CAPTION>
(in millions) 1993 1992 1991
<S> <C> <C> <C>
PARENT COMPANY EXPENSES:
Interest expense $(37) $ (35) $ (42)
Unallocated expenses, net (35) (34) (20)
NONINSURANCE LOSSES:
Management consulting (2) (4) (2)
Oil and gas - (18) (17)
Other noninsurance investments (9) (13) (22)
Restructuring charges - (2) (6)
Loss from continuing operations before income
taxes and realized gains $(83) $(106) $(109)
</TABLE>
Interest expense in 1993 was generally consistent with 1992;
however, compared with 1991, interest expense was lower due
primarily to declines in outstanding debt and lower rates on
short-term debt. As a result of a restructuring, there were no
oil and gas operating losses in 1993. During 1992, USF&G
incurred $2 million of restructuring charges related to its oil
and gas operations. The result of this restructuring was to
merge the operations with another oil and gas exploration and
production company. In 1993, the successor company issued shares
through an initial public offering, thereby reducing USF&G's
percentage ownership. The improvement in other noninsurance
investments from 1992 to 1993 primarily related to income from
notes received from the sale of an investment management
subsidiary in 1992. Restructuring charges in 1991 related to
revisions to restructuring estimates originally established in
the prior year and the expansion of the restructuring program
during the year.
5. Investments
The table below shows the distribution of USF&G's investment portfolio.
<TABLE>
<CAPTION>
At December 31
1993 1992 1991
<S> <C> <C> <C>
Total Investments (in millions) $11,377 $11,346 $12,167
Fixed maturities:
Held to maturity 41% 64% 31%
Available for sale 43 17 44
Total fixed maturities 84 81 75
Common and preferred stocks 1 1 4
Short-term investments 3 5 10
Mortgage loans and real estate 9 9 9
Other invested assets 3 4 2
Total 100% 100% 100%
</TABLE>
USF&G's investment mix has been repositioned to increase the
percentage of high quality fixed-income securities in the
portfolio. Long-term fixed maturities comprise 84 percent of
total investments at December 31, 1993, compared with 81
percent and 75 percent at December 31, 1992 and 1991,
respectively. At December 31, 1990, fixed maturities comprised
less than 65 percent of total investments. The general level of
investment in fixed maturities is expected to be maintained
through 1994. The increased proportion of fixed maturities
available for sale at December 31, 1993, compared with prior
periods reflects the implementation of SFAS No. 115.
5.1. NET INVESTMENT INCOME
The following table shows the components of net investment income.
<TABLE>
<CAPTION>
Years Ended December 31
(dollars in millions) 1993 1992 1991
<S> <C> <C> <C>
Net investment income from:
Fixed maturities $721 $739 $711
Equity securities 14 12 29
Options - 37 65
Short-term investments 9 27 73
Real estate and mortgage loans 41 50 35
Other, less expenses (36) (48) (36)
Total $749 $817 $877
Average yield 6.7% 7.3% 7.8%
</TABLE>
Investment results were significantly affected by declining
interest rates in 1993. The interest rate environment had a
two-pronged effect on net investment income, which decreased 8
percent and 15 percent when compared with 1992 and 1991,
respectively. The reduction in interest rates triggered
prepayments on mortgage-backed securities and refinancing of
debt by long-term borrowers. During 1993, maturities and other
repayments of USF&G's fixed maturity investments totaled $1.3
billion and proceeds from fixed maturities sales totaled $1.7
billion. Proceeds from these sales and repayments of fixed
maturities were reinvested at substantially lower rates. For
1993, net investment income from fixed maturities decreased by
2.4 percent when compared with 1992 and increased by 1.4 percent
when compared with 1991. Average yields on fixed maturities were
7.7 percent, 8.6 percent, and 9.2 percent for the years ended
December 31, 1993, 1992, and 1991, respectively.
While interest rate changes have contributed to declines in
average yields since 1991, another significant factor was the
elimination of option income. Prior to 1993, options were
written on a segment of USF&G's fixed maturity portfolio. In
1993, USF&G elected to eliminate its debt option writing program
and thereby forfeit option income in order to avoid exposing its
fixed maturities to the possibility of being called. Excluding
option income the average yield on invested assets was 7.2
percent in 1991 and 7.0 percent in 1992 compared with 6.7
percent in 1993.
The reduction in net investment income from short-term
investments since 1991 reflects both the effect of lower
interest rates and the reduced level of assets allocated to
short-term investments. The sale of income-producing
properties combined with losses on equity partnerships were the
primary factors in the decline from 1992 to 1993 in real estate
and mortgage loan investment income.
Management does not anticipate a significant increase in
interest rates during 1994. Therefore, it is likely that net
investment income will decline further in 1994 as prepayments
and maturities continue and proceeds are reinvested at
continued low rates.
5.2. REALIZED GAINS (LOSSES)
The components of net realized gains (losses) include the following:
<TABLE>
<CAPTION>
Years Ended December 31
(in millions) 1993 1992 1991
<S> <C> <C> <C>
Net gains (losses) from sales:
Fixed maturities $ 79 $179 $157
Equities and options 5 52 (2)
Real estate and mortgage loans 6 (3) (3)
Other - 11 (44)
Total net gains 90 239 108
Provisions for impairment:
Fixed maturities (10) (20) (15)
Equities (8) - (18)
Real estate (51) (43) (29)
Other (15) (28) -
Total provisions (84) (91) (62)
Losses due to portfolio restructuring - - (8)
Net realized gains $ 6 $148 $ 38
</TABLE>
To more effectively match the duration of its investments with
its life insurance liabilities, USF&G repositioned a portion of
its fixed maturity investments in 1993. The related sales of
fixed maturities were the primary reason for net gains of $90
million in 1993. Investment sales to offset declines in capital
and statutory surplus caused by catastrophe losses and other
sales as part of USF&G's portfolio repositioning resulted in net
gains of $239 million and $108 million in 1992 and 1991,
respectively. In 1992, USF&G realized $52 million of gains on
equities and reallocated the proceeds to relatively less
volatile fixed maturities.
To reflect impairments in the value of certain of its
investments, USF&G made provisions for impairment of $84 million
in 1993 compared with $91 million in 1992 and $62 million in
1991. Real estate provisions in 1993 primarily related to
specific properties either sold in 1993 or expected to be sold
in the near term. These properties were written down to net
realizable value with corresponding increases to real estate
reserves. Similar real estate provisions were taken in 1992 and
1991 to reflect both changes in circumstances related to
specific properties and general real estate market
deterioration. The recognition of other than temporary
impairments on two equity holdings which were subsequently sold
during 1993 and one investment where USF&G holds a minority
interest were key elements in net realized losses of $3 million
on equities and $15 million on other invested assets in 1993.
5.3. UNREALIZED GAINS (LOSSES)
The components of the changes in unrealized gains (losses) were
as follows:
<TABLE>
<CAPTION>
Years Ended December 31
(in millions) 1993 1992 1991
<S> <C> <C> <C>
Equity securities $ 23 $(39) $ 47
Fixed maturities available for sale 222 - -
Deferred policy acquisition cost adjustment (30) - -
Other 8 29 (10)
Total $223 $(10) $ 37
</TABLE>
USF&G's adoption of SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," favorably impacted
shareholders' equity as market value changes in fixed maturities
available for sale were reflected in unrealized gains on
investments in 1993. Unrealized gains on fixed maturities
classified as "available for sale" were $222 million at December
31, 1993. Prior to adoption of SFAS No. 115, appreciation on
fixed maturities was not included as a component of
shareholders' equity. This was partially offset by a DPAC
adjustment reflecting assumptions about the effect of potential
asset sales on future DPAC amortization should the unrealized
gains on assets matched to certain life insurance liabilities be
realized and the proceeds reinvested at lower rates. Under this
scenario margins on annuity products could potentially be
reduced, leading to an acceleration of DPAC amortization.
Appreciation in the equity portfolio and several stock funds as
well as the partial sale of a foreign equity holding which had
an unrealized loss at December 31, 1992, also contributed to the
favorable change in unrealized gains. A reduction in unrealized
gains of $10 million occurred in 1992 largely due to the
realization of gains on the sale of equities offset by the
elimination of unrealized losses on written options. A general
appreciation in the equity markets resulted in a $47 million
increase in unrealized gains on equity securities in 1991.
5.4. FIXED MATURITY INVESTMENTS
The tables below detail the composition of the fixed maturity portfolio.
<TABLE>
<CAPTION>
At December 31
(dollars in millions) 1993 1992 1991
<S> <C> <C> <C>
U. S. Government bonds $ 308 $ 554 $2,613
Corporate investment-grade bonds 4,866 3,103 1,806
Mortgage-backed securities 2,403 3,824 3,174
Asset-backed securities 1,149 995 793
High-yield bonds* 562 522 433
Tax-exempt bonds 48 71 173
Other 6 136 121
Total fixed maturities at amortized cost $9,342 $9,205 $9,113
Total market value of fixed maturities $9,699 $9,319 $9,486
Net unrealized gains $ 357 $ 114 $ 373
Percent market-to-amortized cost 104% 101% 104%
<FN>
* See Glossary of Terms
</TABLE>
<TABLE>
<CAPTION>
At December 31
1993 1992 1991
Amortized Market Amortized Market Amortized Market
(in millions) Cost Value Cost Value Cost Value
<S> <C> <C> <C> <C> <C> <C>
Fixed maturities:
Held to maturity $4,661 $4,796 $7,218 $7,290 $3,749 $3,880
Available for sale 4,681 4,903 1,987 2,029 5,364 5,606
Total $9,342 $9,699 $9,205 $9,319 $9,113 $9,486
</TABLE>
In compliance with SFAS No. 115, USF&G classified 50 percent of
its fixed maturity portfolio as "available for sale." Management
believes that this level of securities available for sale is
adequate for USF&G to meet its operating liquidity needs and
provides the flexibility necessary to respond to changes in the
investment markets. Securities classified as "available for
sale" are carried at market value with unrealized gains and
losses included in shareholders' equity. At December 31, 1993,
unrealized gains were $222 million. Securities classified as
"held to maturity", which are carried at amortized cost, had
unrealized gains of $135 million at December 31, 1993. Prior to
the adoption of SFAS No. 115, gains on fixed maturities were not
recognized in USF&G's financial statements until the gains were
realized at the time of sale. Such unrealized gains on fixed
maturities available for sale were $42 million and $242 million
at December 31, 1992 and 1991, respectively. Unrealized gains
on securities classified as "held to maturity" were $72 million
and $131 million at December 31, 1992 and 1991, respectively.
Declining interest rates, which resulted in rising bond prices,
were responsible for the three percentage point increase from
1992 to 1993 in the fixed maturity portfolio's overall
market-to-amortized cost ratio.
The effect on fixed maturities of falling interest rates was
most evident in the decline in holdings of mortgage-backed
securities during 1993. Investments in mortgage-backed
securities declined 37 percent and 24 percent when compared with
holdings at December 31, 1992 and 1991, respectively, due
primarily to the reallocation of principal prepayments to
corporate investment grade bonds. Declining interest rates in
1993 led to the prepayment of a significant portion of USF&G's
mortgage-backed portfolio. Proceeds from these prepayments,
combined with other sales proceeds, were invested in corporate
investment grade securities to maintain a balance of sufficient
credit quality and overall portfolio yield. While subject to the
prepayment risk experienced during 1993, credit risk related to
mortgage-backed securities is believed to be minimal as 99
percent of such securities at December 31, 1993, have AAA
ratings or are collateralized by obligations of the U. S.
Government or its agencies.
Debt obligations of the U. S. Government and its agencies and
other investment-grade bonds comprised 94 percent of the
portfolio at December 31, 1993, compared with 93 percent at both
December 31, 1992 and 1991. The table below shows the credit
quality of the long-term fixed maturity portfolio as of December
31, 1993.
<TABLE>
<CAPTION>
Percent Market-
Amortized Market to-Amortized
(dollars in millions) Cost Percent Value Cost
<S> <C> <C> <C> <C>
U. S. Government and
U. S. Government Agencies $2,351 25% $2,453 104%
AAA 1,808 19 1,866 103
AA 1,305 14 1,342 103
A 2,296 25 2,390 104
BBB 1,020 11 1,055 103
Below BBB 562 6 593 106
Total $9,342 100% $9,699 104%
</TABLE>
USF&G's holdings in high-yield bonds comprised six percent of
the total fixed maturity portfolio at December 31, 1993,
compared with five percent of the portfolio at December 31, 1992
and 1991. The high-yield bond market-to-amortized cost ratio has
improved three percentage points and seven percentage points
compared with December 31, 1992 and 1991, respectively. Of the
total high-yield bond portfolio, 69 percent is held by the life
insurance segment, representing 9 percent of the life segment's
total investments. The table below illustrates the credit
quality of the high-yield bond portfolio at December 31, 1993.
<TABLE>
<CAPTION>
Percent Market-
Amortized Market to-Amortized
(dollars in millions) Cost Percent Value Cost
<S> <C> <C> <C> <C>
BB $352 63% $369 105%
B 209 37 218 104
CCC and lower 10 2 6 60
Valuation allowance (9) (2) - -
Total $562 100% $593 106%
</TABLE>
The information on credit quality in the preceding two tables is
based upon the higher of the rating assigned to each issue of
fixed-income bonds by either Standard & Poor's or Moody's. Where
neither Standard & Poor's nor Moody's has assigned a rating to a
particular fixed maturity issue, classification is based on
1) ratings available from other recognized rating services;
2) ratings assigned by the NAIC; or 3) an internal assessment of
the characteristics of the individual security if no other rating
is available.
At December 31, 1993, USF&G's five largest investments in
high-yield bonds totaled $86 million in book value and had a
market value of $90 million. None of these investments
individually exceeded $28 million. USF&G's largest single
high-yield bond exposure represented 5 percent of the high-yield
portfolio and 0.3 percent of the total fixed maturity portfolio.
5.5. REAL ESTATE
The table below shows the components of USF&G's real estate portfolio.
<TABLE>
<CAPTION>
At December 31
(in millions) 1993 1992 1991
<S> <C> <C> <C>
Mortgage loans $ 302 $ 186 $ 291
Equity real estate 793 926 864
Reserves (108) (108) (88)
Total $ 987 $1,004 $1,067
</TABLE>
The increased allocation to mortgage loans in 1993 reflects a
strategy of maintaining a generally consistent level of real
estate assets while allocating more funds to traditional
mortgage loans and reducing real estate equity-type investments.
USF&G's real estate investment strategy emphasizes
diversification by geographic region, property type, and stage
of development. The diversification of USF&G's mortgage loan and
real estate portfolio is as follows:
<TABLE>
<CAPTION>
At December 31
1993 1992 1991
<S> <C> <C> <C>
GEOGRAPHIC REGION
Pacific/Mountain 33% 33% 31%
Southeast 22 22 23
Mid-Atlantic 19 17 17
Midwest 18 19 20
Southwest 5 6 6
Northeast 3 3 3
TYPE OF PROPERTY
Office 37% 33% 34%
Land 27 28 25
Apartments 19 16 18
Industrial 9 11 11
Retail/other 6 10 8
Timberland/Agriculture 2 2 4
DEVELOPMENT STAGE
Operating property 73% 72% 75%
Land development 16 17 14
Land packaging 11 11 11
</TABLE>
Real estate investments are generally appraised at least once
every three years. Appraisals are obtained more frequently under
certain circumstances such as when there are significant
changes in property performance or market conditions. All of
these appraisals are performed by professionally certified
appraisers.
USF&G's five largest real estate investments had a book value of
$322 million at December 31, 1993. The largest single
investment was $89 million, or eight percent of the total real
estate portfolio.
Mortgage loans and real estate investments not performing in
accordance with contractual terms, or performing significantly
below expectation, are categorized as nonperforming.
NONPERFORMING REAL ESTATE investments totaled $249 million at
December 31, 1993, which represented declines of 28 percent and
37 percent, respectively, when compared with December 31, 1992
and 1991. The reduction in nonperforming real estate was driven
by operating improvements in properties warranting
reclassification to performing real estate, the sale of certain
nonperforming real estate properties, and write-downs on
specific properties.
The book value of the components of nonperforming real estate
were as follows:
<TABLE>
<CAPTION>
Book Value At December 31
(dollars in millions) 1993 1992 1991
<S> <C> <C> <C>
Loans not current as to interest or principal $ - $ - $ 72
Restructured loans and investments 4 4 21
Real estate held as in-substance foreclosure 14 15 4
Real estate acquired through foreclosure or
deed-in-lieu of foreclosure 121 190 157
Land investments 57 71 60
Nonperforming equity investments 53 66 79
Total nonperforming real estate $249 $346 $393
Real estate reserves $108 $108 $ 88
Reserves/nonperforming real estate 43% 31% 22%
</TABLE>
Valuation allowances are established for impairments of
mortgage loans and real estate equity values based on periodic
evaluations of the operating performance of the properties and
their exposure to declines in value. The allowance totaled $108
million, or 10 percent of the entire real estate portfolio, at
both December 31, 1993 and 1992. In 1991, the allowance was $88
million, which represented 8 percent of the total real estate
portfolio. In light of USF&G's current plans with respect to the
portfolio, management believes the allowance at December 31,
1993, adequately reflects the current condition of the
portfolio. Should deterioration occur in the general real estate
market or with respect to individual properties in the future,
additional reserves may be required. Prospectively, efforts
will continue to reduce risk and increase yields in the real
estate portfolio by selling equity real estate when it is
advantageous to do so and reinvesting the proceeds in
medium-term mortgage loans.
6. Financial Condition
6.1. ASSETS
USF&G's assets totaled $14.3 billion at December 31, 1993,
compared with $13.1 billion and $14.5 billion at the end of 1992
and 1991, respectively. The $1.2 billion increase in 1993 is
primarily due to the implementation of SFAS No. 113, "Accounting
and Reporting for Reinsurance of Short-Duration and Long-Duration
Contracts" (refer to Section 1.2 in this Analysis).
6.2. DEBT
USF&G's debt totaled $618 million at December 31, 1993, compared
with $616 million and $677 million at December 31, 1992 and 1991,
respectively. The increase in debt from 1992 to 1993 is attributable
to $5 million of additional debt resulting from a change in percentage
ownership of a real estate limited partnership, offset by a $3 million
repayment of industrial revenue bonds by the property/casualty segment.
Real estate debt is project related and generally depends on the
project's cash flow to provide debt service. As a result of
entering into currency swap agreements, there was no effect on
net income from translation of non-U.S. dollar denominated debt.
6.3. SHAREHOLDERS' EQUITY
USF&G's shareholders' equity totaled $1.51 billion at December 31,
1993, $1.27 billion at December 31, 1992, and $1.32 billion at
December 31, 1991. The increase in 1993 was the result of an
increase in unrealized gains on investments primarily related to
the implementation of SFAS No. 115 (refer to Section 1.2 in this
Analysis) which, as a result of recording fixed maturity investments
available for sale at market value, increased shareholders' equity
by $222 million. This was offset by a $30 million adjustment in
unrealized losses related to DPAC (refer to Section 5.3 in this
Analysis). Additionally, net income of $165 million and an increase
of $6 million in paid-in capital due to the exercise of stock options
and the granting of stock awards pursuant to the 1993 Stock Plan
for Non-Employee Directors increased shareholders' equity. These
increases in equity were reduced by an $85 million minimum
pension liability which was recorded due to the declining
interest rate environment in 1993 and a related decrease in the
discount rate assumed to estimate the present value of pension
benefit obligations. Dividends to shareholders reduced equity by
$66 million. Common stock dividends declared in 1993, 1992, and
1991 totaled $17 million per year. Annual preferred stock
dividends declared in 1993 and 1992 totaled $48 million per
year, compared with $37 million in 1991.
6.4. CAPITAL STRATEGY
Subject to capital market conditions, over the next two years
USF&G plans to refinance up to approximately $600 million of debt.
In anticipation of the expiration in 1995 of the short-term bank
credit facility, it is expected that the $375 million balance
outstanding at December 31, 1993 will be refinanced with longer
term debt and that a reduced short-term facility will be
renegotiated. Where opportunities exist, other outstanding debt
may be refinanced at lower interest rates. In addition, depending
upon the market value of its common stock, USF&G plans to call for
redemption the Series C Preferred Stock and a portion of the
Series B Preferred Stock under circumstances which will result
in shares of those series of preferred stock being converted to
common stock.
7. Liquidity
Liquidity is a measure of an entity's ability to secure enough
cash to meet its contractual obligations and operating needs.
USF&G requires cash primarily to pay policyholders' claims and
benefits, debt and dividend obligations, and operating
expenses. USF&G's sources of cash include cash flow from
operations, credit facilities, and sales of marketable
securities and other assets. Management believes that internal
and external sources of cash will continue to exceed USF&G's
short and long-term needs. In January 1994, USF&G filed a shelf
registration statement with the Securities and Exchange
Commission. As of its effective date in February 1994, USF&G had
$647 million in aggregate unissued debt, preferred stock and
common stock (and warrants to purchase debt and equity
securities) registered. These securities may be issued from
time to time, depending on market conditions. This shelf amount
was reduced by $126 million in proceeds received from the March
1994 issuance of zero coupon convertible subordinated notes.
7.1. CASH FLOW FROM OPERATIONS
USF&G had cash flow from continuing operations of $87 million in
1993 and $99 million in 1992, compared with negative cash flow
from continuing operations of $4 million in 1991. The primary factors
contributing to the decrease in cash flow for 1993 in comparison
with 1992 were a decline in premiums and investment income in
the property/casualty segment, offset by a reduction in loss
payments and operating expenses.
7.2. CREDIT FACILITIES
USF&G maintains a $700 million committed credit facility with a
group of foreign and domestic banks. Borrowings outstanding under
the credit facility totaled $375 million at December 31, 1993, 1992,
and 1991. This credit facility expires in 1995. The credit agreement
contains restrictive covenants, defined in the agreement, pertaining to
indebtedness and tangible net worth levels. USF&G was in compliance
with these covenants at December 31, 1993, 1992, and 1991.
7.3. MARKETABLE SECURITIES
USF&G's fixed maturity, equity, and short-term investment portfolios
are liquid and represent substantial sources of cash. Fixed maturities
are classified as "held to maturity" if USF&G has both the ability and
intent to hold the securities until maturity or near maturity. Fixed
maturities that may be sold prior to maturity are classified as
"available for sale." The market value of fixed maturities held to
maturity was $4.8 billion at December 31, 1993, which represents
103 percent of amortized cost. Fixed maturities available for sale
had a market value of $4.9 billion at December 31, 1993, which
represents 105 percent of amortized cost. At year-end, equity
securities, which are reported at market value in the balance sheet,
totaled $135 million. Short-term investments totaled $322 million.
7.4. LIQUIDITY RESTRICTIONS
There are certain restrictions on the payment of dividends by
insurance subsidiaries that may limit USF&G's ability to receive funds
from its insurance subsidiaries. The Maryland Insurance Code requires
the Maryland Insurance Commissioner's prior approval for any dividend
payments during a twelve-month period from a Maryland subsidiary,
such as USF&G Company, to its holding company which exceed 10 percent
of policyholders' surplus as of the prior calendar year end. In
addition, notice of any other dividend must be given to the Maryland
Insurance Commissioner prior to payment, and the Commissioner has
the right to prevent payment of such dividend if it is determined
that such payment could impair the insurer's surplus or financial
condition. USF&G Company's policyholders' surplus at December 31,
1993, totaled $1.5 billion. USF&G's insurance subsidiaries' admitted
assets for statutory purposes included a total of approximately $245
million in receivables from the parent and affiliated companies.
Dividends of approximately $154 million are currently available
for payment to USF&G from USF&G Company during 1994 without prior
regulatory approval. Dividends paid to USF&G totaled $125 million
in 1993 and 1992, compared with $127 million in 1991.
8. Regulation
8.1. GENERAL
USF&G's insurance subsidiaries are subject to extensive regulatory
oversight in the jurisdictions where they do business. This regulatory
structure, which generally operates through state insurance departments,
involves the licensing of insurance companies and agents, limitations
on the nature and amount of certain investments, restrictions on the
amount of single insured risks, approval of policy forms and rates,
limitations on dividends, limitations on the ability to withdraw from
certain lines of business such as personal lines and workers compensation,
and other matters. Recently, there has been increased scrutiny of
the insurance regulatory framework. A number of state legislatures
have considered or enacted legislation that alters and, in many cases,
increases state authority to regulate insurance companies. Proposals
to adopt a federal regulatory framework have also been discussed
recently. It is not possible to predict the future impact of
increasing state or potential federal regulation on USF&G's operations.
8.2. PROPOSITION 103
In November 1988, California voters passed Proposition 103, which
required insurers doing business in that state to rollback
property/ casualty premium prices in effect between November 1988
and November 1989 to 1987 levels, less an additional 20 percent
discount, unless an insurer could establish that such rate levels
threatened its solvency. As a result of a court challenge, the
California Supreme Court ruled in May 1989 that an insurer does
not have to face insolvency in order to qualify for exemption from
the rollback requirements and is entitled to a "fair and reasonable
return." Significant controversy has surrounded the numerous
regulations proposed by the California Insurance Department,
which would be used to determine whether rate rollbacks and premium
refunds are required by insurers. Some of the Insurance Department's
proposals were disapproved by the California Office of Administrative
Law ("OAL"), which is responsible for the review and approval of
such regulations. The most recent regulations proposed by the
Insurance Department have not yet been reviewed by the OAL, pending
a recent court challenge by various insurers to the Department's
authority to issue such regulations. On February 25, 1993, the
trial judge presiding over that court challenge voided substantial
parts of the regulations proposed by the Insurance Department.
The court held that the Insurance Department's regulations
exceeded the Department's authority by setting rates based upon
an across-the-board formula. The court indicated that rates and
what constitutes a reasonable return would have to be determined
individually for each insurer and that the Department's authority
was to approve or disapprove rates proposed by insurers rather than
setting rates which cannot vary from a prescribed formula. An appeal
is currently pending before the California Supreme Court.
During 1989, less than five percent of USF&G's total premiums
were written in the State of California. USF&G believes that the
returns it received, both during and since the one-year rollback
period, have not exceeded the "fair and reasonable return"
standard. Additionally, based on the long history of events and
the significant uncertainty about the Insurance Department's
regulations, management does not believe it is probable that the
revenue recognized during the rollback period will be subject to
a material refund. Management believes that no premium refund
should be required for any period after November 8, 1988, but
that any rate rollbacks and premium refunds, if ultimately
required, would not have a material adverse effect on USF&G's
financial position.
8.3. MAINE "FRESH START" LITIGATION
In 1987, the State of Maine adopted workers compensation reform
legislation which was intended to rectify historic rate inadequacies
and encourage insurance companies to reenter the Maine voluntary
workers compensation market. This legislation, which was popularly
known as "Fresh Start," required the Maine Superintendent of Insurance
to annually determine whether the premiums collected for policies
written in the involuntary market and related investment income
were adequate on a policy-year basis. The Superintendent was required
to assess a surcharge on policies written in later policy years if it
was determined that rates were inadequate. Assessments were to be
borne by workers compensation policyholders, except that for policy
years beginning in 1989 the Superintendent could require insurance
carriers to absorb up to 50 percent of any deficits if the
Superintendent found that insurance carriers failed to make good
faith efforts to expand the voluntary market and depopulate the
residual market. Insurance carriers which served as servicing
carriers for the involuntary market would be obligated to pay 90
percent of the insurance industry's share. The Maine Fresh Start
statute requires the Superintendent to annually estimate each
year's deficit for seven years before making a final
determination with respect to that year.
In March 1993, the Superintendent affirmed a prior Decision and
Order (known as the "1992 Fresh Start Order") in which he, among
other things, found that there were deficits for the 1988, 1989,
and 1990 policy years, and that insurance carriers had not made
a good faith effort to expand the voluntary market and
consequently were required to bear 50 percent of any deficits
relating to the 1989 and 1990 policy years. The Superintendent
further found that a portion of these deficits were attributable
to servicing carrier inefficiencies and poor investment
practices and ordered that these costs be absorbed by insurance
carriers. Also, in May 1993 the Superintendent found that
insurance carriers would be liable for 50 percent of any
deficits relating to the 1991 policy year (the "1993 Fresh Start
Order"), but indicated that he would make no further
determinations regarding the portions of any deficits
attributable to alleged servicing carrier inefficiencies and
poor investment practices until his authority to make such
determinations was clarified in the various suits involving
prior Fresh Start orders.
USF&G was a servicing carrier for the Maine residual market in
1988, 1989, 1990, and 1991. USF&G withdrew from the Maine
voluntary market and as a servicing carrier effective December
31, 1991. USF&G has joined in an appeal of the 1992 Fresh Start
Order which was filed April 5, 1993, in a case captioned The
Hartford Accident and Indemnity Company, et al., v.
Superintendent of Insurance filed in Superior Court, State of
Maine, Kennebec. In addition to The Hartford Accident and
Indemnity Company and USF&G, the National Council of
Compensation Insurance ("NCCI") and several other insurance
companies which were servicing carriers during this time frame
have instituted similar appeals. These appeals will be heard on
a consolidated basis in a case captioned National Council of
Compensation Insurance, et al., v. Atchinson. USF&G is seeking,
among other things, to have the court set aside the
Superintendent's findings that the industry did not make a good
faith effort to expand the voluntary market and is responsible
for deficiencies resulting from alleged poor servicing and
investments. Similar appeals of the Superintendent's 1993 Fresh
Start Order have been filed by USF&G, the NCCI and several other
servicing carriers in the same court. The appeals of the 1993
Fresh Start Order will be heard on a consolidated basis in a
case captioned The National Council of Compensation Insurance,
et al., v. Atchinson.
Estimates of the potential deficits vary widely and are
continuously revised as loss and claims data matures. If the
Superintendent were to prevail on all issues, then the range of
liability for USF&G, based on the most recent estimates provided
by the Superintendent and the NCCI, respectively, could range
from approximately $12 million to approximately $19 million.
However, USF&G believes that it has meritorious defenses and has
determined to defend the actions vigorously.
8.4. INVOLUNTARY MARKET PLANS
Most states require insurers to provide coverage for less
desirable risks through participation in mandatory programs.
USF&G's participation in assigned risk pools and similar plans,
mandated now or in the future, creates and is expected to create
downward pressure on earnings.
8.5. WITHDRAWAL FROM BUSINESS LINES
Some states have adopted legislation or regulations restricting
or otherwise limiting an insurer's ability to withdraw from certain
lines of business. Such restrictions are most often found in
personal lines and workers compensation insurance. Such restrictions
limit USF&G's ability to manage its exposure to unprofitable lines and
adversely affects earnings to the extent USF&G is required to continue
writing unprofitable business.
8.6. GUARANTY FUNDS
Insurance guaranty fund laws have been adopted in most states to
protect policyholders in case of an insurer's insolvency. Insurers
doing business in those states can be assessed for certain obligations
of insolvent companies to policyholders and claimants. These
assessments, under certain circumstances, can be credited against
future premium taxes. Net of such tax credits, USF&G incurred
$15 million of guaranty fund expense in 1993 and $13 million in 1992.
Financial difficulties of certain insurance companies over the
past several years could result in additional assessments that
would have a negative impact on future earnings. State laws
limit the amount of annual assessments which are based on
percentages (generally two percent) of assessable annual
premiums in the year of insolvency. The amount of these
assessments cannot be reasonably estimated and is not expected
to have a material adverse effect on USF&G's financial position.
8.7. NAIC PROPOSALS
The National Association of Insurance Commissioners ("NAIC") has
proposed several model laws and regulations which are in varying
stages of discussion. The NAIC has adopted model regulations
which establish minimum capitalization requirements based on a
"risk-based capital" formula. One version of this model regulation
is applicable for life insurers with respect to their financial
position as of December 31, 1993. A second version was adopted by
the NAIC in December 1993 for implementation by property/casualty
insurers in 1995 with respect to their financial position as of December
31, 1994. The statutory "risk adjusted" capital of USF&G Company and
F&G Life as of December 31, 1993, were such that no regulatory action
would be required (assuming that the NAIC model regulation applied
to property/casualty insurers in 1993). The NAIC has also proposed
a Model Investment Law which prescribes the investments that are
permissible for property/casualty and life insurers to hold.
Adoption of this model law is targeted for September 1994, at the
earliest. It is not expected that the final adoption of these
regulations by the NAIC will result in any material adverse effect
on USF&G's liquidity or financial position.
8.8. NATIONAL HEALTH CARE
President Clinton has presented a
proposal to enact a comprehensive national health care system.
One component of this proposal would merge the medical payment
system for workers compensation and the medical payments
component of automobile insurance into a single health care
system. Although some form of the Administration's national
health care proposal may be enacted, it is unclear whether any
such legislation will address workers compensation or personal
automobile insurance. Several alternatives currently being
discussed would not have a significant impact on the workers
compensation system, while others could have a significant
effect. The likelihood of passage of any particular form of
legislation cannot be predicted at this time. It is too early to
predict the impact of any such legislation on USF&G.
8.9. SUPERFUND
The Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA"), more commonly known as Superfund, is
currently scheduled to be reauthorized in 1994. Insurance companies,
other businesses, environmental groups and municipalities are
advocating a variety of reform proposals to revise the cleanup and
liability provisions of CERCLA. No reliable prediction can be made
as to the ultimate outcome of the legislative deliberations regarding
the reauthorization of CERCLA or the effect any revisions could
have on USF&G.
8.10. INSURANCE REGULATORY INFORMATION SYSTEM
The NAIC's Insurance Regulatory Information System ("IRIS") ratios
are intended to assist state insurance departments in their review
of the financial condition of insurance companies operating within
their respective states. IRIS specifies eleven industry ratios and
establishes a "usual range" for each ratio. Significant departure
from a number of ratios may lead to inquiries from state insurance
regulators. As of December 31, 1993, USF&G was within the "usual
range" for all IRIS ratios.
9. Income Taxes
Effective January 1, 1993, USF&G changed its method of accounting
for income taxes as required by SFAS No. 109, "Accounting for Income
Taxes." This standard requires recognition of future tax benefits
attributable to net operating loss carry-forwards ("NOLs") and to
deductible temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes. A valuation allowance is
required if it is more likely than not that some or all of the
deferred tax asset may not be realized. A $90 million tax benefit
was recorded in income as a cumulative effect of adopting this new
accounting standard. As a result of the enactment of the Omnibus
Budget Reconciliation Act of 1993 which increased the corporate
tax rate to 35 percent, an additional $3 million deferred tax
benefit was recognized.
At December 31, 1993, USF&G has recorded a $119 million net
deferred tax asset, representing that in the opinion of
management it is more likely than not that there will be
sufficient future taxable income to result in the realization of
this benefit. Total deferred tax assets attributable to
deductible temporary differences and NOLs totaled $944 million
and total deferred tax liabilities totaled $343 million.
Significant temporary differences include deferred policy
acquisition costs, loss reserve discounting, and unrealized
gains and losses. USF&G recorded a valuation allowance of $482
million to offset the gross deferred tax assets.
Management believes there will be sufficient taxable income to
absorb all existing NOLs; but, in light of the guidance in the
standard, believes it is appropriate to establish an allowance.
USF&G will evaluate the realizability of the deferred tax asset
periodically and assess the need for a change in the valuation
allowance.
A valuation allowance is established based on an evaluation of
positive and negative evidence as to the likelihood of realizing
some or all of the deferred tax asset. The primary negative
evidence that existed was the cumulative losses resulting from
1991. The positive evidence included 1) the forecast of future
taxable income sufficient to recover some tax benefit within
three to five years; 2) a tax planning strategy identified to
generate future income, if necessary; 3) the return to
profitability in 1992 and 1993; 4) the sources of the losses in
1991, which are not likely to recur given the restructuring
actions taken; and 5) a history of substantial NOLs in prior
years being fully utilized.
Management's determination that it is more likely than not that
a $119 million deferred tax benefit will be realized is based
on the identification of two primary sources of taxable income:
1) forecasted future taxable income generated and 2) a prudent
and feasible tax strategy to generate taxable income to prevent
NOLs from expiring, if necessary. Based on USF&G's history of
prior earnings, particularly for the core insurance business,
and its expectations in the future as a result of restructuring
actions taken to reduce costs and achieve long-term
profitability, management believes ordinary income of the
Corporation will be sufficient to realize at least $103 million
of tax benefit. Management has evaluated forecasted future
income within three to five years and judgmentally discounted
the later years due to the greater uncertainty of forecasting
these later years. Management has identified a specific tax
strategy that would result in the realization of $16 million of
deferred tax assets. Realization of the deferred tax asset is
dependent, in whole or in part, on USF&G's ability to generate
future taxable income from ordinary and recurring operations.
Based on USF&G's evaluation, approximately $340 million of
future taxable income would need to be generated over the tax
carry-forward period to realize the $119 million deferred tax
asset.
USF&G has NOLs of $634 million ($222 million tax-effected at a
35 percent corporate rate), which expire as follows: $38
million in 2001, $191 million in 2005, and $405 million in 2006.
The NOLs available for future utilization were generated
primarily by the noninsurance businesses of USF&G and
nonrecurring charges related to the business restructuring
program. A majority of these noninsurance businesses that caused
a significant drain on prior earnings have been sold, divested,
or liquidated by USF&G. Management believes the results of the
restructuring actions, including the disposal of noninsurance
businesses, will allow USF&G to resume its previous history of
earnings.
Future levels of net income and taxable income from the core
insurance operations are dependent on several factors including
general economic or specific insurance industry conditions and
competitive pressures that may lead to unplanned premium
declines or adversely impact voluntary and involuntary loss
experience. Other factors that could impact future net income
include catastrophe losses, a continued reduction in interest
rates, or a further decline in the real estate market. Because
of the risk factors indicated as well as other factors beyond
the control of management, no assurance can be given that
sufficient taxable income will be generated to utilize the NOLs
or otherwise realize the deferred tax assets. However,
management has considered these factors in reaching its
conclusion that it is more likely than not that there will be
sufficient future taxable income to result in the realization of
the recorded $119 million deferred tax asset.
USF&G's tax returns have not been reviewed by the Internal
Revenue Service ("IRS") since 1989 and the availability of the
NOLs could be challenged by the IRS upon review of returns
through 1992. Management believes, however, that IRS challenges
that would limit the recoverability of $119 million in tax
benefits are unlikely, and adjustments to the tax liability, if
any, for years through 1993 will not have a material adverse
effect on USF&G's financial position.
10. Glossary of Terms
Account value: Deferred annuity cash value available to
policyholders before the assessment of surrender charges.
Catastrophe losses: Property/casualty insurance claim losses
resulting from a sudden calamitous event, such as a severe
storm, are categorized as "catastrophes" when they meet certain
severity and other criteria determined by a national
organization.
EITF: Emerging Issues Task Force of the Financial Accounting
Standards Board.
Expense ratio: The ratio of underwriting expenses to net
premiums written, if determined in accordance with statutory
accounting practices ("SAP"), or the ratio of underwriting
expenses (adjusted by deferred policy acquisition costs) to
earned premiums, if determined in accordance with GAAP.
GAAP: Generally Accepted Accounting Principles.
High-yield bonds: Fixed maturity investments with a credit
rating below the equivalent of Standard & Poor's "BBB." In
addition, nonrated fixed maturities that, in the judgment of
USF&G, have credit characteristics similar to those of a fixed
maturity rated below BBB are considered high-yield bonds.
Involuntary business: Property/casualty insurance companies are
required by state laws to participate in a number of assigned
risk pools, automobile reinsurance facilities, and similar
mandatory plans ("involuntary market plans"). These plans
generally require coverage of less desirable risks, principally
for workers compensation and automobile liability, that do not
meet the companies' normal underwriting standards. As mandated
by legislative authorities, insurers generally participate in
such plans based upon their shares of the total writings of
certain classes of insurance.
Liquid assets to surrender value: Liquid assets (publicly
traded bonds, stocks, cash, and short-term investments) divided
by surrenderable policy liabilities, net of surrender charges.
A measure of an insurance company's ability to meet liquidity
needs in case of annuity surrenders.
Loss ratio: The ratio of incurred losses and loss adjustment
expenses to earned premiums, determined in accordance with SAP
or GAAP, as applicable. The difference between SAP and GAAP
relates to salvage recoverable accruals for GAAP purposes and
deposit accounting for GAAP related to financial reinsurance.
Nonperforming real estate: Mortgage loans and real estate
investments that are not performing in accordance with their
contractual terms or that are performing at an economic level
significantly below expectations. Included in the table of
nonperforming real estate are the following terms:
Deed-in-lieu of foreclosure: Real estate to which title has
been obtained in satisfaction of a mortgage loan receivable in
order to prevent foreclosure proceedings.
In-substance foreclosure: Collateral for a mortgage loan is
in-substance foreclosed when the borrower has little or no
equity in the collateral, does not have the ability to repay the
loan, and has effectively abandoned control of the collateral to
USF&G.
Land investments: Land investments that are held for future
development where, based on current market conditions, returns
are projected to be significantly below original expectations.
Loans not current as to interest and principal: Loans on which
the borrower has failed to meet mortgage obligations.
Nonperforming equity investments: Equity investments with cash
and GAAP return on book value less than five percent, but
excluding land investments.
Restructured loans and investments: Loans and investments whose
terms have been restructured as to interest rates,
participation, and/or maturity date such that returns are
projected to be significantly below original expectations.
Policyholders' surplus: The net assets of an insurer as
reported to regulatory agencies based on accounting practices
prescribed or permitted by the National Association of
Insurance Commissioners and the state of domicile.
Premiums earned: The portion of premiums written applicable to
the expired period of policies, after the assumption and cession
of reinsurance.
Premiums written: Premiums retained by an insurer, after the
assumption and cession of reinsurance.
Underwriting results: Property/casualty pretax operating
results excluding investment results, policyholders' dividends,
and noninsurance activities; generally, premiums earned less
losses and loss expenses incurred and "underwriting" expenses
incurred.
<TABLE>
USF&G Corporation
Eleven-Year Summary of Selected Financial Data
<CAPTION>
(dollars in millions except
per share data) 1993 1992 1991 1990
<S> <C> <C> <C> <C>
CONSOLIDATED RESULTS
Premiums earned $ 2,456 $ 2,637 $ 3,187 $ 3,516
Revenues 3,249 3,660 4,172 4,171
Income (loss) from continuing
operations before cumulative
effect of adopting new
accounting standards 127 35 (144) (433)
Income (loss) from
discontinued operations - (7) (32) (136)
Cumulative effect of adopting
new accounting standards 38 - - -
Net income (loss) 165 28 (176) (569)
PER SHARE RESULTS
Income (loss) from continuing
operations before cumulative
effect of adopting new
accounting standards $ .93 $ (.16) $ (2.15) $ (5.37)
Income (loss) from
discontinued operations - (.08) (.38) (1.62)
Cumulative effect of adopting
new accounting standards .45 - - -
Net income (loss) 1.38 (.24) (2.53) (6.99)
Book value 11.66 8.87 9.53 11.97
INVESTMENT RESULTS
Net investment income $ 749 $ 817 $ 877 $ 929
Realized gains (losses) 6 148 38 (354)
Change in unrealized
gains (losses) 223 (10) 37 (30)
FINANCIAL POSITION
Assets $ 14,335 $ 13,134 $ 14,486 $ 13,902
Investments 11,377 11,346 12,167 11,221
Corporate debt 574 574 617 659
Real estate and other debt 44 42 60 120
Shareholders' equity 1,511 1,270 1,323 1,205
COMMON STOCK
Market high $ 19 5/8 $ 15 $ 12 1/2 $ 30 3/8
Market low 11 1/8 7 1/8 5 5/8 7
Market close 14 3/4 12 3/8 7 1/4 7 1/2
Cash dividends declared .20 .20 .20 2.44
Common shares outstanding 85,009,482 84,512,758 84,273,327 83,958,222
PROPERTY/CASUALTY INSURANCE
Premiums earned $ 2,327 $ 2,533 $ 3,018 $ 3,330
Net income (loss) 281 193 (40) (192)
Statutory premiums written 2,429 2,420 3,032 3,631
Statutory loss ratio 75.4 82.0 84.1 81.9
Statutory expense ratio 33.7 34.9 33.1 32.9
Statutory combined ratio 109.1 116.9 117.2 114.8
LIFE INSURANCE
Sales $ 168 $ 104 $ 209 $ 994
Premium income 129 104 169 186
Net income (loss) 10 (5) 31 (16)
NONINSURANCE OPERATIONS
Revenues $ 5 $ 17 $ 38 $ 22
Net loss (126) (160) (167) (361)
</TABLE>
<TABLE>
<CAPTION>
1989 1988 1987 1986 1985 1984 1983
CONSOLIDATED RESULTS
<S> <C> <C> <C> <C> <C> <C> <C>
Premiums earned $ 3,697 $ 3,791 $ 3,880 $ 3,619 $ 3,029 $ 2,273 $ 1,971
Revenues 4,636 4,548 4,491 4,310 3,587 2,628 2,561
Income (loss) from continuing
operations before cumulative
effect of adopting new
accounting standards 148 251 263 277 (109) (64) 270
Income (loss) from
discontinued operations (31) (20) 2 (2) 1 - -
Cumulative effect of adopting
new accounting standards - - - - - - -
Net income (loss) 119 247 279 296 (108) (64) 270
PER SHARE RESULTS
Income (loss) from continuing
operations before cumulative
effect of adopting new
accounting standards $ 1.58 $ 2.91 $ 3.41 $ 4.14 $ (1.83) $ (1.18) $ 4.76
Income (loss) from
discontinued operations (.37) (.25) .03 (.03) .02 - -
Cumulative effect of adopting
new accounting standards - - - - - - -
Net income (loss) 1.24 2.85 3.63 4.43 (1.81) (1.18) 4.76
Book value 21.60 22.57 19.53 20.19 18.91 19.08 22.61
INVESTMENT RESULTS
Net investment income $ 911 $ 795 $ 699 $ 619 $ 392 $ 369 $ 360
Realized gains (losses) (36) (92) (133) 53 150 (23) 225
Change in unrealized
gains (losses) 32 185 (282) (105) 118 (10) (228)
FINANCIAL POSITION
Assets $ 13,551 $ 12,326 $ 10,158 $ 8,934 $ 7,672 $ 6,099 $ 5,279
Investments 10,894 9,775 7,892 6,824 5,688 4,142 3,871
Corporate debt 543 448 407 348 197 146 67
Real estate and other debt 87 41 22 3 3 3 3
Shareholders' equity 2,007 2,054 1,724 1,576 1,214 1,045 1,223
COMMON STOCK
Market high $ 34 $ 34 3/8 $ 48 3/4 $ 46 3/4 $ 41 1/2 $ 30 7/8 $ 30
Market low 28 1/4 28 1/2 26 1/4 36 1/4 25 5/8 17 5/8 19 3/4
Market close 29 28 1/2 28 3/8 39 3/4 39 27 1/2 27 5/8
Cash dividends declared 2.80 2.64 2.48 2.32 2.20 2.08 1.92
Common shares outstanding 83,664,506 82,155,209 78,027,916 68,153,799 64,206,487 54,758,184 54,109,221
PROPERTY/CASUALTY INSURANCE
Premiums earned $ 3,532 $ 3,613 $ 3,746 $ 3,539 $ 2,962 $ 2,215 $ 1,913
Net income (loss) 200 318 331 310 (116) (69) 259
Statutory premiums written 3,698 3,892 3,845 3,696 3,151 2,318 1,989
Statutory loss ratio 76.5 73.1 73.2 79.1 90.7 90.5 83.1
Statutory expense ratio 32.8 31.1 30.1 29.1 30.0 31.4 32.2
Statutory combined ratio 109.3 104.2 103.3 108.2 120.7 121.9 115.3
LIFE INSURANCE
Sales $ 898 $ 1,045 $ 255 $ 63 $ 103 $ 69 $ 17
Premium income 165 178 133 79 67 58 59
Net income (loss) 31 14 37 20 27 18 12
NONINSURANCE OPERATIONS
Revenues $ 84 $ 114 $ 112 $ 8 $ 41 $ 33 $ 11
Net loss (112) (85) (88) (86) (23) (13) -
</TABLE>
<TABLE>
USF&G Corporation
Consolidated Statement of Operations
<CAPTION>
For the Years Ended December 31
(dollars in millions except
per share data) 1993 1992 1991
<S> <C> <C> <C>
REVENUES
Premiums earned $ 2,456 $ 2,637 $ 3,187
Net investment income 749 817 877
Other 38 58 70
Revenues before realized gains 3,243 3,512 4,134
Realized gains on investments 6 148 38
Total revenues 3,249 3,660 4,172
EXPENSES
Losses, loss expenses, and
policy benefits 2,153 2,465 2,982
Underwriting, acquisition, and
operating expenses 956 1,069 1,225
Interest expense 41 40 46
Restructuring charges - 51 60
Total expenses 3,150 3,625 4,313
Pretax income (loss) from
continuing operations before
cumulative effect of adopting
new accounting standards 99 35 (141)
Provision for income taxes (benefit) (28) - 3
Income (loss) from continuing
operations before cumulative
effect of adopting new accounting
standards 127 35 (144)
Loss from discontinued operations - (7) (32)
Income (loss) from cumulative
effect of adopting new accounting
standards:
Income taxes (Note 9) 90 - -
Postretirement benefits
(Note 8) (52) - -
Net income (loss) $ 165 $ 28 $ (176)
Preferred stock dividend
requirements 48 48 37
Net income (loss) available
to common stock $ 117 $ (20) $ (213)
PRIMARY EARNINGS PER COMMON SHARE
Income (loss) from continuing
operations before cumulative
effect of adopting new
accounting standards $ .93 $ (.16) $ (2.15)
Loss from discontinued operations - (.08) (.38)
Income from cumulative effect
of adopting new accounting
standards .45 - -
Net income (loss) $ 1.38 $ (.24) $ (2.53)
FULLY DILUTED EARNINGS PER COMMON
SHARE
Income (loss) from continuing
operations before cumulative
effect of adopting new
accounting standards $ .98 $ (.16) $ (2.15)
Loss from discontinued operations - (.08) (.38)
Income from cumulative effect
of adopting new accounting
standards .34 - -
Net income (loss) $ 1.32 $ (.24) $ (2.53)
Weighted average common shares
outstanding:
Primary 84,780,283 84,355,431 84,169,091
Fully Diluted 112,692,855 84,355,431 84,169,091
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
USF&G Corporation
Consolidated Statement of Financial Position
<CAPTION>
At December 31
(dollars in millions except share data) 1993 1992 1991
<S> <C> <C> <C>
ASSETS
Investments:
Fixed maturities:
Held to maturity, at
amortized cost (market,
1993, $4,796; 1992, $7,290;
1991, $3,880) $ 4,661 $ 7,218 $ 3,749
Available for sale, at market*
(cost, 1993, $4,681; market,
1992, $2,029; 1991, $5,606) 4,903 1,987 5,364
Common stocks, at market (cost,
1993, $98; 1992, $179; 1991,
$480) 87 142 487
Preferred stocks, at market
(cost, 1993, $48; 1992,
$24; 1991, $34) 48 29 34
Short-term investments 322 518 1,170
Mortgage loans 302 186 283
Real estate 685 818 784
Other invested assets 369 448 225
Other investments held for sale - - 71
Total investments 11,377 11,346 12,167
Cash 17 25 87
Accounts, notes, and other receivables 656 725 897
Reinsurance receivables 573 - -
Servicing carrier receivables 719 - -
Deferred policy acquisition costs 435 466 534
Other assets 571 588 692
Net assets (liabilities) of discontinued
operations (13) (16) 109
Total assets $14,335 $13,134 $14,486
LIABILITIES
Unpaid losses, loss expenses, and policy
benefits $10,302 $ 9,436 $ 9,477
Unearned premiums 917 770 981
Corporate debt 574 574 617
Real estate and other debt 44 42 60
Other liabilities 987 1,042 2,028
Total liabilities 12,824 11,864 13,163
SHAREHOLDERS' EQUITY
Preferred stock, par value $50.00
(12,000,000 shares authorized;
shares issued, 1993, 9,099,910;
1992 and 1991, 9,100,000) 455 455 455
Common stock, par value $2.50
(240,000,000 shares authorized;
shares issued, 1993, 85,009,482;
1992, 84,512,758; 1991,
84,273,327) 212 211 211
Paid-in capital 963 957 955
Net unrealized gains (losses) on investments 192 (31) (21)
Net unrealized gains (losses) on foreign currency (2) 2 10
Minimum pension liability (85) - -
Retained earnings (deficit) (224) (324) (287)
Total shareholders' equity 1,511 1,270 1,323
Total liabilities and shareholders' equity $14,335 $13,134 $14,486
<FN>
* 1992 and 1991 amounts are at amortized cost (Note 1.2).
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
USF&G Corporation
Consolidated Statement of Cash Flows
<CAPTION>
For the Years Ended December 31
(dollars in millions) 1993 1992 1991
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 165 $ 28 $ (176)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Loss from discontinued operations - 7 32
Cumulative effect of adopting new
accounting standards (38) - -
Realized gains on investments (6) (148) (38)
Change in insurance liabilities 36 37 237
Change in deferred policy acquisition costs 31 68 36
Change in receivables 60 149 (147)
Change in other liabilities (56) (74) (2)
Change in other assets (129) (17) 56
Other items, net 24 49 (2)
Net cash provided from (used in) continuing
operations 87 99 (4)
Net cash used in discontinued operations - (2) (10)
Net cash provided from (used in) operating
activities 87 97 (14)
INVESTING ACTIVITIES
Net sales and maturities of short-term
investments 197 61 640
Purchases of fixed maturities held to
maturity (1,912) (6,945) -
Sales of fixed maturities held to maturity 462 1,116 -
Maturities/repayments of fixed maturities
held to maturity 941 323 -
Purchases of fixed maturities available
for sale (1,203) (458) (13,368)
Sales of fixed maturities available for sale 1,252 4,796 11,919
Repayments of fixed maturities available
for sale 308 772 480
Purchases of equities and other investments (255) (438) (481)
Sales, maturities, or repayments of equities
and other investments 398 842 1,206
Sales of subsidiaries - 17 38
Purchases of property and equipment (28) (12) (7)
Disposals of property and equipment 4 7 27
Net investing activities of discontinued
operations - 2 60
Net cash provided from investing activities 164 83 514
FINANCING ACTIVITIES
Deposits for universal life and investment
contracts 168 164 247
Withdrawals of universal life and investment
contracts (364) (289) (689)
Net short-term borrowings (repayments) - (1) (60)
Repayments of long-term borrowings (3) (53) (38)
Repurchases of securities pursuant to put
options - - (124)
Issuances of common stock 6 3 2
Issuances of preferred stock - - 310
Cash dividends paid to shareholders (66) (66) (62)
Net financing activities of discontinued
operations - - (50)
Net cash used in financing activities (259) (242) (464)
Increase (decrease) in cash (8) (62) 36
Cash at beginning of year 25 87 51
Cash at end of year $ 17 $ 25 $ 87
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
USF&G Corporation
Consolidated Statement of Shareholder's Equity
<CAPTION>
For the Years Ended December 31
(dollars in millions except per share data) 1993 1992 1991
<S> <C> <C> <C>
PREFERRED STOCK
Balance at beginning of year $ 455 $ 455 $ 200
Par value of shares issued:
Series B - - 65
Series C - - 190
Balance at end of year 455 455 455
COMMON STOCK
Balance at beginning of year 211 211 210
Par value of shares issued 1 - 1
Balance at end of year 212 211 211
PAID-IN CAPITAL
Balance at beginning of year 957 955 898
Excess of proceeds over par value of
shares issued 6 2 57
Balance at end of year 963 957 955
NET UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Balance at beginning of year (31) (21) (58)
Change in unrealized gains (losses) 223 (10) 37
Balance at end of year 192 (31) (21)
NET UNREALIZED GAINS (LOSSES) ON FOREIGN CURRENCY
Balance at beginning of year 2 10 12
Change in unrealized gains (losses) (4) (8) (2)
Balance at end of year (2) 2 10
MINIMUM PENSION LIABILITY
Balance at beginning of year - - -
Change in unfunded accumulated benefits (85) - -
Balance at end of year (85) - -
RETAINED EARNINGS (DEFICIT)
Balance at beginning of year (324) (287) (57)
Net income (loss) 165 28 (176)
Common stock dividends declared (per share,
1993, 1992, and 1991, $.20) (17) (17) (17)
Preferred stock dividends declared (per share,
1993 and 1992, Series A, $4.10, Series B,
$10.25, Series C, $5.00; 1991, Series A,
$4.10, Series B, $5.75, Series C, $3.05) (48) (48) (37)
Balance at end of year (224) (324) (287)
Total shareholders' equity $1,511 $1,270 $1,323
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
USF&G Corporation
Notes to Consolidated Financial Statements
Note 1 Summary of Significant Accounting Policies
1.1. BASIS OF PRESENTATION
The consolidated financial statements are prepared
in accordance with generally accepted accounting principles
("GAAP"). These statements include the accounts of USF&G
Corporation and its subsidiaries ("USF&G"). Intercompany
transactions are eliminated in consolidation. Certain prior year
amounts are reclassified to conform to the 1993 presentation.
Reporting practices for insurance subsidiaries prescribed or
permitted by state regulatory authorities (statutory accounting)
differ from GAAP. Statutory amounts for USF&G's insurance
operations are as follows:
<TABLE>
<CAPTION>
Years Ended December 31
(in millions) 1993 1992 1991
<S> <C> <C> <C>
Statutory Net Income (Loss):
Property/casualty insurance $ 199 $ 216 $ (163)
Reinsurance affiliates 1 1 -
Life insurance 5 23 77
At December 31
1993 1992 1991
Statutory Surplus:
Property/casualty insurance* $1,541 $1,467 $1,404
Reinsurance affiliates 147 152 146
Life insurance 316 310 283
<FN>
*This amount includes the surplus of the life insurance subsidiary.
</TABLE>
1.2. INVESTMENTS
Fixed Maturities: USF&G classifies fixed maturities as
"held to maturity" if it has both the positive intent and
ability to hold the securities until maturity or near enough
to maturity such that interest rate risk is substantially
eliminated as a pricing factor. Fixed maturities held to
maturity are carried at amortized cost. Changes in the market
values of these investments are generally not recognized in the
financial statements. Valuation allowances are provided for
impairments in estimated net realizable value based on periodic
evaluation. Specific write-downs are taken when an impairment is
deemed other than temporary.
Fixed maturities not classified as either "held to maturity" or
"trading securities" are classified as "available for sale."
These securities are held for an indefinite period of time and
may be sold in response to changes in interest rates and the
yield curve, prepayment risk, liquidity needs, or other factors.
Effective December 31, 1993, upon the initial adoption of a new
accounting standard, SFAS No. 115 "Accounting for Certain
Investments in Debt and Equity Securities," available for sale
fixed maturities are carried at fair value, with unrealized
gains and losses recorded as a separate component of
shareholders' equity. Also effective December 31, 1993, with the
adoption of SFAS No. 115 unrealized gains or losses on fixed
maturities available for sale are offset by an adjustment to
life insurance deferred policy acquisition costs which is made
on a proforma basis as if the unrealized gains on those assets
which match certain life insurance liabilities were realized. At
December 31, 1992 and 1991, before adoption of SFAS No. 115,
fixed maturities available for sale were carried at the lower of
aggregate amortized cost or fair value. Fair value exceeded
amortized cost at December 31, 1992 and 1991; therefore, there
were no unrealized losses reported in shareholders' equity.
Equity Securities and Options: Investments in common and
preferred stocks are carried at market value with the resulting
unrealized gains or losses reported directly in shareholders'
equity. In 1992 and 1991 premiums received on options written
were recorded as liabilities. The premiums paid on options
purchased were recorded as assets. Outstanding option positions
were carried at market value, and the resulting unrealized gains
or losses were reported directly in shareholders' equity. There
were no outstanding options at December 31, 1993.
Securities Lending: USF&G participates in a securities lending
program where certain securities from its portfolio are loaned
to other institutions for short periods of time. A fee is paid
to USF&G by the borrower. Collateral that exceeds the market
value of the loaned securities is invested by the lending agent
to represent USF&G's interest. USF&G's interest in securities
lending is reported in other invested assets at December 31,
1993 and 1992, and in short-term investments at December 31,
1991. USF&G's invested assets and other liabilities include $141
million, $206 million, and $594 million at December 31, 1993,
1992, and 1991, respectively, related to its interest in the
securities lending program.
Mortgage Loans and Real Estate: Mortgage loans are carried at
unpaid principal balances. Real estate investments are reported
at cost adjusted for equity participation. Real estate acquired
through an in-substance foreclosure or deed-in-lieu of
foreclosure is initially recorded at estimated market value.
Valuation allowances are provided for impairments in estimated
net realizable value based on periodic evaluations. Specific
write-downs are taken when an impairment is deemed other than
temporary.
Other Investments Held for Sale: In 1991, investments were
designated as "held for sale" based on USF&G's intent to dispose
of them within a year. These investments included high-risk
investments such as real estate, high-yield bonds, and equity
securities and were carried at the lower of cost or estimated
net realizable value. Such investments were sold during 1992.
Interest and Dividend Income: Interest on fixed-maturity
investments is recorded as income when earned and is adjusted
for any amortization of purchase premium or discount. Dividends
on equity securities are recorded as income on ex-dividend dates.
Option Income: In 1992 and 1991, investment income on covered
call options was recorded when the option positions were closed.
There was no option income in 1993. The amount of investment
income recorded for a covered call option was the time value
component of the premium received. The remainder (the "intrinsic
value") of the premium on the in-the-money options was recorded
as a realized gain when option positions were closed.
Premiums paid for closing purchase transactions on covered call
options reduced investment income if the option was
out-of-the-money when the transaction was closed. If the option
was in-the-money, the time value portion of the premium paid
reduced investment income, and the intrinsic value portion was
recorded as a realized loss.
Realized Gains or Losses: Realized gains and losses on the sale
of investments are determined based on specific cost. Realized
losses are recorded when an investment's net realizable value is
below cost, and the decline is considered other than temporary.
Realized gains and losses also result from changes in investment
valuation allowances.
1.3. RECOGNITION OF PREMIUM REVENUES
Property/Casualty Insurance: Property/casualty insurance premiums
are earned principally on a pro rata basis over the lives of the policies.
Unearned premiums represent the portion of premiums written
applicable to the unexpired terms of policies in force. Unearned
premiums also include estimated and unbilled premium adjustments.
Life Insurance: Premiums on life policies with fixed and
guaranteed premiums and benefits and premiums on annuities with
significant life contingencies are recognized when due.
Universal life policies and annuity contracts are issued on both
a single-premium and recurring-premium basis. Revenues for these
contracts consist of policy charges assessed against benefit
account balances during the period for the cost of insurance,
policy administration, and surrenders.
1.4. UNPAID LOSSES, LOSS EXPENSES, AND POLICY BENEFITS
Property/Casualty Insurance: The liability for unpaid
property/casualty insurance losses and loss adjustment expenses
is based on an evaluation of reported losses and on estimates of
incurred but unreported losses. The reserve liabilities are
determined using adjusters' individual case estimates and
statistical projections. The liability was reported net of
estimated salvage and subrogation recoverables of $139 million,
$138 million, and $162 million at December 31, 1993, 1992, and
1991, respectively. Adjustments to the liability based on
subsequent developments or other changes in the estimate are
reflected in results of operations in the period in which such
adjustments become known.
Certain liabilities for unpaid losses and loss adjustment
expenses related to workers compensation coverage are discounted
to present value. The carrying amount of such workers
compensation liabilities, net of reinsurance and net of
discount, was $1,752 million, $1,798 million, and $1,854 million
at December 31, 1993, 1992, and 1991, respectively. Interest
rates used to discount these liabilities generally ranged from 3
percent to 5 percent.
Life Insurance: Ordinary life insurance reserves are computed
under the net level premium method using assumptions for future
investment yields, mortality, and withdrawal rates. These
assumptions reflect USF&G's experience, modified to reflect
anticipated trends, and provide for possible adverse deviation.
Reserve interest rate assumptions are graded and range from 4.25
percent to 8.25 percent.
Universal life and deferred annuity reserves are computed on the
retrospective deposit method, which produces reserves equal to
the cash value of the contracts. Such reserves are not reduced
for charges that would be deducted from the cash value of
policies surrendered. Reserves on immediate annuities with
guaranteed payments are computed on the prospective deposit
method, which produces reserves equal to the present value of
future benefit payments.
1.5. DEFERRED POLICY ACQUISITION COSTS
Acquisition costs, consisting of commissions, brokerage, and
other expenses incurred at policy issuance, are generally deferred.
Anticipated losses, loss expenses, policy benefits, and remaining costs of
servicing the policies are considered in determining the amount
of costs to be deferred. Anticipated investment income is
considered in determining whether a premium deficiency exists
related to short-duration contracts. Amortization of deferred
policy acquisition costs totaled $673 million, $738 million, and
$886 million, for the years ended December 31, 1993, 1992, and
1991, respectively.
Property/Casualty Insurance: Property/casualty acquisition
costs are amortized over the period that related premiums are
earned.
Life Insurance: Life insurance acquisition costs are amortized
based on assumptions consistent with those used for computing
policy benefit reserves. Acquisition costs on ordinary life
business are amortized over their assumed premium paying
periods. Universal life and investment annuity acquisition costs
are amortized in proportion to the present value of their
estimated gross profits over the products' assumed durations,
which are regularly evaluated and adjusted as appropriate.
1.6. PROPERTY AND EQUIPMENT
Property and equipment is carried at cost less accumulated depreciation.
At December 31, 1993, 1992, and 1991, $194 million, $200 million,
and $226 million, respectively, of property and equipment was
included in other assets. Depreciation is computed on the
straight-line basis over the estimated useful lives of the assets.
For the years ended December 31, 1993, 1992, and 1991,
depreciation expense of $21 million, $25 million, and $24 million,
respectively, is included in underwriting, acquisition, and
operating expenses.
1.7. FOREIGN CURRENCY TRANSLATION
The functional currency for USF&G's foreign operations
is the applicable local currency. Foreign currency balance
sheet accounts are translated to U.S. dollars using exchange
rates in effect at the balance sheet date. Revenue and expense
accounts are translated using the average exchange rates
prevailing during the year. The unrealized gains or losses, net
of applicable deferred income taxes, resulting from translation
are included in shareholders' equity.
Foreign currency gains and losses on transactions denominated in
a currency other than the entity's functional currency are
generally recorded in operations. Such gains and losses may be
reduced or effectively eliminated by certain financial
instruments used by USF&G to reduce its foreign exchange
exposure.
1.8. EARNINGS PER COMMON SHARE
Primary earnings per common share are computed by subtracting
dividends on preferred stock from consolidated income and
then dividing by the weighted-average common shares
outstanding during the period. The effect of common stock
equivalents is excluded from the calculations because their
effect is not material. Fully diluted earnings per common
share assume the conversion of all securities whose
contingent issuance would have a dilutive effect on earnings.
1.9. RESTRUCTURING CHARGES AND DISCONTINUED OPERATIONS
Restructuring initiatives began in the fourth quarter of 1990.
Net income reflects provisions of $60 million of restructuring
charges in 1991 and $51 million in 1992. There were no
restructuring charges in 1993. Since 1990, USF&G has implemented
programs to reduce the cost structure of the organization by
consolidating branch offices, establishing a regional structure,
and reducing staff. In addition, USF&G has implemented plans to
dispose of nonstrategic businesses which resulted in losses from
discontinued operations of $7 million and $32 million in 1992
and 1991, respectively. Revenues of the discontinued operations
totaled $5 million, $42 million, and $114 million for the years
ended December 31, 1993, 1992, and 1991, respectively. The net
assets of discontinued operations are carried at estimated net
realizable value.
Other financial data for the discontinued operations are
summarized below.
<TABLE>
<CAPTION>
Years Ended December 31
(in millions) 1993 1992 1991
<S> <C> <C> <C>
Results of operations $ - $ - $ (6)
Provision for income taxes - - (1)
- - (7)
Loss on disposal of subsidiaries - (7) (25)
Net loss from discontinued operations $ - $ (7) $(32)
At December 31
1993 1992 1991
ASSETS
Investments $ - $ - $ 11
Accounts and notes receivable 1 2 21
Acquisition-related goodwill 4 5 92
Property and equipment - 1 8
Other assets 1 2 35
Total assets $ 6 $ 10 $167
LIABILITIES
Accrued loss on disposal $ - $ 7 $ 25
Other liabilities 19 19 33
Total liabilities 19 26 58
Net assets (liabilities) $(13) $(16) $109
</TABLE>
Note 2 Investments
2.1. COMPONENTS OF NET INVESTMENT INCOME
<TABLE>
<CAPTION>
Years Ended December 31
(in millions) 1993 1992 1991
<S> <C> <C> <C>
Interest on fixed maturities $721 $739 $711
Equity security dividends 14 12 29
Option income - 37 65
Short-term interest 9 27 73
Real estate and mortgage loans 41 50 35
Other, and expenses (36) (48) (36)
Net investment income $749 $817 $877
</TABLE>
2.2. NET REALIZED GAINS (LOSSES)
<TABLE>
<CAPTION>
Years Ended December 31
(in millions) 1993 1992 1991
<S> <C> <C> <C>
GAINS (LOSSES) ON SALES:
Fixed maturities $ 79 $179 $157
Equity securities 5 53 18
Options - (1) (20)
Real estate 6 (3) (3)
Other - 11 (44)
Net gains on sales 90 239 108
PROVISIONS FOR IMPAIRMENT:
Fixed maturities (10) (20) (15)
Equity securities (8) - (18)
Real estate (51) (43) (29)
Other (15) (28) -
Total provisions for impairment (84) (91) (62)
Losses due to portfolio restructuring - - (8)
Net realized gains $ 6 $148 $ 38
</TABLE>
2.3. ALLOWANCES FOR IMPAIRMENT IN VALUE
Valuation allowances
for impairment in value of investments, recorded in the
Consolidated Statement of Financial Position as a reduction of
the respective asset category, are as follows:
<TABLE>
<CAPTION>
At December 31
(in millions) 1993 1992 1991
<S> <C> <C> <C>
Fixed maturities $ 20 $ 12 $ -
Real estate and mortgage loans 108 108 88
Other 3 5 -
</TABLE>
2.4. GROSS UNREALIZED GAINS AND LOSSES
<TABLE>
<CAPTION>
At December 31
(in millions) 1993 1992 1991
<S> <C> <C> <C>
UNREALIZED GAINS:
Fixed maturities $224 $ - $ -
Equity securities 14 16 51
Options and other 10 3 9
Gross unrealized gains 248 19 60
UNREALIZED LOSSES:
Fixed maturities (2) - -
Deferred policy acquisition
cost adjustment (30) - -
Equity securities (23) (48) (44)
Options and other (1) (2) (37)
Gross unrealized losses (56) (50) (81)
Unrealized gains (losses), net $192 $(31) $(21)
</TABLE>
2.5. CHANGE IN UNREALIZED GAINS (LOSSES)
<TABLE>
<CAPTION>
Years Ended December 31
(in millions) 1993 1992 1991
<S> <C> <C> <C>
Fixed maturities $222 $ - $ -
Deferred policy acquisition
cost adjustment (30) - -
Equity securities 23 (39) 47
Options and other 8 29 (10)
Net change $223 $(10) $ 37
</TABLE>
2.6. ESTIMATED MARKET VALUES OF FIXED MATURITY INVESTMENTS
The increase (decrease) in the difference between cost and market
value of fixed maturity investments for the years ended December
31, 1993, 1992, and 1991, was $243 million, $(259) million, and
$441 million, respectively. The cost and market value of total
fixed maturities are as follows:
<TABLE>
<CAPTION>
At December 31
1993 1992 1991
Gross
Unrecognized/ Gross Gross
Unrealized Market Unrecognized Market Unrecognized Market
(in millions) Cost Gains Losses Value Cost Gains Losses Value Cost Gains Losses Value
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed maturities held to
maturity $4,661 $191 $(56) $4,796 $7,218 $171 $ (99) $7,290 $ 3,749 $173 $(42) $3,880
Fixed maturities available
for sale 4,681 224 (2) 4,903 1,987 49 (7) 2,029 5,364 261 (19) 5,606
Total $9,342 $415 $(58) $9,699 $9,205 $220 $(106) $9,319 $ 9,113 $434 $(61) $9,486
</TABLE>
The cost and market value of fixed maturities held to maturity
are as follows:
<TABLE>
<CAPTION>
At December 31
1993 1992 1991
Gross Gross Gross
Unrecognized Market Unrecognized Market Unrecognized Market
(in millions) Cost Gains Losses Value Cost Gains Losses Value Cost Gains Losses Value
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government bonds $ 4 $ - $ (1) $ 3 $ 348 $ 3 $ - $ 351 $ 561 $ 18 $ - $ 579
Mortgage/asset-backed securities 1,669 70 (19) 1,720 3,535 88 (47) 3,576 1,893 104 (16) 1,981
Corporate bonds 2,463 79 (30) 2,512 2,660 48 (40) 2,668 849 29 (15) 863
High-yield bonds 505 37 (6) 536 511 24 (12) 523 298 7 (6) 299
Tax-exempt bonds 14 3 - 17 55 4 - 59 70 6 (3) 73
Other 6 2 - 8 109 4 - 113 78 9 (2) 85
Total $4,661 $191 $(56) $4,796 $7,218 $171 $ (99) $7,290 $3,749 $173 $(42) $3,880
The cost and market value of fixed maturities available for sale
are as follows:
</TABLE>
<TABLE>
<CAPTION>
At December 31
1993 1992 1991
Gross Gross Gross
Unrealized Market Unrecognized Market Unrecognized Market
(in millions) Cost Gains Losses Value Cost Gains Losses Value Cost Gains Losses Value
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government bonds $ 304 $ 20 $ - $ 324 $ 206 $ 3 $ - $ 209 $2,052 $ 59 $ - $2,111
Mortgage/asset-backed securities 1,883 73 - 1,956 1,284 39 (4) 1,319 2,074 116 - 2,190
Corporate bonds 2,403 126 - 2,529 443 7 (1) 449 957 76 (7) 1,026
High-yield bonds 57 2 (2) 57 11 - (1) 10 135 5 (12) 128
Tax-exempt bonds 34 3 - 37 16 - (1) 15 103 4 - 107
Other - - - - 27 - - 27 43 1 - 44
Total $4,681 $224 $ (2) $4,903 $1,987 $ 49 $ (7) $2,029 $5,364 $261 $(19) $5,606
</TABLE>
2.7. STATED DUE DATES OF FIXED MATURITIES
The table below shows the stated due dates of fixed maturities
classified as "held to maturity."
<TABLE>
<CAPTION>
At December 31, 1993
Market
(in millions) Cost Value
<S> <C> <C>
In 1994 $ 48 $ 48
1995 through 1998 185 192
1999 through 2003 1,684 1,756
After 2003 1,075 1,080
Subtotal 2,992 3,076
Mortgage/asset-backed securities 1,669 1,720
Fixed maturities held to maturity $4,661 $4,796
</TABLE>
The table below shows the stated due dates of fixed maturities
available for sale.
<TABLE>
<CAPTION>
At December 31, 1993
Market
(in millions) Cost Value
<S> <C> <C>
In 1994 $ 40 $ 40
1995 through 1998 1,334 1,378
1999 through 2003 850 913
After 2003 574 616
Subtotal 2,798 2,947
Mortgage/asset-backed securities 1,883 1,956
Fixed maturities available for sale $4,681 $4,903
</TABLE>
Expected maturities may differ from stated due dates as
borrowers may have the right to call or prepay obligations.
During 1993, USF&G received proceeds from sales or repayments of
fixed maturities of $3.0 billion. The table below illustrates
the source of 1993 proceeds.
<TABLE>
<CAPTION>
Gross Gross
(in millions) Cost Proceeds Gains Losses
<S> <C> <C> <C> <C>
PROCEEDS FROM SALES OF FIXED MATURITIES:
Held to maturity $ 454 $ 462 $ 20 $(12)
Available for sale 1,181 1,252 73 (2)
Subtotal 1,635 1,714 93 (14)
PROCEEDS FROM REPAYMENTS:
Held to maturity 946 941 9 (14)
Available for sale 313 308 1 (6)
Subtotal 1,259 1,249 10 (20)
Total proceeds $2,894 $2,963 $103 $(34)
</TABLE>
Proceeds from sales of fixed maturities classified as "held to
maturity" occurred primarily due to repositioning a portion of
the portfolio in anticipation of the adoption of SFAS No. 115.
In 1992, proceeds from fixed maturities held to maturity totaled
$119 million with gross gains of $6 million and gross losses of
$36 million. Proceeds from sales of fixed maturities available
for sale were $6 billion in 1992 with gross gains of $355
million and gross losses of $166 million. During 1991, before
fixed maturities were classified as "available for sale,"
proceeds from sales totaled $12 billion with gross gains of $225
million and gross losses of $137 million.
2.8. INVESTMENT COMMITMENTS
USF&G has outstanding commitments to provide permanent financing
for various real estate development projects. The funded amounts
of these commitments are collateralized by the real estate
projects. At December 31, 1993, unfunded commitments totaled
approximately $12 million, and approximately $8 million of this
is expected to be funded in 1994.
USF&G has a potential commitment to purchase $14 million of
preferred shares in an investment unless the investment procures
an alternative source of financing prior to March 31, 1994.
USF&G has a potential commitment to fund $13 million under the
terms of a participatory note investment if certain
collateralization tests are not met.
2.9. NONINCOME-PRODUCING INVESTMENTS
Fixed maturities and other invested assets held at
December 31, 1993, for which no income was recorded during
1993, totaled $4 million and $1 million, respectively.
In addition, nonperforming real estate, defined as
mortgage loans and real estate investments that are not
performing in accordance with their contractual terms or are
performing significantly below expectations, totaled $249
million at December 31, 1993.
Note 3 Debt and Credit Arrangements
3.1. DEBT OUTSTANDING
<TABLE>
<CAPTION>
At December 31
(in millions) 1993 1992 1991
<S> <C> <C> <C>
CORPORATE:
Short-term $395 $375 $388
Long-term:
9.98% and 10.1% Universal
Medium-Term notes due 1994 - 20 20
8 7/8% Notes due 1996 99 99 99
5 1/2% Swiss Franc Bonds due 1996 80 80 86
5.35% Swiss Franc Loan due 1993 - - 24
Subtotal 574 574 617
REAL ESTATE AND OTHER:
Short-term 12 3 12
Long-term:
8% Secured note due 1995 11 11 -
9 3/8% Secured note due 1994 - 11 11
12 3/4% Secured note due through 1995 - - 11
9.96% Secured notes due through 1999 14 15 21
Other 7 2 5
Subtotal 44 42 60
Total $618 $616 $677
</TABLE>
3.2. SHORT-TERM DEBT
For general corporate purposes, USF&G maintains a committed,
standby credit facility with a group of foreign and domestic
banks totaling $700 million. The facility was entered into
during 1990 and expires in 1995. USF&G pays fixed facility
fees and commitment fees for the unused portion of the
facility based on its long-term debt credit ratings.
Borrowings at December 31, 1993, 1992, and 1991, totaled $375
million. Interest rates are based on current market rates. USF&G
was in compliance with the covenants contained in these
agreements at December 31, 1993, 1992, and 1991. The two most
restrictive covenants, as defined in the agreements, require
USF&G to maintain a tangible net worth of at least $1 billion
and an indebtedness-to-capital ratio below 70 percent.
3.3. SHELF REGISTRATIONS
In January 1994, USF&G filed a shelf registration statement
with the Securities and Exchange Commission. As of the time
this registration statement went effective in February 1994,
USF&G had available $647 million of unissued debt, preferred
stock, common stock, and warrants to purchase debt and stock.
These securities may be sold from time to time with various
terms appropriate to the securities issued to be determined
at the time of issuance.
3.4. REDEEMABLE DEBT
Beginning in 1993, the 8 7/8% Notes are redeemable at par,
plus accrued interest. In 1994 and thereafter, the 5 1/2%
Swiss Franc Bonds are redeemable at par, plus accrued interest.
3.5. CURRENCY SWAPS
USF&G entered into currency swap agreements to hedge its
foreign currency exposure on the 33 million 5.35%
Swiss Franc Loan and the 120 million 5 1/2% Swiss Franc Bonds.
These agreements were in place through the maturity of the
related debt issues. USF&G is subject to the risks that the
counterparties will fail to perform and that the value of the
currency swaps will fluctuate. However, these risks are
mitigated by the credit quality of the counterparties and the
foreign exchange gains or losses on the related debt. USF&G is
exposed to credit losses for periodic settlement of amounts due,
which are not material at December 31, 1993. In December 1992,
USF&G repaid the 33 million Swiss Franc Loan and cancelled the
related currency swap; however, a currency swap agreement is
still in effect on the 5 1/2% Swiss Franc Bonds. As a result of
the currency swaps, debt-related foreign currency translation
had no effect on net income.
3.6. INTEREST RATE SWAPS
USF&G entered into interest rate swaps to exchange variable
commercial paper rates for fixed borrowing costs. Three
interest rate swaps expired during 1993. The remaining
interest rate swap has a fixed rate of 9.405 percent
through 2000 on notional principal of $25 million. This
agreement involves, to varying degrees, interest rate and credit
risk in excess of amounts recognized in the balance sheet. The
notional amount indicates USF&G's involvement but not future
cash requirements. The maximum credit risk related to the
remaining agreement is the amount related to periodic
settlements, which is not material at December 31, 1993. USF&G
controls the credit risk through monitoring procedures and
investigation of counterparties to the transaction.
3.7. INTEREST
Interest paid in the years ended December 31, 1993, 1992, and
1991, was $41 million, $49 million, and $52 million, respectively.
Interest incurred and capitalized in the years ended
December 31, 1992 and 1991, was $8 million. There
was no interest incurred and capitalized in 1993.
3.8. MATURITIES OF LONG-TERM DEBT
<TABLE>
<CAPTION>
Real
Estate
and
(in millions) Corporate Other
<S> <C> <C>
1994* $ 20 $11
1995 - 11
1996 179 -
1997 - -
1998 - -
<FN>
*This amount is included with short-term debt in the debt outstanding
table.
</TABLE>
Note 4 Fair Value of Financial Instruments
The fair value information presented is based on quoted
market prices where available. In cases where quoted market
prices are not available, fair values are based on internal
estimates using present value or other valuation techniques.
Those techniques are significantly affected by the
assumptions used, such as applicable discount rate and
estimated future cash flows. Therefore, the derived fair value
estimates cannot be substantiated by comparison to independent
markets and in many cases, could not be realized in immediate
settlement of the instrument. Fair value disclosure requirements
exclude certain financial instruments and all nonfinancial
instruments. The fair value of many insurance-related liabilities
do not require disclosure. However, in its strategy of asset/liability
matching, USF&G takes into consideration the future cash requirements
of its insurance-related liabilities. Had a presentation of these
liabilities been made, due to their long-term nature, the fair
value of insurance-related liabilities would have been significantly
less than their carrying value.
Cash and Short-Term Investments: The carrying amounts reported
in the Consolidated Statement of Financial Position for these
instruments approximate their fair values.
Fixed-Maturity Investments: Fair values for publicly-traded
fixed-maturity investments are based on quoted market prices.
For privately placed fixed maturities, estimated fair values,
obtained from independent pricing services, are derived by
discounting expected future cash flows using a current market
rate applicable to the yield, credit quality, and maturity of
the investment. At December 31, 1993, the amortized cost,
carrying amounts, and fair values of fixed-maturity investments
were as follows:
<TABLE>
<CAPTION>
Amortized Carrying Fair
(in millions) Cost Amount Value
<S> <C> <C> <C>
Publicly traded $9,181 $9,401 $9,536
Private placements 161 163 163
Total fixed-maturity investments $9,342 $9,564 $9,699
</TABLE>
The preceding table includes fixed maturities available for sale
with a market and carrying value of $4,903 million and amortized
cost of $4,681 million. Such investments are reported in the
Consolidated Statement of Financial Position at market value.
Equity Investments: The carrying values of equity securities as
reported in the Consolidated Statement of Financial Position are
based on quoted market prices and reflect their fair values.
Mortgage Loans and Policy Loans: The fair values for mortgage
loans and policy loans are estimated using discounted cash flow
analyses, using interest rates currently being offered for
similar loans to borrowers with similar credit ratings. Loans
with similar characteristics are aggregated for purposes of the
calculations. At December 31, 1993, the carrying amounts and
fair values of investments in mortgage loans and policy loans
were as follows:
<TABLE>
<CAPTION>
Carrying Fair
(in millions) Amount Value
<S> <C> <C>
Mortgage loans $302 $304
Policy loans 55 59
</TABLE>
Other Assets and Other Liabilities: Other invested assets
considered financial instruments include equity interests in
minority ownership investments, interests in limited
partnerships and related notes receivable. It is not practicable
to estimate a fair market value due to the closely-held nature
of these investments.
Other assets and liabilities considered financial instruments
include agents' balances receivable, prepaid and accrued
expenses, and other receivables generally of a short-term
nature. It is assumed the carrying value approximates fair
market value.
Short and Long-Term Debt: The carrying amount of USF&G's
short-term borrowings approximates its fair value. The fair
value of long-term debt is estimated using discounted cash flow
analyses, based on USF&G's current incremental borrowing rates
for similar types of borrowing arrangements. The carrying
amounts and estimated fair value of debt instruments at December
31, 1993, were as follows:
<TABLE>
<CAPTION>
Carrying Fair
(in millions) Amount Value
<S> <C> <C>
Corporate:
Short-term $395 $395
Long-term 179 179
Real estate 44 46
Other - -
Total $618 $620
</TABLE>
Investment Contracts: Fair values for USF&G's single premium
deferred annuities, other deferred annuities, single premium
immediate annuities and supplementary contracts are primarily
derived by estimating the cost to extinguish its liabilities
under an assumption reinsurance transaction. The estimated
statutory profits the assuming company would realize from the
transaction are discounted at a typical internal rate of return
objective. If such a transaction were to occur, GAAP would
require the unamortized balance of deferred acquisition costs
associated with these liabilities be immediately expensed. The
amount of the related unamortized deferred acquisition costs was
approximately $99 million at December 31, 1993. The fair values
of the remaining liabilities under investment contracts are
estimated using discounted cash flow calculations, based on
interest rates currently being offered for like contracts with
similar maturities. The carrying amounts and estimated fair
values of USF&G's liabilities for investment contracts at
December 31, 1993, are as follows:
<TABLE>
<CAPTION>
Carrying Fair
(in millions) Amount Value
<S> <C> <C>
Single premium deferred annuities $2,138 $2,104
Other deferred annuities 292 276
Single premium immediate annuities
and supplementary contracts 150 150
Funding agreements 1 1
Group annuities 167 167
Total $2,748 $2,698
</TABLE>
Off-Balance Sheet Financial Instruments: The fair values of
USF&G's unfunded real estate commitments and its financial
commitment on investments are estimated using discounted cash
flow analyses, based on USF&G's current incremental borrowing
rate for similar types of borrowing arrangements. The estimate
of the fair value of USF&G's interest rate swaps were obtained
from the counterparties to the agreements and were derived by
discounting the expected future cash flows using the basis point
differential between the current and contracted interest rates.
The estimated fair values of USF&G's off-balance sheet financial
instruments at December 31, 1993, are as follows:
<TABLE>
<CAPTION>
Fair
(in millions) Value
<S> <C>
Unfunded real estate commitments $(11)
Commitment on investments (27)
Interest rate swaps (5)
</TABLE>
Note 5 Leases
USF&G occupies office facilities under lease agreements that
expire at various dates through 2009. In addition, data processing,
office, and transportation equipment is leased under agreements
that expire at various dates through 1998.
USF&G's principal office lease involves a 40-story office
building that was sold in 1984 and subsequently leased back.
This lease provides for renewal options and rent increases every
five years and a repurchase option at the end of the lease. The
deferred gain arising from this sale is being amortized over the
noncancelable lease term of 25 years. The unamortized amount of
the deferred gain of $30 million, $31 million, and $33 million
at December 31, 1993, 1992, and 1991, respectively, is included
in other liabilities. For the years ended December 31, 1993,
1992, and 1991, amortization of $2 million is netted with
underwriting, acquisition, and operating expenses.
Most leases contain renewal options that may provide for rent
increases based on prevailing market conditions. Some leases
also may contain purchase options based on fair market values or
contractual values, if greater. All leases are accounted for as
operating leases. Rent expense for the years ended December 31,
1993, 1992, and 1991, was $54 million, $58 million, and $63
million, respectively.
The table opposite shows the future net minimum payments under
noncancelable leases at December 31, 1993.
<TABLE>
<CAPTION>
Home Other
Office Office
(in millions) Building Space Equipment Total
<S> <C> <C> <C> <C>
1994 $ 14 $17 $11 $ 42
1995 16 14 7 37
1996 16 12 5 33
1997 17 10 1 28
1998 17 8 - 25
After 1998 269 10 - 279
Total $349 $71 $24 $444
</TABLE>
Note 6 Shareholders' Equity
6.1. CLASSES OF STOCK
USF&G is authorized to issue 12 million shares of $50 par
value preferred stock and 240 million shares of $2.50 par
value common stock.
6.2. PREFERRED STOCK
USF&G has 4 million shares of $4.10 Series A Convertible
Exchangeable Preferred Stock, 1.3 million shares of $10.25
Series B Cumulative Convertible Preferred Stock, and
3.8 million shares of $5.00 Series C Cumulative Convertible
Preferred Stock issued and outstanding at December 31, 1993,
1992, and 1991.
Each share of the Series A and Series C preferred stock entitles
the holder to an annual cumulative dividend of $4.10 and $5.00,
respectively, and a liquidation preference of $50 plus accrued
and unpaid dividends. Each share of Series B preferred stock
entitles the holder to an annual cumulative dividend of $10.25
and a liquidation preference of $100 plus accrued and unpaid
dividends.
At December 31, 1993, at the option of the holder, subject to
adjustment under certain conditions, each share of Series A, B,
and C preferred stock is convertible to 1.179, 8.316, and 4.158
shares, respectively, of USF&G's common stock. The Series A
stock is exchangeable in whole at USF&G's option on any dividend
payment date for the corporation's 8.2 percent Convertible
Subordinated Debentures due in 2011 at a rate of $50 principal
amount per share. Series B and Series C stock are not
exchangeable.
The Series A shares are redeemable for cash, in whole or in
part, at USF&G's option at $51.23 per share, plus accrued and
unpaid dividends to the redemption date. The redemption price
declines to $50 per share in 1996. Series B shares are
redeemable for cash, in whole or in part, at USF&G's option
commencing in 1994 at $100 per share and accrued and unpaid
dividends plus a premium of $10.25 per share that declines
ratably to zero per share in 2001. No redemption may be made
prior to 1997 unless the closing price of the common stock
exceeds 150 percent of the Series B conversion price and subject
to certain other conditions. In addition, if a change in control
event should occur, then at the election of each holder of
Series B Preferred Stock, USF&G will issue and sell additional
nonredeemable equity securities and apply the net proceeds
thereof to redeem these Series B shares, but only if and to the
extent any such proceeds are raised. Series C shares are
redeemable for cash, in whole or in part, at USF&G's option
commencing in 1994 at $53.50 per share, plus accrued and unpaid
dividends to the redemption date. The redemption price declines
to $50 per share in 2001.
Holders of the preferred stock are not entitled to vote, except
that they may vote separately with respect to certain matters
including the authorizations of any additional classes of
capital stock that would rank senior to the preferred stock. In
the event that two quarterly dividends for Series B and C
preferred stock or six quarterly dividends for Series A stock
are unpaid, USF&G's Board of Directors will be increased by two,
and holders of preferred stock may elect two directors until all
such dividends in arrears have been paid.
6.3. DIVIDEND RESTRICTIONS
Payment of dividends to USF&G Corporation by its subsidiary
is subject to certain restrictions. The Maryland Insurance
code requires the Maryland Insurance Commissioner's prior
approval for any dividend payments during a twelve month period
from a Maryland subsidiary, such as USF&G Company, to its
holding company which exceeds 10 percent of policyholders'
surplus. At December 31, 1993, $154 million of dividends is
currently available for payment to USF&G Corporation from its
insurance subsidiary during 1994 without restriction. During
1993, $147 million in dividends was available for payment to
USF&G Corporation from its insurance subsidiary without
restriction, of which $125 million of dividends was paid.
6.4. CHANGES IN COMMON STOCK SHARES
<TABLE>
<CAPTION>
Years Ended December 31
1993 1992 1991
<S> <C> <C> <C>
Common Stock:
Balance, January 1 84,512,758 84,273,327 83,958,222
Shares issued 496,724 239,431 315,105
Balance, December 31 85,009,482 84,512,758 84,273,327
</TABLE>
6.5. SHAREHOLDER RIGHTS PLAN
USF&G has a shareholder rights plan ("the plan") to deter
coercive or unfair takeover tactics and to prevent a potential
purchaser from gaining control of USF&G without offering a fair
price to all of the corporation's shareholders. Under the plan,
each outstanding share of USF&G's common stock has one preferred
share purchase right (a "right") expiring in 1997. Each right
entitles the registered holder to purchase 1/100 of a share of
a new class of junior preferred stock for $140. The rights cannot
be exercised unless certain events occur that might lead to a
concentration in ownership of common shares. At that time, the
rights may be exercised for common stock having a value of twice
the exercise price. Under certain conditions, the rights also
become exercisable into shares of common stock of a purchaser
having a value of twice the exercise price. USF&G will generally
be entitled to redeem the rights, at $.05 per right, any time
before the tenth day after a 20 percent position is acquired.
Note 7 Stock Ownership Plans
7.1. STOCK OPTIONS AND STOCK PURCHASE PLANS
Stock Options: Stock options have been granted to full-time
officers and key employees under four incentive plans:
Long-Term Incentive Plan, Stock Option Plan of 1987, Stock
Option Plan of 1990, and Stock Incentive Plan of 1991.
In addition, the Employee Stock Option Plan of 1992 granted
eligible employees, other than officers and key employees
participating in other stock incentive plans, options to purchase
50 or 100 shares of stock. Options granted under the plans are
based on market quotations at the time of grant. Activity under
the stock option plans is as follows:
<TABLE>
<CAPTION>
Years Ended December 31
1993 1992 1991
<S> <C> <C> <C>
Outstanding, January 1 4,473,572 2,816,748 1,820,942
Granted 1,143,282 2,590,295 1,646,152
Exercised (338,940) (26,868) -
Surrendered or cancelled (1,115,690) (906,603) (650,346)
Outstanding, December 31 4,162,224 4,473,572 2,816,748
Expiration dates 1/94-12/2003 1/93-12/2002 4/92-12/2001
Exercise and surrender prices $6.25-30.82 $6.25-30.82 $6.25-34.00
Shares reserved and
available for grant 2,985,959 3,026,179 1,042,046
</TABLE>
Stock Purchase Plans: Shares have been offered to employees
under the Employees' Stock Purchase Plans of 1985 and 1990. None
were offered in 1991, 1992, or 1993. The purchase price is 85
percent of the market value of USF&G's common stock on the grant
date or the end of the two-year purchase period, whichever is
less. Activity under the stock purchase plans is as follows:
<TABLE>
<CAPTION>
Years Ended December 31
1993 1992 1991
<S> <C> <C> <C>
Outstanding, January 1 - 133,379 585,869
Granted - - -
Shares purchased - (98,882) (125,407)
Cancelled - (34,497) (327,083)
Outstanding, December 31 - - 133,379
Expiration dates - N/A 8/92
Purchase prices - $ 11.16 $5.68-23.23
Shares reserved - N/A 500,000
</TABLE>
Accounting Methods: Proceeds from the shares sold under the
stock option and stock purchase plans are credited to common
stock and paid-in capital. USF&G makes no charges to income for
the plans. The number of shares under the plans are adjusted for
any future stock dividends, stock splits, or similar changes.
7.2. DIRECTORS STOCK PLAN
Directors Stock Plan: The Corporation adopted the 1993
Stock Plan for Non-Employee Directors (the "Directors Stock Plan")
on May 12, 1993. Only the Corporation's outside directors are
eligible to participate and participation is mandatory. The
Directors Stock Plan has two components: (i) annual retainer
awards, and (ii) retirement awards. The Directors Stock Plan
authorizes the issuance of up to 300,000 shares of the
Corporation's common stock, par value $2.50 per share.
Activity under the Directors Stock Plan is as follows:
<TABLE>
<CAPTION>
December 31, 1993
Annual
Retirement Retainer
Award Award
<S> <C> <C>
Outstanding, January 1 - -
Stock Units Awarded 123,958 11,927
Stock Issued (17,300) (5,000)
Outstanding, December 31 106,658 6,927
</TABLE>
Accounting Method: USF&G records an accounting expense equal to
the market value at grant date of the vested stock or stock
units awarded under the Directors Stock Plan. In 1993, $2
million of compensation expense was recognized relating to this
plan. The future accounting expense related to these plans is
expected to be minimal.
Note 8 Retirement Benefits
8.1. RETIREMENT PLANS
USF&G has various noncontributory retirement plans covering
most regular full-time employees of the corporation and its
affiliates. An employee's pension benefit is based on salary,
years of service, and Social Security benefits. USF&G makes
contributions to the pension plans based on amounts
required to be funded under provisions of the Employee
Retirement Income Security Act of 1974. The plans' funded status
and amounts recognized in the consolidated financial statements
are as follows:
<TABLE>
<CAPTION>
At December 31
(dollars in millions) 1993 1992 1991
<S> <C> <C> <C>
ACTUARIAL PRESENT VALUE OF:
Accumulated benefit obligation $338 $263 $252
Vested benefits 322 249 241
Plan assets at fair value $297 $265 $237
Projected benefit obligation 351 278 262
Funded status (54) (13) (25)
Unrecognized net loss 123 55 62
Unrecognized prior service cost (benefit) (25) (28) (31)
Unrecognized net asset at January 1 - - (19)
Adjustment for minimum pension liability (85) - -
Net prepaid (accrued) pension cost $(41) $ 14 $(13)
ACTUARIAL ASSUMPTIONS:
Weighted-average discount rate 7.5% 8.75% 8.75%
Average rate of increase in future
compensation levels 5 6 6
Expected long-term rate of return on assets 8.5 9.5 9.5
</TABLE>
As a result of the lower interest rate environment, USF&G
decreased the discount rate assumption which caused the
accumulated benefit obligation to increase. In accordance with
SFAS No. 87, USF&G recorded a minimum pension liability for the
underfunded amount, representing the accumulated benefit
obligation in excess of the fair value of the plans' assets,
plus the amount of prepaid pension costs. The minimum pension
liability is reported as a separate reduction to shareholders'
equity.
The assets held by the plans consist primarily of fixed-income
and equity securities. USF&G classifies prepaid pension cost
with other assets and accrued pension cost with other
liabilities in the Consolidated Statement of Financial Position.
The components of net pension expense are as follows:
<TABLE>
<CAPTION>
Years Ended December 31
(in millions) 1993 1992 1991
<S> <C> <C> <C>
Service cost $ 4 $ 5 $ 9
Interest cost 25 23 25
Actual return on plan assets (19) (15) (27)
Net amortization and deferral - (10) 5
Net periodic pension expense $ 10 $ 3 $ 12
</TABLE>
8.2. POSTRETIREMENT BENEFITS
USF&G sponsors a defined dollar postretirement health care
plan (medical and dental) and noncontributory life insurance
plan covering most regular full-time employees of the corporation
and its affiliates. USF&G's contributions and costs are
determined based on the annual salary and the type of coverage
elected by covered employees. USF&G's contributions to the plan
are a percentage of plan costs based on age and service of
employees at retirement. Additionally, the plan costs are
capped at projected 1995 cost levels, and retiree contributions
are increased for the total medical costs over the projected levels.
Effective January 1, 1993, USF&G adopted Statement of Financial
Accounting Standards ("SFAS") No. 106, "Employers" Accounting
for Postretirement Benefits Other Than Pensions." This statement
requires USF&G to accrue a liability for the cost of health
care, life insurance, and other retiree benefits when the
employees' services are rendered.
As permitted under the new rule, the transition obligation of
$52 million at January 1, 1993, was recognized as an immediate
charge to net income by including the cumulative effect of this
accounting change. The effect of adopting the statement increased
1993 net periodic postretirement benefit cost by approximately
$1 million to an annual expense of $5 million. USF&G continues
to fund the health care and life insurance benefit costs
principally on a pay-as-you-go basis.
The plans' combined funded status and amounts recognized in the
consolidated financial statements at December 31, 1993, are as
follows:
<TABLE>
<CAPTION>
(in millions)
<S> <C>
Accumulated postretirement benefit obligation:
Retirees $(46)
Fully eligible active plan participants (4)
Other active plan participants (8)
(58)
Plan assets at fair value -
Funded status (58)
Unrecognized net loss 6
Unrecognized transition obligation -
Accrued postretirement benefit cost $(52)
</TABLE>
USF&G classifies accrued postretirement benefit cost with other
liabilities in the Consolidated Statement of Financial Position.
The components of the net periodic postretirement benefit cost
for the 1993 year are as follows:
<TABLE>
<CAPTION>
(in millions)
<S> <C>
Service cost $1
Interest cost 4
Net periodic postretirement benefit cost $5
</TABLE>
The weighted-average annual assumed rate of increase in per
capita cost of covered benefits (i.e., medical trend rate) for
the plans is 10.5 percent for 1994 (13 percent assumed for 1993)
and is assumed to decrease to 5.5 percent in 2002 for
participants age 65 or younger, and 8.0 percent for 1994 (8.75
percent for 1993), decreasing to 5.5 percent for participants
over age 65 and remain at that level thereafter. Increasing the
assumed medical trend rate by one percentage point in each year
would increase the accumulated postretirement benefit obligation
by approximately $4 million and the aggregate of the service and
interest cost components of net periodic postretirement benefit
cost for the year by approximately $0.3 million. The
weighted-average discount rate used in determining the
accumulated postretirement benefit obligation is 7.5 percent at
December 31, 1993.
The pay-as-you-go expenditures for postretirement benefits were
$5 million in 1993, $4 million in 1992, and $3 million in 1991.
The effect of the accounting change discussed above is
summarized as follows:
<TABLE>
<CAPTION>
(in millions) 1993
<S> <C>
Cumulative effect of accounting change on
January 1, 1993 $52
Plus postretirement benefit expense 5
Less postretirement cash expenditures (5)
Accrued postretirement benefit cost at
December 31, 1993 $52
</TABLE>
As part of USF&G's business restructuring program, special early
retirement benefits were offered to eligible employees during
1991. Included in restructuring charges for 1991 was $3 million
of pension expense related to these special benefits. There
were no similar expenses in 1993 or 1992.
Note 9 Federal Income Taxes
USF&G and its subsidiaries file a consolidated federal
income tax return. The provision for income taxes gives effect
to permanent differences between income before income taxes and
taxable income. Deferred federal income taxes are provided on
temporary differences and net operating loss carry-forwards
(1993) and timing differences (1992 and 1991) between financial
and taxable income.
Effective January 1, 1993, USF&G changed its method of
accounting for income taxes as required by SFAS No. 109,
"Accounting for Income Taxes." Under the standard, a deferred
tax liability is recognized for taxable temporary differences
and a deferred tax asset is recognized for deductible temporary
differences and net operating loss carry-forwards ("NOLs") that
will offset future taxable income. A valuation allowance is
required if, based on the weight of available evidence, it is
more likely than not that some or all of the deferred tax asset
will not be realized. As permitted under the new standard, prior
years' financial statements have not been restated.
SFAS No. 109 requires that deferred income taxes reflect the net
tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The
cumulative effect of adopting SFAS No. 109 as of January 1,
1993, was to increase net income by $90 million. As a result of
the Omnibus Budget Reconciliation Act of 1993 which increased
the corporate rate to 35 percent, an additional $3 million
deferred tax benefit was recognized. At December 31, 1993, the
deferred tax asset of $119 million recorded by USF&G is
supported by a combination of forecasted taxable income and a
tax strategy that USF&G would implement to prevent NOLs from
expiring. A valuation allowance of $482 million has been
recognized to offset the gross deferred tax assets. USF&G had
NOLs of $634 million ($222 million tax-effected at a 35 percent
corporate rate) for income tax purposes that expire in the years
2000 through 2006.
9.1. SIGNIFICANT COMPONENTS OF DEFERRED TAX ASSETS AND
LIABILITIES
<TABLE>
<CAPTION>
(in millions) December 31, 1993
<S> <C>
Deferred tax liabilities:
Deferred policy acquisition costs $(140)
Bonds (69)
Minimum pension liability (30)
Other invested assets (44)
Other (60)
Total deferred tax liabilities (343)
Deferred tax assets:
Loss reserves 304
Unearned premium revenue 45
Foreign reinsurance 49
Real estate 30
Future policy benefits 50
Net unrealized gains and losses 88
Other liabilities 113
Other 43
Net operating loss carry-forwards 222
Total deferred tax assets 944
Valuation allowance for deferred tax assets 482
Deferred tax assets, net of valuation allowance 462
Net deferred tax assets $ 119
</TABLE>
During the year, the net change in the valuation allowance was
$56 million to reflect the change in the realizability of the
deferred tax asset. In addition, the valuation allowance
increased $15 million due to the tax rate change enacted in 1993.
9.2. COMPONENTS OF PROVISION FOR INCOME TAXES
<TABLE>
<CAPTION>
Years Ended December 31
Liability Method Deferred Method
(in millions) 1993 1992 1991
<S> <C> <C> <C>
Current tax (benefit) $ 7 $ 6 $ 4
Deferred tax (benefit) 24 (6) (1)
Adjustment for enacted change
in tax rates (3) - -
Adjustment of the beginning of the
year valuation allowance (56) - -
Provision for income taxes $(28) $ - $ 3
Income taxes paid $ 3 $ 9 $ 1
</TABLE>
9.3. TAX EFFECTS OF TIMING DIFFERENCES BETWEEN FINANCIAL AND
TAXABLE INCOME
<TABLE>
<CAPTION>
Years Ended December 31
(in millions) 1992 1991
<S> <C> <C>
TAX EFFECT (BENEFIT):
Deferred policy acquisition costs $(15) $ (7)
Unbilled premium adjustments (4) (2)
Adjustment of life policy benefit reserves (1) (5)
Adjustment of property/casualty loss reserves 3 (11)
Adjustment of property/casualty unearned
premium reserves (4) (5)
Deferred realized gains and losses (2) 7
Unrecognized benefit of net losses 19 18
Other, net (2) 4
Provision for deferred income tax (benefit) $ (6) $ (1)
</TABLE>
9.4. TAX EFFECTS OF PERMANENT DIFFERENCES BETWEEN FINANCIAL AND
TAXABLE INCOME
<TABLE>
<CAPTION>
Years Ended December 31
Liability Method Deferred Method
(in millions) 1993 1992 1991
<S> <C> <C> <C>
Tax at federal rates $ 35 $12 $(48)
TAX EFFECT (BENEFIT):
Adjustment of the beginning of the
year valuation allowance (56) - -
Effect of change in tax rates (3) - -
State and foreign taxes - - 1
Dividend received deduction - (3) (2)
Tax-exempt interest income (2) (3) (7)
Proration adjustment on non-taxable
investment income - 1 1
Adjustment of property/casualty salvage and
subrogation accruals (fresh start) - - (3)
Adjustment of property/casualty
loss reserves (fresh start) - (9) (12)
Alternative minimum tax - - 10
Unrecognized benefit of net loss - 2 63
Other (2) - -
Provision for income taxes $(28) $ - $ 3
</TABLE>
9.5. NET OPERATING LOSS CARRY-FORWARDS
At December 31, 1993, USF&G had NOLs remaining for tax return
purposes expiring in years 2000 through 2006. The amount and
timing of recognizing the benefit of these NOLs depends on
future income and limitations imposed by recent tax acts.
The approximate amounts of USF&G's NOLs on a regular tax
basis and an alternative minimum tax ("AMT") basis at
December 31, 1993, were as follows:
<TABLE>
<CAPTION>
(in millions) Tax Return
<S> <C>
Regular tax basis $634
AMT basis 389
</TABLE>
Note 10 Reinsurance
During 1993, USF&G adopted SFAS No. 113, "Accounting and
Reporting for Reinsurance of Short-Duration and
Long-Duration Contracts." This standard requires the effects of
reinsurance activity to be reported on a gross basis.
Reinsurance receivables and prepaid reinsurance premiums are
reported separately as assets, instead of the previous practice
of reporting such receivables net of the related loss and
unearned premium liabilities. The standard also establishes the
conditions required for a contract to be accounted for as
reinsurance and prescribes income recognition and reporting
standards for those contracts. The initial adoption of this
standard had no effect on net income, but increased assets and
liabilities by approximately $1.2 billion at December 31, 1993.
USF&G reinsures portions of its policy risks with other
insurance companies or underwriters. USF&G assumes policy risks
from other insurance companies and through participation in
pools and associations. Reinsurance gives USF&G the ability to
write larger risks and control its exposure to losses from
catastrophes or other events that cause unfavorable underwriting
results. USF&G's ceding reinsurance agreements are generally
structured on a treaty basis whereby all risks meeting a certain
criteria are automatically reinsured. Amounts recoverable from
reinsurers are estimated in a manner consistent with the claim
liability associated with the reinsured policy. Reinsurance
contracts do not relieve USF&G from its obligation to
policyholders. Failure of reinsurers to honor their obligation
could result in losses to USF&G. USF&G evaluates the financial
condition of its reinsurers and monitors concentrations of
credit risks arising from similar economic characteristics of
the reinsurers to minimize its exposure to significant losses
from reinsurer insolvencies.
At December 31, 1993, reinsurance receivables totaled $573
million. Of this amount, approximately $150 million was
associated with the Workers Compensation Reinsurance Bureau
("WCRB"), a single voluntary reinsurance association of primary
workers compensation insurers formed for the purpose of
providing excess of loss reinsurance to its members. USF&G is a
member of this pool. Each member is required to hold collateral,
for the benefit of all member companies, in the form of
investment-grade securities equaling 115 percent of the member's
share of outstanding receivables of the WCRB. This collateral
requirement mitigates the risk of WCRB becoming insolvent. Risk
of loss is minimal for the remainder of receivables due to
similar pool arrangements with collateral requirements, other
contracts where funds are withheld, or letters of credit
maintained. Credit risk is also diversified among numerous
reinsurers. Additionally, USF&G is active in the involuntary
market as a servicing carrier whereby USF&G processes business
for a pool but takes no direct underwriting risk because it is
directly reimbursed for the cost of processing policies and
settling any related claims. Reinsurance receivables of $719
million associated with this business are separately disclosed
in the Consolidated Statement of Financial Position.
<TABLE>
<CAPTION>
1993 1992
Premiums Losses Unpaid Unearned Premiums Losses Unpaid Unearned
(in millions) Written Earned Incurred Losses Premiums Written Earned Incurred Losses Premiums
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Property/Casualty:
Direct $2,345 $2,338 $1,472 $ 5,078 $ 813 $2,472 $2,692 $2,182 $ 5,593 $ 805
Assumed 593 506 83 1,251 104 259 376 385 1,555 98
Gross 2,938 2,844 1,555 6,329 917 2,731 3,068 2,567 7,148 903
Ceded (509) (517) 203 (1,053) (124) (311) (535) (479) (1,608) (133)
Net 2,429 2,327 1,758 5,276 793 2,420 2,533 2,088 5,540 770
Life N/A 129 395 3,973 - N/A 104 377 3,896 -
Total $2,429 $2,456 $2,153 $ 9,249 $ 793 $2,420 $2,637 $2,465 $ 9,436 $ 770
1991
Property/Casualty:
<S> <C> <C> <C> <C> <C>
Direct $3,021 $3,127 $2,752 $ 5,607 $1,025
Assumed 573 423 412 1,667 313
Gross 3,594 3,550 3,164 7,274 1,338
Ceded (562) (532) (619) (1,570) (357)
Net 3,032 3,018 2,545 5,704 981
Life N/A 169 437 3,773 -
Total $3,032 $3,187 $2,982 $ 9,477 $ 981
</TABLE>
The ceded unpaid losses and assumed unpaid losses for 1993
were reduced $464 million and $267 million, respectively,
from 1992 due to a commutation involving the WCRB. At year
end 1993, WCRB members commuted the lowest layer of reinsurance
for accident years 1980 to 1992. As a result, USF&G was
required to take back all reserves previously ceded into the
layer and return reserves previously assumed.
Included in assumed unpaid losses in the above table are $110
million, $123 million and $279 million related to loss portfolio
transfer agreements at December 31, 1993, 1992, and 1991,
respectively. USF&G has not entered into any such agreements to
cede its unpaid losses.
Note 11 Financial Guarantees
11.1. INSURANCE GUARANTEES
USF&G has underwritten and reinsured financial guarantee bonds for
principal and interest payments or installment notes when due.
The obligations guaranteed were issued by limited partnerships,
municipalities, and commercial enterprises. Assessment is made
of the likelihood of loss in connection with these guarantees,
and at December 31, 1993, 1992, and 1991, the reserve for such
losses was not material. The risk of loss under these guarantees
is diminished through reinsurance agreements and collateral.
As of December 31, 1993, USF&G was contingently liable for par
value amounts totaling less than approximately $600 million on
financial guarantee exposures ceded through reinsurance
agreements with a monoline insurance company in which USF&G
formally had a minority ownership interest. In addition, USF&G
has other financial guarantee obligations where the par value
guaranteed totaled $12 million at December 31, 1993, with
maturities ranging from 1994 to 2007.
11.2. CORPORATE GUARANTEES
USF&G has also guaranteed the
obligations of certain limited partnerships where it has an
equity interest. The risk of loss under these guarantees is
diminished by collateral in the underlying projects. The
guarantees totaled $82 million at December 31, 1993, with
maturities ranging from 1994 to 1999. In addition, USF&G has
line of credit commitments outstanding totaling $61 million and
purchase commitments outstanding of $16 million.
Note 12 Legal Contingencies
12.1. GENERAL
USF&G's insurance subsidiaries are routinely engaged in
litigation in the normal course of their business, including
defending claims for punitive damages. As a liability insurer,
they defend third-party claims brought against their insureds.
As an insurer, they defend themselves against coverage claims.
Additional information regarding contingencies that may arise
from insurance regulatory matters may be found in the Regulation
section of Management's Discussion and Analysis of Financial
Condition and Results of Operations.
In the opinion of management the litigation described herein is
not expected to have a material adverse effect on USF&G's
consolidated financial position, although it is possible that
the results of operations in a particular quarter or annual
period would be materially affected by an unfavorable outcome.
12.2. SHAREHOLDER CLASS ACTION SUITS
Twelve class action complaints were filed by certain
shareholders of USF&G in 1990 and 1991. USF&G moved to dismiss
all twelve complaints. The complaints refer to USF&G's public
announcement on November 7, 1990, concerning a reduction in
its dividend and related matters. By an order dated February
11, 1993, the court dismissed eleven of the class action
complaints and on April 23, 1993, the court dismissed the
remaining action. The plaintiffs appealed these rulings and on
January 6, 1994, the Fourth Circuit of Appeals affirmed the
dismissal of all twelve suits. The plaintiffs have not yet indicated
whether they will seek review from the United States Supreme Court.
While the outcome cannot be predicted with certainty, management
believes the lawsuits are without merit and the outcome is unlikely
to have a material adverse effect on USF&G's financial position.
12.3. ARKANSAS SERVICING CARRIER LITIGATION
On September 14, 1993, Interstate Contractors, Inc. and two other Arkansas
corporations filed a class action in the U.S. District Court for
the Eastern District of Arkansas, Little Rock, against the
National Council on Compensation Insurance ("NCCI"), USF&G and
ten other insurance companies which served as servicing carriers
for the Arkansas involuntary workers compensation market. The
case, which is captioned Interstate Contractors, Inc., et al.
v. National Council on Compensation Insurance, et al., alleges
that the defendants failed to provide safety and loss control
services, claim management services, and assistance in moving
insureds from the involuntary market to the voluntary market.
The plaintiffs are pursuing their claims under various legal
theories, including breach of contract, breach of fiduciary
duty, and negligence. The plaintiffs seek unspecified
compensatory damages based on the premiums attributable to
services allegedly not performed and damages allegedly incurred
as a result of the alleged failure to provide such services.
USF&G believes that it has meritorious defenses and has
determined to defend the action vigorously. Management believes
that it is unlikely such claims will have a material adverse
effect on USF&G's financial position.
12.4. NORTH CAROLINA WORKERS COMPENSATION LITIGATION
On November 24, 1993, N.C. Steel, Inc. and six other North Carolina
employers filed a class action in the General Court of Justice,
Superior Court Division, Wake County, North Carolina, against
the NCCI, North Carolina Rate Bureau, USF&G and eleven other
insurance companies which served as servicing carriers for the
North Carolina involuntary workers compensation market. On
January 20, 1994, the plaintiffs filed an amended complaint
seeking to certify a class of all employers who purchased
workers compensation insurance in the State of North Carolina
after November 24, 1989. The amended complaint, which is
captioned N.C. Steel Inc. et al., v. National Council on
Compensation Insurance, et al., alleges that the defendants
conspired to suppress competition with respect to the North
Carolina voluntary and involuntary workers compensation
business, thereby artificially inflating the rates in such
markets and the fees payable to the insurers. The complaint
also alleges that the carriers agreed to improperly deny
qualified companies from acting as servicing carriers,
improperly encouraged agents to place employers in the assigned
risk pool, and improperly promoted inefficient claims handling.
USF&G has acted as a servicing carrier in North Carolina since
1990. The plaintiffs are pursuing their claims under various
legal theories, including violations of the North Carolina
antitrust laws, unlawful conspiracy, breach of fiduciary duty,
breach of implied covenant of good faith and fair dealing,
unfair competition, constructive fraud, and unfair and deceptive
trade practices. The plaintiffs seek unspecified compensatory
damages, punitive damages for the alleged construction fraud,
and treble damages under the North Carolina antitrust laws.
USF&G believes that it has meritorious defenses and has
determined to defend the action vigorously. Management believes
that it is unlikely such claims will have a material adverse
effect on USF&G's financial position.
Note 13 Information on Business Segments
USF&G's principal business segments are property/casualty
insurance and life insurance.
13.1. OPERATIONS
The insurance business is geographically diversified throughout
the United States. Noninsurance operations are located in the
United States, Europe, and other foreign countries. Foreign
operations, in total, are not material. Summarized financial
information for the business segments is as follows:
<TABLE>
<CAPTION>
Years Ended December 31
Income (loss) from Continuing
Revenues Operations Before Income Taxes
(in millions) 1993 1992 1991 1993 1992** 1991**
<S> <C> <C> <C> <C> <C> <C>
PROPERTY/CASUALTY INSURANCE
Commercial $1,223 $1,480 $1,885 $(223) $(343) $(455)
Personal 681 785 920 (28) (110) (97)
Reinsurance 305 157 96 32 20 26
Fidelity/surety 118 111 117 (8) 6 11
Property/casualty
categories 2,327 2,533 3,018 (227) (427) (515)
Net investment income* 433 475 498 433 475 498
Realized gains on investments* 31 199 44 31 199 44
Other - 1 3 (24) (51) (67)
Total property/casualty 2,791 3,208 3,563 213 196 (40)
LIFE INSURANCE
Premium income 129 104 169
Net investment income 321 349 370
Realized gains (losses)
on investments 20 (1) 31
Other 1 2 2
Total life 471 454 572 14 (5) 36
NONINSURANCE OPERATIONS and
eliminations (13) (2) 37 (128) (156) (137)
Consolidated $3,249 $3,660 $4,172 $ 99 $ 35 $(141)
<FN>
*Net investment income and realized gains on investments are not
allocated to property/casualty categories.
**Income (loss) from continuing operations before income taxes for 1992 and 1991
includes restructuring charges by segment as follows: Property/casualty, $46 million
and $52 million; Life, $3 million and $2 million; and Noninsurance operations,
$2 million and $6 million, respectively.
</TABLE>
13.2. ASSETS
The assets of the insurance operations are primarily investments.
Foreign assets are not material. Assets of the business segments
are as follows:
<TABLE>
<CAPTION>
At December 31
(in millions) 1993 1992 1991
<S> <C> <C> <C>
Property/casualty insurance $ 9,565 $ 8,253 $ 9,353
Life insurance 4,848 4,856 5,012
Noninsurance operations and eliminations (78) 25 121
Consolidated $14,335 $13,134 $14,486
</TABLE>
Note 14 Interim Financial Data (Unaudited)
<TABLE>
<CAPTION>
Quarter
(in millions except per share data) First Second Third Fourth
<S> <C> <C> <C> <C> <C>
SUMMARY QUARTERLY RESULTS:
Revenues 1993 $ 875 $ 820 $ 755 $ 799
1992 941 906 1,011 802
1991 1,084 1,061 991 1,036
Income (loss) from continuing operations 1993 23 25 20 59
before cumulative effect of adopting 1992 4 7 11 13
new accounting standards 1991 (51) (56) (21) (16)
Loss from discontinued operations 1993 - - - -
1992 - (1) (6) -
1991 (4) - (4) (24)
Income (loss) from cumulative effect 1993 38 - - -
of adopting new accounting standards 1992 - - - -
1991 - - - -
Net income (loss) 1993 61 25 20 59
1992 4 6 5 13
1991 (55) (56) (25) (40)
PRIMARY EARNINGS PER COMMON SHARE:*
Income (loss) from continuing operations 1993 $ .13 $ .15 $ .10 $ .55
before cumulative effect of adopting 1992 (.09) (.06) (.02) .01
new accounting standards 1991 (.65) (.77) (.38) (.34)
Loss from discontinued operations 1993 - - - -
1992 - (.01) (.07) -
1991 (.05) - (.06) (.28)
Income (loss) from cumulative effect of 1993 .45 - - -
adopting new accounting standards 1992 - - - -
1991 - - - -
Net income (loss) 1993 .58 .15 .10 .55
1992 (.09) (.07) (.09) .01
1991 (.70) (.77) (.44) (.62)
FULLY DILUTED EARNINGS PER COMMON SHARE:*
Income (loss) from continuing operations 1993 $ .17 $ .15 $ .10 $ .49
before cumulative effect of adopting 1992 (.09) (.06) (.02) .01
new accounting standards 1991 (.65) (.77) (.38) (.34)
Loss from discontinued operations 1993 - - - -
1992 - (.01) (.07) -
1991 (.05) - (.06) (.28)
Income (loss) from cumulative effect of 1993 .34 - - -
adopting new accounting standards 1992 - - - -
1991 - - - -
Net income (loss) 1993 .51 .15 .10 .49
1992 (.09) (.07) (.09) .01
1991 (.70) (.77) (.44) (.62)
<FN>
*The sum of quarterly income (loss) per share amounts may not
equal the full year's amount due to stock issuances during
presented periods.
</TABLE>
In the first quarter of 1993, USF&G adopted two new accounting
standards, which resulted in a net benefit of $38 million.
SFAS No. 109, "Accounting for Income Taxes," increased net
income by $90 million. This was partially offset
by a $52 million charge to net income for SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than
Pensions."
The third quarter 1992 results reflect $142 million in realized
gains on investments, $80 million of catastrophe losses as a
result of Hurricane Andrew, and $51 million of restructuring
charges.
The fourth quarter 1991 loss from discontinued operations
reflects the decision to divest the investment management
operations.
USF&G Corporation
Report of Independent Auditors
Board of Directors
USF&G Corporation
We have audited the accompanying consolidated statement of
financial position of USF&G Corporation as of December 31, 1993,
1992, and 1991, and the related consolidated statements of
operations, shareholders' equity, and cash flows for the years
then ended. These financial statements are the responsibility
of the Corporation's management. Our responsibility is to
express an opinion on these financial statements 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 USF&G Corporation at December 31, 1993,
1992, and 1991 and the consolidated results of its operations
and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
In 1993, as a result of adopting new accounting standards and as
discussed in Notes 1, 2, 8, and 9 to the consolidated financial
statements, the Corporation changed its methods of accounting
for certain investments in debt and equity securities,
postretirement benefits other than pensions, and income taxes.
ERNST & YOUNG
Baltimore, Maryland
February 11, 1994
USF&G Corporation
Directors and Committees of the Board
DIRECTORS
H. Furlong Baldwin (62)
Chairman of the Board and
Chief Executive Officer
Mercantile Bankshares Corporation
1981*
Michael J. Birck (56)
President and Chief Executive Officer
Tellabs, Inc.
1993*
Norman P. Blake, Jr. (52)
Chairman of the Board, President,
and Chief Executive Officer
USF&G Corporation
1990*
George L. Bunting, Jr. (53)
President and Chief Executive Officer
Bunting Management Group
1981*
Robert E. Davis (62)
Managing Director
Axess Corporation
1990*
Dr. Rhoda M. Dorsey (66)
President
Goucher College
1981*
Dale F. Frey (61)
Chairman of the Board and President
General Electric Investment Corporation
1991*
Robert E. Gregory, Jr. (51)
Chairman of the Board and
Chief Executive Officer
The Gitano Group, Inc.
1988*
Robert J. Hurst (48)
Partner
Goldman, Sachs & Co.
1988*
Dr. Wilbur G. Lewellen (56)
Herman C. Krannert
Distinguished Professor of Management
Graduate School of Management
Purdue University
1992*
Henry A. Rosenberg, Jr. (64)
Chairman of the Board and Chief Executive Officer
Crown Central Petroleum Corporation
1981*
Larry P. Scriggins (57)
Partner
Piper & Marbury
1981*
Anne Marie Whittemore (47)
Partner
McGuire Woods Battle & Boothe
1993*
George S. Wills (57)
President
Wills & Associates, Inc.
1981*
* Date indicates year of original election.
COMMITTEES OF THE BOARD
EXECUTIVE COMMITTEE
Norman P. Blake, Jr.
Chairman
H. Furlong Baldwin
George L. Bunting, Jr.
Dale F. Frey
Robert E. Gregory, Jr.
Robert J. Hurst
FINANCE COMMITTEE
H. Furlong Baldwin Chairman
Dale F. Frey
Wilbur G. Lewellen
Larry P. Scriggins
Anne Marie Whittemore
George S. Wills
AUDIT COMMITTEE
Robert E. Gregory, Jr.
Chairman
Robert E. Davis
Rhoda M. Dorsey
Dale F. Frey
Henry A. Rosenberg, Jr.
COMPENSATION COMMITTEE
George L. Bunting, Jr.
Chairman
Michael J. Birck
Robert E. Davis
Robert E. Gregory, Jr.
Wilbur G. Lewellen
Henry A. Rosenberg, Jr.
NOMINATING COMMITTEE
Robert J. Hurst
Chairman
H. Furlong Baldwin
George L. Bunting, Jr.
Robert E. Davis
Rhoda M. Dorsey
Larry P. Scriggins
USF&G Corporation
Officers
EXECUTIVE MANAGEMENT COMMITTEE
NORMAN P. BLAKE, JR. (52)
Chairman, president, and chief executive officer since 1990
Previously chairman and chief
executive officer, Heller International; executive vice
president-Financing Operations, General Electric Credit
Corporation
B.S.; M.A.-Purdue University
GLENN W. ANDERSON (41)
Executive vice president-Commercial Lines
since 1994 Previously senior vice president-USF&G Commercial
Lines; vice president-Strategic Target Marketing, Fireman's
Fund
B.A.-Stanford University
GARY C. DUNTON (38)
Executive vice president-Field Operations
since 1994 Previously executive vice president-USF&G Commercial
Lines; vice president-Standard Commercial Accounts, Aetna Life
& Casualty
B.S.-Northeastern University; M.B.A.-Harvard University
DAN L. HALE (49)
Executive vice president-chief financial
officer since 1993 Previously executive vice president-USF&G
Diversified Insurance and Investment Operations; president,
Chase Manhattan Leasing Company
B.A.-Yale University
KENNETH E. CIHIY (47)
Senior vice president-Claim since 1993
Previously resident vice president, Aetna Life & Casualty
B.S.-Wilkes University
ROBERT J. LAMENDOLA (49)
Senior vice president-Fidelity/Surety
since 1992 Previously managing director, Marsh & McLennan, Inc.
B.A.-State University College at Buffalo, New York
THOMAS K. LEWIS (41)
Senior vice president and chief information
officer since 1993 Previously vice president-general manager for
Europe, Middle East, and Africa, Seer Technologies, Inc.
B.S.; M.S.-University of New Haven
JOHN A. MACCOLL (45)
Senior vice president-general counsel since 1990
Previously partner, Piper & Marbury
B.A.-Princeton University; LL.B.-Georgetown University
AMY P. MARKS (37)
Senior vice president-Human Resources since 1992
Previously senior vice president-USF&G Strategic Planning
and Business Development; senior engagement manager, McKinsey &
Company
B.A.; M.B.A.-University of Chicago
RICHARD J. POTTER (48)
Senior vice president-Personal Lines
since 1991
Previously senior vice president-USF&G Strategic
Planning; president, Credit Life Insurance Company
B.A.-Brown University; M.B.A.-University of Chicago
ANDREW A. STERN (36)
Senior vice president-Strategic
Planning/Corporate Marketing since 1993
Previously partner and
vice president, Booz Allen & Hamilton, Inc.
B.S.S.C.-Massachusetts Institute of Technology;
M.B.A.-University of Chicago
JOHN C. SWEENEY (49)
Senior vice president-chief investment officer since 1992
Previously principal and practice director,
Towers Perrin Asset Consulting Services
B.S.-St. Joseph's University; M.S.-The College of William & Mary
IHOR W. HRON (51)
President-F&G Life since 1991
Previously senior vice president-F&G Life; national director-Brokerage
Operations, Connecticut General Life Insurance Company
B.S.-Rutgers University
PAUL B. INGREY (54)
President-F&G Re, Inc. since 1983
Previously senior vice president, Prudential Reinsurance Company
B.S.-Colgate University; M.B.A.-College of Insurance
OFFICERS
USF&G INSURANCE
President
Norman P. Blake, Jr.
CLAIM
Senior Vice President
Kenneth E. Cihiy
Vice President
G. Jay Erbe, Jr.
John F. Hayes II
Richard A. Hughes, Jr.
Thomas W. Salinsky
Charles M. Stapleton
Thomas M. Trezise
COMMERCIAL LINES
Executive Vice President
Glenn W. Anderson
Senior Vice President
Ben L. Griffin
Stephen W. Lilienthal
Robert W. Mueller
Kim B. Rich
Vice President
Peter T. Bothwell
Alan K. Crater
Jeff J. Gans
Ronald L. Goldberg
David Kaiser
Steven A. LaShier
Paul C. Martin
Kevin M. Nish
Kenneth R. Solomon
FIDELITY-SURETY
Senior Vice President
Robert J. Lamendola
Vice President
Michael P. Hammond
John A. Huss
David G. Olson
Brent E. Snelgrove
Gary A. Wilson
FIELD OPERATIONS
Executive Vice President
Gary C. Dunton
Regional Vice President
Paul H. Beil
R. Lee Buck
James R. Lewis
Kenneth F. May
Vice President
Richard G. Lambert
Gregory J. Richardson
FINANCE
Executive Vice President
Dan L. Hale
Vice President
Francis X. Bossle
Thomas A. Bradley
Kerrie A. Burch-DeLuca
Richard P. Campagna
Duane M. Danielsen
Diane Olmstead
Gary R. Preysner
Jon B. Savage
Richard H. Snader
James E. Stangroom
Charles R. Werhane
Paul Yates
HUMAN RESOURCES
Senior Vice President
Amy P. Marks
Vice President
Jerome Adams
Edward W. Gold
Kathryn A. Henry
Richard A. Roedel
INFORMATION SERVICES
Senior Vice President
Thomas K. Lewis, Jr.
Vice President
James Hughes
William L. Oakley
Janet T. Turoff
INVESTMENTS
Senior Vice President
John C. Sweeney
Vice President
Salvatore Correnti
Geoffrey C. Getman
Simon A. Mikhailovich
LEGAL
Senior Vice President/
General Counsel
John A. MacColl
Vice President
John A. Andryszak
John D. Corse
Vance C. Gudmundsen
J. Kendall Huber
John M. Lummis
Rosemary Quinn
Personal Lines
Senior Vice President
Richard J. Potter
Vice President Eileen O'Shea Auen
Paul F. DiFrancesco
Earnest E. Hines
STRATEGIC PLANNING/
CORPORATE MARKETING
Senior Vice President
Andrew A. Stern
Vice President
Scott A. Williams
SUBSIDIARY COMPANIES
F&G LIFE
President
Ihor W. Hron
Senior Vice President
Gene F. Gaines
Harry N. Stout
Vice President
Gary L. Burke
Michael A. Loffa
Peter J. McGlinchy
Robert C. Read
Bruce H. Saul
F&G RE
President
Paul B. Ingrey
Executive Vice President
John R. Berger
Senior Vice President
Dwight R. Evans
Roland W. Jackson
Timothy J. Olson
Wayne C. Paglieri
David S. Skurnick
Alan M. Willemsen
Vice President
Paul J. Brauner
Peter A. Dodge
Donald C. Kelly
Edward F. Konikowski
Michael J. O'Brien, Jr.
Charles B. Penruddocke
John F. Rathgeber
John H. Reimer
Rolf Schmidt
Arthur S. Underwood
Vice President/Counsel
Andrew Nosal
USF&G Corporation
Regional and Branch Offices
REGIONAL OFFICES
NORTHEAST REGION
James R. Lewis
5801 Smith Avenue
Baltimore, Maryland 21209
(410) 578-2301
SOUTHEAST REGION
Kenneth F. May
9000 Central Park West
Suite 700
Atlanta, Georgia 30328
(404) 390-5500
MISSISSIPPI REGION
Anthony D. Everett
USF&G Building
143 LeFleur's Square
Jackson, Mississippi 39211
(601) 982-5555
MIDWEST REGION
Paul H. Beil
135 N. Pennsylvania Street
Suite 800
Indianapolis, Indiana 46204
(317) 267-2850
WESTERN REGION
R. Lee Buck
1700 Lincoln Street
Suite 1750
Denver, Colorado 80203
(303) 832-8680
BRANCH OFFICES
CALIFORNIA
Nancy D. Stewart
2290 North First Street
Suite 100
San Jose, California 95131
(408) 435-0650
COLORADO
Anita Devan
370 Seventeenth Street
Suite 2800
Denver, Colorado 80202
(303) 893-1166
CONNECTICUT
Terence J. Welsh
175 Capital Boulevard
Rocky Hill, Connecticut 06067
(203) 563-8011
FLORIDA
M. Lee Patkus
600 N. Westshore Boulevard
Suite 400
Tampa, Florida 33609
(813) 289-4589
GEORGIA
Robert R. Southard
9000 Central Park West
Suite 600
Atlanta, Georgia 30328
(404) 390-5500
ILLINOIS
Hernando Madronero
Corporetum Office Campus
850 Warrenville Road-2nd Floor
Lisle, Illinois 60532
(708) 968-4500
INDIANA
Terry A. Toohey
135 N. Pennsylvania Street
Suite 1000
Indianapolis, Indiana 46204
(317) 267-2700
IOWA
John G. Liska
4200 Corporate Drive
West Des Moines, Iowa 50266
(515) 223-5700
KENTUCKY
R. Paul Feemster
USF&G Building
9911 Shelbyville Road
Suite 200
Louisville, Kentucky 40223
(502) 429-7000
MARYLAND
Gary L. Roth
DPC Expansion-1st Floor
5801 Smith Avenue
Baltimore, Maryland 21209
(410) 578-2000
MICHIGAN
Derrick D. Iseler
1900 West Big Beaver Road
Troy, Michigan 48084
(810) 643-6433
MISSISSIPPI
Anthony D. Everett
143 LeFleur's Square
Jackson, Mississippi 39211
(601) 982-5555
MISSOURI
Jonathan R. Jeschke
7500 College Boulevard
Suite 300
Overland Park, Kansas 66210
(913) 661-9700
L. Bud Roberts
910 North Eleventh Street
St. Louis, Missouri 63101
(314) 241-9190
MONTANA
Glen E. Dye
1625 Eleventh Avenue
Helena, Montana 59601
(406) 442-2270
NEW YORK
William R. Cossari
2500 Westchester Avenue
Purchase, New York 10577
(914) 251-2300
Michael J. Onofrio
5786 Widewaters Parkway
DeWitt, New York 13214
(315) 449-5100
NORTH CAROLINA
Louis R. Snage, Jr.
7415 Pineville-Matthews Road
Suite 300
Charlotte, North Carolina 28226-3267
(704) 544-0400
OHIO
Joseph J. Brossard
4936 Blazer Parkway
P.O. Box 7188
Dublin, Ohio 43017-0788
(614) 793-1500
OKLAHOMA
Larry W. Fitch
3500 Northwest 56th Street
Oklahoma City, Oklahoma 73112
(405) 946-6640
OREGON
Thomas G. Iverson
Five Centerpointe Drive, 3rd Floor
Lake Oswego, Oregon 97035
(503) 684-0880
PENNSYLVANIA
John A. Umberger
930 Harvest Drive
Suite 400
P.O. Box 3007
Blue Bell, Pennsylvania 19422
(215) 540-2700
Leonard H. Allen
3211 North Front Street
Harrisburg, Pennsylvania 17110
(717) 234-7941
Richard W. Ramell
One Mellon Bank Center
500 Grant Street
Pittsburgh, Pennsylvania 15219
(412) 261-2550
TENNESSEE
Stephen A. Nafe
100 Westwood Place
Suite 200
Brentwood, Tennessee 37027
(615) 370-8400
UTAH
Melvin R. Workman
1100 East 6600 South
Salt Lake City, Utah 84121
(801) 269-5656
VIRGINIA
John H. Jennings, Jr.
2819 Parham Road
Richmond, Virginia 23294
(804) 747-0300
WASHINGTON
Suite 300-North Tower
100 West Harrison Plaza
Seattle, Washington 93119
(206) 285-3636
WEST VIRGINIA
Charles W. Kincaid, Jr.
1409 Greenbrier Street
Charleston, West Virginia 25311
(304) 344-1692
WISCONSIN
Robert D. Prunty
2525 North Mayfair Road
Milwaukee, Wisconsin 53226
(414) 476-3600
USF&G Corporation
Shareholders' Information
Corporate Headquarters/Home Office
100 Light Street
Baltimore, Maryland 21202
(410) 547-3000
Annual Meeting
The Annual Meeting of Shareholders will be held
Wednesday, May 4, 1994, at 9:00 a.m. at the Sheraton Inner
Harbor Hotel, 300 South Charles Street, Baltimore, Maryland.
Reports Filed with the Securities and Exchange Commission
A copy
of USF&G Corporation's Annual Report on Form 10-K or Quarterly
Report on Form 10-Q, as filed with the Securities and Exchange
Commission, may be obtained without charge upon request to John
F. Hoffen, Jr., corporate secretary at the corporate
headquarters.
Stock Exchange Listing
Common Stock: USF&G Corporation's Common
Stock (ticker: FG) is listed on the New York Stock Exchange. The
common stock appears in the NYSE Composite Listing as USFG. The
common stock is also listed on the Pacific Stock Exchange, the
London Stock Exchange, and the Stock Exchanges of Basle, Geneva,
and Zurich, Switzerland.
Preferred Stock: USF&G Corporation's $4.10 Series A Convertible
Exchangeable Preferred Stock (ticker: FGpA) and USF&G
Corporation's $5.00 Series C Cumulative Convertible Preferred
Stock (ticker: FGpC) are listed on the New York Stock Exchange.
The preferred stock appears in the NYSE Composite Listing as
USFGpf. The preferred stock is also listed on the Pacific Stock
Exchange.
Transfer Agent/Registrar
First Chicago Trust Company of New York
is transfer agent, registrar, and dividend disbursing agent for
USF&G Corporation's common and preferred stock. Inquiries
regarding stock transfer requirements, dividend payments, the
Dividend Reinvestment and Stock Purchase Plan, or address
changes should be addressed to:
First Chicago Trust Company of New York
P.O. Box 2500
Jersey City, NJ 07303-2500
Attention: Shareholders' Relations Department
(201) 324-0498
Stock and Dividend Information
The following tabulation
presents 1993 and 1992 data on the sale prices of USF&G
Corporation's common stock on the New York Stock Exchange
Composite Listing by quarter, and the dividends paid per share
of common stock. At February 25, 1994, there were 37,263
shareholders of record and the closing price was $14.25.
<TABLE>
<CAPTION>
Sale Price
High Low Dividends Paid
<S> <C> <C> <C>
1993
First quarter $17 5/8 $11 1/8 $.05
Second quarter 19 5/8 15 3/4 .05
Third quarter 19 5/8 13 7/8 .05
Fourth quarter 15 1/4 12 3/8 .05
1992
First quarter $10 1/4 $ 7 1/8 $.05
Second quarter 14 1/4 8 .05
Third quarter 15 10 .05
Fourth quarter 14 1/8 9 7/8 .05
</TABLE>
Dividend Reinvestment and Stock Purchase Plan
The plan provides shareholders with a convenient way to invest
cash dividends and to make optional cash investments in additional
shares of USF&G Corporation's common stock without payment of any charges for
brokerage commissions or fees. First Chicago Trust Company of
New York administers the plan and additional information may be
obtained from them by written request.
For Additional Information
Investors and analysts requesting
additional information about USF&G may contact:
Jennifer Macke
Investor Relations Department
(410) 547-3939
Independent Auditors
Ernst & Young
One North Charles Street
Baltimore, Maryland 21201
<PAGE>
APPENDIX TO ELECTRONIC FORMAT DOCUMENT
(*List of graphic and image material in 1993 Annual Report)
*Page 3
GRAPH Revenues
(in billions)
1990 $4.171
1991 4.172
1992 3.660
1993 3.249
GRAPH Net Income
(in millions except per share data)
Net Income EPS(Earnings Per Share)
1990 $(569) $ (6.99)
1991 (176) (2.53)
1992 28 (0.24)
1993 165 1.38
GRAPH Balance Sheet Leverage/Liquidity
(dollars in billions)
Fixed charge
Equity Debt-to-equity ratio coverage ratio
1990 $1.205 65 (3.3)
1991 1.323 51 (.5)
1992 1.270 49 .8
1993 1.511 41 1.4
*Page 4 PHOTO desribed in respective page of Annual Report
*Page 5 GRAPH
----------------------------------------------------------------------
| Fix the --> Build with --> Leverage |
| Foundation Vision Leadership |
|---------------------------------------------------------------------|
Profit | Mission | Culture/Core Values | |
(x axis)| Strategy | Market/Customer | |
| Leadership | Orientation | Extend from |
| Competitive Resources | Competitive | positions of |
| | Differentiation | leadership |
| Economic Structure | | |
---------------------------------------------------------------------
(y axis) 1990 1993 1996
(caption) USF&G is now entering the "Build with Vision" phase of its
restructuring and rebuilding process.
(A discussion of the illustration of USF&G's restructuring and rebuilding can
be found in the first paragraph of the Chairman's Letter on page 5 of the
Annual Report.)
*Page 6
GRAPH Operating Income
(in millions)
1990 $ (77)
1991 (179)
1992 (113)
1993 93
(caption) The increase in operating income is due to improved underwriting
performance in the property/casualty company.
GRAPH Property/Casualty Statutory
Combined Ratio
Statutory
Loss Expense combined
ratio ratio ratio
1990 81.9 32.9 114.8
1991 84.1 33.1 117.2
1992 82.0 34.9 116.9
1993 75.4 33.7 109.1
(caption) The improved ratios result from effective product/market mix
management and improved underwriting and claim settlement practices.
*Page 7
GRAPH General & Administrative Expenses
(in millions)
1990 $635
1991 532
1992 465
1993 437
(caption) A 31% decrease in general and administrative expenses since
1990 favorably influenced earnings.
GRAPH Consolidated Employment & Productivity
(in thousands)
Number of Revenue per
employees employee
1990 12.5 $364
1991 9.1 455
1992 7.4 473
1993 6.5 499
(caption) Employment levels decreased by 48% since 1990 contributing
to a 37% improvement in productivity.
*Page 8
GRAPH Investment Portfolio
(dollars in billions)
Investment- Market-
grade fixed- Other to-
income invested amortized
securities assets cost ratio
1990 $4.844 $6.377 99
1991 3.487 8.680 104
1992 2.663 8.683 101
1993 2.375 9.002 104
(caption) Improved asset quality is evidenced by an increase in
investment-grade fixed income securities.
GRAPH Real Estate Portfolio
(dollars in billions)
Total % Reserves to
Real Non- nonperforming
Estate Performing real estate
1990 $1.081 331 21
1991 1.155 393 22
1992 1.112 346 31
1993 1.095 249 43
(caption) Nonperforming real estate investments have decreased while
reserve coverage has steadily improved.
*Page 10 PHOTO desribed in respective page of Annual Report
*Page 11 PHOTO desribed in respective page of Annual Report
*Page 12 PHOTO desribed in respective page of Annual Report
*Page 14 PHOTO desribed in respective page of Annual Report
*Page 15 PHOTO desribed in respective page of Annual Report
*Page 16 PHOTO desribed in respective page of Annual Report
*Page 17 PHOTO desribed in respective page of Annual Report
*Page 18 PHOTO desribed in respective page of Annual Report
*Page 19 PHOTO desribed in respective page of Annual Report
*Page 20 PHOTO desribed in respective page of Annual Report
*Page 21 PHOTO desribed in respective page of Annual Report
*Page 22 PHOTO desribed in respective page of Annual Report
*Page 23 PHOTO desribed in respective page of Annual Report
*Page 24 PHOTO desribed in respective page of Annual Report
*Page 25 PHOTO desribed in respective page of Annual Report
*Page 28
GRAPH Combined Ratio+
Expense Statutory Loss Combined Ratio
1991 33.4 91.6 125.0
1992 36.3 86.9 123.2
1993 34.7 83.6 118.3
(footnote)+Total Commercial Lines segment
*Page 29
GRAPH Personal Lines Combined Ratio
Expense Statutory Loss Combined Ratio
1991 30.4 80.0 110.4
1992 33.2 80.0 113.2
1993 33.9 71.2 105.1
GRAPH Fidelity/Surety Combined Ratio
Expense Statutory Loss Combined Ratio
1991 56.3 42.3 98.6
1992 64.0 32.0 96.0
1993 56.4 50.5 106.9
GRAPH F&G Re Combined Ratio
Expense Statutory Loss Combined Ratio
1991 29.9 59.1 89.0
1992 17.0 76.9 93.9
1993 24.6 67.3 91.9
GRAPH Life Insurance Strategic Surplus+ to Assets
1991 7.8
1992 9.6
1993 9.8
(footnote)+Strategic surplus is the sum of statutory surplus and
mandated Asset Valuation Reserve.
*Page 30
GRAPH Asset Allocation (pie chart)
1992 1993
Equities &
other invested
assets 4% 3%
Real estate 9 9
High-yield 5 5
Short term 5 3
Governments 5 3
Tax-exempt 1 -
Mortgage-backed 35 22
Investment-grade
corporates 38 55
(caption) As mortgage-backed securities declined to 22% of invested
assets, investment-grade corporates increased to 55%.
*Page 31
GRAPH Fixed-Income Securities
(in billions)
Held Available Unrealized
to maturity for sale gains (losses)
1990 $6.982 $ -- $(.068)
1991 3.749 5.364 .373
1992 7.218 1.987 .114
1993 4.661 4.681 .357
(caption) The level of securities available for sale will affect book
value as associated unrealized gains (losses) will be carried in
shareholders' equity.
GRAPH Interest Rates
30 Year Treasuries 3 Month Treasuries
1990 8.3% 6.8%
1991 7.4 4.1
1992 7.4 3.3
1993 6.4 3.1
(caption) Investment results have been impacted by the declining interest
rate environment.
<PAGE>
USF&G Corporation
Exhibit 21 - Subsidiaries of the Registrant
Name of Subsidiary State of Incorporation
United States Fidelity and Guaranty Company Maryland
Fidelity & Guaranty Life Insurance Company Maryland
The names of other subsidiaries have been omitted
because, when considered in the aggregate as a
single subsidiary, they would not constitute a
significant subsidiary as defined by Regulation S-X.
USF&G Corporation
Exhibit 23 - Consent of Independent Auditors
USF&G Corporation
We consent to the incorporation by reference in
this Annual Report (Form 10-K) of USF&G Corporation
of our report dated February 11, 1994, included in
the 1993 Annual Report to Shareholders of USF&G Corporation.
Our audits also included the financial statement
schedules of USF&G Corporation listed in item 14(a).
These schedules are the responsibility of the
Corporations's management. Our responsibility is to
express an opinion based on our audits. 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 set forth therein.
We also consent to the incorporation by reference
into Registration Statements Number 33-20449, 33-9405,
33-33271, 33-21132, 33-50825 and 33-51859 on Form S-3,
and Number 2-61626, 2-72026, 2-98232, 33-16111,
33-35095, 33-38113, 33-43132, 33-45664, 33-45665 and
33-61965 on Form S-8 of USF&G Corporation, of our
report dated February 11, 1994, with respect to the
consolidated financial statements incorporated herein
by reference, and our report included in the preceding
paragraph with respect to the financial statement
schedules included in this Annual Report (Form 10-K)
of USF&G Corporation.
Baltimore, Maryland
March 30, 1994
Page # 62
Form 2
CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND
ITS AFFILIATED FIRE AND CASUALTY INSURERS
SCHEDULE P - ANALYSIS OF LOSSES AND LOSS EXPENSES
Notes to Schedule P
(1) The Parts of Schedule P:
Part 1 - detailed information on losses and loss expenses.
Part 2 - history of incurred losses and allocated expenses.
Part 3 - history of loss and allocated expense payments.
Part 4 - history of bulk and incurred-but-not reported reserves.
Schedule P Interrogatories
(2) Lines of business A through M and R are groupings of the lines of
business used on Page 14, the state page.
(3) Reinsurance A, B, C, and D (lines N to Q) are:
Reinsurance A = nonproportional property (1988 and subsequent)
Reinsurance B = nonproportional liability (1988 and subsequent)
Reinsurance C = financial lines (1988 and subsequent)
Reinsurance D = old Schedule O line 30 (1987 and prior)
(4) The Instructions to Schedule P contain directions necessary for filling
out Schedule P.
<TABLE>
<CAPTION>
SCHEDULE P - PART 1 - SUMMARY
(000 omitted)
-----------------------------------------------------------------------------------------------------------------------------------
| | Premiums Earned | Loss and Loss Expense Payments
| 1 |-----------------------------------------|--------------------------------------------------------------------------
| Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9
| in Which | | | | | Expense Payments |
|Premiums Were | | | |-----------------------------|-----------------------------| Salvage
| Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and
| Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation
| Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
<S> <C> <C> <C> <C> <C> <C> <C> <C>
| 1. Prior ...| X X X X | X X X X | X X X X | 88,456 | 11,846 | 15,230 | 396 | 5,562
| 2. 1984.....| 2,345,677 | 164,417 | 2,181,260 | 1,910,090 | 59,288 | 164,316 | 12,931 | 103,505
| 3. 1985.....| 3,142,333 | 416,447 | 2,725,886 | 2,564,659 | 433,930 | 197,503 | 18,834 | 106,298
| 4. 1986.....| 3,844,761 | 469,224 | 3,375,537 | 2,276,633 | 304,671 | 182,836 | 12,496 | 95,805
| 5. 1987.....| 4,131,013 | 563,250 | 3,567,763 | 2,268,058 | 393,898 | 167,696 | 16,642 | 84,270
| 6. 1988.....| 4,332,667 | 758,689 | 3,573,978 | 2,302,872 | 477,278 | 160,459 | 14,390 | 84,677
| 7. 1989.....| 4,327,680 | 986,791 | 3,340,889 | 2,490,945 | 609,626 | 148,300 | 13,391 | 77,975
| 8. 1990.....| 4,261,322 | 927,403 | 3,333,919 | 2,197,900 | 547,619 | 139,781 | 14,060 | 87,585
| 9. 1991.....| 3,682,715 | 699,588 | 2,983,127 | 1,669,604 | 323,157 | 88,196 | 6,976 | 53,249
|10. 1992.....| 3,156,709 | 696,137 | 2,460,572 | 1,424,277 | 457,679 | 41,524 | 9,981 | 33,957
|11. 1993.....| 2,959,792 | 883,225 | 2,076,567 | 629,787 | 152,727 | 13,129 | 700 | 13,629
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
|12. Totals ..| X X X X | X X X X | X X X X | 19,823,281 | 3,771,719 | 1,318,970 | 120,796 | 746,514
-----------------------------------------------------------------------------------------------------------------------------------
Note: For "prior," report amounts paid or received in current year only.
Report cumulative amounts paid or received for specific years. Report loss payments net of salvage and subrogation received.
<FN>
-----------------------------------------------------------
| Loss and Loss Expense Payments | |
| 1 ------------------------------| 12 |
| Years | 10 | 11 | |
| in Which | | | Number of |
|Premiums Were | Unallocated | Total | Claims |
| Earned and | Loss | Net Paid | Reported - |
| Losses Were | Expense | (5 - 6 + 7 | Direct and |
| Incurred | Payments | - 8 + 10) | Assumed |
|--------------|--------------|--------------|--------------|
| | | | |
| 1. Prior ...| 4,404 | 95,847 | X X X X |
| 2. 1984.....| 107,137 | 2,109,325 | X X X X |
| 3. 1985.....| 111,555 | 2,420,953 | X X X X |
| 4. 1986.....| 119,033 | 2,261,337 | X X X X |
| 5. 1987.....| 113,586 | 2,138,801 | X X X X |
| 6. 1988.....| 118,254 | 2,089,917 | X X X X |
| 7. 1989.....| 125,838 | 2,142,066 | X X X X |
| 8. 1990.....| 132,232 | 1,908,233 | X X X X |
| 9. 1991.....| 132,993 | 1,560,660 | X X X X |
|10. 1992.....| 111,262 | 1,109,403 | X X X X |
|11. 1993.....| 61,074 | 550,563 | X X X X |
|--------------|--------------|--------------|--------------|
|12. Totals ..| 1,137,368 | 18,387,104 | X X X X |
-----------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
| | Losses Unpaid | Allocated Loss Expenses Unpaid
| |--------------------------------------------------------|-----------------------------------------------------------
| | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR
| |---------------------------|----------------------------|-----------------------------|-----------------------------
| | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20
| | Direct | | Direct | | Direct | | Direct |
| | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
| 1. Prior ...| 476,516 | 170,978 | 187,774 | 697 | 0 | 0 | 100,931 | 4,968
| 2. 1984.....| 76,590 | 5,910 | 174,924 | 125,492 | 0 | 0 | 17,898 | 287
| 3. 1985.....| 94,424 | 31,568 | 76,573 | 3,306 | 0 | 0 | 24,406 | 275
| 4. 1986.....| 86,983 | 12,870 | 81,320 | 2,839 | 0 | 0 | 30,954 | 806
| 5. 1987.....| 109,950 | 20,047 | 105,374 | 3,872 | 0 | 0 | 41,697 | 1,080
| 6. 1988.....| 249,660 | 107,302 | 109,314 | 3,042 | 0 | 0 | 52,123 | 1,292
| 7. 1989.....| 314,904 | 128,605 | 162,082 | 6,636 | 0 | 0 | 70,631 | 2,353
| 8. 1990.....| 392,205 | 156,307 | 215,620 | 19,064 | 0 | 0 | 101,089 | 4,281
| 9. 1991.....| 357,926 | 75,132 | 303,381 | 63,962 | 0 | 0 | 118,988 | 5,285
|10. 1992.....| 462,572 | 140,152 | 374,963 | 87,424 | 0 | 0 | 124,149 | 6,030
|11. 1993.....| 529,030 | 166,991 | 610,231 | 184,223 | 0 | 0 | 141,378 | 11,948
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
|12. Totals ..| 3,150,759 | 1,015,862 | 2,401,556 | 500,557 | 0 | 0 | 824,245 | 38,605
-----------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------
| | | | | |
| | 21 | 22 | 23 | 24 |
| | | | | Number of |
| | Salvage | Unallocated | Total | Claims |
| | and | Loss | Net Losses |Outstanding -|
| | Subrogation | Expenses | and Expenses | Direct |
| | Anticipated | Unpaid | Unpaid | and Assumed |
|--------------|--------------|--------------|--------------|-------------|
| | | | | |
| 1. Prior ...| (8,534)| 16,604 | 605,181 | X X X X |
| 2. 1984.....| (8,841)| 4,572 | 142,295 | X X X X |
| 3. 1985.....| (5,445)| 5,737 | 165,993 | X X X X |
| 4. 1986.....| (6,080)| 6,352 | 189,094 | X X X X |
| 5. 1987.....| (7,877)| 7,796 | 239,818 | X X X X |
| 6. 1988.....| (11,014)| 10,741 | 310,201 | X X X X |
| 7. 1989.....| (14,021)| 14,821 | 424,844 | X X X X |
| 8. 1990.....| (16,718)| 20,994 | 550,256 | X X X X |
| 9. 1991.....| (18,167)| 26,030 | 661,946 | X X X X |
|10. 1992.....| (18,175)| 34,124 | 762,202 | X X X X |
|11. 1993.....| (23,781)| 49,471 | 966,948 | X X X X |
|--------------|--------------|--------------|--------------|-------------|
|12. Totals ..| (138,653)| 197,241 | 5,018,777 | X X X X |
-------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
| | Total Losses and | Loss and Loss Expense Percentage | Discount for Time
| | Loss Expenses Incurred | (Incurred/Premiums Earned) | Value of Money
| |-----------------------------------------|--------------------------------------------|-----------------------------
| | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32
| | Direct | | | Direct | | | | Loss
| | and Assumed | Ceded | Net * | and Assumed | Ceded | Net | Loss | Expense
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
| 1. Prior ...| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 861 | 3,502
| 2. 1984.....| 2,455,528 | 203,908 | 2,251,620 | 104.7 | 124.0 | 103.2 | 866 | 1,377
| 3. 1985.....| 3,074,857 | 487,912 | 2,586,945 | 97.9 | 117.2 | 94.9 | 1,564 | 1,714
| 4. 1986.....| 2,784,112 | 333,682 | 2,450,430 | 72.4 | 71.1 | 72.6 | 2,199 | 1,738
| 5. 1987.....| 2,814,158 | 435,539 | 2,378,619 | 68.1 | 77.3 | 66.7 | 2,692 | 2,016
| 6. 1988.....| 3,003,423 | 603,304 | 2,400,118 | 69.3 | 79.5 | 67.2 | 3,834 | 2,399
| 7. 1989.....| 3,327,520 | 760,611 | 2,566,910 | 76.9 | 77.1 | 76.8 | 5,295 | 3,022
| 8. 1990.....| 3,199,821 | 741,332 | 2,458,489 | 75.1 | 79.9 | 73.7 | 5,987 | 3,154
| 9. 1991.....| 2,697,117 | 474,511 | 2,222,606 | 73.2 | 67.8 | 74.5 | 5,056 | 3,072
|10. 1992.....| 2,572,872 | 701,267 | 1,871,605 | 81.5 | 100.7 | 76.1 | 4,282 | 3,131
|11. 1993.....| 2,034,100 | 516,589 | 1,517,511 | 68.7 | 58.5 | 73.1 | 0 | 0
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
|12. Totals ..| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 32,636 | 25,125
-----------------------------------------------------------------------------------------------------------------------------------
*Net = (25 - 26) = (11 + 23)
<FN>
-----------------------------------------------------------
| | | Net Balance Sheet Reserves |
| | 33 | After Discount |
| |Inter-Company |-----------------------------|
| | Pooling | 34 | 35 |
| |Participation | Losses |Loss Expenses |
| | Percentage | Unpaid | Unpaid |
|--------------|--------------|--------------|--------------|
| | | | |
| 1. Prior ...| X X X X | 491,754 | 109,064 |
| 2. 1984.....| 0.0 | 119,246 | 20,806 |
| 3. 1985.....| 0.0 | 134,560 | 28,155 |
| 4. 1986.....| 0.0 | 150,395 | 34,762 |
| 5. 1987.....| 0.0 | 188,713 | 46,397 |
| 6. 1988.....| 0.0 | 244,795 | 59,173 |
| 7. 1989.....| 0.0 | 336,450 | 80,077 |
| 8. 1990.....| 0.0 | 426,467 | 114,648 |
| 9. 1991.....| 0.0 | 517,156 | 136,661 |
|10. 1992.....| 0.0 | 605,677 | 149,112 |
|11. 1993.....| 0.0 | 788,048 | 178,901 |
|--------------|--------------|--------------|--------------|
|12. Totals ..| X X X X | 4,003,260 | 957,756 |
-----------------------------------------------------------
</TABLE>
Page 63
Form 2
CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY
AND ITS AFFILIATED FIRE AND CASUALTY INSURERS
<TABLE>
<CAPTION>
SCHEDULE P - PART 2 - SUMMARY
------------------------------------------------------------------------------------------------------------------------
| 1 | Incurred Losses and Allocated Expenses Reported At Year End (000 omitted)
| Years in Which |----------------------------------------------------------------------------------------------------
| Losses Were | 2 | 3 | 4 | 5 | 6 | 7 | 8 |
| Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 |
|-------------------|---------------|-------------|-------------|-------------|-------------|-------------|-------------|
| | | | | | | | |
| | | | | | | | |
<S> <C> <C> <C> <C> <C> <C> <C>
| 1. Prior ......| 1,545,889 * | 1,710,404 | 1,768,641 | 1,867,332 | 1,991,169 | 2,095,578 | 2,166,262 |
| 2. 1984........| 1,762,739 | 1,888,468 | 1,935,699 | 1,971,381 | 2,018,840 | 2,047,837 | 2,061,716 |
| 3. 1985........| X X X X | 2,128,948 | 2,229,789 | 2,253,074 | 2,325,580 | 2,380,464 | 2,415,002 |
| 4. 1986........| X X X X | X X X X | 2,380,670 | 2,320,255 | 2,295,049 | 2,246,813 | 2,266,851 |
| 5. 1987........| X X X X | X X X X | X X X X | 2,415,688 | 2,281,257 | 2,198,839 | 2,228,024 |
| 6. 1988........| X X X X | X X X X | X X X X | X X X X | 2,305,379 | 2,245,300 | 2,322,481 |
| 7. 1989........| X X X X | X X X X | X X X X | X X X X | X X X X | 2,462,371 | 2,411,021 |
| 8. 1990........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 2,385,841 |
| 9. 1991........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 10. 1992........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 11. 1993........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
|------------------------------------------------------------------------------------------------------------------------
| 12. Totals .........................................................................................................
------------------------------------------------------------------------------------------------------------------------
*Reported reserves only. Subsequent development relates only to subsequent payments and reserves.
**Current year less first or second prior year, showing (redundant) or adverse.
<FN>
----------------------------------------------------------------------------------------
| 1 | Development** |
| Years in Which ------------------------------------------|---------------------------|
| Losses Were | 9 | 10 | 11 | 12 | 13 |
| Incurred | 1991 | 1992 | 1993 | One Year | Two Year |
|--------------------|------------|-------------|-------------|-------------|-------------|
| | | | | | |
| | | | | | |
| 1. Prior ...... | 2,290,507 | 2,365,601 | 2,511,406 | 145,805 | 220,899 |
| 2. 1984........ | 2,084,627 | 2,103,491 | 2,139,911 | 36,420 | 55,284 |
| 3. 1985........ | 2,434,176 | 2,441,724 | 2,469,653 | 27,929 | 35,477 |
| 4. 1986........ | 2,283,007 | 2,303,983 | 2,325,045 | 21,062 | 42,038 |
| 5. 1987........ | 2,204,680 | 2,229,385 | 2,257,237 | 27,852 | 52,557 |
| 6. 1988........ | 2,218,077 | 2,255,781 | 2,271,123 | 15,342 | 53,046 |
| 7. 1989........ | 2,439,506 | 2,402,185 | 2,426,250 | 24,065 | (13,256)|
| 8. 1990........ | 2,370,039 | 2,340,530 | 2,305,263 | (35,267)| (64,776)|
| 9. 1991........ | 2,249,276 | 2,174,594 | 2,063,583 | (111,011)| (185,693)|
| 10. 1992........ | X X X X | 1,831,554 | 1,726,219 | (105,335)| X X X X |
| 11. 1993........ | X X X X | X X X X | 1,406,965 | X X X X | X X X X |
|------------------------------------------------------------ |-------------|-------------|
| 12. Totals ............................................. | 46,862 | 195,576 |
----------------------------------------------------------------------------------------
SCHEDULE P - PART 3 - SUMMARY
------------------------------------------------------------------------------------------------------------------------
| |
| 1 | Cumulative Paid Losses and Allocated Expenses At Year End (000 omitted)
| Years in Which |----------------------------------------------------------------------------------------------------
| Losses Were | 2 | 3 | 4 | 5 | 6 | 7 | 8 |
| Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 |
| | | | | | | | |
|-------------------|---------------|-------------|-------------|-------------|-------------|-------------|-------------|
| | | | | | | | |
| 1. Prior ......| 000 | 497,504 | 865,653 | 1,150,128 | 1,347,860 | 1,509,841 | 1,647,861 |
| 2. 1984........| 744,388 | 1,241,764 | 1,484,362 | 1,649,653 | 1,760,746 | 1,847,814 | 1,925,147 |
| 3. 1985........| X X X X | 877,117 | 1,477,411 | 1,772,308 | 1,966,184 | 2,105,231 | 2,197,999 |
| 4. 1986........| X X X X | X X X X | 823,675 | 1,342,052 | 1,633,087 | 1,829,361 | 1,964,805 |
| 5. 1987........| X X X X | X X X X | X X X X | 623,238 | 1,087,547 | 1,349,137 | 1,725,565 |
| 6. 1988........| X X X X | X X X X | X X X X | X X X X | 729,935 | 1,260,773 | 1,543,332 |
| 7. 1989........| X X X X | X X X X | X X X X | X X X X | X X X X | 770,924 | 1,361,936 |
| 8. 1990........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 751,137 |
| 9. 1991........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 10. 1992........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 11. 1993........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
------------------------------------------------------------------------------------------------------------------------
Note: Net of salvage and subrogation received.
<FN>
----------------------------------------------------------------------------------------
| | 12 | 13 |
| 1 | Number of | Number of |
| Years in Which ------------------------------------------| Claims | Claims |
| Losses Were | 9 | 10 | 11 | Closed With | Closed |
| Incurred | 1991 | 1992 | 1993 | Loss |Without Loss |
| | | | | Payment | Payment |
|-------------------|-------------|-------------|-------------|-------------|-------------|
| | | | | | |
| 1. Prior ......| 1,746,029 | 1,831,386 | 1,922,829 | X X X X | X X X X |
| 2. 1984........| 1,963,982 | 1,987,803 | 2,002,188 | X X X X | X X X X |
| 3. 1985........| 2,252,315 | 2,279,081 | 2,309,398 | X X X X | X X X X |
| 4. 1986........| 2,053,589 | 2,110,387 | 2,142,303 | X X X X | X X X X |
| 5. 1987........| 1,892,354 | 1,971,535 | 2,025,215 | X X X X | X X X X |
| 6. 1988........| 1,756,160 | 1,896,074 | 1,971,662 | X X X X | X X X X |
| 7. 1989........| 1,687,467 | 1,885,933 | 2,016,227 | X X X X | X X X X |
| 8. 1990........| 1,301,579 | 1,578,159 | 1,776,001 | X X X X | X X X X |
| 9. 1991........| 726,068 | 1,175,879 | 1,427,667 | X X X X | X X X X |
| 10. 1992........| X X X X | 612,444 | 998,141 | X X X X | X X X X |
| 11. 1993........| X X X X | X X X X | 489,488 | X X X X | X X X X |
----------------------------------------------------------------------------------------
SCHEDULE P - PART 4 - SUMMARY
----------------------------------------------------------------------------------------------------------
| 1 |Bulk and Incurred But Not Reported Reserves on Losses and Allocated Expenses at Year-End
(000 omitted)
| Years in Which | ------------------------------------------------------------------------------------
| Losses | 2 | 3 | 4 | 5 | 6 | 7 |
| Were Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 |
|--------------------|--------------|-------------|-------------|-------------|-------------|-------------|
| | | | | | | |
| 1. Prior .....| 529,378 | 388,421 | 220,904 | 136,995 | 113,706 | 107,174 |
| 2. 1984.......| 510,719 | 285,217 | 171,810 | 96,193 | 69,065 | 57,767 |
| 3. 1985.......| X X X X | 703,475 | 351,758 | 179,756 | 121,181 | 94,278 |
| 4. 1986.......| X X X X | X X X X | 1,020,474 | 594,826 | 364,055 | 197,289 |
| 5. 1987.......| X X X X | X X X X | X X X X | 1,127,701 | 627,775 | 371,146 |
| 6. 1988.......| X X X X | X X X X | X X X X | X X X X | 1,020,671 | 570,817 |
| 7. 1989.......| X X X X | X X X X | X X X X | X X X X | X X X X | 1,075,501 |
| 8. 1990.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 9. 1991.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 10. 1992.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 11. 1993.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
----------------------------------------------------------------------------------------------------------
------------- -------------------------------------------------------
| 1 |
| Years in Which -------------------------------------------------------|
| Losses | 8 | 9 | 10 | 11 |
| Were Incurred | 1990 | 1991 | 1992 | 1993 |
|--------------------| -------------|-------------|-------------|-------------|
| | | | | |
| 1. Prior .....| 105,992 | 162,922 | 192,500 | 283,039 |
| 2. 1984.......| 49,337 | 40,565 | 49,530 | 67,043 |
| 3. 1985.......| 83,588 | 78,376 | 83,806 | 97,400 |
| 4. 1986.......| 140,031 | 100,097 | 94,655 | 108,629 |
| 5. 1987.......| 278,832 | 142,554 | 139,982 | 142,119 |
| 6. 1988.......| 454,541 | 213,819 | 187,986 | 157,103 |
| 7. 1989.......| 601,064 | 412,463 | 271,885 | 223,724 |
| 8. 1990.......| 1,026,590 | 626,343 | 438,738 | 293,364 |
| 9. 1991.......| X X X X | 919,318 | 612,846 | 353,122 |
| 10. 1992.......| X X X X | X X X X | 722,765 | 405,658 |
| 11. 1993.......| X X X X | X X X X | X X X X | 555,438 |
-------------------- -------------------------------------------------------
</TABLE>
Page: Page 72
Form 2
CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND
ITS AFFILIATED FIRE AND CASUALTY INSURERS
<TABLE>
<CAPTION>
SCHEDULE P - PART 1H - SECTION 1 - OTHER LIABILITY - OCCURRENCE
(000 omitted)
-----------------------------------------------------------------------------------------------------------------------------------
| 1 | Premiums Earned | Loss and Loss Expense Payments
| |-----------------------------------------|--------------------------------------------------------------------------
| Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9
| in Which | | | | | Expense Payments |
|Premiums Were | | | |-----------------------------|-----------------------------| Salvage
| Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and
| Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation
| Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
| | | | | | | | |
<S> <C> <C> <C> <C> <C> <C> <C>
| 1. Prior ...| X X X X | X X X X | X X X X | 27,210 | 45 | 10,331 | 127 | 109
| 2. 1984.....| 175,304 | 7,816 | 167,488 | 144,967 | 7,724 | 41,526 | 502 | 3,740
| 3. 1985.....| 269,235 | 21,900 | 247,335 | 179,941 | 18,268 | 45,268 | 814 | 5,094
| 4. 1986.....| 435,955 | 15,114 | 420,841 | 164,102 | 8,714 | 40,392 | 689 | 4,895
| 5. 1987.....| 624,510 | 133,069 | 491,441 | 235,127 | 80,878 | 37,919 | 1,646 | 3,989
| 6. 1988.....| 526,043 | 132,411 | 393,632 | 152,710 | 63,572 | 26,752 | 1,111 | 3,645
| 7. 1989.....| 290,819 | 66,258 | 224,561 | 94,542 | 44,321 | 15,915 | 617 | 2,519
| 8. 1990.....| 261,224 | 55,253 | 205,971 | 96,804 | 42,268 | 12,925 | 1,515 | 622
| 9. 1991.....| 177,601 | 27,428 | 150,173 | 28,936 | 7,271 | 6,142 | 300 | 430
|10. 1992.....| 116,299 | 14,033 | 102,266 | 7,965 | 657 | 1,263 | 98 | 156
|11. 1993.....| 99,208 | 13,121 | 86,087 | 3,011 | 199 | 338 | 28 | 71
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
|12. Totals ..| X X X X | X X X X | X X X X | 1,135,315 | 273,917 | 238,771 | 7,447 | 25,270
-----------------------------------------------------------------------------------------------------------------------------------
Note: For "prior," report amounts paid or received in current year only.
Report cumulative amounts paid or received for specific years. Report loss payments net of salvage and subrogation received.
<FN>
------------------------------------------------------------
| 1 | |
| ------------------------------| |
| Years | 10 | 11 | 12 |
| in Which | | | Number of |
|Premiums Were | Unallocated | Total | Claims |
| Earned and | Loss | Net Paid | Reported - |
| Losses Were | Expense | (5 - 6 + 7 | Direct and |
| Incurred | Payments | - 8 + 10) | Assumed |
|-------------- |--------------|--------------|--------------|
| | | | |
| | | | |
| 1. Prior ... | 443 | 37,812 | X X X X |
| 2. 1984..... | 10,947 | 189,214 | 39,465 |
| 3. 1985..... | 12,132 | 218,259 | 39,885 |
| 4. 1986..... | 11,781 | 206,872 | 32,170 |
| 5. 1987..... | 11,439 | 201,961 | 28,421 |
| 6. 1988..... | 8,166 | 122,945 | 21,382 |
| 7. 1989..... | 5,564 | 71,083 | 14,750 |
| 8. 1990..... | 5,657 | 71,603 | 15,617 |
| 9. 1991..... | 4,475 | 31,982 | 10,963 |
|10. 1992..... | 3,648 | 12,121 | 6,102 |
|11. 1993..... | 1,671 | 4,793 | 3,433 |
|-------------- |--------------|--------------|--------------|
|12. Totals .. | 75,923 | 1,168,645 | X X X X |
------------------------------------------------------------
|--------------|--------------------------------------------------------------------------------------------------------------------
| | Losses Unpaid | Allocated Loss Expenses Unpaid
| |--------------------------------------------------------|-----------------------------------------------------------
| | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR
| |---------------------------|----------------------------|-----------------------------|-----------------------------
| | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20
| | Direct | | Direct | | Direct | | Direct |
| | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
| | | | | | | | |
| 1. Prior ...| 56,583 | 18,137 | 60,438 | 508 | 0 | 0 | 50,932 | 4,417
| 2. 1984.....| 5,982 | 253 | 18,846 | 307 | 0 | 0 | 8,442 | 105
| 3. 1985.....| 8,244 | 2,417 | 18,923 | 309 | 0 | 0 | 12,833 | 116
| 4. 1986.....| 9,482 | 586 | 20,043 | 239 | 0 | 0 | 16,096 | 77
| 5. 1987.....| 12,273 | 347 | 24,209 | 278 | 0 | 0 | 18,269 | 119
| 6. 1988.....| 15,315 | 313 | 20,869 | 370 | 0 | 0 | 16,538 | 156
| 7. 1989.....| 17,262 | 504 | 26,624 | 614 | 0 | 0 | 15,251 | 253
| 8. 1990.....| 15,597 | 922 | 38,466 | 2,106 | 0 | 0 | 19,472 | 824
| 9. 1991.....| 20,567 | 3,287 | 42,053 | 4,411 | 0 | 0 | 20,219 | 2,668
|10. 1992.....| 13,934 | 1,475 | 37,349 | 3,192 | 0 | 0 | 14,882 | 2,306
|11. 1993.....| 7,103 | 479 | 39,360 | 3,827 | 0 | 0 | 14,199 | 1,808
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
|12. Totals ..| 182,342 | 28,720 | 347,180 | 16,161 | 0 | 0 | 207,133 | 12,849
-----------------------------------------------------------------------------------------------------------------------------------
|-------------- ---------------------------------------------------------------
| | | | |
| | 21 | 22 | 23 | 24
| | | | |
| | Salvage | Unallocated | Total | Number of Claims
| | and | Loss | Net Losses | Outstanding-
| | Subrogation | Expenses | and Expenses | Direct and
| | Anticipated | Unpaid | Unpaid | Assumed
|-------------- |--------------|--------------|--------------------------------
| | | | |
| | | | |
| 1. Prior ... | (949)| 4,649 | 149,540 | 581
| 2. 1984..... | (442)| 1,175 | 33,780 | 132
| 3. 1985..... | (600)| 1,859 | 39,017 | 163
| 4. 1986..... | (686)| 1,997 | 46,716 | 220
| 5. 1987..... | (779)| 2,666 | 56,673 | 243
| 6. 1988..... | (740)| 2,135 | 54,018 | 265
| 7. 1989..... | (561)| 2,721 | 60,487 | 387
| 8. 1990..... | (539)| 2,810 | 72,493 | 581
| 9. 1991..... | (394)| 3,499 | 75,972 | 674
|10. 1992..... | (311)| 2,713 | 61,905 | 613
|11. 1993..... | (273)| 2,693 | 57,241 | 794
|-------------- |--------------|--------------|--------------|---------------
|12. Totals .. | (6,274)| 28,917 | 707,842 | 4,653
----------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
| | Total Losses and | Loss and Loss Expense Percentage | Discount for Time
| | Loss Expenses Incurred | (Incurred/Premiums Earned) | Value of Money
| |-----------------------------------------|--------------------------------------------|-----------------------------
| | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32
| | | | | | | | |
| | Direct | | | Direct | | | | Loss
| | and Assumed | Ceded | Net * | and Assumed | Ceded | Net | Loss | Expense
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
| | | | | | | | |
| 1. Prior ...| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0
| 2. 1984.....| 231,885 | 8,891 | 222,994 | 132.3 | 113.8 | 133.1 | 0 | 0
| 3. 1985.....| 279,200 | 21,924 | 257,276 | 103.7 | 100.1 | 104.0 | 0 | 0
| 4. 1986.....| 263,893 | 10,305 | 253,588 | 60.5 | 68.2 | 60.3 | 0 | 0
| 5. 1987.....| 341,902 | 83,268 | 258,634 | 54.7 | 62.6 | 52.6 | 0 | 0
| 6. 1988.....| 242,485 | 65,522 | 176,963 | 46.1 | 49.5 | 45.0 | 0 | 0
| 7. 1989.....| 177,879 | 46,309 | 131,570 | 61.2 | 69.9 | 58.6 | 0 | 0
| 8. 1990.....| 191,731 | 47,635 | 144,096 | 73.4 | 86.2 | 70.0 | 0 | 0
| 9. 1991.....| 125,891 | 17,937 | 107,954 | 70.9 | 65.4 | 71.9 | 0 | 0
|10. 1992.....| 81,754 | 7,728 | 74,026 | 70.3 | 55.1 | 72.4 | 0 | 0
|11. 1993.....| 68,375 | 6,341 | 62,034 | 68.9 | 48.3 | 72.1 | 0 | 0
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
|12. Totals ..| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0
-----------------------------------------------------------------------------------------------------------------------------------
*Net = (25 - 26) = (11 + 23)
<FN>
----------------------------------------------------------- -
| | | Net Balance Sheet Reserves||
| | 33 | After Discount ||
| | |-----------------------------||
| |Inter-Company | 34 | 35 ||
| | Pooling | | Loss ||
| |Participation | Losses | Expenses ||
| | Percentage | Unpaid | Unpaid ||
|--------------|--------------|--------------|--------------||
| | | | ||
| | | | ||
| 1. Prior ...| X X X X | 98,376 | 51,164 ||
| 2. 1984.....| 0.0 | 24,268 | 9,512 ||
| 3. 1985.....| 0.0 | 24,441 | 14,576 ||
| 4. 1986.....| 0.0 | 28,700 | 18,016 ||
| 5. 1987.....| 0.0 | 35,857 | 20,816 ||
| 6. 1988.....| 0.0 | 35,501 | 18,517 ||
| 7. 1989.....| 0.0 | 42,768 | 17,719 ||
| 8. 1990.....| 0.0 | 51,035 | 21,458 ||
| 9. 1991.....| 0.0 | 54,922 | 21,050 ||
|10. 1992.....| 0.0 | 46,616 | 15,289 ||
|11. 1993.....| 0.0 | 42,157 | 15,084 ||
|--------------|--------------|--------------|--------------||
|12. Totals ..| X X X X | 484,641 | 223,201 ||
----------------------------------------------------------- -
</TABLE>
Page: Page 64
Form 2
CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND
ITS AFFILIATED FIRE AND CASUALTY INSURERS
<TABLE>
<CAPTION>
SCHEDULE P - PART 1A - HOMEOWNERS/FARMOWNERS
(000 omitted)
-----------------------------------------------------------------------------------------------------------------------------------
| 1 | Premiums Earned | Loss and Loss Expense Payments
| |-----------------------------------------|--------------------------------------------------------------------------
| Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9
| in Which | | | | | Expense Payments |
|Premiums Were | | | |-----------------------------|-----------------------------| Salvage
| Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and
| Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation
| Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
| | | | | | | | |
| | | | | | | | |
| 1. Prior ...| X X X X | X X X X | X X X X | 242 | 7 | 33 | 0 | 3
| 2. 1984.....| 197,142 | 8,077 | 189,065 | 132,126 | 4,910 | 3,215 | 93 | 1,864
| 3. 1985.....| 227,650 | 16,606 | 211,044 | 181,514 | 22,379 | 4,548 | (97)| 1,584
| 4. 1986.....| 246,295 | 15,410 | 230,885 | 139,606 | 4,909 | 3,920 | (103)| 2,171
| 5. 1987.....| 244,766 | 5,446 | 239,320 | 121,125 | 443 | 3,688 | 62 | 1,496
| 6. 1988.....| 228,322 | 4,738 | 223,584 | 120,323 | 11 | 3,817 | 66 | 2,345
| 7. 1989.....| 221,373 | 4,005 | 217,368 | 153,990 | 8,744 | 4,134 | 274 | 2,114
| 8. 1990.....| 221,970 | 6,038 | 215,932 | 131,131 | (49)| 4,653 | 51 | 1,531
| 9. 1991.....| 223,033 | 5,060 | 217,973 | 154,331 | 320 | 3,307 | 104 | 1,546
|10. 1992.....| 205,577 | 9,150 | 196,427 | 239,504 | 71,457 | 2,129 | 2,699 | 872
|11. 1993.....| 174,684 | 19,202 | 155,482 | 77,702 | 3,973 | 592 | 20 | 185
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
|12. Totals ..| X X X X | X X X X | X X X X | 1,451,594 | 117,104 | 34,036 | 3,169 | 15,711
-----------------------------------------------------------------------------------------------------------------------------------
Note: For "prior," report amounts paid or received in current year only.
Report cumulative amounts paid or received for specific years. Report loss payments net of salvage and subrogation received.
<FN>
------------------------------------------------------------
| 1 | | |
| |------------------------------| |
| Years | 10 | 11 | 12 |
| in Which | | | Number of |
|Premiums Were | Unallocated | Total | Claims |
| Earned and | Loss | Net Paid | Reported - |
| Losses Were | Expense | (5 - 6 + 7 | Direct and |
| Incurred | Payments | - 8 + 10) | Assumed |
|--------------| --------------|--------------|--------------|
| | | | |
| | | | |
| 1. Prior ...| 7 | 275 | X X X X |
| 2. 1984.....| 10,646 | 140,984 | 70,014 |
| 3. 1985.....| 11,817 | 175,597 | 84,679 |
| 4. 1986.....| 15,282 | 154,002 | 67,406 |
| 5. 1987.....| 13,880 | 138,188 | 62,510 |
| 6. 1988.....| 12,635 | 136,698 | 59,141 |
| 7. 1989.....| 15,916 | 165,022 | 75,010 |
| 8. 1990.....| 16,734 | 152,516 | 66,704 |
| 9. 1991.....| 18,149 | 175,363 | 74,221 |
|10. 1992.....| 18,407 | 185,884 | 64,711 |
|11. 1993.....| 13,669 | 87,970 | 51,745 |
|--------------| --------------|--------------|--------------|
|12. Totals ..| 147,142 | 1,512,499 | X X X X |
------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
| | Losses Unpaid | Allocated Loss Expenses Unpaid
| |--------------------------------------------------------|-----------------------------------------------------------
| | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR
| |---------------------------|----------------------------|-----------------------------|-----------------------------
| | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20
| | Direct | | Direct | | Direct | | Direct |
| | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
| | | | | | | | |
| 1. Prior ...| 79 | 12 | (3)| 0 | 0 | 0 | 11 | 0
| 2. 1984.....| 53 | 0 | 34 | 0 | 0 | 0 | 14 | 0
| 3. 1985.....| 498 | 0 | 81 | 1 | 0 | 0 | 79 | 0
| 4. 1986.....| 814 | 0 | 427 | 1 | 0 | 0 | 90 | 0
| 5. 1987.....| 1,275 | 0 | 1,135 | 1 | 0 | 0 | 73 | 0
| 6. 1988.....| 968 | 0 | 602 | 3 | 0 | 0 | 118 | 0
| 7. 1989.....| 1,927 | 1 | 675 | 57 | 0 | 0 | 301 | 0
| 8. 1990.....| 3,188 | 0 | 523 | 3 | 0 | 0 | 564 | 0
| 9. 1991.....| 5,571 | 8 | 1,204 | 1 | 0 | 0 | 1,030 | 1
|10. 1992.....| 10,378 | 752 | 2,089 | 4 | 0 | 0 | 2,103 | 122
|11. 1993.....| 25,888 | 2,586 | 9,103 | 1,110 | 0 | 0 | 5,759 | 549
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
|12. Totals ..| 50,639 | 3,359 | 15,870 | 1,181 | 0 | 0 | 10,142 | 672
-----------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------
| | | | |
| | 21 | 22 | 23 | 24
| | | | |
| | Salvage | Unallocated | Total | Number of
| | and | Loss | Net Losses | Claims
| | Subrogation | Expenses | and Expenses | Outstanding-
| | Anticipated | Unpaid | Unpaid | Direct and Assumed
|--------------|--------------|--------------|--------------|-----------------
| | | | |
| | | | |
| 1. Prior ...| (3)| 4 | 79 | 10
| 2. 1984.....| (3)| 6 | 107 | 7
| 3. 1985.....| (13)| 26 | 683 | 5
| 4. 1986.....| (35)| 32 | 1,362 | 12
| 5. 1987.....| (63)| 28 | 2,510 | 17
| 6. 1988.....| (197)| 44 | 1,729 | 27
| 7. 1989.....| (341)| 107 | 2,952 | 73
| 8. 1990.....| (515)| 204 | 4,476 | 138
| 9. 1991.....| (679)| 375 | 8,170 | 273
|10. 1992.....| (947)| 765 | 14,457 | 671
|11. 1993.....| (1,108)| 2,262 | 38,767 | 4,769
|--------------|--------------|--------------|--------------|-------------
|12. Totals ..| (3,904)| 3,853 | 75,292 | 6,002
------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
| | Total Losses and | Loss and Loss Expense Percentage | Discount for Time
| | Loss Expenses Incurred | (Incurred/Premiums Earned) | Value of Money
| |-----------------------------------------|--------------------------------------------|-----------------------------
| | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32
| | | | | | | | |
| | Direct | | | Direct | | | | Loss
| | and Assumed | Ceded | Net * | and Assumed | Ceded | Net | Loss | Expense
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
| | | | | | | | |
| 1. Prior ...| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0
| 2. 1984.....| 146,094 | 5,003 | 141,091 | 74.1 | 61.9 | 74.6 | 0 | 0
| 3. 1985.....| 198,563 | 22,283 | 176,280 | 87.2 | 134.2 | 83.5 | 0 | 0
| 4. 1986.....| 160,171 | 4,807 | 155,364 | 65.0 | 31.2 | 67.3 | 0 | 0
| 5. 1987.....| 141,204 | 506 | 140,698 | 57.7 | 9.3 | 58.8 | 0 | 0
| 6. 1988.....| 138,507 | 80 | 138,427 | 60.7 | 1.7 | 61.9 | 0 | 0
| 7. 1989.....| 177,050 | 9,076 | 167,974 | 80.0 | 226.6 | 77.3 | 0 | 0
| 8. 1990.....| 156,997 | 5 | 156,992 | 70.7 | 0.1 | 72.7 | 0 | 0
| 9. 1991.....| 183,967 | 434 | 183,533 | 82.5 | 8.6 | 84.2 | 0 | 0
|10. 1992.....| 275,375 | 75,034 | 200,341 | 134.0 | 820.0 | 102.0 | 0 | 0
|11. 1993.....| 134,975 | 8,238 | 126,737 | 77.3 | 42.9 | 81.5 | 0 | 0
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
|12. Totals ..| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0
-----------------------------------------------------------------------------------------------------------------------------------
*Net = (25 - 26) = (11 + 23)
<FN>
----------------------------------------------------------- -
| | | Net Balance Sheet Reserves||
| | 33 | After Discount ||
| | |-----------------------------||
| |Inter-Company | 34 | 35 ||
| | Pooling | | Loss ||
| |Participation | Losses | Expenses ||
| | Percentage | Unpaid | Unpaid ||
|--------------|--------------|--------------|--------------||
| | | | ||
| | | | ||
| 1. Prior ...| X X X X | 64 | 15 ||
| 2. 1984.....| 0.0 | 87 | 20 ||
| 3. 1985.....| 0.0 | 578 | 105 ||
| 4. 1986.....| 0.0 | 1,240 | 122 ||
| 5. 1987.....| 0.0 | 2,409 | 101 ||
| 6. 1988.....| 0.0 | 1,567 | 162 ||
| 7. 1989.....| 0.0 | 2,544 | 408 ||
| 8. 1990.....| 0.0 | 3,708 | 768 ||
| 9. 1991.....| 0.0 | 6,766 | 1,404 ||
|10. 1992.....| 0.0 | 11,711 | 2,746 ||
|11. 1993.....| 0.0 | 31,295 | 7,472 ||
|--------------|--------------|--------------|--------------||
|12. Totals ..| X X X X | 61,969 | 13,323 ||
----------------------------------------------------------- -
</TABLE>
Page: Page 65
Form 2
CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993
OF THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND
ITS AFFILIATED FIRE AND CASUALTY INSURERS
<TABLE>
<CAPTION>
SCHEDULE P - PART 1B - PRIVATE PASSENGER AUTO
LIABILITY/MEDICAL
(000 omitted)
-----------------------------------------------------------------------------------------------------------------------------------
| 1 | Premiums Earned | Loss and Loss Expense Payments
| |-----------------------------------------|--------------------------------------------------------------------------
| Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9
| in Which | | | | | Expense Payments |
|Premiums Were | | | |-----------------------------|-----------------------------| Salvage
| Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and
| Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation
| Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
<C> <C> <C> <C> <C> <C> <C> <C> <C>
| 1. Prior ...| X X X X | X X X X | X X X X | 2,277 | 164 | 213 | 5 | 34
| 2. 1984.....| 326,959 | 15,563 | 311,396 | 310,886 | 22,057 | 14,851 | 509 | 4,911
| 3. 1985.....| 362,303 | 27,468 | 334,835 | 338,950 | 25,688 | 17,384 | 577 | 5,238
| 4. 1986.....| 375,875 | 28,452 | 347,423 | 330,062 | 28,022 | 17,105 | 902 | 5,558
| 5. 1987.....| 384,704 | 37,207 | 347,497 | 326,444 | 38,003 | 15,093 | 1,120 | 4,875
| 6. 1988.....| 398,017 | 55,787 | 342,230 | 325,457 | 47,927 | 15,854 | 1,524 | 4,992
| 7. 1989.....| 416,775 | 61,260 | 355,515 | 335,141 | 49,736 | 15,078 | 1,799 | 4,793
| 8. 1990.....| 440,104 | 57,837 | 382,267 | 307,900 | 42,902 | 14,195 | 1,464 | 4,959
| 9. 1991.....| 450,711 | 26,970 | 423,741 | 268,969 | 14,884 | 13,787 | 543 | 4,916
|10. 1992.....| 366,643 | 8,381 | 358,262 | 153,045 | 2,936 | 6,640 | 53 | 2,934
|11. 1993.....| 337,348 | 5,911 | 331,437 | 70,451 | 1,013 | 2,588 | 5 | 875
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
|12. Totals ..| X X X X | X X X X | X X X X | 2,769,582 | 273,332 | 132,788 | 8,501 | 44,085
-----------------------------------------------------------------------------------------------------------------------------------
Note: For "prior," report amounts paid or received in current year only.
Report cumulative amounts paid or received for specific years. Report loss payments net of salvage and subrogation received.
<FN>
---------------------------------------------------------
| 1 | |
| ------------------------------| |
| Years | 10 | 11 | 12 |
| in Which | | | Number of|
|Premiums Were | Unallocated | Total | Claims |
| Earned and | Loss | Net Paid | Reported -|
| Losses Were | Expense | (5 - 6 + 7 | Direct and|
| Incurred | Payments | - 8 + 10) | Assumed |
|--------------|--------------|--------------|-----------|
| | | | |
| | | | |
| 1. Prior ...| 58 | 2,379 | X X X X |
| 2. 1984.....| 16,631 | 319,802 | 155,413 |
| 3. 1985.....| 16,828 | 346,897 | 158,046 |
| 4. 1986.....| 17,453 | 335,696 | 147,533 |
| 5. 1987.....| 15,608 | 318,022 | 133,514 |
| 6. 1988.....| 12,937 | 304,797 | 126,115 |
| 7. 1989.....| 14,562 | 313,246 | 122,987 |
| 8. 1990.....| 17,796 | 295,525 | 114,546 |
| 9. 1991.....| 22,185 | 289,514 | 102,718 |
|10. 1992.....| 24,407 | 181,103 | 79,504 |
|11. 1993.....| 15,408 | 87,429 | 57,551 |
|--------------|--------------|--------------|-----------|
|12. Totals ..| 173,873 | 2,794,410 | X X X X |
---------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
| | Losses Unpaid | Allocated Loss Expenses Unpaid
| |--------------------------------------------------------|-----------------------------------------------------------
| | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR
| |---------------------------|----------------------------|-----------------------------|-----------------------------
| | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20
| | Direct | | Direct | | Direct | | Direct |
| | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
| | | | | | | | |
| 1. Prior ...| 19,686 | 8,453 | 5,528 | 12 | 0 | 0 | 954 | 2
| 2. 1984.....| 8,725 | 2,037 | 156 | 11 | 0 | 0 | 285 | 38
| 3. 1985.....| 2,148 | 1,394 | 3,805 | 35 | 0 | 0 | 248 | 4
| 4. 1986.....| 1,974 | 412 | 3,813 | 45 | 0 | 0 | 401 | 7
| 5. 1987.....| 2,791 | 130 | 4,311 | 67 | 0 | 0 | 631 | 18
| 6. 1988.....| 4,848 | 355 | 7,474 | 154 | 0 | 0 | 1,186 | 46
| 7. 1989.....| 12,323 | 1,447 | 3,693 | 315 | 0 | 0 | 2,273 | 191
| 8. 1990.....| 25,313 | 2,012 | 8,355 | 530 | 0 | 0 | 4,352 | 265
| 9. 1991.....| 44,228 | 1,469 | 20,518 | 544 | 0 | 0 | 8,709 | 221
|10. 1992.....| 60,621 | 645 | 38,005 | 332 | 0 | 0 | 10,773 | 102
|11. 1993.....| 85,368 | 818 | 70,121 | 695 | 0 | 0 | 10,006 | 146
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
|12. Totals ..| 268,025 | 19,172 | 165,779 | 2,740 | 0 | 0 | 39,818 | 1,040
-----------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------
| | | | |
| | 21 | 22 | 23 | 24
| | | | | Number of
| | Salvage | Unallocated | Total | Claims
| | and | Loss | Net Losses | Outstanding-
| | Subrogation | Expenses | and Expenses | Direct and
| | Anticipated | Unpaid | Unpaid | Assumed
|--------------|--------------|--------------|--------------|----------------
| | | | |
| | | | |
| 1. Prior ...| (114)| 332 | 18,033 | 152
| 2. 1984.....| (81)| 252 | 7,332 | 61
| 3. 1985.....| (89)| 160 | 4,928 | 63
| 4. 1986.....| (135)| 205 | 5,929 | 63
| 5. 1987.....| (175)| 259 | 7,777 | 101
| 6. 1988.....| (246)| 443 | 13,396 | 217
| 7. 1989.....| (419)| 746 | 17,082 | 524
| 8. 1990.....| (715)| 1,561 | 36,774 | 1,112
| 9. 1991.....| (1,777)| 3,007 | 74,228 | 2,574
|10. 1992.....| (2,211)| 4,697 | 113,017 | 4,428
|11. 1993.....| (2,371)| 8,032 | 171,868 | 13,804
|--------------|--------------|--------------|--------------|----------------
|12. Totals ..| (8,333)| 19,694 | 470,364 | 23,099
----------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
| | Total Losses and | Loss and Loss Expense Percentage | Discount for Time
| | Loss Expenses Incurred | (Incurred/Premiums Earned) | Value of Money
| |-----------------------------------------|--------------------------------------------|-----------------------------
| | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32
| | | | | | | | |
| | Direct | | | Direct | | | | Loss
| | and Assumed | Ceded | Net * | and Assumed | Ceded | Net | Loss | Expense
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
| | | | | | | | |
| 1. Prior ...| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0
| 2. 1984.....| 351,786 | 24,652 | 327,134 | 107.6 | 158.4 | 105.1 | 0 | 0
| 3. 1985.....| 379,523 | 27,698 | 351,825 | 104.8 | 100.8 | 105.1 | 0 | 0
| 4. 1986.....| 371,013 | 29,388 | 341,625 | 98.7 | 103.3 | 98.3 | 0 | 0
| 5. 1987.....| 365,137 | 39,338 | 325,799 | 94.9 | 105.7 | 93.8 | 0 | 0
| 6. 1988.....| 368,199 | 50,006 | 318,193 | 92.5 | 89.6 | 93.0 | 0 | 0
| 7. 1989.....| 383,816 | 53,488 | 330,328 | 92.1 | 87.3 | 92.9 | 0 | 0
| 8. 1990.....| 379,472 | 47,173 | 332,299 | 86.2 | 81.6 | 86.9 | 0 | 0
| 9. 1991.....| 381,403 | 17,661 | 363,742 | 84.6 | 65.5 | 85.8 | 0 | 0
|10. 1992.....| 298,188 | 4,068 | 294,120 | 81.3 | 48.5 | 82.1 | 0 | 0
|11. 1993.....| 261,974 | 2,677 | 259,297 | 77.7 | 45.3 | 78.2 | 0 | 0
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
|12. Totals ..| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0
-----------------------------------------------------------------------------------------------------------------------------------
*Net = (25 - 26) = (11 + 23)
<FN>
------------------------------------------------------------
| | | Net Balance Sheet Reserves||
| | 33 | After Discount ||
| | |-----------------------------||
| |Inter-Company | 34 | 35 ||
| | Pooling | | Loss ||
| |Participation | Losses | Expenses ||
| | Percentage | Unpaid | Unpaid ||
|--------------|--------------|--------------|--------------||
| | | | ||
| | | | ||
| 1. Prior ...| X X X X | 16,749 | 1,284 ||
| 2. 1984.....| 0.0 | 6,833 | 499 ||
| 3. 1985.....| 0.0 | 4,524 | 404 ||
| 4. 1986.....| 0.0 | 5,330 | 599 ||
| 5. 1987.....| 0.0 | 6,905 | 872 ||
| 6. 1988.....| 0.0 | 11,813 | 1,583 ||
| 7. 1989.....| 0.0 | 14,254 | 2,828 ||
| 8. 1990.....| 0.0 | 31,126 | 5,648 ||
| 9. 1991.....| 0.0 | 62,733 | 11,495 ||
|10. 1992.....| 0.0 | 97,649 | 15,368 ||
|11. 1993.....| 0.0 | 153,976 | 17,892 ||
|--------------|--------------|--------------|--------------||
|12. Totals ..| X X X X | 411,892 | 58,472 ||
------------------------------------------------------------
</TABLE>
Page: Page 66
Form 2
CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND
ITS AFFILIATED FIRE AND CASUALTY INSURERS
<TABLE>
<CAPTION>
SCHEDULE P - PART 1C - COMMERCIAL AUTO/TRUCK
LIABILITY/MEDICAL
(000 omitted)
-----------------------------------------------------------------------------------------------------------------------------------
| 1 | Premiums Earned | Loss and Loss Expense Payments
| |-----------------------------------------|--------------------------------------------------------------------------
| Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9
| in Which | | | | | Expense Payments |
|Premiums Were | | | |-----------------------------|-----------------------------| Salvage
| Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and
| Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation
| Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
| | | | | | | | |
<S> <C> <C> <C> <C> <C> <C> <C> <C>>
| 1. Prior ...| X X X X | X X X X | X X X X | 799 | 0 | 531 | 1 | 78
| 2. 1984.....| 214,370 | 4,216 | 210,154 | 255,161 | 9,156 | 17,293 | 238 | 3,236
| 3. 1985.....| 347,749 | 43,409 | 304,340 | 352,474 | 46,101 | 24,141 | 279 | 4,079
| 4. 1986.....| 451,376 | 29,279 | 422,097 | 304,080 | 21,600 | 22,656 | 349 | 3,885
| 5. 1987.....| 504,537 | 27,137 | 477,400 | 295,736 | 26,176 | 24,873 | 1,640 | 3,008
| 6. 1988.....| 461,136 | 39,794 | 421,342 | 282,427 | 33,526 | 22,333 | 2,247 | 4,157
| 7. 1989.....| 424,657 | 43,290 | 381,367 | 266,392 | 35,515 | 19,860 | 2,665 | 2,672
| 8. 1990.....| 419,676 | 42,803 | 376,873 | 227,132 | 31,061 | 16,975 | 1,840 | 3,084
| 9. 1991.....| 384,380 | 39,874 | 344,506 | 154,932 | 14,814 | 10,979 | 867 | 2,074
|10. 1992.....| 319,764 | 39,044 | 280,720 | 78,996 | 10,498 | 4,837 | 479 | 1,460
|11. 1993.....| 259,903 | 30,644 | 229,259 | 28,309 | 4,340 | 1,616 | 84 | 640
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
|12. Totals ..| X X X X | X X X X | X X X X | 2,246,438 | 232,787 | 166,094 | 10,689 | 28,373
-----------------------------------------------------------------------------------------------------------------------------------
Note: For "prior," report amounts paid or received in current year only.
Report cumulative amounts paid or received for specific years. Report loss payments net of salvage and subrogation received.
<FN>
------------------------------------------------------------
| 1 | ||
| ------------------------------| ||
| Years | 10 | 11 | 12 ||
| in Which | | | Number of ||
|Premiums Were | Unallocated | Total | Claims ||
| Earned and | Loss | Net Paid | Reported - ||
| Losses Were | Expense | (5 - 6 + 7 | Direct and ||
| Incurred | Payments | - 8 + 10) | Assumed ||
|--------------|--------------|--------------|--------------||
| | | | ||
| | | | ||
| 1. Prior ...| 49 | 1,378 | X X X X ||
| 2. 1984.....| 13,504 | 276,564 | 85,950 ||
| 3. 1985.....| 15,906 | 346,141 | 92,808 ||
| 4. 1986.....| 13,339 | 318,126 | 79,778 ||
| 5. 1987.....| 12,675 | 305,468 | 73,845 ||
| 6. 1988.....| 13,175 | 282,162 | 66,825 ||
| 7. 1989.....| 12,471 | 260,543 | 61,408 ||
| 8. 1990.....| 12,967 | 224,173 | 56,417 ||
| 9. 1991.....| 12,078 | 162,308 | 46,525 ||
|10. 1992.....| 12,289 | 85,145 | 39,753 ||
|11. 1993.....| 8,009 | 33,510 | 29,398 ||
|--------------|--------------|--------------|--------------||
|12. Totals ..| 126,462 | 2,295,518 | X X X X ||
------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
| | Losses Unpaid | Allocated Loss Expenses Unpaid
| |--------------------------------------------------------|-----------------------------------------------------------
| | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR
| |---------------------------|----------------------------|-----------------------------|-----------------------------
| | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20
| | Direct | | Direct | | Direct | | Direct |
| | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
| | | | | | | | |
| 1. Prior ...| 3,578 | 0 | 456 | 6 | 0 | 0 | 1,552 | 1
| 2. 1984.....| 262 | 0 | 1,405 | 3 | 0 | 0 | 463 | 0
| 3. 1985.....| 6,363 | 6,442 | 2,338 | 16 | 0 | 0 | 638 | 2
| 4. 1986.....| 2,622 | 741 | 2,377 | 25 | 0 | 0 | 900 | 11
| 5. 1987.....| 5,462 | 192 | 5,745 | 52 | 0 | 0 | 1,683 | 31
| 6. 1988.....| 12,656 | 2,215 | 3,328 | 123 | 0 | 0 | 2,384 | 310
| 7. 1989.....| 17,268 | 2,457 | 8,162 | 268 | 0 | 0 | 3,617 | 355
| 8. 1990.....| 34,957 | 5,277 | 13,890 | 533 | 0 | 0 | 6,060 | 743
| 9. 1991.....| 45,701 | 4,815 | 30,237 | 1,117 | 0 | 0 | 8,716 | 728
|10. 1992.....| 68,740 | 7,615 | 43,115 | 1,999 | 0 | 0 | 11,554 | 1,153
|11. 1993.....| 55,693 | 6,260 | 75,295 | 3,989 | 0 | 0 | 10,604 | 1,135
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
|12. Totals ..| 253,302 | 36,014 | 186,348 | 8,131 | 0 | 0 | 48,171 | 4,469
-----------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------
| | | | |
| | 21 | 22 | 23 | 24
| | | | | Number of
| | Salvage | Unallocated | Total | Claims
| | and | Loss | Net Losses | Outstanding-
| | Subrogation | Expenses | and Expenses | Direct and
| | Anticipated | Unpaid | Unpaid | Assumed
|--------------|--------------|--------------|--------------|--------------
| | | | |
| | | | |
| 1. Prior ...| (10)| 48 | 5,627 | 48
| 2. 1984.....| (9)| 72 | 2,199 | 17
| 3. 1985.....| (58)| 108 | 2,987 | 33
| 4. 1986.....| (74)| 146 | 5,268 | 58
| 5. 1987.....| (201)| 318 | 12,933 | 119
| 6. 1988.....| (236)| 579 | 16,299 | 244
| 7. 1989.....| (223)| 875 | 26,842 | 464
| 8. 1990.....| (435)| 1,837 | 50,191 | 854
| 9. 1991.....| (429)| 2,782 | 80,776 | 1,466
|10. 1992.....| (623)| 4,617 | 117,259 | 2,749
|11. 1993.....| (640)| 5,449 | 135,657 | 6,361
|--------------|--------------|--------------|--------------|--------------
|12. Totals ..| (2,938)| 16,831 | 456,038 | 12,413
--------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
| | Total Losses and | Loss and Loss Expense Percentage | Discount for Time
| | Loss Expenses Incurred | (Incurred/Premiums Earned) | Value of Money
| |-----------------------------------------|--------------------------------------------|-----------------------------
| | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32
| | | | | | | | |
| | Direct | | | Direct | | | | Loss
| | and Assumed | Ceded | Net * | and Assumed | Ceded | Net | Loss | Expense
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
| | | | | | | | |
| 1. Prior ...| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0
| 2. 1984.....| 288,160 | 9,397 | 278,763 | 134.4 | 222.9 | 132.6 | 0 | 0
| 3. 1985.....| 401,968 | 52,840 | 349,128 | 115.6 | 121.7 | 114.7 | 0 | 0
| 4. 1986.....| 346,120 | 22,726 | 323,394 | 76.7 | 77.6 | 76.6 | 0 | 0
| 5. 1987.....| 346,492 | 28,091 | 318,401 | 68.7 | 103.5 | 66.7 | 0 | 0
| 6. 1988.....| 336,882 | 38,421 | 298,461 | 73.1 | 96.5 | 70.8 | 0 | 0
| 7. 1989.....| 328,645 | 41,260 | 287,385 | 77.4 | 95.3 | 75.4 | 0 | 0
| 8. 1990.....| 313,818 | 39,454 | 274,364 | 74.8 | 92.2 | 72.8 | 0 | 0
| 9. 1991.....| 265,425 | 22,341 | 243,084 | 69.1 | 56.0 | 70.6 | 0 | 0
|10. 1992.....| 224,148 | 21,744 | 202,404 | 70.1 | 55.7 | 72.1 | 0 | 0
|11. 1993.....| 184,975 | 15,808 | 169,167 | 71.2 | 51.6 | 73.8 | 0 | 0
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
|12. Totals ..| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0
-----------------------------------------------------------------------------------------------------------------------------------
*Net = (25 - 26) = (11 + 23)
<FN>
------------------------------------------------------------
| | | Net Balance Sheet Reserves||
| | 33 | After Discount ||
| | |-----------------------------||
| |Inter-Company | 34 | 35 ||
| | Pooling | | Loss ||
| |Participation | Losses | Expenses ||
| | Percentage | Unpaid | Unpaid ||
|--------------|--------------|--------------|--------------||
| | | | ||
| | | | ||
| 1. Prior ...| X X X X | 4,028 | 1,599 ||
| 2. 1984.....| 0.0 | 1,664 | 535 ||
| 3. 1985.....| 0.0 | 2,243 | 744 ||
| 4. 1986.....| 0.0 | 4,233 | 1,035 ||
| 5. 1987.....| 0.0 | 10,963 | 1,970 ||
| 6. 1988.....| 0.0 | 13,646 | 2,653 ||
| 7. 1989.....| 0.0 | 22,705 | 4,137 ||
| 8. 1990.....| 0.0 | 43,037 | 7,154 ||
| 9. 1991.....| 0.0 | 70,006 | 10,770 ||
|10. 1992.....| 0.0 | 102,241 | 15,018 ||
|11. 1993.....| 0.0 | 120,739 | 14,918 ||
|--------------|--------------|--------------|--------------||
|12. Totals ..| X X X X | 395,505 | 60,533 ||
------------------------------------------------------------
</TABLE>
Page: Page 67
Form 2
CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND
ITS AFFILIATED FIRE AND CASUALTY INSURERS
<TABLE>
<CAPTION>
SCHEDULE P - PART 1D - WORKERS' COMPENSATION
(000 omitted)
-----------------------------------------------------------------------------------------------------------------------------------
| 1 | Premiums Earned | Loss and Loss Expense Payments
| |-----------------------------------------|--------------------------------------------------------------------------
| Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9
| in Which | | | | | Expense Payments |
|Premiums Were | | | |-----------------------------|-----------------------------| Salvage
| Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and
| Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation
| Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
| | | | | | | | |
<S> <C> <C> <C> <C> <C> <C> <C> <C> >
| 1. Prior ...| X X X X | X X X X | X X X X | 49,759 | 10,685 | 1,818 | 41 | 3,804
| 2. 1984.....| 429,806 | 18,589 | 411,217 | 444,821 | 29,284 | 20,798 | 299 | 16,784
| 3. 1985.....| 598,607 | 100,934 | 497,673 | 590,256 | 104,708 | 26,008 | 608 | 18,107
| 4. 1986.....| 618,623 | 67,684 | 550,939 | 520,643 | 72,493 | 22,986 | 317 | 14,039
| 5. 1987.....| 622,801 | 81,301 | 541,500 | 553,116 | 120,391 | 21,498 | 323 | 10,914
| 6. 1988.....| 747,889 | 111,269 | 636,620 | 576,318 | 119,281 | 24,322 | 244 | 11,050
| 7. 1989.....| 791,969 | 158,717 | 633,252 | 624,360 | 137,963 | 25,802 | 296 | 9,864
| 8. 1990.....| 883,078 | 188,951 | 694,127 | 554,296 | 157,213 | 23,764 | 379 | 6,896
| 9. 1991.....| 754,958 | 251,311 | 503,647 | 403,713 | 150,033 | 17,456 | 345 | 3,792
|10. 1992.....| 625,431 | 305,456 | 319,975 | 250,049 | 121,230 | 8,803 | 137 | 1,127
|11. 1993.....| 457,088 | 306,269 | 150,819 | 75,161 | 47,133 | 2,032 | 56 | 102
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
|12. Totals ..| X X X X | X X X X | X X X X | 4,642,492 | 1,070,414 | 195,287 | 3,045 | 96,479
-----------------------------------------------------------------------------------------------------------------------------------
Note: For "prior," report amounts paid or received in current year only.
Report cumulative amounts paid or received for specific years. Report loss payments net of salvage and subrogation received.
<FN>
------------------------------------------------------------
| 1 | ||
| ------------------------------| ||
| Years | 10 | 11 | 12 ||
| in Which | | | Number of ||
|Premiums Were | Unallocated | Total | Claims ||
| Earned and | Loss | Net Paid | Reported - ||
| Losses Were | Expense | (5 - 6 + 7 | Direct and ||
| Incurred | Payments | - 8 + 10) | Assumed ||
|--------------|--------------|--------------|--------------||
| | | | ||
| | | | ||
| 1. Prior ...| 2,959 | 43,810 | X X X X ||
| 2. 1984.....| 10,773 | 446,809 | 47,297 ||
| 3. 1985.....| 10,978 | 521,926 | 51,591 ||
| 4. 1986.....| 10,145 | 480,964 | 47,190 ||
| 5. 1987.....| 8,656 | 462,556 | 43,816 ||
| 6. 1988.....| 11,882 | 492,997 | 47,022 ||
| 7. 1989.....| 11,267 | 523,170 | 49,486 ||
| 8. 1990.....| 10,566 | 431,034 | 46,186 ||
| 9. 1991.....| 10,523 | 281,314 | 40,361 ||
|10. 1992.....| (13,181)| 124,304 | 31,288 ||
|11. 1993.....| (23,844)| 6,160 | 18,601 ||
|--------------|--------------|--------------|--------------||
|12. Totals ..| 50,724 | 3,815,044 | X X X X ||
------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
| | Losses Unpaid | Allocated Loss Expenses Unpaid
| |--------------------------------------------------------|-----------------------------------------------------------
| | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR
| |---------------------------|----------------------------|-----------------------------|-----------------------------
| | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20
| | Direct | | Direct | | Direct | | Direct |
| | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
| | | | | | | | |
| 1. Prior ...| 363,641 | 137,291 | 113,590 | 3,478 | 0 | 0 | 17,368 | 6
| 2. 1984.....| 55,256 | 2,660 | 28,378 | 1,975 | 0 | 0 | 4,670 | 0
| 3. 1985.....| 70,719 | 19,716 | 48,209 | 3,050 | 0 | 0 | 6,095 | 1
| 4. 1986.....| 59,951 | 10,018 | 49,060 | 2,672 | 0 | 0 | 6,352 | 0
| 5. 1987.....| 69,942 | 18,008 | 57,143 | 3,432 | 0 | 0 | 7,453 | 0
| 6. 1988.....| 98,189 | 18,171 | 53,332 | 2,296 | 0 | 0 | 9,759 | 2
| 7. 1989.....| 124,979 | 28,600 | 82,591 | 4,663 | 0 | 0 | 13,483 | 12
| 8. 1990.....| 135,403 | 37,614 | 99,162 | 15,141 | 0 | 0 | 15,073 | 2
| 9. 1991.....| 147,712 | 49,378 | 109,310 | 40,526 | 0 | 0 | 15,298 | 24
|10. 1992.....| 178,655 | 84,500 | 122,096 | 71,326 | 0 | 0 | 16,194 | 22
|11. 1993.....| 164,264 | 107,098 | 192,674 | 140,294 | 0 | 0 | 15,868 | 714
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
|12. Totals ..| 1,468,711 | 513,054 | 955,545 | 288,853 | 0 | 0 | 127,613 | 783
-----------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------
| | | | |
| | 21 | 22 | 23 | 24
| | | | | Number of
| | Salvage | Unallocated | Total | Claims
| | and | Loss | Net Losses | Outstanding-
| | Subrogation | Expenses | and Expenses | Direct and
| | Anticipated | Unpaid | Unpaid | Assumed
|--------------|--------------|--------------|--------------|--------------
| | | | |
| | | | |
| 1. Prior ...| (6,715)| 7,517 | 361,341 | 3,215
| 2. 1984.....| (2,753)| 2,339 | 86,008 | 451
| 3. 1985.....| (3,733)| 3,017 | 105,273 | 539
| 4. 1986.....| (4,039)| 3,110 | 105,783 | 625
| 5. 1987.....| (4,942)| 3,433 | 116,531 | 688
| 6. 1988.....| (6,436)| 4,288 | 145,099 | 1,035
| 7. 1989.....| (8,026)| 5,638 | 193,416 | 1,504
| 8. 1990.....| (8,009)| 6,348 | 203,229 | 2,174
| 9. 1991.....| (6,952)| 6,700 | 189,092 | 3,258
|10. 1992.....| (4,323)| 8,337 | 169,434 | 4,879
|11. 1993.....| (1,929)| 9,940 | 134,640 | 8,770
|--------------|--------------|--------------|--------------|--------------
|12. Totals ..| (57,857)| 60,667 | 1,809,846 | 27,138
----------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
| | Total Losses and | Loss and Loss Expense Percentage | Discount for Time
| | Loss Expenses Incurred | (Incurred/Premiums Earned) | Value of Money
| |-----------------------------------------|--------------------------------------------|-----------------------------
| | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32
| | | | | | | | |
| | Direct | | | Direct | | | | Loss
| | and Assumed | Ceded | Net * | and Assumed | Ceded | Net | Loss | Expense
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
| | | | | | | | |
| 1. Prior ...| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 861 | 3,502
| 2. 1984.....| 567,035 | 34,218 | 532,817 | 131.9 | 184.1 | 129.6 | 866 | 1,377
| 3. 1985.....| 755,282 | 128,083 | 627,199 | 126.2 | 126.9 | 126.0 | 1,564 | 1,714
| 4. 1986.....| 672,247 | 85,500 | 586,747 | 108.7 | 126.3 | 106.5 | 2,199 | 1,738
| 5. 1987.....| 721,241 | 142,154 | 579,087 | 115.8 | 174.8 | 106.9 | 2,692 | 2,016
| 6. 1988.....| 778,090 | 139,994 | 638,096 | 104.0 | 125.8 | 100.2 | 3,834 | 2,399
| 7. 1989.....| 888,120 | 171,534 | 716,586 | 112.1 | 108.1 | 113.2 | 5,295 | 3,022
| 8. 1990.....| 844,612 | 210,349 | 634,263 | 95.6 | 111.3 | 91.4 | 5,987 | 3,154
| 9. 1991.....| 710,712 | 240,306 | 470,406 | 94.1 | 95.6 | 93.4 | 5,056 | 3,072
|10. 1992.....| 570,953 | 277,215 | 293,738 | 91.3 | 90.8 | 91.8 | 4,282 | 3,131
|11. 1993.....| 436,095 | 295,295 | 140,800 | 95.4 | 96.4 | 93.4 | 0 | 0
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
|12. Totals ..| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 32,636 | 25,125
-----------------------------------------------------------------------------------------------------------------------------------
*Net = (25 - 26) = (11 + 23)
<FN>
------------------------------------------------------------
| | | Net Balance Sheet Reserves||
| | 33 | After Discount ||
| | |-----------------------------||
| |Inter-Company | 34 | 35 ||
| | Pooling | | Loss ||
| |Participation | Losses | Expenses ||
| | Percentage | Unpaid | Unpaid ||
|--------------|--------------|--------------|--------------||
| | | | ||
| | | | ||
| 1. Prior ...| X X X X | 335,601 | 21,377 ||
| 2. 1984.....| 0.0 | 78,133 | 5,632 ||
| 3. 1985.....| 0.0 | 94,598 | 7,397 ||
| 4. 1986.....| 0.0 | 94,122 | 7,724 ||
| 5. 1987.....| 0.0 | 102,953 | 8,870 ||
| 6. 1988.....| 0.0 | 127,220 | 11,646 ||
| 7. 1989.....| 0.0 | 169,012 | 16,087 ||
| 8. 1990.....| 0.0 | 175,823 | 18,265 ||
| 9. 1991.....| 0.0 | 162,062 | 18,902 ||
|10. 1992.....| 0.0 | 140,643 | 21,378 ||
|11. 1993.....| 0.0 | 109,546 | 25,094 ||
|--------------|--------------|--------------|--------------||
|12. Totals ..| X X X X | 1,589,713 | 162,372 ||
------------------------------------------------------------
</TABLE>
Page: Page 68
Form 2
CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND
ITS AFFILIATED FIRE AND CASUALTY INSURERS
<TABLE>
<CAPTION>
SCHEDULE P - PART 1E - COMMERCIAL MULTIPLE PERIL
(000 omitted)
-----------------------------------------------------------------------------------------------------------------------------------
| 1 | Premiums Earned | Loss and Loss Expense Payments
| |-----------------------------------------|--------------------------------------------------------------------------
| Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9
| in Which | | | | | Expense Payments |
|Premiums Were | | | |-----------------------------|-----------------------------| Salvage
| Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and
| Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation
| Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
| | | | | | | | |
<C> <C> <C> <C> <C> <C> <C> <C> <C>
| 1. Prior ...| X X X X | X X X X | X X X X | 2,271 | 2 | 1,156 | 0 | 80
| 2. 1984.....| 197,454 | 15,627 | 181,827 | 149,490 | 8,200 | 20,975 | 985 | 5,865
| 3. 1985.....| 286,242 | 28,453 | 257,789 | 177,925 | 10,391 | 28,078 | 536 | 7,798
| 4. 1986.....| 387,822 | 37,262 | 350,560 | 155,169 | 11,052 | 31,519 | 352 | 5,784
| 5. 1987.....| 387,310 | 18,374 | 368,936 | 154,311 | 592 | 23,652 | 102 | 4,968
| 6. 1988.....| 650,932 | 26,143 | 624,789 | 232,448 | 6,281 | 37,165 | 127 | 10,657
| 7. 1989.....| 738,672 | 18,418 | 720,254 | 307,207 | 20,974 | 40,186 | 365 | 9,845
| 8. 1990.....| 731,950 | 13,795 | 718,155 | 265,678 | 4,236 | 41,577 | 113 | 7,976
| 9. 1991.....| 674,236 | 4,649 | 669,587 | 216,196 | 8,179 | 21,322 | 215 | 5,011
|10. 1992.....| 608,782 | 4,166 | 604,616 | 217,049 | 42,935 | 9,449 | 3,358 | 3,804
|11. 1993.....| 601,391 | 5,797 | 595,594 | 115,107 | 6,221 | 2,115 | 119 | 1,715
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
|12. Totals ..| X X X X | X X X X | X X X X | 1,992,851 | 119,063 | 257,194 | 6,272 | 63,503
-----------------------------------------------------------------------------------------------------------------------------------
Note: For "prior," report amounts paid or received in current year only.
Report cumulative amounts paid or received for specific years. Report loss payments net of salvage and subrogation received.
<FN>
------------------------------------------------------------
| 1 | ||
| ------------------------------| ||
| Years | 10 | 11 | 12 ||
| in Which | | | Number of ||
|Premiums Were | Unallocated | Total | Claims ||
| Earned and | Loss | Net Paid | Reported - ||
| Losses Were | Expense | (5 - 6 + 7 | Direct and ||
| Incurred | Payments | - 8 + 10) | Assumed ||
|--------------|--------------|--------------|--------------||
| | | | ||
| | | | ||
| 1. Prior ...| 82 | 3,507 | X X X X ||
| 2. 1984.....| 7,619 | 168,899 | 41,778 ||
| 3. 1985.....| 10,607 | 205,683 | 45,176 ||
| 4. 1986.....| 11,216 | 186,500 | 37,027 ||
| 5. 1987.....| 13,087 | 190,356 | 33,810 ||
| 6. 1988.....| 27,663 | 290,868 | 59,225 ||
| 7. 1989.....| 34,684 | 360,738 | 78,933 ||
| 8. 1990.....| 34,558 | 337,464 | 77,951 ||
| 9. 1991.....| 30,004 | 259,128 | 73,538 ||
|10. 1992.....| 32,339 | 212,544 | 66,776 ||
|11. 1993.....| 26,180 | 137,062 | 62,686 ||
|--------------|--------------|--------------|--------------||
|12. Totals ..| 228,039 | 2,352,749 | X X X X ||
------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
| | Losses Unpaid | Allocated Loss Expenses Unpaid
| |--------------------------------------------------------|-----------------------------------------------------------
| | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR
| |---------------------------|----------------------------|-----------------------------|-----------------------------
| | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20
| | Direct | | Direct | | Direct | | Direct |
| | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
| | | | | | | | |
| 1. Prior ...| 4,755 | 20 | 1,150 | 6 | 0 | 0 | 4,842 | 3
| 2. 1984.....| 1,421 | 0 | 1,114 | 8 | 0 | 0 | 1,315 | 4
| 3. 1985.....| 2,801 | 0 | 1,048 | 17 | 0 | 0 | 2,286 | 9
| 4. 1986.....| 4,603 | 0 | 1,514 | 14 | 0 | 0 | 3,130 | 8
| 5. 1987.....| 5,512 | 0 | 1,886 | 6 | 0 | 0 | 8,677 | 3
| 6. 1988.....| 20,298 | 0 | 11,743 | 11 | 0 | 0 | 17,730 | 6
| 7. 1989.....| 31,331 | 0 | 26,906 | 29 | 0 | 0 | 30,727 | 7
| 8. 1990.....| 51,637 | 135 | 44,859 | 58 | 0 | 0 | 46,936 | 45
| 9. 1991.....| 61,049 | 166 | 66,020 | 10 | 0 | 0 | 57,228 | 19
|10. 1992.....| 58,314 | 1,628 | 87,692 | 22 | 0 | 0 | 58,994 | 230
|11. 1993.....| 89,479 | 4,745 | 121,618 | 185 | 0 | 0 | 60,344 | 408
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
|12. Totals ..| 331,200 | 6,694 | 365,550 | 366 | 0 | 0 | 292,209 | 742
-----------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------
| | 21 | 22 | 23 | 24
| | | | | Number of S
| | Salvage | Unallocated | Total | Claims
| | and | Loss | Net Losses | Outstanding-
| | Subrogation | Expenses | and Expenses | Direct and
| | Anticipated | Unpaid | Unpaid | Assumed
|--------------|--------------|--------------|--------------|--------------
| | | | |
| | | | |
<S> <C> <C> <C> <C>
| 1. Prior ...| (138)| 223 | 10,941 | 205
| 2. 1984.....| (103)| 169 | 4,007 | 56
| 3. 1985.....| (159)| 138 | 6,247 | 76
| 4. 1986.....| (187)| 208 | 9,433 | 135
| 5. 1987.....| (757)| 385 | 16,451 | 181
| 6. 1988.....| (1,709)| 2,626 | 52,380 | 459
| 7. 1989.....| (2,747)| 4,311 | 93,239 | 943
| 8. 1990.....| (3,159)| 7,298 | 150,492 | 1,771
| 9. 1991.....| (3,514)| 8,779 | 192,881 | 2,536
|10. 1992.....| (4,292)| 11,523 | 214,643 | 3,790
|11. 1993.....| (5,664)| 17,185 | 283,288 | 12,402
|--------------|--------------|--------------|--------------|--------------
|12. Totals ..| (22,429)| 52,845 | 1,034,002 | 22,554
--------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
| | Total Losses and | Loss and Loss Expense Percentage | Discount for Time
| | Loss Expenses Incurred | (Incurred/Premiums Earned) | Value of Money
| |-----------------------------------------|--------------------------------------------|-----------------------------
| | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32
| | | | | | | | |
| | Direct | | | Direct | | | | Loss
| | and Assumed | Ceded | Net * | and Assumed | Ceded | Net | Loss | Expense
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
| | | | | | | | |
| 1. Prior ...| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0
| 2. 1984.....| 182,103 | 9,197 | 172,906 | 92.2 | 58.9 | 95.1 | 0 | 0
| 3. 1985.....| 222,883 | 10,953 | 211,930 | 77.9 | 38.5 | 82.2 | 0 | 0
| 4. 1986.....| 207,359 | 11,426 | 195,933 | 53.5 | 30.7 | 55.9 | 0 | 0
| 5. 1987.....| 207,510 | 703 | 206,807 | 53.6 | 3.8 | 56.1 | 0 | 0
| 6. 1988.....| 349,673 | 6,425 | 343,248 | 53.7 | 24.6 | 54.9 | 0 | 0
| 7. 1989.....| 475,352 | 21,375 | 453,977 | 64.4 | 116.1 | 63.0 | 0 | 0
| 8. 1990.....| 492,543 | 4,587 | 487,956 | 67.3 | 33.3 | 67.9 | 0 | 0
| 9. 1991.....| 460,598 | 8,589 | 452,009 | 68.3 | 184.7 | 67.5 | 0 | 0
|10. 1992.....| 475,360 | 48,173 | 427,187 | 78.1 | 1,156.3 | 70.7 | 0 | 0
|11. 1993.....| 432,028 | 11,678 | 420,350 | 71.8 | 201.4 | 70.6 | 0 | 0
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
|12. Totals ..| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0
-----------------------------------------------------------------------------------------------------------------------------------
*Net = (25 - 26) = (11 + 23)
<FN>
------------------------------------------------------------
| | | Net Balance Sheet Reserves||
| | 33 | After Discount ||
| | |-----------------------------||
| |Inter-Company | 34 | 35 ||
| | Pooling | | Loss ||
| |Participation | Losses | Expenses ||
| | Percentage | Unpaid | Unpaid ||
|--------------|--------------|--------------|--------------||
| | | | ||
| | | | ||
| 1. Prior ...| X X X X | 5,879 | 5,062 ||
| 2. 1984.....| 0.0 | 2,527 | 1,480 ||
| 3. 1985.....| 0.0 | 3,832 | 2,415 ||
| 4. 1986.....| 0.0 | 6,103 | 3,330 ||
| 5. 1987.....| 0.0 | 7,392 | 9,059 ||
| 6. 1988.....| 0.0 | 32,030 | 20,350 ||
| 7. 1989.....| 0.0 | 58,208 | 35,031 ||
| 8. 1990.....| 0.0 | 96,303 | 54,189 ||
| 9. 1991.....| 0.0 | 126,893 | 65,988 ||
|10. 1992.....| 0.0 | 144,356 | 70,287 ||
|11. 1993.....| 0.0 | 206,167 | 77,121 ||
|--------------|--------------|--------------|--------------||
|12. Totals ..| X X X X | 689,690 | 344,312 ||
------------------------------------------------------------
</TABLE>
Page: Page 69
Form 2
CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND
ITS AFFILIATED FIRE AND CASUALTY INSURERS
<TABLE>
<CAPTION>
SCHEDULE P - PART 1F - SECTION 1 - MEDICAL MALPRACTICE -
OCCURRENCE
(000 omitted)
-----------------------------------------------------------------------------------------------------------------------------------
| 1 | Premiums Earned | Loss and Loss Expense Payments
| |-----------------------------------------|--------------------------------------------------------------------------
| Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9
| in Which | | | | | Expense Payments |
|Premiums Were | | | |-----------------------------|-----------------------------| Salvage
| Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and
| Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation
| Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
| | | | | | | | |
<S> <C> <C> <C> <C> <C> <C> <C> <C>
| 1. Prior ...| X X X X | X X X X | X X X X | 656 | 0 | 754 | 0 | 521
| 2. 1984.....| 7,858 | 48 | 7,810 | 5,637 | 0 | 3,669 | 0 | 5,442
| 3. 1985.....| 6,544 | 97 | 6,447 | 3,398 | 500 | 1,639 | 0 | 1,145
| 4. 1986.....| 97 | 38 | 59 | 1 | 0 | 3 | 0 | 8
| 5. 1987.....| 660 | 0 | 660 | 9 | 0 | 8 | 0 | 0
| 6. 1988.....| 548 | 0 | 548 | 18 | 0 | 24 | 0 | 0
| 7. 1989.....| 88 | 0 | 88 | 15 | 0 | 9 | 0 | 0
| 8. 1990.....| 84 | 0 | 84 | 325 | 0 | 33 | 0 | 0
| 9. 1991.....| 56 | 0 | 56 | 23 | 0 | 12 | 0 | 0
|10. 1992.....| 60 | 0 | 60 | 0 | 0 | 0 | 0 | 0
|11. 1993.....| 1 | 0 | 1 | 0 | 0 | 0 | 0 | 0
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
|12. Totals ..| X X X X | X X X X | X X X X | 10,082 | 500 | 6,151 | 0 | 7,116
-----------------------------------------------------------------------------------------------------------------------------------
Note: For "prior," report amounts paid or received in current year only.
Report cumulative amounts paid or received for specific years. Report loss payments net of salvage and subrogation received.
<FN>
------------------------------------------------------------
| 1 | ||
| ------------------------------| ||
| Years | 10 | 11 | 12 ||
| in Which | | | Number of ||
|Premiums Were | Unallocated | Total | Claims ||
| Earned and | Loss | Net Paid | Reported - ||
| Losses Were | Expense | (5 - 6 + 7 | Direct and ||
| Incurred | Payments | - 8 + 10) | Assumed ||
|--------------|--------------|--------------|--------------||
| | | | ||
| | | | ||
| 1. Prior ...| 52 | 1,462 | X X X X ||
| 2. 1984.....| 895 | 10,201 | 723 ||
| 3. 1985.....| 599 | 5,136 | 310 ||
| 4. 1986.....| 6 | 10 | 2 ||
| 5. 1987.....| 78 | 95 | 5 ||
| 6. 1988.....| 15 | 57 | 4 ||
| 7. 1989.....| 8 | 32 | 4 ||
| 8. 1990.....| 10 | 368 | 4 ||
| 9. 1991.....| 10 | 45 | 1 ||
|10. 1992.....| 8 | 8 | 0 ||
|11. 1993.....| 0 | 0 | 1 ||
|--------------|--------------|--------------|--------------||
|12. Totals ..| 1,681 | 17,414 | X X X X ||
------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
| | Losses Unpaid | Allocated Loss Expenses Unpaid
| |--------------------------------------------------------|-----------------------------------------------------------
| | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR
| |---------------------------|----------------------------|-----------------------------|-----------------------------
| | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20
| | Direct | | Direct | | Direct | | Direct |
| | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
| | | | | | | | |
| 1. Prior ...| 4,897 | 0 | 2,359 | 0 | 0 | 0 | 2,490 | 0
| 2. 1984.....| 630 | 0 | 478 | 0 | 0 | 0 | 388 | 0
| 3. 1985.....| 101 | 0 | 358 | 0 | 0 | 0 | 161 | 0
| 4. 1986.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0
| 5. 1987.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0
| 6. 1988.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0
| 7. 1989.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0
| 8. 1990.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0
| 9. 1991.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0
|10. 1992.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0
|11. 1993.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
|12. Totals ..| 5,628 | 0 | 3,195 | 0 | 0 | 0 | 3,039 | 0
-----------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------
| | | | |
| | 21 | 22 | 23 | 24 |
| | | | | Number of |
| | Salvage | Unallocated | Total | Claims |
| | and | Loss | Net Losses |Outstanding - |
| | Subrogation | Expenses | and Expenses | Direct and |
| | Anticipated | Unpaid | Unpaid | Assumed |
|--------------|--------------|--------------|--------------|--------------|
| | | | | |
| | | | | |
| 1. Prior ...| 0 | 658 | 10,404 | 46 |
| 2. 1984.....| 0 | 110 | 1,606 | 14 |
| 3. 1985.....| 0 | 57 | 677 | 7 |
| 4. 1986.....| 0 | 0 | 0 | 0 |
| 5. 1987.....| 0 | 0 | 0 | 0 |
| 6. 1988.....| 0 | 0 | 0 | 0 |
| 7. 1989.....| 0 | 0 | 0 | 0 |
| 8. 1990.....| 0 | 0 | 0 | 0 |
| 9. 1991.....| 0 | 0 | 0 | 0 |
|10. 1992.....| 0 | 0 | 0 | 0 |
|11. 1993.....| 0 | 0 | 0 | 0 |
|--------------|--------------|--------------|--------------|--------------|
|12. Totals ..| 0 | 825 | 12,687 | 67 |
----------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
| | Total Losses and | Loss and Loss Expense Percentage | Discount for Time
| | Loss Expenses Incurred | (Incurred/Premiums Earned) | Value of Money
| |-----------------------------------------|--------------------------------------------|-----------------------------
| | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32
| | | | | | | | |
| | Direct | | | Direct | | | | Loss
| | and Assumed | Ceded | Net * | and Assumed | Ceded | Net | Loss | Expense
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
| | | | | | | | |
| 1. Prior ...| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0
| 2. 1984.....| 11,807 | 0 | 11,807 | 150.3 | 0.0 | 151.2 | 0 | 0
| 3. 1985.....| 6,313 | 500 | 5,813 | 96.5 | 515.5 | 90.2 | 0 | 0
| 4. 1986.....| 10 | 0 | 10 | 10.3 | 0.0 | 16.9 | 0 | 0
| 5. 1987.....| 95 | 0 | 95 | 14.4 | 0.0 | 14.4 | 0 | 0
| 6. 1988.....| 57 | 0 | 57 | 10.4 | 0.0 | 10.4 | 0 | 0
| 7. 1989.....| 32 | 0 | 32 | 36.4 | 0.0 | 36.4 | 0 | 0
| 8. 1990.....| 368 | 0 | 368 | 438.1 | 0.0 | 438.1 | 0 | 0
| 9. 1991.....| 45 | 0 | 45 | 80.4 | 0.0 | 80.4 | 0 | 0
|10. 1992.....| 8 | 0 | 8 | 13.3 | 0.0 | 13.3 | 0 | 0
|11. 1993.....| 0 | 0 | 0 | 0.0 | 0.0 | 0.0 | 0 | 0
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
|12. Totals ..| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0
-----------------------------------------------------------------------------------------------------------------------------------
*Net = (25 - 26) = (11 + 23)
<FN>
------------------------------------------------------------
| | | Net Balance Sheet Reserves||
| | 33 | After Discount ||
| | |-----------------------------||
| |Inter-Company | 34 | 35 ||
| | Pooling | | Loss ||
| |Participation | Losses | Expenses ||
| | Percentage | Unpaid | Unpaid ||
|--------------|--------------|--------------|--------------||
| | | | ||
| | | | ||
| 1. Prior ...| X X X X | 7,256 | 3,148 ||
| 2. 1984.....| 0.0 | 1,108 | 498 ||
| 3. 1985.....| 0.0 | 459 | 218 ||
| 4. 1986.....| 0.0 | 0 | 0 ||
| 5. 1987.....| 0.0 | 0 | 0 ||
| 6. 1988.....| 0.0 | 0 | 0 ||
| 7. 1989.....| 0.0 | 0 | 0 ||
| 8. 1990.....| 0.0 | 0 | 0 ||
| 9. 1991.....| 0.0 | 0 | 0 ||
|10. 1992.....| 0.0 | 0 | 0 ||
|11. 1993.....| 0.0 | 0 | 0 ||
|--------------|--------------|--------------|--------------||
|12. Totals ..| X X X X | 8,823 | 3,864 ||
------------------------------------------------------------
</TABLE>
Page 70
Form 2
CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND
ITS AFFILIATED FIRE AND CASUALTY INSURERS
<TABLE>
<CAPTION>
SCHEDULE P - PART 1F - SECTION 2 - MEDICAL MALPRACTICE -
CLAIMS-MADE
(000 omitted)
-----------------------------------------------------------------------------------------------------------------------------------
| 1 | Premiums Earned | Loss and Loss Expense Payments
| |-----------------------------------------|--------------------------------------------------------------------------
| Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9
| in Which | | | | | Expense Payments |
|Premiums Were | | | |-----------------------------|-----------------------------| Salvage
| Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and
| Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation
| Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
| | | | | | | | |
<S> <C> <C> <C> <C> <C> <C> <C> <C>
| 1. Prior ...| X X X X | X X X X | X X X X | 0 | 0 | 0 | 0 | 0
| 2. 1984.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0
| 3. 1985.....| 0 | 0 | 0 | 801 | 0 | 144 | 0 | (93)
| 4. 1986.....| 0 | 0 | 0 | 7 | 0 | 25 | 0 | 0
| 5. 1987.....| 117 | 0 | 117 | 19 | 0 | 5 | 0 | 0
| 6. 1988.....| 219 | 0 | 219 | 99 | 0 | 42 | 0 | 0
| 7. 1989.....| 228 | 0 | 228 | 203 | 0 | 52 | 0 | 0
| 8. 1990.....| 256 | 0 | 256 | 230 | 0 | 36 | 0 | 0
| 9. 1991.....| 299 | 0 | 299 | 1 | 0 | 9 | 0 | 0
|10. 1992.....| 255 | 0 | 255 | 0 | 0 | 3 | 0 | 0
|11. 1993.....| 66 | 0 | 66 | 0 | 0 | 0 | 0 | 0
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
|12. Totals ..| X X X X | X X X X | X X X X | 1,360 | 0 | 316 | 0 | (93)
-----------------------------------------------------------------------------------------------------------------------------------
Note: For "prior," report amounts paid or received in current year only.
Report cumulative amounts paid or received for specific years. Report loss payments net of salvage and subrogation received.
<FN>
------------------------------------------------------------
| 1 | ||
| ------------------------------| ||
| Years | 10 | 11 | 12 ||
| in Which | | | Number of ||
|Premiums Were | Unallocated | Total | Claims ||
| Earned and | Loss | Net Paid | Reported - ||
| Losses Were | Expense | (5 - 6 + 7 | Direct and ||
| Incurred | Payments | - 8 + 10) | Assumed ||
|--------------|--------------|--------------|--------------||
| | | | ||
| | | | ||
| 1. Prior ...| 0 | 0 | X X X X ||
| 2. 1984.....| 0 | 0 | 0 ||
| 3. 1985.....| 0 | 945 | 0 ||
| 4. 1986.....| 0 | 32 | 0 ||
| 5. 1987.....| 0 | 24 | 0 ||
| 6. 1988.....| 0 | 141 | 0 ||
| 7. 1989.....| 0 | 255 | 0 ||
| 8. 1990.....| 0 | 266 | 0 ||
| 9. 1991.....| 0 | 10 | 0 ||
|10. 1992.....| 0 | 3 | 0 ||
|11. 1993.....| 0 | 0 | 0 ||
|--------------|--------------|--------------|--------------||
|12. Totals ..| 0 | 1,676 | X X X X ||
------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
| | Losses Unpaid | Allocated Loss Expenses Unpaid
| |--------------------------------------------------------|-----------------------------------------------------------
| | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR
| |---------------------------|----------------------------|-----------------------------|-----------------------------
| | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20
| | Direct | | Direct | | Direct | | Direct |
| | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
| | | | | | | | |
| 1. Prior ...| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0
| 2. 1984.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0
| 3. 1985.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0
| 4. 1986.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0
| 5. 1987.....| 0 | 0 | 24 | 0 | 0 | 0 | 0 | 0
| 6. 1988.....| 154 | 0 | 0 | 0 | 0 | 0 | 0 | 0
| 7. 1989.....| 169 | 0 | 0 | 0 | 0 | 0 | 0 | 0
| 8. 1990.....| 38 | 0 | 0 | 0 | 0 | 0 | 0 | 0
| 9. 1991.....| 118 | 0 | 97 | 0 | 0 | 0 | 0 | 0
|10. 1992.....| 53 | 0 | 135 | 0 | 0 | 0 | 0 | 0
|11. 1993.....| 0 | 0 | 40 | 0 | 0 | 0 | 0 | 0
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
|12. Totals ..| 532 | 0 | 296 | 0 | 0 | 0 | 0 | 0
-----------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------
| | | | | |
| | 21 | 22 | 23 | 24 |
| | | | | Number of |
| | Salvage | Unallocated | Total | Claims |
| | and | Loss | Net Losses |Outstanding - |
| | Subrogation | Expenses | and Expenses | Direct and |
| | Anticipated | Unpaid | Unpaid | Assumed |
|--------------|--------------|--------------|--------------|--------------|
| | | | | |
| | | | | |
| 1. Prior ...| 0 | 0 | 0 | 0 |
| 2. 1984.....| 0 | 0 | 0 | 0 |
| 3. 1985.....| 0 | 0 | 0 | 0 |
| 4. 1986.....| 0 | 0 | 0 | 0 |
| 5. 1987.....| 0 | 0 | 24 | 0 |
| 6. 1988.....| 0 | 0 | 154 | 0 |
| 7. 1989.....| 0 | 0 | 169 | 0 |
| 8. 1990.....| 0 | 0 | 38 | 0 |
| 9. 1991.....| 0 | 0 | 215 | 0 |
|10. 1992.....| 0 | 0 | 188 | 0 |
|11. 1993.....| 0 | 0 | 40 | 0 |
|--------------|--------------|--------------|--------------|--------------|
|12. Totals ..| 0 | 0 | 828 | 0 |
----------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
| | Total Losses and | Loss and Loss Expense Percentage | Discount for Time
| | Loss Expenses Incurred | (Incurred/Premiums Earned) | Value of Money
| |-----------------------------------------|--------------------------------------------|-----------------------------
| | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32
| | | | | | | | |
| | Direct | | | Direct | | | | Loss
| | and Assumed | Ceded | Net * | and Assumed | Ceded | Net | Loss | Expense
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
| | | | | | | | |
| 1. Prior ...| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0
| 2. 1984.....| 0 | 0 | 0 | 0.0 | 0.0 | 0.0 | 0 | 0
| 3. 1985.....| 945 | 0 | 945 | 0.0 | 0.0 | 0.0 | 0 | 0
| 4. 1986.....| 32 | 0 | 32 | 0.0 | 0.0 | 0.0 | 0 | 0
| 5. 1987.....| 48 | 0 | 48 | 41.0 | 0.0 | 41.0 | 0 | 0
| 6. 1988.....| 295 | 0 | 295 | 134.7 | 0.0 | 134.7 | 0 | 0
| 7. 1989.....| 424 | 0 | 424 | 186.0 | 0.0 | 186.0 | 0 | 0
| 8. 1990.....| 304 | 0 | 304 | 118.8 | 0.0 | 118.8 | 0 | 0
| 9. 1991.....| 225 | 0 | 225 | 75.3 | 0.0 | 75.3 | 0 | 0
|10. 1992.....| 191 | 0 | 191 | 74.9 | 0.0 | 74.9 | 0 | 0
|11. 1993.....| 40 | 0 | 40 | 60.6 | 0.0 | 60.6 | 0 | 0
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
|12. Totals ..| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0
-----------------------------------------------------------------------------------------------------------------------------------
*Net = (25 - 26) = (11 + 23)
<FN>
------------------------------------------------------------
| | | Net Balance Sheet Reserves||
| | 33 | After Discount ||
| | |-----------------------------||
| |Inter-Company | 34 | 35 ||
| | Pooling | | Loss ||
| |Participation | Losses | Expenses ||
| | Percentage | Unpaid | Unpaid ||
|--------------|--------------|--------------|--------------||
| | | | ||
| | | | ||
| 1. Prior ...| X X X X | 0 | 0 ||
| 2. 1984.....| 0.0 | 0 | 0 ||
| 3. 1985.....| 0.0 | 0 | 0 ||
| 4. 1986.....| 0.0 | 0 | 0 ||
| 5. 1987.....| 0.0 | 24 | 0 ||
| 6. 1988.....| 0.0 | 154 | 0 ||
| 7. 1989.....| 0.0 | 169 | 0 ||
| 8. 1990.....| 0.0 | 38 | 0 ||
| 9. 1991.....| 0.0 | 215 | 0 ||
|10. 1992.....| 0.0 | 188 | 0 ||
|11. 1993.....| 0.0 | 40 | 0 ||
|--------------|--------------|--------------|--------------||
|12. Totals ..| X X X X | 828 | 0 ||
------------------------------------------------------------
</TABLE>
Page: Page 71
Form 2
CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND
ITS AFFILIATED FIRE AND CASUALTY INSURERS
<TABLE>
<CAPTION>
SCHEDULE P - PART 1G - SPECIAL LIABILITY (OCEAN MARINE, AIRCRAFT
(ALL PERILS), BOILER AND MACHINERY)
(000 omitted)
-----------------------------------------------------------------------------------------------------------------------------------
| 1 | Premiums Earned | Loss and Loss Expense Payments
| |-----------------------------------------|--------------------------------------------------------------------------
| Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9
| in Which | | | | | Expense Payments |
|Premiums Were | | | |-----------------------------|-----------------------------| Salvage
| Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and
| Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation
| Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
| | | | | | | | |
<S> <C> <C> <C> <C> <C> <C> <C> <C>
| 1. Prior ...| X X X X | X X X X | X X X X | 1,505 | 1,233 | 168 | 131 | 5
| 2. 1984.....| 39,674 | 20,980 | 18,694 | 30,725 | 16,632 | 2,483 | 1,664 | 633
| 3. 1985.....| 51,313 | 26,552 | 24,761 | 46,088 | 28,329 | 3,652 | 2,343 | 960
| 4. 1986.....| 105,321 | 55,944 | 49,377 | 58,692 | 31,346 | 4,388 | 2,548 | 402
| 5. 1987.....| 123,309 | 70,752 | 52,557 | 66,728 | 39,939 | 6,044 | 4,006 | 1,068
| 6. 1988.....| 103,314 | 60,212 | 43,102 | 60,116 | 38,451 | 5,184 | 3,624 | 242
| 7. 1989.....| 69,557 | 42,614 | 26,943 | 50,727 | 29,681 | 3,933 | 2,434 | 720
| 8. 1990.....| 63,446 | 36,143 | 27,303 | 44,547 | 27,107 | 3,673 | 2,447 | 138
| 9. 1991.....| 42,601 | 31,190 | 11,411 | 47,830 | 31,370 | 3,039 | 2,135 | 200
|10. 1992.....| 41,704 | 26,431 | 15,273 | 19,960 | 12,068 | 1,124 | 567 | 14
|11. 1993.....| 49,333 | 34,173 | 15,160 | 11,061 | 6,088 | 618 | 253 | 1
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
|12. Totals ..| X X X X | X X X X | X X X X | 437,979 | 262,244 | 34,306 | 22,152 | 4,383
-----------------------------------------------------------------------------------------------------------------------------------
Note: For "prior," report amounts paid or received in current year only.
Report cumulative amounts paid or received for specific years. Report loss payments net of salvage and subrogation received.
<FN>
------------------------------------------------------------
| 1 | ||
| ------------------------------| ||
| Years | 10 | 11 | 12 ||
| in Which | | | Number of ||
|Premiums Were | Unallocated | Total | Claims ||
| Earned and | Loss | Net Paid | Reported - ||
| Losses Were | Expense | (5 - 6 + 7 | Direct and ||
| Incurred | Payments | - 8 + 10) | Assumed ||
|--------------|--------------|--------------|--------------||
| | | | ||
| | | | ||
| 1. Prior ...| 0 | 309 | X X X X ||
| 2. 1984.....| 269 | 15,181 | X X X X ||
| 3. 1985.....| 261 | 19,329 | X X X X ||
| 4. 1986.....| 102 | 29,288 | X X X X ||
| 5. 1987.....| 88 | 28,915 | X X X X ||
| 6. 1988.....| 72 | 23,297 | X X X X ||
| 7. 1989.....| 72 | 22,617 | X X X X ||
| 8. 1990.....| 87 | 18,753 | X X X X ||
| 9. 1991.....| 77 | 17,441 | X X X X ||
|10. 1992.....| 94 | 8,543 | X X X X ||
|11. 1993.....| 211 | 5,549 | X X X X ||
|--------------|--------------|--------------|--------------||
|12. Totals ..| 1,333 | 189,222 | X X X X ||
------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
| | Losses Unpaid | Allocated Loss Expenses Unpaid
| |--------------------------------------------------------|-----------------------------------------------------------
| | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR
| |---------------------------|----------------------------|-----------------------------|-----------------------------
| | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20
| | Direct | | Direct | | Direct | | Direct |
| | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
| | | | | | | | |
| 1. Prior ...| 5,523 | 5,048 | 161 | 161 | 0 | 0 | 424 | 420
| 2. 1984.....| 644 | 434 | 3 | 3 | 0 | 0 | 22 | 14
| 3. 1985.....| 452 | 345 | 3 | 3 | 0 | 0 | 8 | 8
| 4. 1986.....| 1,086 | 607 | 225 | 10 | 0 | 0 | 29 | 29
| 5. 1987.....| 2,081 | 675 | 789 | 27 | 0 | 0 | 173 | 71
| 6. 1988.....| 3,106 | 1,519 | 809 | 52 | 0 | 0 | 158 | 142
| 7. 1989.....| 4,754 | 2,998 | 599 | 162 | 0 | 0 | 439 | 423
| 8. 1990.....| 8,731 | 6,748 | 458 | 323 | 0 | 0 | 869 | 815
| 9. 1991.....| 4,998 | 3,369 | 446 | 188 | 0 | 0 | 424 | 364
|10. 1992.....| 8,635 | 6,219 | 794 | 300 | 0 | 0 | 503 | 449
|11. 1993.....| 11,829 | 7,547 | 2,514 | 787 | 0 | 0 | 5,350 | 3,445
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
|12. Totals ..| 51,839 | 35,509 | 6,801 | 2,016 | 0 | 0 | 8,399 | 6,180
-----------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------
| | | | |
| | 21 | 22 | 23 | 24 ||
| | | | | Number of ||
| | Salvage | Unallocated | Total | Claims ||
| | and | Loss | Net Losses |Outstanding - ||
| | Subrogation | Expenses | and Expenses | Direct and ||
| | Anticipated | Unpaid | Unpaid | Assumed ||
|--------------|--------------|--------------|--------------|--------------||
| | | | | ||
| | | | | ||
| 1. Prior ...| 0 | 0 | 479 | 0 ||
| 2. 1984.....| 0 | 0 | 218 | 0 ||
| 3. 1985.....| 0 | 0 | 107 | 0 ||
| 4. 1986.....| 0 | 0 | 694 | 0 ||
| 5. 1987.....| 0 | 12 | 2,282 | 3 ||
| 6. 1988.....| 0 | 2 | 2,362 | 1 ||
| 7. 1989.....| 0 | 2 | 2,211 | 1 ||
| 8. 1990.....| 0 | 6 | 2,178 | 9 ||
| 9. 1991.....| 0 | 9 | 1,956 | 5 ||
|10. 1992.....| 0 | 10 | 2,974 | 6 ||
|11. 1993.....| 0 | 36 | 7,950 | 35 ||
|--------------|--------------|--------------|--------------|--------------||
|12. Totals ..| 0 | 77 | 23,411 | 60 ||
----------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
| | Total Losses and | Loss and Loss Expense Percentage | Discount for Time
| | Loss Expenses Incurred | (Incurred/Premiums Earned) | Value of Money
| |-----------------------------------------|--------------------------------------------|-----------------------------
| | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32
| | | | | | | | |
| | Direct | | | Direct | | | | Loss
| | and Assumed | Ceded | Net * | and Assumed | Ceded | Net | Loss | Expense
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
| | | | | | | | |
| 1. Prior ...| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0
| 2. 1984.....| 34,146 | 18,747 | 15,399 | 86.1 | 89.4 | 82.4 | 0 | 0
| 3. 1985.....| 50,464 | 31,028 | 19,436 | 98.3 | 116.9 | 78.5 | 0 | 0
| 4. 1986.....| 64,522 | 34,540 | 29,982 | 61.3 | 61.7 | 60.7 | 0 | 0
| 5. 1987.....| 75,915 | 44,718 | 31,197 | 61.6 | 63.2 | 59.4 | 0 | 0
| 6. 1988.....| 69,447 | 43,788 | 25,659 | 67.2 | 72.7 | 59.5 | 0 | 0
| 7. 1989.....| 60,526 | 35,698 | 24,828 | 87.0 | 83.8 | 92.2 | 0 | 0
| 8. 1990.....| 58,371 | 37,440 | 20,931 | 92.0 | 103.6 | 76.7 | 0 | 0
| 9. 1991.....| 56,823 | 37,426 | 19,397 | 133.4 | 120.0 | 170.0 | 0 | 0
|10. 1992.....| 31,120 | 19,603 | 11,517 | 74.6 | 74.2 | 75.4 | 0 | 0
|11. 1993.....| 31,619 | 18,120 | 13,499 | 64.1 | 53.0 | 89.0 | 0 | 0
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
|12. Totals ..| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0
-----------------------------------------------------------------------------------------------------------------------------------
*Net = (25 - 26) = (11 + 23)
<FN>
------------------------------------------------------------
| | | Net Balance Sheet Reserves||
| | 33 | After Discount ||
| | |-----------------------------||
| |Inter-Company | 34 | 35 ||
| | Pooling | | Loss ||
| |Participation | Losses | Expenses ||
| | Percentage | Unpaid | Unpaid ||
|--------------|--------------|--------------|--------------||
| | | | ||
| | | | ||
| 1. Prior ...| X X X X | 475 | 4 ||
| 2. 1984.....| 0.0 | 210 | 8 ||
| 3. 1985.....| 0.0 | 107 | 0 ||
| 4. 1986.....| 0.0 | 694 | 0 ||
| 5. 1987.....| 0.0 | 2,168 | 114 ||
| 6. 1988.....| 0.0 | 2,344 | 18 ||
| 7. 1989.....| 0.0 | 2,193 | 18 ||
| 8. 1990.....| 0.0 | 2,118 | 60 ||
| 9. 1991.....| 0.0 | 1,887 | 69 ||
|10. 1992.....| 0.0 | 2,910 | 64 ||
|11. 1993.....| 0.0 | 6,009 | 1,941 ||
|--------------|--------------|--------------|--------------||
|12. Totals ..| X X X X | 21,115 | 2,296 ||
------------------------------------------------------------
</TABLE>
Page: Page 73
Form 2
CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND
ITS AF FILIATED FIRE AND CASUALTY INSURERS
<TABLE>
<CAPTION>
SCHEDULE P - PART 1H - SECTION 2 - OTHER LIABILITY - CLAIMS-MADE
(000 omitted)
-----------------------------------------------------------------------------------------------------------------------------------
| 1 | Premiums Earned | Loss and Loss Expense Payments
| |-----------------------------------------|--------------------------------------------------------------------------
| Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9
| in Which | | | | | Expense Payments |
|Premiums Were | | | |-----------------------------|-----------------------------| Salvage
| Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and
| Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation
| Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
| | | | | | | | |
<S> <C> <C> <C> <C> <C> <C> <C>
| 1. Prior ...| X X X X | X X X X | X X X X | 0 | 0 | 0 | 0 | 0
| 2. 1984.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0
| 3. 1985.....| 0 | 0 | 0 | 105 | 16 | 20 | 9 | (11)
| 4. 1986.....| 0 | 0 | 0 | 882 | 516 | 44 | (2)| (5)
| 5. 1987.....| 68 | 0 | 68 | 0 | 0 | (6)| 0 | 0
| 6. 1988.....| 1,993 | 0 | 1,993 | 609 | 28 | 50 | 6 | (13)
| 7. 1989.....| 2,406 | 0 | 2,406 | 595 | 0 | 135 | 0 | (18)
| 8. 1990.....| 2,190 | 286 | 1,904 | 872 | 0 | 77 | 0 | (11)
| 9. 1991.....| 3,137 | 42 | 3,095 | 179 | 0 | 123 | 0 | (18)
|10. 1992.....| 2,122 | 270 | 1,852 | 750 | 0 | 104 | 0 | (6)
|11. 1993.....| 1,550 | 517 | 1,033 | 59 | 0 | 25 | 0 | (12)
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
|12. Totals ..| X X X X | X X X X | X X X X | 4,051 | 560 | 572 | 13 | (94)
-----------------------------------------------------------------------------------------------------------------------------------
Note: For "prior," report amounts paid or received in current year only.
Report cumulative amounts paid or received for specific years. Report loss payments net of salvage and subrogation received.
<FN>
------------------------------------------------------------
| 1 | |
| ------------------------------| |
| Years | 10 | 11 | 12 |
| in Which | | | Number of |
|Premiums Were | Unallocated | Total | Claims |
| Earned and | Loss | Net Paid | Reported - |
| Losses Were | Expense | (5 - 6 + 7 | Direct and |
| Incurred | Payments | - 8 + 10) | Assumed |
|-------------- |--------------|--------------|--------------|
| | | | |
| | | | |
| 1. Prior ... | 3 | 3 | X X X X |
| 2. 1984..... | 1 | 1 | 0 |
| 3. 1985..... | 11 | 111 | 0 |
| 4. 1986..... | 80 | 492 | 1 |
| 5. 1987..... | 8 | 2 | 2 |
| 6. 1988..... | 94 | 719 | 111 |
| 7. 1989..... | 115 | 845 | 185 |
| 8. 1990..... | 64 | 1,013 | 156 |
| 9. 1991..... | 79 | 381 | 158 |
|10. 1992..... | 78 | 932 | 135 |
|11. 1993..... | 27 | 111 | 107 |
|-------------- |--------------|--------------|--------------|
|12. Totals .. | 560 | 4,610 | X X X X |
------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
| | Losses Unpaid | Allocated Loss Expenses Unpaid
| |--------------------------------------------------------|-----------------------------------------------------------
| | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR
| |---------------------------|----------------------------|-----------------------------|-----------------------------
| | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20
| | Direct | | Direct | | Direct | | Direct |
| | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
| | | | | | | | |
| 1. Prior ...| 0 | 0 | 0 | 0 | 0 | 0 | 40 | 0
| 2. 1984.....| 0 | 0 | 0 | 0 | 0 | 0 | 12 | 0
| 3. 1985.....| 122 | 266 | 0 | 0 | 0 | 0 | 5 | 0
| 4. 1986.....| 176 | 162 | 0 | 0 | 0 | 0 | 31 | 0
| 5. 1987.....| 0 | 0 | 0 | 0 | 0 | 0 | 3 | 0
| 6. 1988.....| 0 | 0 | 0 | 0 | 0 | 0 | 3 | 0
| 7. 1989.....| 11 | 0 | 0 | 0 | 0 | 0 | 0 | 0
| 8. 1990.....| 0 | 0 | 0 | 0 | 0 | 0 | 119 | 0
| 9. 1991.....| 313 | 0 | 0 | 0 | 0 | 0 | 134 | 0
|10. 1992.....| 208 | 0 | 0 | 0 | 0 | 0 | 86 | 0
|11. 1993.....| 215 | 0 | 0 | 0 | 0 | 0 | 13 | 0
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
|12. Totals ..| 1,045 | 428 | 0 | 0 | 0 | 0 | 446 | 0
-----------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------- -
| | | | | | |
| | 21 | 22 | 23 | 24 | |
| | | | | Number of | |
| | Salvage | Unallocated | Total | Claims | |
| | and | Loss | Net Losses |Outstanding -| |
| | Subrogation | Expenses | and Expenses | Direct and | |
| | Anticipated | Unpaid | Unpaid | Assumed | |
|--------------|--------------|--------------|--------------|-------------| |
| | | | | | |
| | | | | | |
| 1. Prior ...| 0 | 9 | 49 | 0 | |
| 2. 1984.....| 0 | 4 | 16 | 0 | |
| 3. 1985.....| 0 | 42 | (97)| 0 | |
| 4. 1986.....| 0 | 62 | 107 | 0 | |
| 5. 1987.....| 0 | 1 | 4 | 0 | |
| 6. 1988.....| 0 | 1 | 4 | 0 | |
| 7. 1989.....| 0 | 1 | 12 | 0 | |
| 8. 1990.....| 0 | 27 | 146 | 1 | |
| 9. 1991.....| 0 | 55 | 502 | 5 | |
|10. 1992.....| 0 | 42 | 336 | 9 | |
|11. 1993.....| 0 | 11 | 239 | 41 | |
|--------------|--------------|--------------|--------------|-------------| |
|12. Totals ..| 0 | 255 | 1,318 | 56 | |
------------------------------------------------------------------------- -
-----------------------------------------------------------------------------------------------------------------------------------
| | Total Losses and | Loss and Loss Expense Percentage | Discount for Time
| | Loss Expenses Incurred | (Incurred/Premiums Earned) | Value of Money
| |-----------------------------------------|--------------------------------------------|-----------------------------
| | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32
| | | | | | | | |
| | Direct | | | Direct | | | | Loss
| | and Assumed | Ceded | Net * | and Assumed | Ceded | Net | Loss | Expense
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
| | | | | | | | |
| | | | | | | | |
| 1. Prior ...| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0
| 2. 1984.....| 17 | 0 | 17 | 0.0 | 0.0 | 0.0 | 0 | 0
| 3. 1985.....| 305 | 291 | 14 | 0.0 | 0.0 | 0.0 | 0 | 0
| 4. 1986.....| 1,275 | 676 | 599 | 0.0 | 0.0 | 0.0 | 0 | 0
| 5. 1987.....| 6 | 0 | 6 | 8.8 | 0.0 | 8.8 | 0 | 0
| 6. 1988.....| 757 | 34 | 723 | 38.0 | 0.0 | 36.3 | 0 | 0
| 7. 1989.....| 857 | 0 | 857 | 35.6 | 0.0 | 35.6 | 0 | 0
| 8. 1990.....| 1,159 | 0 | 1,159 | 52.9 | 0.0 | 60.9 | 0 | 0
| 9. 1991.....| 883 | 0 | 883 | 28.1 | 0.0 | 28.5 | 0 | 0
|10. 1992.....| 1,268 | 0 | 1,268 | 59.8 | 0.0 | 68.5 | 0 | 0
|11. 1993.....| 350 | 0 | 350 | 22.6 | 0.0 | 33.9 | 0 | 0
|--------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------
|12. Totals ..| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0
-----------------------------------------------------------------------------------------------------------------------------------
*Net = (25 - 26) = (11 + 23)
<FN>
----------------------------------------------------------- -
| | | Net Balance Sheet Reserves| |
| | 33 | After Discount | |
| | |-----------------------------| |
| |Inter-Company | 34 | 35 | |
| | Pooling | | Loss | |
| |Participation | Losses | Expenses | |
| | Percentage | Unpaid | Unpaid | |
|--------------|--------------|--------------|--------------| |
| | | | | |
| | | | | |
| 1. Prior ...| X X X X | 0 | 49 | |
| 2. 1984.....| 0.0 | 0 | 16 | |
| 3. 1985.....| 0.0 | (144)| 47 | |
| 4. 1986.....| 0.0 | 14 | 93 | |
| 5. 1987.....| 0.0 | 0 | 4 | |
| 6. 1988.....| 0.0 | 0 | 4 | |
| 7. 1989.....| 0.0 | 11 | 1 | |
| 8. 1990.....| 0.0 | 0 | 146 | |
| 9. 1991.....| 0.0 | 313 | 189 | |
|10. 1992.....| 0.0 | 208 | 128 | |
|11. 1993.....| 0.0 | 215 | 24 | |
|--------------|--------------|--------------|--------------| |
|12. Totals ..| X X X X | 617 | 701 | |
----------------------------------------------------------- -
</TABLE>
Page # 74
Form 2
CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND
ITS AFFILIATED FIRE AND CASUALTY INSURERS
<TABLE>
<CAPTION>
SCHEDULE P - PART 1I - SPECIAL PROPERTY (FIRE, ALLIED LINES, INLAND MARINE,
EARTHQUAKE, GLASS, BURGLARY AND THEFT)
(000 omitted)
-----------------------------------------------------------------------------------------------------------------------------------
| 1 | Premiums Earned | Loss and Loss Expense Payments
| |-----------------------------------------|---------------------------------------------------------------------------
| Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9 |
| Which | | | | | Expense Payments | |
|Premiums Were| | | |-----------------------------|-----------------------------| Salvage |
| Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and |
| Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation |
| Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
| | | | | | | | | |
<S> <C> <C> <C> <C> <C> <C> <C> <C>
| 1. Prior ...| X X X X | X X X X | X X X X | (1,084)| (8,832)| 1,765 | 311 | 8,744 |
| 2. 1992.....| 171,409 | 41,594 | 129,815 | 86,138 | 15,425 | 1,502 | 897 | 891 |
| 3. 1993.....| 164,585 | 47,656 | 116,929 | 52,931 | 2,667 | 944 | 54 | 1,168 |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
| 4. Totals ..| X X X X | X X X X | X X X X | 137,985 | 9,260 | 4,210 | 1,262 | 10,803 |
-----------------------------------------------------------------------------------------------------------------------------------
Note: For "prior," report amounts paid or received in current year only.
Report cumulative amounts paid or received for specific years. Report loss payments net of salvage and subrogation received.
<FN>
----------------------------------------------------------
| 1 | | |
| |-----------------------------| |
| Years | 10 | 11 | 12 |
| Which | | | Number of |
|Premiums Were| Unallocated | Total | Claims |
| Earned and | Loss | Net Paid | Reported - |
| Losses Were | Expense | (5 - 6 + 7 | Direct and |
| Incurred | Payments | - 8 + 10) | Assumed |
|-------------|--------------|--------------|--------------|
| | | | |
| 1. Prior ...| 128 | 9,329 | X X X X |
| 2. 1992.....| 6,353 | 77,671 | X X X X |
| 3. 1993.....| 5,199 | 56,353 | X X X X |
|-------------|--------------|--------------|--------------|
| 4. Totals ..| 11,680 | 143,353 | X X X X |
----------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
| | Losses Unpaid | Allocated Loss Expenses Unpaid |
| |--------------------------------------------------------|-----------------------------------------------------------|
| | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR |
| |---------------------------|----------------------------|-----------------------------|-----------------------------|
| | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20 |
| | Direct | | Direct | | Direct | | Direct | |
| | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
| | | | | | | | | |
| 1. Prior ...| 19,779 | 2,938 | 10,619 | 63 | 0 | 0 | 564 | 142 |
| 2. 1992.....| 12,860 | 1,920 | 1,749 | 69 | 0 | 0 | 438 | 57 |
| 3. 1993.....| 27,897 | 8,942 | 6,991 | 3,006 | 0 | 0 | 2,708 | 596 |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
| 4. Totals ..| 60,536 | 13,800 | 19,359 | 3,138 | 0 | 0 | 3,710 | 796 |
-----------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------
| | | | | |
| | 21 | 22 | 23 | 24 |
| | | | | Number of |
| | Salvage | Unallocated | Total | Claims |
| | and | Loss | Net Losses |Outstanding -|
| | Subrogation | Expense | and Expenses | Direct and |
| | Anticipated | Unpaid | Unpaid | Assumed |
|-------------|--------------|--------------|--------------|-------------|
| | | | | |
| 1. Prior ...| (1,623)| 174 | 27,993 | 91 |
| 2. 1992.....| (627)| 168 | 13,168 | 121 |
| 3. 1993.....| (991)| 951 | 26,002 | 1,139 |
|-------------|--------------|--------------|--------------|-------------|
| 4. Totals ..| (3,241)| 1,292 | 67,163 | 1,351 |
------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
| | Total Losses and | Loss and Loss Expense Percentage | Discount for Time |
| | Loss Expenses Incurred | (Incurred/Premiums Earned) | Value of Money |
| |-----------------------------------------|--------------------------------------------|-----------------------------|
| | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32 |
| | | | | | | | | |
| | Direct | | | Direct | | | | Loss |
| | and Assumed | Ceded | Net * | and Assumed | Ceded | Net | Loss | Expense |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
| | | | | | | | | |
| 1. Prior ...| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 |
| 2. 1992.....| 109,207 | 18,369 | 90,838 | 63.7 | 44.2 | 70.0 | 0 | 0 |
| 3. 1993.....| 97,621 | 15,266 | 82,355 | 59.3 | 32.0 | 70.4 | 0 | 0 |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
| 4. Totals ..| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 |
-----------------------------------------------------------------------------------------------------------------------------------
*Net = (25 - 26) = (11 + 23)
<FN>
----------------------------------------------------------
| | | Net Balance Sheet Reserves |
| | 33 | After Discount |
| | |-----------------------------|
| |Inter-Company | 34 | 35 |
| | Pooling | | |
| |Participation | Losses |Loss Expenses |
| | Percentage | Unpaid | Unpaid |
|-------------|--------------|--------------|--------------|
| | | | |
| 1. Prior ...| X X X X | 27,397 | 595 |
| 2. 1992.....| 0.0 | 12,619 | 548 |
| 3. 1993.....| 0.0 | 22,940 | 3,063 |
|-------------|--------------|--------------|--------------|
| 4. Totals ..| X X X X | 62,956 | 4,206 |
----------------------------------------------------------
SCHEDULE P - PART 1J - AUTO PHYSICAL DAMAGE
(000 omitted)
-----------------------------------------------------------------------------------------------------------------------------------
| 1 | Premiums Earned | Loss and Loss Expense Payments
| |-----------------------------------------|---------------------------------------------------------------------------
| Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9 |
| Which | | | | | Expense Payments | |
|Premiums Were| | | |-----------------------------|-----------------------------| Salvage |
| Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and |
| Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation |
| Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
| | | | | | | | | |
| 1. Prior ...| X X X X | X X X X | X X X X | 1,280 | 1,225 | 1,223 | 20 | 50,083 |
| 2. 1992.....| 289,710 | 10,099 | 279,611 | 151,634 | 4,834 | 1,974 | 607 | 21,947 |
| 3. 1993.....| 251,550 | 16,407 | 235,142 | 112,413 | 7,867 | 1,188 | 68 | 8,865 |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
| 4. Totals ..| X X X X | X X X X | X X X X | 265,327 | 13,927 | 4,386 | 695 | 80,895 |
-----------------------------------------------------------------------------------------------------------------------------------
Note: For "prior," report amounts paid or received in current year only.
Report cumulative amounts paid or received for specific years. Report loss payments net of salvage and subrogation received.
<FN>
----------------------------------------------------------
| 1 | | |
| |-----------------------------| |
| Years | 10 | 11 | 12 |
| Which | | | Number of |
|Premiums Were| Unallocated | Total | Claims |
| Earned and | Loss | Net Paid | Reported - |
| Losses Were | Expense | (5 - 6 + 7 | Direct and |
| Incurred | Payments | - 8 + 10) | Assumed |
|-------------|--------------|--------------|--------------|
| | | | |
| 1. Prior ...| 69 | 1,328 | X X X X |
| 2. 1992.....| 19,727 | 167,894 | 125,584 |
| 3. 1993.....| 13,143 | 118,808 | 102,306 |
|-------------|--------------|--------------|--------------|
| 4. Totals ..| 32,939 | 288,030 | X X X X |
----------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
| | Losses Unpaid | Allocated Loss Expenses Unpaid |
| |--------------------------------------------------------|-----------------------------------------------------------|
| | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR |
| |---------------------------|----------------------------|-----------------------------|-----------------------------|
| | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20 |
| | Direct | | Direct | | Direct | | Direct | |
| | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
| | | | | | | | | |
| 1. Prior ...| 6,728 | 126 | 6,320 | 35 | 0 | 0 | 78 | 16 |
| 2. 1992.....| 1,240 | 28 | (421)| 14 | 0 | 0 | 96 | 4 |
| 3. 1993.....| 17,272 | 1,863 | 3,199 | 512 | 0 | 0 | 3,497 | 336 |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
| 4. Totals ..| 25,241 | 2,016 | 9,098 | 560 | 0 | 0 | 3,671 | 356 |
-----------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------
| | | | | |
| | 21 | 22 | 23 | 24 |
| | | | | Number of |
| | Salvage | Unallocated | Total | Claims |
| | and | Loss | Net Losses |Outstanding -|
| | Subrogation | Expense | and Expenses | Direct and |
| | Anticipated | Unpaid | Unpaid | Assumed |
|-------------|--------------|--------------|--------------|-------------|
| | | | | |
| 1. Prior ...| (3,639)| 36 | 12,986 | 81 |
| 2. 1992.....| (3,013)| 48 | 918 | 92 |
| 3. 1993.....| (8,259)| 1,384 | 22,641 | 5,049 |
|-------------|--------------|--------------|--------------|-------------|
| 4. Totals ..| (14,911)| 1,468 | 36,544 | 5,222 |
------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
| | Total Losses and | Loss and Loss Expense Percentage | Discount for Time |
| | Loss Expenses Incurred | (Incurred/Premiums Earned) | Value of Money |
| |-----------------------------------------|--------------------------------------------|-----------------------------|
| | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32 |
| | | | | | | | | |
| | Direct | | | Direct | | | | Loss |
| | and Assumed | Ceded | Net * | and Assumed | Ceded | Net | Loss | Expense |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
| | | | | | | | | |
| 1. Prior ...| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 |
| 2. 1992.....| 174,299 | 5,487 | 168,812 | 60.2 | 54.3 | 60.4 | 0 | 0 |
| 3. 1993.....| 152,095 | 10,647 | 141,448 | 60.5 | 64.9 | 60.2 | 0 | 0 |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
| 4. Totals ..| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 |
-----------------------------------------------------------------------------------------------------------------------------------
*Net = (25 - 26) = (11 + 23)
<FN>
----------------------------------------------------------
| | | Net Balance Sheet Reserves |
| | 33 | After Discount |
| | |-----------------------------|
| |Inter-Company | 34 | 35 |
| | Pooling | | |
| | Participation | Losses |Loss Expenses |
| | Percentage | Unpaid | Unpaid |
|-------------| -------------|--------------|--------------|
| | | | |
| 1. Prior ...| X X X X | 12,888 | 98 |
| 2. 1992.....| 0.0 | 777 | 141 |
| 3. 1993.....| 0.0 | 18,096 | 4,544 |
|-------------| --------------|--------------|--------------|
| 4. Totals ..| X X X X | 31,762 | 4,783 |
-------------- --------------------------------------------
</TABLE>
Page # 75
Form 2
CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND
ITS AFFILIATED FIRE AND CASUALTY INSURERS
<TABLE>
<CAPTION>
SCHEDULE P - PART 1K - FIDELITY, SURETY, FINANCIAL GUARANTY,
MORTGAGE GUARANTY
(000 omitted)
-----------------------------------------------------------------------------------------------------------------------------------
| 1 | Premiums Earned | Loss and Loss Expense Payments
| |-----------------------------------------|---------------------------------------------------------------------------
| Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9 |
| Which | | | | | Expense Payments | |
|Premiums Were| | | |-----------------------------|-----------------------------| Salvage |
| Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and |
| Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation |
| Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
| | | | | | | | | |
<S> <C> <C> <C> <C> <C> <C> <C> <C>
| 1. Prior ...| X X X X | X X X X | X X X X | 4,418 | (4,413)| 8,585 | 2,133 | 13,587 |
| 2. 1992.....| 142,463 | 34,068 | 108,394 | 33,790 | 5,809 | 2,995 | 819 | 755 |
| 3. 1993.....| 144,905 | 30,121 | 114,784 | 9,376 | 1,820 | 841 | 143 | 20 |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
| 4. Totals ..| X X X X | X X X X | X X X X | 47,585 | 3,215 | 12,420 | 3,096 | 14,363 |
-----------------------------------------------------------------------------------------------------------------------------------
Note: For "prior," report amounts paid or received in current year only.
Report cumulative amounts paid or received for specific years. Report loss payments net of salvage and subrogation received.
<FN>
----------------------------------------------------------
| 1 | | |
| |-----------------------------| |
| Years | 10 | 11 | 12 |
| Which | | | Number of |
|Premiums Were| Unallocated | Total | Claims |
| Earned and | Loss | Net Paid | Reported - |
| Losses Were | Expense | (5 - 6 + 7 | Direct and |
| Incurred | Payments | - 8 + 10) | Assumed |
|-------------|--------------|--------------|--------------|
| | | | |
| 1. Prior ...| 3,114 | 18,396 | X X X X |
| 2. 1992.....| 6,324 | 36,481 | X X X X |
| 3. 1993.....| 1,229 | 9,483 | X X X X |
|-------------|--------------|--------------|--------------|
| 4. Totals ..| 10,667 | 64,361 | X X X X |
----------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
| | Losses Unpaid | Allocated Loss Expenses Unpaid |
| |--------------------------------------------------------|-----------------------------------------------------------|
| | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR |
| |---------------------------|----------------------------|-----------------------------|-----------------------------|
| | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20 |
| | Direct | | Direct | | Direct | | Direct | |
| | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
| | | | | | | | | |
| 1. Prior ...| 25,014 | 8,833 | (14,050)| (6,730)| 0 | 0 | 19,992 | 5,753 |
| 2. 1992.....| 12,240 | 8,128 | 218 | 0 | 0 | 0 | 6,655 | 1,535 |
| 3. 1993.....| 5,844 | 1,045 | 9,946 | 2,476 | 0 | 0 | 9,603 | 1,970 |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
| 4. Totals ..| 43,099 | 18,006 | (3,886)| (4,254)| 0 | 0 | 36,250 | 9,258 |
-----------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------
| | | | | |
| | 21 | 22 | 23 | 24 |
| | | | | Number of |
| | Salvage | Unallocated | Total | Claims |
| | and | Loss | Net Losses |Outstanding -|
| | Subrogation | Expense | and Expenses | Direct and |
| |A nticipated | Unpaid | Unpaid | Assumed |
|-------------|--------------|--------------|--------------|-------------|
| | | | | |
| 1. Prior ...| (13,785)| 1,571 | 24,671 | 1,646 |
| 2. 1992.....| (1,782)| 695 | 10,146 | 966 |
| 3. 1993.....| (2,520)| 1,437 | 21,340 | 613 |
|-------------| -------------|--------------|--------------|-------------|
| 4. Totals ..| (18,087)| 3,704 | 56,157 | 3,225 |
------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
| | Total Losses and | Loss and Loss Expense Percentage | Discount for Time |
| | Loss Expenses Incurred | (Incurred/Premiums Earned) | Value of Money |
| |-----------------------------------------|--------------------------------------------|-----------------------------|
| | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32 |
| | | | | | | | | |
| | Direct | | | Direct | | | | Loss |
| | and Assumed | Ceded | Net * | and Assumed | Ceded | Net | Loss | Expense |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
| | | | | | | | | |
| 1. Prior ...| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 |
| 2. 1992.....| 62,918 | 16,291 | 46,627 | 44.2 | 47.8 | 43.0 | 0 | 0 |
| 3. 1993.....| 38,277 | 7,454 | 30,824 | 26.4 | 24.7 | 26.9 | 0 | 0 |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
| 4. Totals ..| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 |
-----------------------------------------------------------------------------------------------------------------------------------
*Net = (25 - 26) = (11 + 23)
<FN>
----------------------------------------------------------
| | | Net Balance Sheet Reserves |
| | 33 | After Discount |
| | |-----------------------------|
| Inter-Company | 34 | 35 |
| | Pooling | | |
| |Participation | Losses |Loss Expenses |
| | Percentage | Unpaid | Unpaid |
|-------------|--------------|--------------|--------------|
| | | |
| 1. Prior ...| X X X X | 8,861 | 15,810 |
| 2. 1992.....| 0.0 | 4,330 | 5,815 |
| 3. 1993.....| 0.0 | 12,270 | 9,070 |
|-------------|--------------|--------------|--------------|
| 4. Totals ..| X X X X | 25,461 | 30,695 |
-------------- --------------------------------------------
SCHEDULE P - PART 1L - OTHER (INCLUDING CREDIT, ACCIDENT AND HEALTH)
(000 omitted)
-----------------------------------------------------------------------------------------------------------------------------------
| 1 | Premiums Earned | Loss and Loss Expense Payments
| |-----------------------------------------|---------------------------------------------------------------------------
| Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9 |
| Which | | | | | Expense Payments | |
|Premiums Were| | | |-----------------------------|-----------------------------| Salvage |
| Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and |
| Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation |
| Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
| | | | | | | | | |
| 1. Prior ...| X X X X | X X X X | X X X X | 47 | 9 | 1 | 0 | 4 |
| 2. 1992.....| 6 | 14,851 | (14,845)| 0 | 0 | 0 | 0 | 0 |
| 3. 1993.....| 14 | (14,332)| 14,347 | 0 | 0 | 0 | 0 | 0 |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
| 4. Totals ..| X X X X | X X X X | X X X X | 47 | 9 | 1 | 0 | 4 |
-----------------------------------------------------------------------------------------------------------------------------------
Note: For "prior," report amounts paid or received in current year only.
Report cumulative amounts paid or received for specific years. Report loss payments net of salvage and subrogation received.
<FN>
----------------------------------------------------------
| 1 | | |
| |-----------------------------| |
| Years | 10 | 11 | 12 |
| Which | | | Number of |
|Premiums Were| Unallocated | Total | Claims |
| Earned and | Loss | Net Paid | Reported - |
| Losses Were | Expense | (5 - 6 + 7 | Direct and |
| Incurred | Payments | - 8 + 10) | Assumed |
|-------------|--------------|--------------|--------------|
| | | | |
| 1. Prior ...| 25 | 64 | X X X X |
| 2. 1992.....| 0 | 0 | X X X X |
| 3. 1993.....| 0 | 0 | X X X X |
|-------------|--------------|--------------|--------------|
| 4. Totals ..| 25 | 64 | X X X X |
----------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
| | Losses Unpaid | Allocated Loss Expenses Unpaid |
| |--------------------------------------------------------|-----------------------------------------------------------|
| | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR |
| |---------------------------|----------------------------|-----------------------------|-----------------------------|
| | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20 |
| | Direct | | Direct | | Direct | | Direct | |
| | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
| | | | | | | | | |
| 1. Prior ...| 222 | 95 | 0 | 0 | 0 | 0 | 13 | 9 |
| 2. 1992.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| 3. 1993.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
| 4. Totals ..| 222 | 95 | 0 | 0 | 0 | 0 | 13 | 9 |
-----------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------
| | | | | |
| | 21 | 22 | 23 | 24 |
| | | | | Number of |
| | Salvage | Unallocated | Total | Claims |
| | and | Loss | Net Losses |Outstanding -|
| | Subrogation | Expense | and Expenses | Direct and |
| | Anticipated | Unpaid | Unpaid | Assumed |
|-------------|--------------|--------------|--------------|-------------|
| | | | | |
| 1. Prior ...| 0 | 19 | 150 | 6 |
| 2. 1992.....| 0 | 0 | 0 | 0 |
| 3. 1993.....| 0 | 0 | 0 | 0 |
|-------------|--------------|--------------|--------------|-------------|
| 4. Totals ..| 0 | 19 | 150 | 6 |
------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
| | Total Losses and | Loss and Loss Expense Percentage | Discount for Time |
| | Loss Expenses Incurred | (Incurred/Premiums Earned) | Value of Money |
| |-----------------------------------------|--------------------------------------------|-----------------------------|
| | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32 |
| | | | | | | | | |
| | Direct | | | Direct | | | | Loss |
| | and Assumed | Ceded | Net * | and Assumed | Ceded | Net | Loss | Expense |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
| | | | | | | | | |
| 1. Prior ...| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 |
| 2. 1992.....| 0 | 0 | 0 | 1.9 | 0.0 | (0.0)| 0 | 0 |
| 3. 1993.....| 0 | 0 | 0 | 0.0 | 0.0 | 0.0 | 0 | 0 |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
| 4. Totals ..| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 |
-----------------------------------------------------------------------------------------------------------------------------------
*Net = (25 - 26) = (11 + 23)
<FN>
----------------------------------------------------------
| | | Net Balance Sheet Reserves |
| | 33 | After Discount |
| | |-----------------------------|
| |Inter-Company | 34 | 35 |
| | Pooling | | |
| |Participation | Losses |Loss Expenses |
| | Percentage | Unpaid | Unpaid |
|-------------|--------------|--------------|--------------|
| | | | |
| 1. Prior ...| X X X X | 127 | 23 |
| 2. 1992.....| 0.0 | 0 | 0 |
| 3. 1993.....| 0.0 | 0 | 0 |
|-------------|--------------|--------------|--------------|
| 4. Totals ..| X X X X | 127 | 23 |
----------------------------------------------------------
</TABLE>
Page # 76
Form 2
CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND
ITS AFFILIATED FIRE AND CASUALTY INSURERS
<TABLE>
<CAPTION>
SCHEDULE P - PART IM - INTERNATIONAL
(000 omitted)
-----------------------------------------------------------------------------------------------------------------------------------
| | Premiums Earned | Loss and Loss Expense Payments
| 1 |-----------------------------------------|---------------------------------------------------------------------------
| Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9 |
| in Which | | | | | Expense Payments | |
|Premiums Were| | | |-----------------------------|-----------------------------| Salvage |
| Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and |
| Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation |
| Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
| | | | | | | | | |
<S> <C> <C> <C> <C> <C> <C> <C> <C>c>
| 1. Prior ..| X X X X | X X X X | X X X X | 0 | 0 | 0 | 0 | 0 |
| 2. 1984....| 27 | 0 | 27 | 0 | 0 | 0 | 0 | 0 |
| 3. 1985....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| 4. 1986....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| 5. 1987....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| 6. 1988....| 19,649 | 337 | 19,312 | 13,321 | 90 | 389 | 1 | 0 |
| 7. 1989....| 14,651 | 122 | 14,529 | 10,054 | 24 | 328 | (0)| 0 |
| 8. 1990....| 12,386 | 63 | 12,323 | 10,358 | 212 | 339 | (0)| 0 |
| 9. 1991....| 9,982 | 69 | 9,913 | 7,185 | 46 | 222 | (2)| 0 |
|10. 1992....| 4,683 | 39 | 4,644 | 2,879 | 11 | 45 | (8)| 0 |
|11. 1993....| 12,988 | 0 | 12,988 | 355 | 1 | 0 | (0)| 0 |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
|12. Totals ..| X X X X | X X X X | X X X X | 44,153 | 384 | 1,324 | (10)| 0 |
-----------------------------------------------------------------------------------------------------------------------------------
Note: For "prior," report amounts paid or received in current year only.
Report cumulative amounts paid or received for specific years. Report loss payments net of salvage and subrogation received.
<FN>
--------------------------------------------------------- -
| | | | |
| 1 |-----------------------------| 12 | |
| Years | 10 | 11 | | |
| in Which | | | Number of | |
|Premiums Were| Unallocated | Total | Claims | |
| Earned and | Loss | Net Paid | Reported - | |
| Losses Were | Expense | (5 - 6 + 7 | Direct and | |
| Incurred | Payments | - 8 + 10) | Assumed | |
|-------------|--------------|--------------|--------------| |
| | | | | |
| 1. Prior ..| 0 | 0 | X X X X | |
| 2. 1984....| 0 | 0 | X X X X | |
| 3. 1985....| 0 | 0 | X X X X | |
| 4. 1986....| 0 | 0 | X X X X | |
| 5. 1987....| 0 | 0 | X X X X | |
| 6. 1988....| 0 | 13,619 | X X X X | |
| 7. 1989....| 0 | 10,358 | X X X X | |
| 8. 1990....| 0 | 10,486 | X X X X | |
| 9. 1991....| 0 | 7,364 | X X X X | |
|10. 1992....| 0 | 2,920 | X X X X | |
|11. 1993....| 0 | 355 | X X X X | |
|-------------|--------------|--------------|--------------| |
|12. Totals ..| 0 | 45,103 | X X X X | |
--------------------------------------------------------- -
-----------------------------------------------------------------------------------------------------------------------------------
| | Losses Unpaid | Allocated Loss Expenses Unpaid |
| |--------------------------------------------------------|-----------------------------------------------------------|
| | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR |
| |---------------------------|----------------------------|-----------------------------|-----------------------------|
| | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20 |
| | Direct | | Direct | | Direct | | Direct | |
| | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
| | | | | | | | | |
| 1. Prior ..| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| 2. 1984....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| 3. 1985....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| 4. 1986....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| 5. 1987....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| 6. 1988....| 729 | 0 | 1,694 | 0 | 0 | 0 | 0 | 0 |
| 7. 1989....| 880 | 0 | 1,444 | 0 | 0 | 0 | 0 | 0 |
| 8. 1990....| 411 | 0 | 958 | 0 | 0 | 0 | 0 | 0 |
| 9. 1991....| 494 | 0 | 1,728 | 0 | 0 | 0 | 0 | 0 |
|10. 1992....| 479 | 0 | 1,735 | 0 | 0 | 0 | 0 | 0 |
|11. 1993....| 5,226 | 0 | 4,466 | 0 | 0 | 0 | 0 | 0 |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
|12. Totals ..| 8,219 | 0 | 12,025 | 0 | 0 | 0 | 0 | 0 |
-----------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------
| | | | | |
| | 21 | 22 | 23 | 24 |
| | | | | Number of |
| | Salvage | Unallocated | Total | Claims |
| | and | Loss | Net Losses |Outstanding -|
| | Subrogation | Expenses | and Expenses | Direct |
| | Anticipated | Unpaid | Unpaid | and Assumed |
|-------------|--------------|--------------|--------------|-------------|
| | | | | |
| 1. Prior ..| 0 | 0 | 0 | 0 |
| 2. 1984....| 0 | 0 | 0 | 0 |
| 3. 1985....| 0 | 0 | 0 | 0 |
| 4. 1986....| 0 | 0 | 0 | 0 |
| 5. 1987....| 0 | 0 | 0 | 0 |
| 6. 1988....| 0 | 0 | 2,423 | 0 |
| 7. 1989....| 0 | 0 | 2,324 | 0 |
| 8. 1990....| 0 | 0 | 1,369 | 0 |
| 9. 1991....| 0 | 0 | 2,222 | 0 |
|10. 1992....| 0 | 0 | 2,214 | 0 |
|11. 1993....| 0 | 0 | 9,692 | 0 |
|-------------|--------------|--------------|--------------|-------------|
|12. Totals ..| 0 | 0 | 20,244 | 0 |
------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
| | Total Losses and | Loss and Loss Expense Percentage | Discount for Time |
| | Loss Expenses Incurred | (Incurred/Premiums Earned) | Value of Money |
| |-----------------------------------------|--------------------------------------------|-----------------------------|
| | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32 |
| | Direct | | | Direct | | | | Loss |
| | and Assumed | Ceded | Net * | and Assumed | Ceded | Net | Loss | Expense |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
| | | | | | | | | |
| 1. Prior ..| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 |
| 2. 1984....| 0 | 0 | 0 | 0.0 | 0.0 | 0.0 | 0 | 0 |
| 3. 1985....| 0 | 0 | 0 | 0.0 | 0.0 | 0.0 | 0 | 0 |
| 4. 1986....| 0 | 0 | 0 | 0.0 | 0.0 | 0.0 | 0 | 0 |
| 5. 1987....| 0 | 0 | 0 | 0.0 | 0.0 | 0.0 | 0 | 0 |
| 6. 1988....| 16,133 | 91 | 16,042 | 82.1 | 27.0 | 83.1 | 0 | 0 |
| 7. 1989....| 12,706 | 24 | 12,682 | 86.7 | 19.7 | 87.3 | 0 | 0 |
| 8. 1990....| 12,066 | 212 | 11,855 | 97.4 | 335.9 | 96.2 | 0 | 0 |
| 9. 1991....| 9,630 | 43 | 9,587 | 96.5 | 62.8 | 96.7 | 0 | 0 |
|10. 1992....| 5,138 | 3 | 5,134 | 109.7 | 8.7 | 110.5 | 0 | 0 |
|11. 1993....| 10,048 | 1 | 10,048 | 77.4 | 64,200.0 | 77.4 | 0 | 0 |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
|12. Totals ..| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 |
-----------------------------------------------------------------------------------------------------------------------------------
*Net = (25 - 26) = (11 + 23)
<FN>
----------------------------------------------------------
| | | Net Balance Sheet Reserves |
| | 33 | After Discount |
| |Inter-Company |-----------------------------|
| | Pooling | 34 | 35 |
| |Participation | Losses |Loss Expenses |
| | Percentage | Unpaid | Unpaid |
|-------------|--------------|--------------|--------------|
| | | | |
| 1. Prior ..| X X X X | 0 | 0 |
| 2. 1984....| 0.0 | 0 | 0 |
| 3. 1985....| 0.0 | 0 | 0 |
| 4. 1986....| 0.0 | 0 | 0 |
| 5. 1987....| 0.0 | 0 | 0 |
| 6. 1988....| 0.0 | 2,423 | 0 |
| 7. 1989....| 0.0 | 2,324 | 0 |
| 8. 1990....| 0.0 | 1,369 | 0 |
| 9. 1991....| 0.0 | 2,222 | 0 |
|10. 1992....| 0.0 | 2,214 | 0 |
|11. 1993....| 0.0 | 9,692 | 0 |
|-------------|--------------|--------------|--------------|
|12. Totals ..| X X X X | 20,244 | 0 |
----------------------------------------------------------
</TABLE>
Page # 77
Form 2
CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND
ITS AFFILIATED FIRE AND CASUALTY INSURERS
<TABLE>
<CAPTION>
SCHEDULE P - PART 1N - REINSURANCE A
(000 omitted)
-----------------------------------------------------------------------------------------------------------------------------------
| 1 | Premiums Earned | Loss and Loss Expense Payments
| |-----------------------------------------|---------------------------------------------------------------------------
| Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9 |
| Which | | | | | Expense Payments | |
|Premiums Were| | | |-----------------------------|-----------------------------| Salvage |
| Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and |
| Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation |
| Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
| | | | | | | | | |
<S> <C> <C> <C> <C> <C> <C> <C> <C>
| 1. 1988.....| 34,707 | 1,738 | 32,968 | 11,192 | 949 | 352 | 85 | 0 |
| 2. 1989.....| 25,922 | 2,056 | 23,866 | 13,312 | 1,855 | 408 | (188)| 0 |
| 3. 1990.....| 79,740 | 60,145 | 19,595 | 51,100 | 42,042 | 894 | 85 | 0 |
| 4. 1991.....| 60,073 | 34,454 | 25,619 | 23,017 | 17,964 | 342 | (67)| 0 |
| 5. 1992.....| 56,589 | 10,089 | 46,500 | 18,738 | 16,671 | 207 | 133 | 0 |
| 6. 1993.....| 61,844 | 10,382 | 51,462 | 2,250 | 1,179 | 27 | 14 | 0 |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
| 7. Totals ..| X X X X | X X X X | X X X X | 119,609 | 80,659 | 2,230 | 64 | 0 |
-----------------------------------------------------------------------------------------------------------------------------------
NOTE: Report cumulative amounts paid or received for specific years. Report loss payments net of salvage and subrogation received.
<FN>
----------------------------------------------------------
| 1 | | |
| -----------------------------| |
| Years | 10 | 11 | 12 |
| Which | | | Number of |
|Premiums Were Unallocated | Total | Claims |
| Earned and | Loss | Net Paid | Reported - |
| Losses Were | Expense | (5 - 6 + 7 | Direct and |
| Incurred | Payments | - 8 + 10) | Assumed |
|-------------|-------------|--------------|--------------|
| | | | |
| 1. 1988.....| 0 | 10,510 | X X X X |
| 2. 1989.....| 0 | 12,053 | X X X X |
| 3. 1990.....| 0 | 9,867 | X X X X |
| 4. 1991.....| 0 | 5,463 | X X X X |
| 5. 1992.....| 0 | 2,140 | X X X X |
| 6. 1993.....| 0 | 1,084 | X X X X |
|-------------|-------------|--------------|--------------|
| 7. Totals ..| 0 | 41,117 | X X X X |
----------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
| | Losses Unpaid | Allocated Loss Expenses Unpaid |
| |--------------------------------------------------------|-----------------------------------------------------------|
| | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR |
| |---------------------------|----------------------------|-----------------------------|-----------------------------|
| | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20 |
| | Direct | | Direct | | Direct | | Direct | |
| | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
| | | | | | | | | |
| 1. 1988.....| 1,565 | 12 | 3,620 | 9 | 0 | 0 | 0 | 0 |
| 2. 1989.....| 2,390 | 9 | 4,962 | 21 | 0 | 0 | 0 | 0 |
| 3. 1990.....| 750 | 62 | 5,093 | 19 | 0 | 0 | 0 | 0 |
| 4. 1991.....| 3,339 | 1,251 | 7,005 | 89 | 0 | 0 | 0 | 0 |
| 5. 1992.....| 7,930 | 2,667 | 23,659 | 5,115 | 0 | 0 | 0 | 0 |
| 6. 1993.....| 4,360 | 898 | 44,093 | 9,120 | 0 | 0 | 0 | 0 |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
| 7. Totals ..| 20,335 | 4,899 | 88,432 | 14,373 | 0 | 0 | 0 | 0 |
-----------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------- -
| | | | | | |
| | 21 | 22 | 23 | 24 | |
| | | | | Number of | |
| | Salvage | Unallocated | Total | Claims | |
| | and | Loss | Net Losses |Outstanding -| |
| | Subrogation | Expense | and Expenses | Direct and | |
| | Anticipated | Unpaid | Unpaid | Assumed | |
|-------------|--------------|--------------|--------------|-------------| |
| | | | | | |
| 1. 1988.....| 0 | 0 | 5,163 | X X X X | |
| 2. 1989.....| 0 | 0 | 7,323 | X X X X | |
| 3. 1990.....| 0 | 0 | 5,763 | X X X X | |
| 4. 1991.....| 0 | 0 | 9,004 | X X X X | |
| 5. 1992.....| 0 | 0 | 23,807 | X X X X | |
| 6. 1993.....| 0 | 0 | 38,435 | X X X X | |
|-------------|--------------|--------------|--------------|-------------| |
| 7. Totals ..| 0 | 0 | 89,495 | X X X X | |
----------------------------------------------------------------------- -
-----------------------------------------------------------------------------------------------------------------------------------
| | Total Losses and | Loss and Loss Expense Percentage | Discount for Time |
| | Loss Expenses Incurred | (Incurred/Premiums Earned) | Value of Money |
| |-----------------------------------------|--------------------------------------------|-----------------------------|
| | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32 |
| | | | | | | | | |
| | Direct | | | Direct | | | | Loss |
| | and Assumed | Ceded | Net * | and Assumed | Ceded | Net | Loss | Expense |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
| | | | | | | | | |
| 1. 1988.....| 16,729 | 1,056 | 15,673 | 48.2 | 60.8 | 47.5 | 0 | 0 |
| 2. 1989.....| 21,073 | 1,697 | 19,376 | 81.3 | 82.5 | 81.2 | 0 | 0 |
| 3. 1990.....| 57,837 | 42,207 | 15,630 | 72.5 | 70.2 | 79.8 | 0 | 0 |
| 4. 1991.....| 33,704 | 19,237 | 14,467 | 56.1 | 55.8 | 56.5 | 0 | 0 |
| 5. 1992.....| 50,534 | 24,586 | 25,948 | 89.3 | 243.7 | 55.8 | 0 | 0 |
| 6. 1993.....| 50,730 | 11,211 | 39,519 | 82.0 | 108.0 | 76.8 | 0 | 0 |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
| 7. Totals ..| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 |
-----------------------------------------------------------------------------------------------------------------------------------
*Net = (25 - 26) = (11 + 23)
<FN>
----------------------------------------------------------
| | | Net Balance Sheet Reserves |
| | 33 | After Discount |
| | |-----------------------------|
| |Inter-Company | 34 | 35 |
| | Pooling | | |
| |Participation | Losses |Loss Expenses |
| | Percentage | Unpaid | Unpaid |
|-------------|--------------|--------------|--------------|
| | | | |
| 1. 1988.....| 0.0 | 5,163 | 0 |
| 2. 1989.....| 0.0 | 7,323 | 0 |
| 3. 1990.....| 0.0 | 5,763 | 0 |
| 4. 1991.....| 0.0 | 9,004 | 0 |
| 5. 1992.....| 0.0 | 23,807 | 0 |
| 6. 1993.....| 0.0 | 38,435 | 0 |
|-------------|--------------|--------------|--------------|
| 7. Totals ..| X X X X | 89,495 | 0 |
----------------------------------------------------------
SCHEDULE P - PART 1O - REINSURANCE B
(000 Omitted)
-----------------------------------------------------------------------------------------------------------------------------------
| 1 | Premiums Earned | Loss and Loss Expense Payments
| |-----------------------------------------|---------------------------------------------------------------------------
| Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9 |
| Which | | | | | Expense Payments | |
|Premiums Were| | | |-----------------------------|-----------------------------| Salvage |
| Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and |
| Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation |
| Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
| | | | | | | | | |
| 1. 1988.....| 155,207 | 139,405 | 15,802 | 85,207 | 79,623 | 1,062 | 170 | 0 |
| 2. 1989.....| 443,293 | 419,913 | 23,380 | 215,551 | 204,195 | 2,501 | 85 | 0 |
| 3. 1990.....| 321,700 | 308,404 | 13,296 | 154,278 | 148,785 | 1,919 | 339 | 0 |
| 4. 1991.....| 150,161 | 142,532 | 7,629 | 53,613 | 52,290 | 891 | 192 | 0 |
| 5. 1992.....| 193,065 | 175,005 | 18,060 | 163,272 | 152,991 | 159 | 85 | 0 |
| 6. 1993.....| 331,591 | 372,114 | (40,523)| 70,423 | 70,177 | 87 | (153)| 0 |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
| 7. Totals ..| X X X X | X X X X | X X X X | 742,344 | 708,063 | 6,618 | 717 | 0 |
-----------------------------------------------------------------------------------------------------------------------------------
NOTE: Report cumulative amounts paid or received for specific years. Report loss payments net of salvage and subrogation received.
<FN>
----------------------------------------------------------
| 1 | | |
| |-----------------------------| |
| Years | 10 | 11 | 12 |
| Which | | | Number of |
|Premiums Were| Unallocated | Total | Claims |
| Earned and | Loss | Net Paid | Reported - |
| Losses Were | Expense | (5 - 6 + 7 | Direct and |
| Incurred | Payments | - 8 + 10) | Assumed |
|-------------|--------------|--------------|--------------|
| | | | |
| 1. 1988.....| 0 | 6,476 | X X X X |
| 2. 1989.....| 0 | 13,773 | X X X X |
| 3. 1990.....| 0 | 7,073 | X X X X |
| 4. 1991.....| 0 | 2,022 | X X X X |
| 5. 1992.....| 0 | 10,354 | X X X X |
| 6. 1993.....| 0 | 485 | X X X X |
|-------------|--------------|--------------|--------------|
| 7. Totals ..| 0 | 40,182 | X X X X |
----------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
| | Losses Unpaid | Allocated Loss Expenses Unpaid |
| |--------------------------------------------------------|-----------------------------------------------------------|
| | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR |
| |---------------------------|----------------------------|-----------------------------|-----------------------------|
| | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20 |
| | Direct | | Direct | | Direct | | Direct | |
| | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
| | | | | | | | | |
| 1. 1988.....| 83,758 | 82,826 | 1,993 | 178 | 0 | 0 | 0 | 0 |
| 2. 1989.....| 91,770 | 90,023 | 2,567 | 404 | 0 | 0 | 0 | 0 |
| 3. 1990.....| 98,743 | 98,458 | 2,174 | 352 | 0 | 0 | 0 | 0 |
| 4. 1991.....| 9,386 | 8,451 | 21,415 | 17,374 | 0 | 0 | 0 | 0 |
| 5. 1992.....| 25,975 | 23,950 | 13,647 | 4,960 | 0 | 0 | 0 | 0 |
| 6. 1993.....| 26,450 | 23,957 | 27,645 | 17,955 | 0 | 0 | 0 | 0 |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
| 7. Totals ..| 336,082 | 327,666 | 69,442 | 41,224 | 0 | 0 | 0 | 0 |
-----------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------
| | | | | |
| | 21 | 22 | 23 | 24 |
| | | | | Number of |
| | Salvage | Unallocated | Total | Claims |
| | and | Loss | Net Losses |Outstanding -|
| | Subrogation | Expense | and Expenses | Direct and |
| | Anticipated | Unpaid | Unpaid | Assumed |
|-------------|--------------|--------------|--------------|-------------|
| | | | | |
| 1. 1988.....| 0 | 0 | 2,746 | X X X X |
| 2. 1989.....| 0 | 0 | 3,910 | X X X X |
| 3. 1990.....| 0 | 0 | 2,107 | X X X X |
| 4. 1991.....| 0 | 0 | 4,976 | X X X X |
| 5. 1992.....| 0 | 0 | 10,711 | X X X X |
| 6. 1993.....| 0 | 0 | 12,183 | X X X X |
|-------------|--------------|--------------|--------------|-------------|
| 7. Totals ..| 0 | 0 | 36,634 | X X X X |
------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
| | Total Losses and | Loss and Loss Expense Percentage | Discount for Time |
| | Loss Expenses Incurred | (Incurred/Premiums Earned) | Value of Money |
| |-----------------------------------------|--------------------------------------------|-----------------------------|
| | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32 |
| | | | | | | | | |
| | Direct | | | Direct | | | | Loss |
| | and Assumed | Ceded | Net * | and Assumed | Ceded | Net | Loss | Expense |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
| | | | | | | | | |
| 1. 1988.....| 172,019 | 162,797 | 9,222 | 110.8 | 116.8 | 58.4 | 0 | 0 |
| 2. 1989.....| 312,389 | 294,707 | 17,682 | 70.5 | 70.2 | 75.6 | 0 | 0 |
| 3. 1990.....| 257,115 | 247,935 | 9,180 | 79.9 | 80.4 | 69.0 | 0 | 0 |
| 4. 1991.....| 85,305 | 78,307 | 6,998 | 56.8 | 54.9 | 91.7 | 0 | 0 |
| 5. 1992.....| 203,053 | 181,987 | 21,065 | 105.2 | 104.0 | 116.6 | 0 | 0 |
| 6. 1993.....| 124,605 | 111,937 | 12,668 | 37.6 | 30.1 | (31.3)| 0 | 0 |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
| 7. Totals ..| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 |
-----------------------------------------------------------------------------------------------------------------------------------
*Net = (25 - 26) = (11 + 23)
<FN>
----------------------------------------------------------
| | | Net Balance Sheet Reserves |
| | 33 | After Discount |
| | |-----------------------------|
| |Inter-Company | 34 | 35 |
| | Pooling | | |
| |Participation | Losses |Loss Expenses |
| | Percentage | Unpaid | Unpaid |
|-------------|--------------|--------------|--------------|
| | | | |
| 1. 1988.....| 0.0 | 2,746 | 0 |
| 2. 1989.....| 0.0 | 3,910 | 0 |
| 3. 1990.....| 0.0 | 2,107 | 0 |
| 4. 1991.....| 0.0 | 4,976 | 0 |
| 5. 1992.....| 0.0 | 10,711 | 0 |
| 6. 1993.....| 0.0 | 12,183 | 0 |
|-------------|--------------|--------------|--------------|
| 7. Totals ..| X X X X | 36,634 | 0 |
----------------------------------------------------------
</TABLE>
Page # 78
Form 2
CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND
ITS AFFILIATED FIRE AND CASUALTY INSURERS
<TABLE>
<CAPTION>
SCHEDULE P - PART 1P - REINSURANCE C
(OOO omitted)
-----------------------------------------------------------------------------------------------------------------------------------
| 1 | Premiums Earned | Loss and Loss Expense Payments
| |-----------------------------------------|---------------------------------------------------------------------------
| Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9 |
| Which | | | | | Expense Payments | |
|Premiums Were| | | |-----------------------------|-----------------------------| Salvage |
| Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and |
| Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation |
| Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
| | | | | | | | | |
<S> <C> <C> <C> <C> <C> <C> <C> <C>
| 1. 1988.....| 1,548 | (3)| 1,551 | 394 | 0 | 7 | 0 | 0 |
| 2. 1989.....| 1,673 | 0 | 1,673 | 0 | 0 | 0 | 0 | 0 |
| 3. 1990.....| 365 | 330 | 35 | 0 | 0 | 0 | 0 | 0 |
| 4. 1991.....| 1,068 | 1,068 | 0 | 0 | 0 | 0 | 0 | 0 |
| 5. 1992.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| 6. 1993.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
| 7. Totals ..| X X X X | X X X X | X X X X | 394 | 0 | 7 | 0 | 0 |
-----------------------------------------------------------------------------------------------------------------------------------
NOTE: Report cumulative amounts paid or received for specific years. Report loss payments net of salvage and subrogation received.
<FN>
----------------------------------------------------------
| 1 | | |
| |-----------------------------| |
| Years | 10 | 11 | 12 |
| Which | | | Number of |
|Premiums Were| Unallocated | Total | Claims |
| Earned and | Loss | Net Paid | Reported - |
| Losses Were | Expense | (5 - 6 + 7 | Direct and |
| Incurred | Payments | - 8 + 10) | Assumed |
|-------------|--------------|--------------|--------------|
| | | | |
| 1. 1988.....| 0 | 401 | X X X X |
| 2. 1989.....| 0 | 0 | X X X X |
| 3. 1990.....| 0 | 0 | X X X X |
| 4. 1991.....| 0 | 0 | X X X X |
| 5. 1992.....| 0 | 0 | X X X X |
| 6. 1993.....| 0 | 0 | X X X X |
|-------------|--------------|--------------|--------------|
| 7. Totals ..| 0 | 401 | X X X X |
----------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
| | Losses Unpaid | Allocated Loss Expenses Unpaid |
| |--------------------------------------------------------|-----------------------------------------------------------|
| | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR |
| |---------------------------|----------------------------|-----------------------------|-----------------------------|
| | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20 |
| | Direct | | Direct | | Direct | | Direct | |
| | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
| | | | | | | | | |
| 1. 1988.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| 2. 1989.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| 3. 1990.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| 4. 1991.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| 5. 1992.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| 6. 1993.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
| 7. Totals ..| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
-----------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------
| | | | | |
| | 21 | 22 | 23 | 24 |
| | | | | Number of |
| | Salvage | Unallocated | Total | Claims |
| | and | Loss | Net Losses |Outstanding -|
| | Subrogation | Expense | and Expenses | Direct and |
| | Anticipated | Unpaid | Unpaid | Assumed |
|-------------|--------------|--------------|--------------|-------------|
| | | | | |
| 1. 1988.....| 0 | 0 | 0 | X X X X |
| 2. 1989.....| 0 | 0 | 0 | X X X X |
| 3. 1990.....| 0 | 0 | 0 | X X X X |
| 4. 1991.....| 0 | 0 | 0 | X X X X |
| 5. 1992.....| 0 | 0 | 0 | X X X X |
| 6. 1993.....| 0 | 0 | 0 | X X X X |
|-------------|--------------|--------------|--------------|-------------|
| 7. Totals ..| 0 | 0 | 0 | X X X X |
------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
| | Total Losses and | Loss and Loss Expense Percentage | Discount for Time |
| | Loss Expenses Incurred | (Incurred/Premiums Earned) | Value of Money |
| |-----------------------------------------|--------------------------------------------|-----------------------------|
| | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32 |
| | | | | | | | | |
| | Direct | | | Direct | | | | Loss |
| | and Assumed | Ceded | Net * | and Assumed | Ceded | Net | Loss | Expense |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
| | | | | | | | | |
| 1. 1988.....| 401 | 0 | 401 | 25.9 | 0.0 | 25.8 | 0 | 0 |
| 2. 1989.....| 0 | 0 | 0 | 0.0 | 0.0 | 0.0 | 0 | 0 |
| 3. 1990.....| 0 | 0 | 0 | 0.0 | 0.0 | 0.0 | 0 | 0 |
| 4. 1991.....| 0 | 0 | 0 | 0.0 | 0.0 | 0.0 | 0 | 0 |
| 5. 1992.....| 0 | 0 | 0 | 0.0 | 0.0 | 0.0 | 0 | 0 |
| 6. 1993.....| 0 | 0 | 0 | 0.0 | 0.0 | 0.0 | 0 | 0 |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
| 7. Totals ..| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 |
-----------------------------------------------------------------------------------------------------------------------------------
*Net = (25 - 26) = (11 + 23)
<FN>
----------------------------------------------------------
| | | Net Balance Sheet Reserves |
| | 33 | After Discount |
| | |-----------------------------|
| |Inter-Company | 34 | 35 |
| | Pooling | | |
| |Participation | Losses |Loss Expenses |
| | Percentage | Unpaid | Unpaid |
|-------------|--------------|--------------|--------------|
| | | | |
| 1. 1988.....| 0.0 | 0 | 0 |
| 2. 1989.....| 0.0 | 0 | 0 |
| 3. 1990.....| 0.0 | 0 | 0 |
| 4. 1991.....| 0.0 | 0 | 0 |
| 5. 1992.....| 0.0 | 0 | 0 |
| 6. 1993.....| 0.0 | 0 | 0 |
|-------------|--------------|--------------|--------------|
| 7. Totals ..| X X X X | 0 | 0 |
----------------------------------------------------------
SCHEDULE P - PART 1Q - REINSURANCE D
(OOO omitted)
-----------------------------------------------------------------------------------------------------------------------------------
| 1 | Premiums Earned | Loss and Loss Expense Payments
| |-----------------------------------------|---------------------------------------------------------------------------
| Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9 |
| Which | | | | | Expense Payments | |
|Premiums Were| | | |-----------------------------|-----------------------------| Salvage |
| Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and |
| Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation |
| Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
| | | | | | | | | |
| 1. Prior ...| X X X X | X X X X | X X X X | 0 | 0 | 0 | 0 | 0 |
| 2. 1984.....| 2,162 | 1,685 | 477 | (108,463)| (111,318)| 73 | 28 | 0 |
| 3. 1985.....| 48,980 | 27,823 | 21,157 | 26,546 | 8,386 | 284 | (34)| 0 |
| 4. 1986.....| 101,003 | 61,408 | 39,595 | 53,924 | 25,703 | 681 | 221 | 0 |
| 5. 1987.....| 49,262 | 5,704 | 43,558 | 32,938 | 4,128 | 850 | (169)| 0 |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
| 6. Totals ..| X X X X | X X X X | X X X X | 4,947 | (73,101)| 1,889 | 46 | 0 |
-----------------------------------------------------------------------------------------------------------------------------------
NOTE: For "prior," report amounts paid or received in current year only.
Report cumulative amounts paid or received for specific years. Report loss payments net of salvage and subrogation received.
<FN>
----------------------------------------------------------
| 1 | | |
| |-----------------------------| |
| Years | 10 | 11 | 12 |
| Which | | | Number of |
|Premiums Were| Unallocated | Total | Claims |
| Earned and | Loss | Net Paid | Reported - |
| Losses Were | Expense | (5 - 6 + 7 | Direct and |
| Incurred | Payments | - 8 + 10) | Assumed |
|-------------|--------------|--------------|--------------|
| | | | |
| 1. Prior ...| 0 | 0 | X X X X |
| 2. 1984.....| 0 | 2,901 | X X X X |
| 3. 1985.....| 0 | 18,478 | X X X X |
| 4. 1986.....| 0 | 28,682 | X X X X |
| 5. 1987.....| 0 | 29,830 | X X X X |
|-------------|--------------|--------------|--------------|
| 6. Totals ..| 0 | 79,890 | X X X X |
----------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
| | Losses Unpaid | Allocated Loss Expenses Unpaid |
| |--------------------------------------------------------|-----------------------------------------------------------|
| | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR |
| |---------------------------|----------------------------|-----------------------------|-----------------------------|
| | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20 |
| | Direct | | Direct | | Direct | | Direct | |
| | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
| | | | | | | | | |
| 1. Prior ...| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| 2. 1984.....| 0 | 0 | 125,334 | 125,334 | 0 | 0 | 0 | 0 |
| 3. 1985.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| 4. 1986.....| 463 | 0 | 442 | 0 | 0 | 0 | 0 | 0 |
| 5. 1987.....| 1,429 | 6 | 2,492 | 0 | 0 | 0 | 0 | 0 |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
| 6. Totals ..| 1,892 | 6 | 128,268 | 125,334 | 0 | 0 | 0 | 0 |
-----------------------------------------------------------------------------------------------------------------------------------
-------------- ----------------------------------------------------------
| | | | | |
| | 21 | 22 | 23 | 24 |
| | | | | Number of |
| | Salvage | Unallocated | Total | Claims |
| | and | Loss | Net Losses |Outstanding -|
| | Subrogation | Expense | and Expenses | Direct and |
| | Anticipated | Unpaid | Unpaid | Assumed |
|-------------| --------------|--------------|--------------|-------------|
| | | | | |
| 1. Prior ...| 0 | 0 | 0 | X X X X |
| 2. 1984.....| 0 | 0 | 0 | X X X X |
| 3. 1985.....| 0 | 0 | 0 | X X X X |
| 4. 1986.....| 0 | 0 | 905 | X X X X |
| 5. 1987.....| 0 | 0 | 3,916 | X X X X |
|-------------| --------------|--------------|--------------|-------------|
| 6. Totals ..| 0 | 0 | 4,820 | X X X X |
-------------- ----------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
| | Total Losses and | Loss and Loss Expense Percentage | Discount for Time |
| | Loss Expenses Incurred | (Incurred/Premiums Earned) | Value of Money |
| |-----------------------------------------|--------------------------------------------|-----------------------------|
| | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32 |
| | | | | | | | | |
| | Direct | | | Direct | | | | Loss |
| | and Assumed | Ceded | Net * | and Assumed | Ceded | Net | Loss | Expense |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
| | | | | | | | | |
| 1. Prior ...| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 |
| 2. 1984.....| 16,945 | 14,044 | 2,901 | 783.9 | 833.5 | 608.7 | 0 | 0 |
| 3. 1985.....| 26,830 | 8,353 | 18,478 | 54.8 | 30.0 | 87.3 | 0 | 0 |
| 4. 1986.....| 55,510 | 25,924 | 29,586 | 55.0 | 42.2 | 74.7 | 0 | 0 |
| 5. 1987.....| 37,710 | 3,965 | 33,746 | 76.6 | 69.5 | 77.5 | 0 | 0 |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
| 6. Totals ..| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 |
-----------------------------------------------------------------------------------------------------------------------------------
*Net = (25 - 26) = (11 + 23)
<FN>
----------------------------------------------------------
| | | Net Balance Sheet Reserves |
| | 33 | After Discount |
| | |-----------------------------|
| |Inter-Company | 34 | 35 |
| | Pooling | | |
| |Participation | Losses |Loss Expenses |
| | Percentage | Unpaid | Unpaid |
|-------------|--------------|--------------|--------------|
| | | | |
| 1. Prior ...| 0.0 | 0 | 0 |
| 2. 1984.....| 0.0 | 0 | 0 |
| 3. 1985.....| 0.0 | 0 | 0 |
| 4. 1986.....| 0.0 | 905 | 0 |
| 5. 1987.....| 0.0 | 3,916 | 0 |
|-------------|--------------|--------------|--------------|
| 6. Totals ..| X X X X | 4,820 | 0 |
----------------------------------------------------------
</TABLE>
Page # 79
Form 2
CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND
ITS AFFILIATED FIRE AND CASUALTY INSURERS
<TABLE>
<CAPTION>
SCHEDULE P - PART 1R - SECTION 1 - PRODUCTS LIABILITY - OCCURRENCE
(000 omitted)
-----------------------------------------------------------------------------------------------------------------------------------
| | Premiums Earned | Loss and Loss Expense Payments
| 1 |-----------------------------------------|---------------------------------------------------------------------------
| Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9 |
| in Which | | | | | Expense Payments | |
|Premiums Were| | | |-----------------------------|-----------------------------| Salvage |
| Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and |
| Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation |
| Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
| | | | | | | | | |
<S> <C> <C> <C> <C> <C> <C> <C> <C>
| 1. Prior ...| X X X X | X X X X | X X X X | 3,805 | 12 | 27 | 51 | 141 |
| 2. 1984.....| 17,934 | 3,056 | 14,878 | 17,736 | 865 | 8,817 | 455 | 758 |
| 3. 1985.....| 29,241 | 6,615 | 22,626 | 17,506 | 1,978 | 9,345 | 627 | 747 |
| 4. 1986.....| 58,624 | 17,080 | 41,544 | 17,987 | 2,286 | 9,340 | 861 | 303 |
| 5. 1987.....| 69,307 | 20,533 | 48,774 | 21,913 | 7,039 | 11,590 | 2,508 | 919 |
| 6. 1988.....| 45,670 | 15,513 | 30,157 | 11,747 | 1,979 | 5,932 | 598 | 373 |
| 7. 1989.....| 29,430 | 10,438 | 18,992 | 10,716 | 2,913 | 5,154 | 1,449 | 212 |
| 8. 1990.....| 24,424 | 8,559 | 15,864 | 4,464 | 1,119 | 1,922 | 483 | 41 |
| 9. 1991.....| 17,168 | 5,206 | 11,962 | 3,985 | 954 | 1,630 | 415 | 23 |
|10. 1992.....| 12,044 | 3,459 | 8,585 | 500 | 155 | 269 | 55 | 3 |
|11. 1993.....| 11,626 | 5,243 | 6,382 | 1,178 | 49 | 96 | 8 | 0 |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
|12. Totals ..| X X X X | X X X X | X X X X | 111,538 | 19,350 | 54,122 | 7,510 | 3,521 |
-----------------------------------------------------------------------------------------------------------------------------------
Note: For "prior," report amounts paid or received in current year only.
Report cumulative amounts paid or received for specific years. Report loss payments net of salvage and subrogation received.
<FN>
----------------------------------------------------------
| | | |
| 1 |-----------------------------| 12 |
| Years | 10 | 11 | |
| in Which | | | Number of |
|Premiums Were| Unallocated | Total | Claims |
| Earned and | Loss | Net Paid | Reported - |
| Losses Were | Expense | (5 - 6 + 7 | Direct and |
| Incurred | Payments | - 8 + 10) | Assumed |
|-------------|--------------|--------------|--------------|
| | | | |
| 1. Prior ...| 595 | 4,363 | X X X X |
| 2. 1984.....| 1,412 | 26,645 | 1,470 |
| 3. 1985.....| 1,272 | 25,518 | 1,518 |
| 4. 1986.....| 1,154 | 25,333 | 1,397 |
| 5. 1987.....| 1,237 | 25,192 | 1,197 |
| 6. 1988.....| 806 | 15,908 | 891 |
| 7. 1989.....| 567 | 12,075 | 987 |
| 8. 1990.....| 501 | 5,286 | 965 |
| 9. 1991.....| 507 | 4,753 | 589 |
|10. 1992.....| 568 | 1,127 | 403 |
|11. 1993.....| 168 | 1,386 | 187 |
|-------------|--------------|--------------|--------------|
|12. Totals ..| 8,787 | 147,587 | X X X X |
----------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
| | Losses Unpaid | Allocated Loss Expenses Unpaid |
| |--------------------------------------------------------|-----------------------------------------------------------|
| | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR |
| |---------------------------|----------------------------|-----------------------------|-----------------------------|
| | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20 |
| | Direct | | Direct | | Direct | | Direct | |
| | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
| | | | | | | | | |
| 1. Prior ...| 14,090 | 104 | 7,993 | 18 | 0 | 0 | 21,834 | 14 |
| 2. 1984.....| 1,943 | 21 | 1,351 | 11 | 0 | 0 | 1,578 | 3 |
| 3. 1985.....| 977 | 175 | 1,936 | 26 | 0 | 0 | 1,563 | 20 |
| 4. 1986.....| 1,792 | 118 | 2,214 | 20 | 0 | 0 | 2,097 | 16 |
| 5. 1987.....| 2,696 | 72 | 2,843 | 10 | 0 | 0 | 2,756 | 8 |
| 6. 1988.....| 3,738 | 339 | 2,558 | 30 | 0 | 0 | 2,542 | 48 |
| 7. 1989.....| 2,869 | 1,062 | 2,029 | 65 | 0 | 0 | 1,724 | 143 |
| 8. 1990.....| 4,456 | 1,628 | 2,322 | 82 | 0 | 0 | 1,947 | 155 |
| 9. 1991.....| 4,854 | 1,528 | 2,743 | 115 | 0 | 0 | 2,280 | 151 |
|10. 1992.....| 2,312 | 624 | 3,102 | 92 | 0 | 0 | 1,523 | 50 |
|11. 1993.....| 1,293 | 753 | 3,165 | 266 | 0 | 0 | 3,426 | 839 |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
|12. Totals ..| 41,019 | 6,423 | 32,256 | 734 | 0 | 0 | 43,268 | 1,447 |
-----------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------
| | | | | |
| | 21 | 22 | 23 | 24 |
| | | | | Number of |
| | Salvage | Unallocated | Total | Claims |
| | and | Loss | Net Losses |Outstanding -|
| | Subrogation | Expenses | and Expenses | Direct |
| | Anticipated | Unpaid | Unpaid | and Assumed |
|-------------|--------------|--------------|--------------|-------------|
| | | | | |
| 1. Prior ...| (143)| 3,066 | 46,847 | 235 |
| 2. 1984.....| (43)| 402 | 5,239 | 47 |
| 3. 1985.....| (58)| 289 | 4,543 | 44 |
| 4. 1986.....| (68)| 510 | 6,460 | 77 |
| 5. 1987.....| (79)| 577 | 8,782 | 91 |
| 6. 1988.....| (71)| 491 | 8,913 | 61 |
| 7. 1989.....| (46)| 181 | 5,533 | 42 |
| 8. 1990.....| (41)| 271 | 7,132 | 56 |
| 9. 1991.....| (59)| 402 | 8,484 | 81 |
|10. 1992.....| (48)| 281 | 6,451 | 62 |
|11. 1993.....| (26)| 90 | 6,116 | 45 |
|-------------|--------------|--------------|--------------|-------------|
|12. Totals ..| (682)| 6,562 | 114,500 | 841 |
------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
| | Total Losses and | Loss and Loss Expense Percentage | Discount for Time |
| | Loss Expenses Incurred | (Incurred/Premiums Earned) | Value of Money |
| |-----------------------------------------|--------------------------------------------|-----------------------------|
| | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32 |
| | Direct | | | Direct | | | | Loss |
| | and Assumed | Ceded | Net * | and Assumed | Ceded | Net | Loss | Expense |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
| | | | | | | | | |
| 1. Prior ...| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 |
| 2. 1984.....| 33,239 | 1,355 | 31,884 | 185.3 | 44.3 | 214.3 | 0 | 0 |
| 3. 1985.....| 32,887 | 2,825 | 30,062 | 112.5 | 42.7 | 132.9 | 0 | 0 |
| 4. 1986.....| 35,094 | 3,301 | 31,793 | 59.9 | 19.3 | 76.5 | 0 | 0 |
| 5. 1987.....| 43,612 | 9,638 | 33,974 | 62.9 | 46.9 | 69.7 | 0 | 0 |
| 6. 1988.....| 27,814 | 2,994 | 24,821 | 60.9 | 19.3 | 82.3 | 0 | 0 |
| 7. 1989.....| 23,239 | 5,631 | 17,608 | 79.0 | 54.0 | 92.7 | 0 | 0 |
| 8. 1990.....| 15,885 | 3,467 | 12,418 | 65.0 | 40.5 | 78.3 | 0 | 0 |
| 9. 1991.....| 16,400 | 3,163 | 13,237 | 95.5 | 60.8 | 110.7 | 0 | 0 |
|10. 1992.....| 8,554 | 976 | 7,578 | 71.0 | 28.2 | 88.3 | 0 | 0 |
|11. 1993.....| 9,417 | 1,915 | 7,502 | 81.0 | 36.5 | 117.5 | 0 | 0 |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
|12. Totals ..| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 |
-----------------------------------------------------------------------------------------------------------------------------------
*Net = (25 - 26) = (11 + 23)
<FN>
- -----------------------------------------------------------
| | Net Balance Sheet Reserves |
| | 33 | After Discount |
| |Inter-Company |-----------------------------|
| | Pooling | 34 | 35 |
| |Participation | Losses |Loss Expenses |
| | Percentage | Unpaid | Unpaid |
|-------------|--------------|--------------|--------------|
| | | | |
| 1. Prior ...| X X X X | 21,962 | 24,886 |
| 2. 1984.....| 0.0 | 3,262 | 1,977 |
| 3. 1985.....| 0.0 | 2,711 | 1,832 |
| 4. 1986.....| 0.0 | 3,868 | 2,592 |
| 5. 1987.....| 0.0 | 5,457 | 3,325 |
| 6. 1988.....| 0.0 | 5,927 | 2,985 |
| 7. 1989.....| 0.0 | 3,771 | 1,762 |
| 8. 1990.....| 0.0 | 5,068 | 2,063 |
| 9. 1991.....| 0.0 | 5,954 | 2,530 |
|10. 1992.....| 0.0 | 4,698 | 1,753 |
|11. 1993.....| 0.0 | 3,439 | 2,677 |
|-------------|--------------|--------------|--------------|
|12. Totals ..| X X X X | 66,117 | 48,383 |
-------------|--------------------------------------------
</TABLE>
Page # 80
Form 2
CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND
ITS AFFILIATED FIRE AND CASUALTY INSURERS
<TABLE>
<CAPTION>
SCHEDULE P - PART 1R - SECTION 2 - PRODUCTS LIABILITY -
CLAIMS-MADE
(000 omitted)
-----------------------------------------------------------------------------------------------------------------------------------
| | Premiums Earned | Loss and Loss Expense Payments
| 1 |-----------------------------------------|---------------------------------------------------------------------------
| Years | 2 | 3 | 4 | Loss Payments | Allocated Loss | 9 |
| in Which | | | | | Expense Payments | |
|Premiums Were| | | |-----------------------------|-----------------------------| Salvage |
| Earned and | Direct | | Net | 5 | 6 | 7 | 8 | and |
| Losses Were | and | Ceded | (2 - 3) | Direct | | Direct | | Subrogation |
| Incurred | Assumed | | | and Assumed | Ceded | and Assumed | Ceded | Received |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
| | | | | | | | | |
<S> > <C> <C> <C> <C> <C> <C> <C> <C>
| 1. Prior ...| X X X X | X X X X | X X X X | 0 | 0 | 0 | 0 | 0 |
| 2. 1984.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| 3. 1985.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| 4. 1986.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| 5. 1987.....| 14 | 0 | 14 | 0 | 0 | 0 | 0 | 0 |
| 6. 1988.....| 234 | 0 | 234 | 6 | 0 | 7 | 0 | (1)|
| 7. 1989.....| 310 | 0 | 310 | 9 | 0 | 10 | 0 | 0 |
| 8. 1990.....| 294 | 0 | 294 | 82 | 0 | 345 | 0 | 0 |
| 9. 1991.....| 285 | 0 | 285 | 94 | 0 | 72 | 0 | (4)|
|10. 1992.....| 104 | 0 | 104 | 8 | 0 | 23 | 0 | (1)|
|11. 1993.....| 118 | 0 | 118 | 0 | 0 | 20 | 0 | 0 |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
|12. Totals ..| X X X X | X X X X | X X X X | 198 | 0 | 477 | 0 | (5)|
-----------------------------------------------------------------------------------------------------------------------------------
Note: For "prior," report amounts paid or received in current year only.
Report cumulative amounts paid or received for specific years. Report loss payments net of salvage and subrogation received.
<FN>
----------------------------------------------------------
| | | |
| 1 |-----------------------------| 12 |
| Years | 10 | 11 | |
| in Which | | | Number of |
|Premiums Were| Unallocated | Total | Claims |
| Earned and | Loss | Net Paid | Reported - |
| Losses Were | Expense | (5 - 6 + 7 | Direct and |
| Incurred | Payments | - 8 + 10) | Assumed |
|-------------|--------------|--------------|--------------|
| | | | |
| 1. Prior ...| 0 | 0 | X X X X |
| 2. 1984.....| 0 | 0 | 0 |
| 3. 1985.....| 0 | 0 | 0 |
| 4. 1986.....| 0 | 0 | 0 |
| 5. 1987.....| 2 | 2 | 0 |
| 6. 1988.....| 11 | 24 | 6 |
| 7. 1989.....| 15 | 33 | 2 |
| 8. 1990.....| 40 | 466 | 8 |
| 9. 1991.....| 44 | 210 | 13 |
|10. 1992.....| 201 | 231 | 6 |
|11. 1993.....| 2 | 23 | 81 |
|-------------|--------------|--------------|--------------|
|12. Totals ..| 314 | 990 | X X X X |
----------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
| | Losses Unpaid | Allocated Loss Expenses Unpaid |
| |--------------------------------------------------------|-----------------------------------------------------------|
| | Case Basis | Bulk + IBNR | Case Basis | Bulk + IBNR |
| |---------------------------|----------------------------|-----------------------------|-----------------------------|
| | 13 | 14 | 15 | 16 | 17 | 18 | 19 | 20 |
| | Direct | | Direct | | Direct | | Direct | |
| | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded | and Assumed | Ceded |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
| | | | | | | | | |
| 1. Prior ...| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| 2. 1984.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| 3. 1985.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| 4. 1986.....| 0 | 0 | 0 | 0 | 0 | 0 | 3 | 0 |
| 5. 1987.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| 6. 1988.....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| 7. 1989.....| 0 | 0 | 0 | 0 | 0 | 0 | 2 | 0 |
| 8. 1990.....| 0 | 0 | 0 | 0 | 0 | 0 | (0)| 0 |
| 9. 1991.....| 5 | 0 | 0 | 0 | 0 | 0 | 12 | 0 |
|10. 1992.....| 0 | 0 | 0 | 0 | 0 | 0 | 348 | 0 |
|11. 1993.....| 850 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
|12. Totals ..| 855 | 0 | 0 | 0 | 0 | 0 | 365 | 0 |
-----------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------
| | | | | |
| | 21 | 22 | 23 | 24 |
| | | | | Number of |
| | Salvage | Unallocated | Total | Claims |
| | and | Loss | Net Losses |Outstanding -|
| | Subrogation | Expenses | and Expenses | Direct |
| | Anticipated | Unpaid | Unpaid | and Assumed |
|-------------|--------------|--------------|--------------|-------------|
| | | | | |
| 1. Prior ...| 0 | 0 | 0 | 0 |
| 2. 1984.....| 0 | 0 | 0 | 0 |
| 3. 1985.....| 0 | 0 | 0 | 0 |
| 4. 1986.....| 0 | 2 | 5 | 0 |
| 5. 1987.....| 0 | 0 | 0 | 0 |
| 6. 1988.....| 0 | 0 | 0 | 0 |
| 7. 1989.....| 0 | 0 | 2 | 0 |
| 8. 1990.....| 0 | 0 | (0)| 0 |
| 9. 1991.....| 0 | 1 | 18 | 2 |
|10. 1992.....| 0 | 228 | 576 | 0 |
|11. 1993.....| 0 | 0 | 850 | 79 |
|-------------|--------------|--------------|--------------|-------------|
|12. Totals ..| 0 | 231 | 1,450 | 81 |
------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
| | Total Losses and | Loss and Loss Expense Percentage | Discount for Time |
| | Loss Expenses Incurred | (Incurred/Premiums Earned) | Value of Money |
| |-----------------------------------------|--------------------------------------------|-----------------------------|
| | 25 | 26 | 27 | 28 | 29 | 30 | 31 | 32 |
| | Direct | | | Direct | | | | Loss |
| | and Assumed | Ceded | Net * | and Assumed | Ceded | Net | Loss | Expense |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
| | | | | | | | | |
| 1. Prior ...| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 |
| 2. 1984.....| 0 | 0 | 0 | 0.0 | 0.0 | 0.0 | 0 | 0 |
| 3. 1985.....| 0 | 0 | 0 | 0.0 | 0.0 | 0.0 | 0 | 0 |
| 4. 1986.....| 5 | 0 | 5 | 0.0 | 0.0 | 0.0 | 0 | 0 |
| 5. 1987.....| 2 | 0 | 2 | 12.9 | 0.0 | 12.9 | 0 | 0 |
| 6. 1988.....| 24 | 0 | 24 | 10.4 | 0.0 | 10.4 | 0 | 0 |
| 7. 1989.....| 35 | 0 | 35 | 11.2 | 0.0 | 11.2 | 0 | 0 |
| 8. 1990.....| 466 | 0 | 466 | 158.4 | 0.0 | 158.4 | 0 | 0 |
| 9. 1991.....| 228 | 0 | 228 | 80.1 | 0.0 | 80.1 | 0 | 0 |
|10. 1992.....| 807 | 0 | 807 | 778.2 | 0.0 | 778.2 | 0 | 0 |
|11. 1993.....| 873 | 0 | 873 | 741.1 | 0.0 | 741.1 | 0 | 0 |
|-------------|-------------|-------------|-------------|--------------|--------------|--------------|--------------|--------------|
|12. Totals ..| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 |
-----------------------------------------------------------------------------------------------------------------------------------
*Net = (25 - 26) = (11 + 23)
<FN>
----------------------------------------------------------
| | | Net Balance Sheet Reserves |
| | 33 | After Discount |
| |Inter-Company |-----------------------------|
| | Pooling | 34 | 35 |
| |Participation | Losses |Loss Expenses |
| | Percentage | Unpaid | Unpaid |
|-------------|--------------|--------------|--------------|
| | | | |
| 1. Prior ...| X X X X | 0 | 0 |
| 2. 1984.....| 0.0 | 0 | 0 |
| 3. 1985.....| 0.0 | 0 | 0 |
| 4. 1986.....| 0.0 | 0 | 5 |
| 5. 1987.....| 0.0 | 0 | 0 |
| 6. 1988.....| 0.0 | 0 | 0 |
| 7. 1989.....| 0.0 | 0 | 2 |
| 8. 1990.....| 0.0 | 0 | (0)|
| 9. 1991.....| 0.0 | 5 | 13 |
|10. 1992.....| 0.0 | 0 | 576 |
|11. 1993.....| 0.0 | 850 | 0 |
|-------------|--------------|--------------|--------------|
|12. Totals ..| X X X X | 855 | 595 |
----------------------------------------------------------
</TABLE>
Page 81
Form 2
CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND
ITS AFFILIATED FIRE AND CASUALTY INSURERS
<TABLE>
<CAPTION>
SCHEDULE P - PART 2A - HOMEOWNERS/FARMOWNERS
------------------------------------------------------------------------------------------------------------------------
| 1 | Incurred Losses and Allocated Expenses Reported at Year End (000 omitted)
| |----------------------------------------------------------------------------------------------------
| Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 |
| Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 |
| Incurred | | | | | | | |
|-------------------|---------------|-------------|-------------|-------------|-------------|-------------|-------------|
| | | | | | | | |
<S> <C> <C> <C> <C> <C> <C> <C> |
| 1. Prior ......| 20,853 * | 18,939 | 17,488 | 19,341 | 19,015 | 19,095 | 19,181 |
| 2. 1984........| 130,259 | 130,600 | 130,504 | 129,995 | 130,289 | 130,224 | 130,381 |
| 3. 1985........| X X X X | 163,293 | 161,780 | 163,183 | 163,943 | 163,699 | 163,870 |
| 4. 1986........| X X X X | X X X X | 150,891 | 140,466 | 141,188 | 141,094 | 140,779 |
| 5. 1987........| X X X X | X X X X | X X X X | 145,362 | 133,500 | 131,436 | 129,910 |
| 6. 1988........| X X X X | X X X X | X X X X | X X X X | 136,735 | 127,851 | 127,629 |
| 7. 1989........| X X X X | X X X X | X X X X | X X X X | X X X X | 161,136 | 152,034 |
| 8. 1990........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 148,750 |
| 9. 1991........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 10. 1992........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 11. 1993........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
| 1 | Development** ||
| |----------------------------------------|---------------------------||
| Years in Which | 9 | 10 | 11 | 12 | 13 ||
| Losses Were | 1991 | 1992 | 1993 | One Year | Two Year ||
| Incurred | | | | | ||
|--------------------|------------|-------------|-------------|-------------|-------------||
| | | | | | ||
| 1. Prior ...... | 19,114 | 19,087 | 19,067 | (20)| (47)||
| 2. 1984........ | 130,447 | 130,432 | 130,438 | 6 | (9)||
| 3. 1985........ | 163,968 | 164,046 | 164,437 | 391 | 469 ||
| 4. 1986........ | 140,166 | 140,140 | 140,049 | (91)| (117)||
| 5. 1987........ | 126,780 | 126,913 | 126,790 | (123)| 10 ||
| 6. 1988........ | 126,023 | 125,826 | 125,748 | (78)| (275)||
| 7. 1989........ | 150,820 | 151,861 | 151,951 | 90 | 1,131 ||
| 8. 1990........ | 139,518 | 140,024 | 140,055 | 31 | 537 ||
| 9. 1991........ | 177,601 | 165,548 | 165,009 | (539)| (12,592)||
| 10. 1992........ | X X X X | 193,601 | 181,168 | (12,433)| X X X X ||
| 11. 1993........ | X X X X | X X X X | 110,806 | X X X X | X X X X ||
------------------------------------------------------------ |-------------|-------------|-
12. Totals | (12,766)| (10,893)|
-------------------------------------------------
SCHEDULE P - PART 2B - PRIVATE PASSENGER AUTO LIABILITY/MEDICAL
------------------------------------------------------------------------------------------------------------------------
| 1 | Incurred Losses and Allocated Expenses Reported at Year End (000 omitted)
| |----------------------------------------------------------------------------------------------------
| Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 |
| Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 |
| Incurred | | | | | | | |
-------------------|---------------|-------------|-------------|-------------|-------------|-------------|-------------|
| 1. Prior ......| 138,769 * | 151,900 | 150,026 | 154,209 | 159,279 | 159,648 | 159,575 |
| 2. 1984........| 262,701 | 282,722 | 294,679 | 297,308 | 300,574 | 304,915 | 305,530 |
| 3. 1985........| X X X X | 281,456 | 314,605 | 322,512 | 328,421 | 332,819 | 333,041 |
| 4. 1986........| X X X X | X X X X | 310,271 | 313,575 | 321,444 | 317,969 | 320,962 |
| 5. 1987........| X X X X | X X X X | X X X X | 301,420 | 306,677 | 308,344 | 308,884 |
| 6. 1988........| X X X X | X X X X | X X X X | X X X X | 285,941 | 302,310 | 303,811 |
| 7. 1989........| X X X X | X X X X | X X X X | X X X X | X X X X | 309,260 | 321,455 |
| 8. 1990........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 339,210 |
| 9. 1991........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 10. 1992........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 11. 1993........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
| 1 | Development** |
| |---------------------------------------|---------------------------|
| Years in Which | 9 | 10 | 11 | 12 | 13 |
| Losses Were | 1991 | 1992 | 1993 | One Year | Two Year |
| Incurred | | | | | |
|---------------------|-----------|-------------|-------------|-------------|-------------|
| 1. Prior ...... | 163,860 | 165,350 | 171,538 | 6,188 | 7,678 |
| 2. 1984........ | 309,694 | 309,519 | 310,251 | 732 | 557 |
| 3. 1985........ | 332,261 | 337,846 | 334,839 | (3,007)| 2,578 |
| 4. 1986........ | 320,731 | 325,471 | 323,967 | (1,504)| 3,236 |
| 5. 1987........ | 304,696 | 308,511 | 309,930 | 1,419 | 5,234 |
| 6. 1988........ | 299,676 | 305,696 | 304,813 | (883)| 5,137 |
| 7. 1989........ | 312,009 | 315,294 | 315,019 | (275)| 3,010 |
| 8. 1990........ | 327,128 | 307,879 | 312,942 | 5,063 | (14,186)|
| 9. 1991........ | 374,565 | 349,433 | 338,548 | (10,885)| (36,017)|
| 10. 1992........ | X X X X | 272,009 | 265,017 | (6,992)| X X X X |
| 11. 1993........ | X X X X | X X X X | 235,858 | X X X X | X X X X |
------------------------------------------------------------|-------------|-------------|
12. Totals | (10,144)| (22,773)|
-------------------------------------------------
SCHEDULE P - PART 2C - COMMERCIAL AUTO/TRUCK LIABILITY/MEDICAL
------------------------------------------------------------------------------------------------------------------------
| 1 | Incurred Losses and Allocated Expenses Reported at Year End (000 omitted)
| |----------------------------------------------------------------------------------------------------
| Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 |
| Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 |
| Incurred | | | | | | | |
-------------------|---------------|-------------|-------------|-------------|-------------|-------------|-------------|
| 1. Prior ......| 166,509 * | 202,363 | 198,495 | 192,148 | 199,046 | 199,565 | 199,572 |
| 2. 1984........| 206,373 | 241,921 | 250,678 | 256,147 | 258,892 | 264,016 | 263,821 |
| 3. 1985........| X X X X | 262,315 | 299,226 | 303,712 | 312,550 | 323,355 | 329,849 |
| 4. 1986........| X X X X | X X X X | 344,128 | 333,515 | 315,451 | 302,275 | 320,045 |
| 5. 1987........| X X X X | X X X X | X X X X | 391,334 | 355,821 | 314,506 | 308,358 |
| 6. 1988........| X X X X | X X X X | X X X X | X X X X | 283,122 | 291,544 | 301,662 |
| 7. 1989........| X X X X | X X X X | X X X X | X X X X | X X X X | 302,863 | 269,923 |
| 8. 1990........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 272,448 |
| 9. 1991........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 10. 1992........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 11. 1993........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
| 1 | | Development** |
| |---------------------------------------|---------------------------|
| Years in Which | 9 | 10 | 11 | 12 | 13 |
| Losses Were | 1991 | 1992 | 1993 | One Year | Two Year |
| Incurred | | | | | |
-------------------|-----------|-------------|-------------|-------------|-------------|
| 1. Prior ..... 204,005 | 207,166 | 206,277 | (889)| 2,272 |
| 2. 1984....... 264,485 | 264,999 | 265,186 | 187 | 701 |
| 3. 1985....... 331,349 | 331,925 | 333,115 | 1,190 | 1,766 |
| 4. 1986....... 308,836 | 310,490 | 309,908 | (582)| 1,072 |
| 5. 1987....... 303,308 | 302,538 | 305,408 | 2,870 | 2,100 |
| 6. 1988....... 286,355 | 285,382 | 284,706 | (676)| (1,649)|
| 7. 1989....... 282,409 | 279,507 | 274,040 | (5,467)| (8,369)|
| 8. 1990....... 282,049 | 267,172 | 259,560 | (7,612)| (22,489)|
| 9. 1991....... 263,709 | 247,952 | 228,224 | (19,728)| (35,485)|
| 10. 1992....... X X X X | 205,427 | 185,499 | (19,928)| X X X X |
| 11. 1993....... X X X X | X X X X | 155,709 | X X X X | X X X X |
-----------------------------------------------------------|-------------|-------------|
12. Totals | (50,635)| (60,081)|
---------------------------
SCHEDULE P - PART 2D - WORKERS' COMPENSATION
------------------------------------------------------------------------------------------------------------------------
| 1 | Incurred Losses and Allocated Expenses Reported at Year End (000 omitted)
| |----------------------------------------------------------------------------------------------------
| Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 |
| Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 |
| Incurred | | | | | | | |
------------------------------------------------------------------------------------------------------------------------
| 1. Prior ......| 617,498 * | 652,737 | 670,984 | 719,649 | 781,762 | 840,479 | 865,365 |
| 2. 1984........| 370,864 | 412,572 | 420,400 | 431,681 | 451,254 | 465,521 | 475,693 |
| 3. 1985........| X X X X | 456,662 | 486,686 | 490,368 | 521,699 | 546,043 | 564,044 |
| 4. 1986........| X X X X | X X X X | 526,887 | 528,478 | 519,711 | 524,929 | 526,776 |
| 5. 1987........| X X X X | X X X X | X X X X | 505,533 | 499,516 | 500,958 | 525,304 |
| 6. 1988........| X X X X | X X X X | X X X X | X X X X | 521,268 | 539,213 | 578,796 |
| 7. 1989........| X X X X | X X X X | X X X X | X X X X | X X X X | 588,512 | 615,008 |
| 8. 1990........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 606,690 |
| 9. 1991........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 10. 1992........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 11. 1993........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
| 1 | | Development** |
| |-----------------------------------------|---------------------------|
| Years in Which | 9 | 10 | 11 | 12 | 13 |
| Losses Were | 1991 | 1992 | 1993 | One Year | Two Year |
| Incurred | | | | | |
-------------------|-------------|-------------|-------------|-------------|-------------|
| 1. Prior ......| 917,318 | 941,284 | 1,004,032 | 62,748 | 86,714 |
| 2. 1984........| 489,953 | 499,256 | 519,705 | 20,449 | 29,752 |
| 3. 1985........| 578,875 | 587,520 | 613,205 | 25,685 | 34,330 |
| 4. 1986........| 547,050 | 551,728 | 573,491 | 21,763 | 26,441 |
| 5. 1987........| 534,379 | 536,409 | 566,997 | 30,588 | 32,618 |
| 6. 1988........| 585,768 | 594,656 | 621,926 | 27,270 | 36,158 |
| 7. 1989........| 674,752 | 663,508 | 699,681 | 36,173 | 24,929 |
| 8. 1990........| 589,411 | 601,101 | 617,348 | 16,247 | 27,937 |
| 9. 1991........| 478,680 | 483,984 | 453,183 | (30,801)| (25,497)|
| 10. 1992........| X X X X | 317,061 | 298,582 | (18,479)| X X X X |
| 11. 1993........| X X X X | X X X X | 154,703 | X X X X | X X X X |
-------------------------------------------------------------|-------------|-------------|
12. Totals | 191,643 | 273,382 |
---------------------------
SCHEDULE P - PART 2E - COMMERCIAL MULTIPLE PERIL
------------------------------------------------------------------------------------------------------------------------
| 1 | Incurred Losses and Allocated Expenses Reported at Year End (000 omitted)
| |----------------------------------------------------------------------------------------------------
| Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 |
| Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 |
| Incurred | | | | | | | |
------------------------------------------------------------------------------------------------------------------------
| 1. Prior ......| 105,031 * | 109,421 | 116,787 | 125,541 | 129,627 | 127,979 | 139,929 |
| 2. 1984........| 134,759 | 147,885 | 152,560 | 154,828 | 161,827 | 163,022 | 162,920 |
| 3. 1985........| X X X X | 162,765 | 172,620 | 174,674 | 185,429 | 195,720 | 196,477 |
| 4. 1986........| X X X X | X X X X | 170,445 | 155,001 | 161,660 | 172,818 | 174,757 |
| 5. 1987........| X X X X | X X X X | X X X X | 169,796 | 146,449 | 152,706 | 182,449 |
| 6. 1988........| X X X X | X X X X | X X X X | X X X X | 328,658 | 307,656 | 304,487 |
| 7. 1989........| X X X X | X X X X | X X X X | X X X X | X X X X | 458,116 | 435,566 |
| 8. 1990........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 444,097 |
| 9. 1991........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 10. 1992........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 11. 1993........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
------------------------------------------------------------------------------------------------------------------------
*Reported reserves only. Subsequent development relates only to
subsequent payments and reserves.
**Current year less first or second prior year, showing (redundant)
or adverse.
<FN>
----------------------------------------------------------------------------------------
| 1 | | Development** |
| |-----------------------------------------|---------------------------|
| Years in Which | 9 | 10 | 11 | 12 | 13 |
| Losses Were | 1991 | 1992 | 1993 | One Year | Two Year |
| Incurred | | | | | |
-------------------|-------------|-------------|-------------|-------------|-------------|
| 1. Prior ......| 142,370 | 142,075 | 145,798 | 3,723 | 3,428 |
| 2. 1984........| 165,323 | 164,469 | 165,117 | 648 | (206)|
| 3. 1985........| 202,923 | 200,964 | 201,185 | 221 | (1,738)|
| 4. 1986........| 179,701 | 183,294 | 184,509 | 1,215 | 4,808 |
| 5. 1987........| 183,979 | 192,505 | 193,336 | 831 | 9,357 |
| 6. 1988........| 303,271 | 312,866 | 312,959 | 93 | 9,688 |
| 7. 1989........| 420,114 | 404,101 | 414,981 | 10,880 | (5,133)|
| 8. 1990........| 466,286 | 456,981 | 446,101 | (10,880)| (20,185)|
| 9. 1991........| 432,035 | 417,797 | 413,224 | (4,573)| (18,811)|
| 10. 1992........| X X X X | 417,018 | 383,326 | (33,692)| X X X X |
| 11. 1993........| X X X X | X X X X | 376,986 | X X X X | X X X X |
-------------------------------------------------------------|-------------|-------------|
12. Totals | (31,534)| (18,792)|
---------------------------
</TABLE>
Page 82
Form 2
CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND
ITS AFFILIATED FIRE AND CASUALTY INSURERS
<TABLE>
<CAPTION>
SCHEDULE P - PART 2F - SECTION 1 - MEDICAL MALPRACTICE -
OCCURRENCE
- -------------------------------------------------------------------------------------------------------------------------
| 1 | Incurred Losses and Allocated Expenses Reported at Year End (000 omitted)
| |----------------------------------------------------------------------------------------------------
| Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 |
| Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 |
| Incurred | | | | | | | |
|-------------------|---------------|-------------|-------------|-------------|-------------|-------------|-------------|
| | | | | | | | |
<S> <C> <C> <C> <C> <C> <C> <C> |
| 1. Prior | 47,900 * | 60,821 | 59,128 | 63,267 | 67,621 | 69,457 | 71,925 |
| 2. 1984........| 9,965 | 9,994 | 10,764 | 16,714 | 20,225 | 18,594 | 16,514 |
| 3. 1985........| X X X X | 10,272 | 11,890 | 8,598 | 6,936 | 7,529 | 6,006 |
| 4. 1986........| X X X X | X X X X | 120 | 2 | 8 | 13 | 4 |
| 5. 1987........| X X X X | X X X X | X X X X | 7 | 123 | 15 | 17 |
| 6. 1988........| X X X X | X X X X | X X X X | X X X X | 164 | 13 | 37 |
| 7. 1989........| X X X X | X X X X | X X X X | X X X X | X X X X | 10 | 20 |
| 8. 1990........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 10 |
| 9. 1991........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 10. 1992........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 11. 1993........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
| 1 | Development** |
| ------------------------------------------|---------------------------|
| Years in Which | 9 | 10 | 11 | 12 | 13 |
| Losses Were | 1991 | 1992 | 1993 | One Year | Two Year |
| Incurred | | | | | |
|--------------------|------------|-------------|-------------|-------------|-------------|
| | | | | | |
| 1. Prior ...... | 70,045 | 69,037 | 73,823 | 4,786 | 3,778 |
| 2. 1984........ | 12,110 | 11,362 | 10,802 | (560)| (1,308)|
| 3. 1985........ | 5,202 | 4,754 | 5,158 | 404 | (44)|
| 4. 1986........ | 4 | 4 | 4 | 0 | 0 |
| 5. 1987........ | 17 | 17 | 17 | 0 | 0 |
| 6. 1988........ | 38 | 43 | 43 | 0 | 5 |
| 7. 1989........ | 24 | 24 | 24 | 0 | 0 |
| 8. 1990........ | 0 | 356 | 358 | 2 | 358 |
| 9. 1991........ | 3 | 0 | 35 | 35 | 32 |
| 10. 1992........ | X X X X | 0 | 0 | 0 | X X X X |
| 11. 1993........ | X X X X | X X X X | 0 | X X X X | X X X X |
-------------------------------------------------------------|-------------|-------------|
12. Totals | 4,667 | 2,821 |
---------------------------
SCHEDULE P - PART 2F - SECTION 2 - MEDICAL MALPRACTICE - CLAIMS-MADE
- -------------------------------------------------------------------------------------------------------------------------
| 1 | Incurred Losses and Allocated Expenses Reported at Year End (000 omitted)
| |----------------------------------------------------------------------------------------------------
| Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 |
| Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 |
| Incurred | | | | | | | |
|-------------------|---------------|-------------|-------------|-------------|-------------|-------------|-------------|
| 1. Prior ......| 0 * | 0 | 0 | 0 | 0 | 0 | 0 |
| 2. 1984........| 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| 3. 1985........| X X X X | 0 | 0 | 1,178 | 1,020 | 1,037 | 1,037 |
| 4. 1986........| X X X X | X X X X | 0 | 23 | 30 | 32 | 32 |
| 5. 1987........| X X X X | X X X X | X X X X | 0 | 0 | 95 | 112 |
| 6. 1988........| X X X X | X X X X | X X X X | X X X X | 0 | 198 | 409 |
| 7. 1989........| X X X X | X X X X | X X X X | X X X X | X X X X | 176 | 197 |
| 8. 1990........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 80 |
| 9. 1991........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 10. 1992........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 11. 1993........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
| 1 | Development** |
| ----------- ------------------------------|---------------------------|
| Years in Which | 9 | 10 | 11 | 12 | 13 |
| Losses Were | 1991 | 1992 | 1993 | One Year | Two Year |
| Incurred | | | | | |
|-------------------|---------------------------------------------------------------------|
| 1. Prior ..... | 0 | 0 | 0 | 0 | 0 |
| 2. 1984........| 0 | 0 | 0 | 0 | 0 |
| 3. 1985........| 945 | 945 | 945 | 0 | 0 |
| 4. 1986........| 32 | 32 | 32 | 0 | 0 |
| 5. 1987........| 88 | 88 | 48 | (40)| (40)|
| 6. 1988........| 236 | 231 | 295 | 64 | 59 |
| 7. 1989........| 210 | 378 | 424 | 46 | 214 |
| 8. 1990........| 191 | 333 | 304 | (29)| 113 |
| 9. 1991........| 224 | 224 | 224 | 0 | 0 |
| 10. 1992........| X X X X | 191 | 191 | 0 | X X X X |
| 11. 1993........| X X X X | X X X X | 40 | X X X X | X X X X |
-------------------------------------------------------------|-------------|-------------|
12. Totals | 41 | 346 |
---------------------------
SCHEDULE P - PART 2G - SPECIAL LIABILITY (OCEAN MARINE, AIRCRAFT
(ALL PERILS), BOILER AND MACHINERY)
- -------------------------------------------------------------------------------------------------------------------------
| 1 | Incurred Losses and Allocated Expenses Reported at Year End (000 omitted)
| |----------------------------------------------------------------------------------------------------
| Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 |
| Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 |
| Incurred | | | | | | | |
------------------------------------------------------------------------------------------------------------------------
| 1. Prior ......| 8,553 * | 8,539 | 8,896 | 8,674 | 9,175 | 9,482 | 8,619 |
| 2. 1984........| 14,897 | 15,951 | 14,735 | 14,793 | 15,014 | 14,987 | 15,113 |
| 3. 1985........| X X X X | 19,026 | 18,592 | 18,763 | 19,218 | 19,379 | 19,455 |
| 4. 1986........| X X X X | X X X X | 32,710 | 31,068 | 31,472 | 31,574 | 31,264 |
| 5. 1987........| X X X X | X X X X | X X X X | 34,199 | 33,346 | 33,152 | 31,094 |
| 6. 1988........| X X X X | X X X X | X X X X | X X X X | 33,994 | 27,941 | 26,529 |
| 7. 1989........| X X X X | X X X X | X X X X | X X X X | X X X X | 28,336 | 25,561 |
| 8. 1990........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 24,440 |
| 9. 1991........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 10. 1992........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 11. 1993........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
| 1 | Development** |
| -------------------------------------------|---------------------------|
| Years in Which | 9 | 10 | 11 | 12 | 13 |
| Losses Were | 1991 | 1992 | 1993 | One Year | Two Year |
| Incurred | | | | | |
|--------------------|-------------|-------------|-------------|---------------------------|
| 1. Prior ......| 8,473 | 8,459 | 8,475 | 16 | 2 |
| 2. 1984........| 15,111 | 15,147 | 15,130 | (17)| 19 |
| 3. 1985........| 19,406 | 19,177 | 19,176 | (1)| (230)|
| 4. 1986........| 30,183 | 30,036 | 29,880 | (156)| (303)|
| 5. 1987........| 30,500 | 31,021 | 31,097 | 76 | 597 |
| 6. 1988........| 25,407 | 25,698 | 25,583 | (115)| 176 |
| 7. 1989........| 24,421 | 24,419 | 24,753 | 334 | 332 |
| 8. 1990........| 21,880 | 21,355 | 20,838 | (517)| (1,042)|
| 9. 1991........| 21,188 | 20,078 | 19,310 | (768)| (1,878)|
| 10. 1992........| X X X X | 14,494 | 11,410 | (3,084)| X X X X |
| 11. 1993........| X X X X | X X X X | 13,251 | X X X X | X X X X |
| ------------------------------------------------------------|-------------|-------------|
12. Totals | (4,232)| (2,327)|
---------------------------
SCHEDULE P - PART 2H - SECTION 1 - OTHER LIABILITY - OCCURRENCE
- -------------------------------------------------------------------------------------------------------------------------
| 1 | Incurred Losses and Allocated Expenses Reported at Year End (000 omitted)
| |----------------------------------------------------------------------------------------------------
| Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 |
| Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 |
| Incurred | | | | | | | |
------------------------------------------------------------------------------------------------------------------------
| 1. Prior ......| 353,117 * | 414,497 | 453,995 | 478,173 | 503,660 | 543,409 | 564,262 |
| 2. 1984........| 143,703 | 152,697 | 163,218 | 169,349 | 178,504 | 188,744 | 188,799 |
| 3. 1985........| X X X X | 196,505 | 192,845 | 198,323 | 213,753 | 221,417 | 231,058 |
| 4. 1986........| X X X X | X X X X | 257,917 | 270,026 | 260,207 | 226,968 | 224,648 |
| 5. 1987........| X X X X | X X X X | X X X X | 304,479 | 290,562 | 251,419 | 237,160 |
| 6. 1988........| X X X X | X X X X | X X X X | X X X X | 221,807 | 186,050 | 223,022 |
| 7. 1989........| X X X X | X X X X | X X X X | X X X X | X X X X | 148,722 | 146,744 |
| 8. 1990........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 158,238 |
| 9. 1991........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 10. 1992........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 11. 1993........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
| 1 | Development** |
| |---------------------------------------------------------------------|
| Years in Which | 9 | 10 | 11 | 12 | 13 |
| Losses Were | 1991 | 1992 | 1993 | One Year | Two Year |
| Incurred | | | | | |
-------------------|-------------|-------------|-------------|-------------|-------------|
| 1. Prior ......| 614,667 | 658,179 | 717,546 | 59,367 | 102,879 |
| 2. 1984........| 191,849 | 200,347 | 210,873 | 10,526 | 19,024 |
| 3. 1985........| 237,991 | 239,717 | 243,285 | 3,568 | 5,294 |
| 4. 1986........| 236,206 | 241,842 | 239,809 | (2,033)| 3,603 |
| 5. 1987........| 243,973 | 257,103 | 244,529 | (12,574)| 556 |
| 6. 1988........| 170,605 | 182,232 | 166,662 | (15,570)| (3,943)|
| 7. 1989........| 144,171 | 131,353 | 123,285 | (8,068)| (20,886)|
| 8. 1990........| 162,112 | 159,602 | 135,630 | (23,972)| (26,482)|
| 9. 1991........| 117,006 | 118,491 | 99,979 | (18,512)| (17,027)|
| 10. 1992........| X X X X | 76,240 | 67,663 | (8,577)| X X X X |
| 11. 1993........| X X X X | X X X X | 57,671 | X X X X | X X X X |
-------------------------------------------------------------|-------------|-------------|
12. Totals | (15,845)| 63,018 |
---------------------------
SCHEDULE P - PART 2H - SECTION 2 - OTHER LIABILITY - CLAIMS-MADE
- -------------------------------------------------------------------------------------------------------------------------
| 1 | Incurred Losses and Allocated Expenses Reported at Year End (000 omitted)
| |----------------------------------------------------------------------------------------------------
| Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 |
| Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 |
| Incurred | | | | | | | |
------------------------------------------------------------------------------------------------------------------------
| 1. Prior ......| 0 * | 0 | 0 | 0 | 0 | 0 | 0 |
| 2. 1984........| 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| 3. 1985........| X X X X | 0 | 0 | (62)| (73)| (28)| (77)|
| 4. 1986........| X X X X | X X X X | 0 | 325 | 268 | 207 | (380)|
| 5. 1987........| X X X X | X X X X | X X X X | 8 | 0 | 0 | (6)|
| 6. 1988........| X X X X | X X X X | X X X X | X X X X | 205 | 216 | 295 |
| 7. 1989........| X X X X | X X X X | X X X X | X X X X | X X X X | 652 | 729 |
| 8. 1990........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 481 |
| 9. 1991........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 10. 1992........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 11. 1993........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
------------------------------------------------------------------------------------------------------------------------
*Reported reserves only. Subsequent development relates only to subsequent
payments and reserves.
**Current year less first or second prior year, showing (redundant) or
adverse.
<FN>
- ------------------------------------------------------------------------------------------
| 1 | | Development**
| |---------------------------------------------------------------------
| Years in Which | 9 | 10 | 11 | 12 | 13 |
| Losses Were | 1991 | 1992 | 1993 | One Year | Two Year |
| Incurred | | | | | |
| | | | | | |
- --------------------|------------|-------------|-------------|-------------|-------------|
| 1. Prior ......| 0 | 0 | 40 | 40 | 40 |
| 2. 1984........| 0 | 0 | 12 | 12 | 12 |
| 3. 1985........| 58 | (113)| (39)| 74 | (97)|
| 4. 1986........| 64 | 435 | 456 | 21 | 392 |
| 5. 1987........| (6)| (6)| (3)| 3 | 3 |
| 6. 1988........| 813 | 626 | 629 | 3 | (184)|
| 7. 1989........| 754 | 756 | 742 | (14)| (12)|
| 8. 1990........| 433 | 443 | 1,068 | 625 | 635 |
| 9. 1991........| 945 | 576 | 749 | 173 | (196)|
| 10. 1992........| X X X X | 1,305 | 1,148 | (157)| X X X X |
| 11. 1993........| X X X X | X X X X | 312 | X X X X | X X X X |
|------------------------------------------------------------|-------------|-------------|
12. Totals | 780 | 593 |
---------------------------
</TABLE>
Page 83
Form 2
CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND
ITS AFFILIATED FIRE AND CASUALTY INSURERS
<TABLE>
<CAPTION>
SCHEDULE P - PART 2I - SPECIAL PROPERTY (FIRE, ALLIED LINES,
INLAND MARINE, EARTHQUAKE, GLASS, BURGLARY
AND THEFT)
- ---------------------------------------------------------------------------------------------------------------------------------
| 1 | Incurred Losses and Allocated Expenses Reported at Year End (000 omitted)
| |---------------------------------------------------------------------------------------------------------------
| Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9
| Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | 1991
| Incurred | | | | | | | |
| | | | | | | | |
|-----------------|---------------|-------------|-------------|-------------|-------------|-------------|-------------|-----------
| | | | | | | | |
<S> <C> <C> <C> <C> <C> <C> <C>
| 1. Prior .....| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 83,912 *
| 2. 1992.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X
| 3. 1993.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X
----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------
| 1 | Development** |
| -----------------------------|---------------------------|
| Years in Which | 10 | 11 | 12 | 13 |
| Losses Were | 1992 | 1993 | One Year | Two Year |
| Incurred | | | | |
| | | | | |
|------------------|-------------|-------------|-------------|-------------|
| | | | | |
| 1. Prior ..... | 84,622 | 76,939 | (7,683)| (6,973)|
| 2. 1992....... | 89,970 | 84,318 | (5,652)| X X X X |
| 3. 1993....... | X X X X | 76,206 | X X X X | X X X X |
----------------------------------------------|-------------|-------------|
4. Totals | (13,335)| (6,973)|
---------------------------
SCHEDULE P - PART 2J - AUTO PHYSICAL DAMAGE
- ---------------------------------------------------------------------------------------------------------------------------------
| 1 | Incurred Losses and Allocated Expenses Reported at Year End (000 omitted)
| |--------------------------------------------------------------------------------------------------------------
| Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9
| Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | 1991
| Incurred | | | | | | | |
| | | | | | | | |
|-----------------|---------------|-------------|-------------|-------------|-------------|-------------|-------------|----------
| | | | | | | | |
| 1. Prior .....| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 49,455 *
| 2. 1992.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X
| 3. 1993.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X
--------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------
| 1 | | Development** |
| |-------------------------|---------------------------|
| Years in Which | 10 | 11 | 12 | 13 |
| Losses Were | 1992 | 1993 | One Year | Two Year |
| Incurred | | | | |
| | | | | |
|-----------------|-----------|-------------|-------------|-------------|
| | | | | |
| 1. Prior .....| 41,944 | 34,959 | (6,985)| (14,496)|
| 2. 1992.......| 155,394 | 149,037 | (6,357)| X X X X |
| 3. 1993.......| X X X X | 126,922 | X X X X | X X X X |
-------------------------------------------|-------------|-------------|
4. Totals | (13,342)| (14,496)|
---------------------------
SCHEDULE P - PART 2K - FIDELITY, SURETY, FINANCIAL GUARANTY, MORTGAGE GUARANTY
- --------------------------------------------------------------------------------------------------------------------------------
| 1 | Incurred Losses and Allocated Expenses Reported at Year End (000 omitted)
| |--------------------------------------------------------------------------------------------------------------
| Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9
| Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | 1991
| Incurred | | | | | | | |
| | | | | | | | |
|-----------------|---------------|-------------|-------------|-------------|-------------|-------------|-------------|----------
| | | | | | | | |
| 1. Prior .....| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 41,830 *
| 2. 1992.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X
| 3. 1993.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X
--------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------
| 1 | | Development** |
| |---------------------------|---------------------------|
| Years in Which | 10 | 11 | 12 | 13 |
| Losses Were | 1992 | 1993 | One Year | Two Year |
| Incurred | | | | |
| | | | | |
- ------------------|-------------|-------------|-------------|-------------|
| | | | | |
| 1. Prior .... | 48,154 | 55,055 | 6,901 | 13,225 |
| 2. 1992...... | 21,694 | 39,607 | 17,913 | X X X X |
| 3. 1993...... | X X X X | 28,157 | X X X X | X X X X |
|---------------------------------------------|-------------|-------------|
4. Totals | 24,814 | 13,225 |
---------------------------
SCHEDULE P - PART 2L - OTHER (INCLUDING CREDIT, ACCIDENT AND HEALTH)
- ---------------------------------------------------------------------------------------------------------------------------------
| 1 | Incurred Losses and Allocated Expenses Reported at Year End (000 omitted)
| |--------------------------------------------------------------------------------------------------------------
| Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9
| Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | 1991
| Incurred | | | | | | | |
| | | | | | | | |
|-----------------|---------------|-------------|-------------|-------------|-------------|-------------|-------------|---------
| | | | | | | | |
| 1. Prior .....| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 200 *
| 2. 1992.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X
| 3. 1993.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X
-------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------|
| 1 | | Development** |
| |---------------------------|---------------------------|
| Years in Which | 10 | 11 | 12 | 13 |
| Losses Were | 1992 | 1993 | One Year | Two Year |
| Incurred | | | | |
| | | | | |
|-----------------|-------------|-------------|-------------|-------------
| | | | | |
| 1. Prior .... | 111 | 240 | 129 | 40 |
| 2. 1992...... | 108 | 0 | (108)| X X X X |
| 3. 1993...... | X X X X | 0 | X X X X | X X X X |
|---------------------------------------------|-------------|-------------|
4. Totals | 21 | 40 |
--------------------------
SCHEDULE P - PART 2M - INTERNATIONAL
- --------------------------------------------------------------------------------------------------------------------------------
| 1 | Incurred Losses and Allocated Expenses Reported at Year End (000 omitted)
| |-------------------------------------------------------------------------------------------------------------
| Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9
| Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | 1991
| Incurred | | | | | | | |
| | | | | | | | |
|-----------------|---------------|-------------|-------------|-------------|-------------|-------------|-------------|---------
| | | | | | | | |
| 1. Prior .....| 0 * | 0 | 0 | 0 | 0 | 0 | 0 | 0
| 2. 1984.......| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0
| 3. 1985.......| X X X X | 0 | 0 | 0 | 0 | 0 | 0 | 0
| 4. 1986.......| X X X X | X X X X | 0 | 0 | 0 | 0 | 0 | 0
| 5. 1987.......| X X X X | X X X X | X X X X | 0 | 0 | 0 | 0 | 0
| 6. 1988.......| X X X X | X X X X | X X X X | X X X X | 18,581 | 18,142 | 17,663 | 15,821
| 7. 1989.......| X X X X | X X X X | X X X X | X X X X | X X X X | 13,397 | 13,678 | 13,166
| 8. 1990.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 13,549 | 14,227
| 9. 1991.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 12,266
| 10. 1992.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X
| 11. 1993.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X
--------------------------------------------------------------------------------------------------------------------------------
*Reported reserves only. Subsequent development relates only to subsequent
payments and reserves.
**Current year less first or second prior year, showing (redundant) or
adverse.
<FN>
- --------------------------------------------------------------------------|
| 1 | | Development** |
| |---------------------------|---------------------------|
| Years in Which | 10 | 11 | 12 | 13 |
| Losses Were | 1992 | 1993 | One Year | Two Year |
| Incurred | | | | |
| | | | | |
|-----------------| ------------|-------------|-------------|-------------
| | | | | |
| 1. Prior .....| 0 | 0 | 0 | 0 |
| 2. 1984.......| 0 | 0 | 0 | 0 |
| 3. 1985.......| 0 | 0 | 0 | 0 |
| 4. 1986.......| 0 | 0 | 0 | 0 |
| 5. 1987.......| 0 | 0 | 0 | 0 |
| 6. 1988.......| 16,002 | 16,042 | 40 | 221 |
| 7. 1989.......| 12,957 | 12,682 | (275)| (484)|
| 8. 1990.......| 13,373 | 11,855 | (1,518)| (2,372)|
| 9. 1991.......| 11,005 | 9,587 | (1,418)| (2,679)|
| 10. 1992.......| 4,919 | 5,134 | 215 | X X X X |
| 11. 1993.......| X X X X | 10,048 | X X X X | X X X X |
---------------------------------------------|-------------|-------------|
12. Totals | (2,956)| (5,314)|
---------------------------
</TABLE>
Page 84
Form 2
CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND
ITS AFFILIATED FIRE AND CASUALTY INSURERS
<TABLE>
<CAPTION>
SCHEDULE P - PART 2N - REINSURANCE A
--------------------------------------------------------------------------------------------------------------------------------
| 1 | Incurred Losses and Allocated Expenses Reported at Year End (000 omitted)
| |--------------------------------------------------------------------------------------------------------------
| Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9
| Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | 1991
| Incurred | | | | | | | |
| | | | | | | | |
|-----------------|---------------|-------------|-------------|-------------|-------------|-------------|-------------|----------
<S> <C> <C> <C> <C> <C> <C> <C>
| 1. 1988.......| X X X X | X X X X | X X X X | X X X X | 34,100 | 28,393 | 25,499 | 15,105
| 2. 1989.......| X X X X | X X X X | X X X X | X X X X | X X X X | 24,435 | 26,489 | 25,917
| 3. 1990.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 26,318 | 27,156
| 4. 1991.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 36,977
| 5. 1992.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X
| 6. 1993.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X
--------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------
| 1 | Development** |
| --------------------------------|---------------------------|
| Years in Which | 10 | 11 | 12 | 13 |
| Losses Were | 1992 | 1993 | One Year | Two Year |
| Incurred | | | | |
| | | | | |
|-------------------|-------------| -------------|-------------|-------------|
| 1. 1988....... | 14,671 | 15,673 | 1,002 | 568 |
| 2. 1989....... | 25,756 | 19,376 | (6,380)| (6,541)|
| 3. 1990....... | 26,452 | 15,630 | (10,822)| (11,526)|
| 4. 1991....... | 30,203 | 14,467 | (15,736)| (22,510)|
| 5. 1992....... | 30,035 | 25,947 | (4,088)| X X X X |
| 6. 1993....... | X X X X | 39,518 | X X X X | X X X X |
-------------------------------------------------|-------------|-------------|
7. Totals | (36,024)| (40,009)|
---------------------------
SCHEDULE P - PART 2O - REINSURANCE B
--------------------------------------------------------------------------------------------------------------------------------
| 1 | Incurred Losses and Allocated Expenses Reported at Year End (000 omitted)
| |--------------------------------------------------------------------------------------------------------------
| Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9
| Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | 1991
| Incurred | | | | | | | |
| | | | | | | | |
|-----------------|---------------|-------------|-------------|-------------|-------------|-------------|-------------|----------
| | | | | | | | |
| 1. 1988.......| X X X X | X X X X | X X X X | X X X X | 21,132 | 18,019 | 15,891 | 8,671
| 2. 1989.......| X X X X | X X X X | X X X X | X X X X | X X X X | 20,774 | 20,740 | 19,070
| 3. 1990.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 11,804 | 12,076
| 4. 1991.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 13,076
| 5. 1992.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X
| 6. 1993.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X
--------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------
| 1 | Development** |
| --------------------------------|---------------------------|
| Years in Which | 10 | 11 | 12 | 13 |
| Losses Were | 1992 | 1993 | One Year | Two Year |
| Incurred | | | | |
| | | | | |
|--------------------|-------------|---------------|-------------|-------------|
| 1. 1988....... | 8,506 | 9,222 | 716 | 551 |
| 2. 1989....... | 19,009 | 17,682 | (1,327)| (1,388)|
| 3. 1990....... | 12,087 | 9,180 | (2,907)| (2,896)|
| 4. 1991....... | 12,136 | 6,998 | (5,138)| (6,078)|
| 5. 1992....... | 24,264 | 21,065 | (3,199)| X X X X |
| 6. 1993....... | X X X X | 12,666 | X X X X | X X X X |
--------------------------------------------------|-------------|-------------|
7. Totals | (11,855)| (9,811)|
---------------------------
SCHEDULE P - PART 2P - REINSURANCE C
--------------------------------------------------------------------------------------------------------------------------------
| 1 | Incurred Losses and Allocated Expenses Reported at Year End (000 omitted)
| |--------------------------------------------------------------------------------------------------------------
| Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9
| Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | 1991
| Incurred | | | | | | | |
| | | | | | | | |
|-----------------|---------------|-------------|-------------|-------------|-------------|-------------|-------------|----------
| | | | | | | | |
| 1. 1988.......| X X X X | X X X X | X X X X | X X X X | 0 | 200 | 200 | 200
| 2. 1989.......| X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 | 0
| 3. 1990.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0
| 4. 1991.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0
| 5. 1992.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X
| 6. 1993.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X
--------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------
| 1 | Development** |
| ------------------------------|---------------------------|
| Years in Which | 10 | 11 | 12 | 13 |
| Losses Were | 1992 | 1993 | One Year | Two Year |
| Incurred | | | | |
| | | | | |
- ------------------|-------------|---------------|-------------|-------------|
| | | | | |
| 1. 1988.......| 200 | 401 | 201 | 201 |
| 2. 1989.......| 0 | 0 | 0 | 0 |
| 3. 1990.......| 0 | 0 | 0 | 0 |
| 4. 1991.......| 0 | 0 | 0 | 0 |
| 5. 1992.......| 0 | 0 | 0 | X X X X |
| 6. 1993.......| X X X X | 0 | X X X X | X X X X |
| ----------------------------------------------|-------------|-------------|
7. Totals | 201 | 201 |
---------------------------
SCHEDULE P - PART 2Q - REINSURANCE D
--------------------------------------------------------------------------------------------------------------------------------
| 1 | Incurred Losses and Allocated Expenses Reported at Year End (000 omitted)
| |--------------------------------------------------------------------------------------------------------------
| Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9
| Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | 1991
| Incurred | | | | | | | |
| | | | | | | | |
|-----------------|---------------|-------------|-------------|-------------|-------------|-------------|-------------|----------
| | | | | | | | |
| 1. Prior .....| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0
| 2. 1984.......| 1,263 | 6,211 | 2,690 | 2,731 | 2,886 | 2,885 | 2,942 | 2,958
| 3. 1985.......| X X X X | 10,843 | 21,295 | 18,969 | 18,942 | 18,927 | 19,225 | 19,028
| 4. 1986.......| X X X X | X X X X | 29,813 | 31,455 | 30,817 | 30,500 | 30,668 | 29,981
| 5. 1987.......| X X X X | X X X X | X X X X | 39,253 | 36,884 | 36,116 | 36,095 | 33,673
--------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------
| 1 | Development** |
| ------------------------------|---------------------------|
| Years in Which | 10 | 11 | 12 | 13 |
| Losses Were | 1992 | 1993 | One Year | Two Year |
| Incurred | | | | |
| | | | | |
|------------------ ------------|---------------|-------------|-------------|
| 1. Prior .....| 0 | 0 | 0 | 0 |
| 2. 1984.......| 2,903 | 2,901 | (2)| (57)|
| 3. 1985.......| 18,879 | 18,478 | (401)| (550)|
| 4. 1986.......| 30,341 | 29,586 | (755)| (395)|
| 5. 1987.......| 33,196 | 33,746 | 550 | 73 |
----------------------------------------------|-------------|-------------|
6. Totals | (608)| (929)|
---------------------------
SCHEDULE P - PART 2R - SECTION 1 - PRODUCTS LIABILITY - OCCURRENCE
--------------------------------------------------------------------------------------------------------------------------------
| 1 | Incurred Losses and Allocated Expenses Reported at Year End (000 omitted)
| |--------------------------------------------------------------------------------------------------------------
| Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9
| Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | 1991
| Incurred | | | | | | | |
| | | | | | | | |
|-----------------|---------------|-------------|-------------|-------------|-------------|-------------|-------------|----------
| | | | | | | | |
| 1. Prior .....| 44,344 * | 54,886 | 59,940 | 77,036 | 95,182 | 102,386 | 115,163 | 128,804
| 2. 1984.......| 12,221 | 14,711 | 20,545 | 22,399 | 22,245 | 24,344 | 26,259 | 27,016
| 3. 1985.......| X X X X | 15,377 | 15,189 | 20,479 | 24,209 | 25,549 | 27,820 | 28,070
| 4. 1986.......| X X X X | X X X X | 38,882 | 30,746 | 31,467 | 26,974 | 25,628 | 27,465
| 5. 1987.......| X X X X | X X X X | X X X X | 31,769 | 30,772 | 32,980 | 34,006 | 29,612
| 6. 1988.......| X X X X | X X X X | X X X X | X X X X | 21,475 | 22,525 | 28,761 | 18,114
| 7. 1989.......| X X X X | X X X X | X X X X | X X X X | X X X X | 18,447 | 19,272 | 14,518
| 8. 1990.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 13,429 | 11,459
| 9. 1991.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 10,317
| 10. 1992.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X
| 11. 1993.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X
--------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------
| 1 | | Development** |
| |------------------------------|---------------------------|
| Years in Which | 10 | 11 | 12 | 13 |
| Losses Were | 1992 | 1993 | One Year | Two Year |
| Incurred | | | | |
| | | | | |
|-----------------------------------------------------------------------------|
| 1. Prior .... | 133,442 | 144,341 | 10,899 | 15,537 |
| 2. 1984...... | 28,162 | 30,070 | 1,908 | 3,054 |
| 3. 1985...... | 27,131 | 28,501 | 1,370 | 431 |
| 4. 1986...... | 26,830 | 30,128 | 3,298 | 2,663 |
| 5. 1987...... | 28,674 | 32,160 | 3,486 | 2,548 |
| 6. 1988...... | 19,826 | 23,523 | 3,697 | 5,409 |
| 7. 1989...... | 14,585 | 16,861 | 2,276 | 2,343 |
| 8. 1990...... | 11,088 | 11,645 | 557 | 186 |
| 9. 1991...... | 11,241 | 12,329 | 1,088 | 2,012 |
| 10. 1992...... | 7,732 | 6,729 | (1,003)| X X X X |
| 11. 1993...... | X X X X | 7,244 | X X X X | X X X X |
---------------------------------|---------------|-------------|-------------|
12. Totals | 27,576 | 34,183 |
---------------------------
SCHEDULE P - PART 2R - SECTION 2 - PRODUCTS LIABILITY - CLAIMS-MADE
--------------------------------------------------------------------------------------------------------------------------------
| 1 | Incurred Losses and Allocated Expenses Reported at Year End (000 omitted)
| |--------------------------------------------------------------------------------------------------------------
| Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9
| Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 | 1991
| Incurred | | | | | | | |
| | | | | | | | |
|-----------------|---------------|-------------|-------------|-------------|-------------|-------------|-------------|----------
| | | | | | | | |
| 1. Prior .....| 0 * | 0 | 0 | 0 | 0 | 0 | 0 | 0
| 2. 1984.......| 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0
| 3. 1985.......| X X X X | 0 | 0 | 0 | 0 | 0 | 0 | 0
| 4. 1986.......| X X X X | X X X X | 0 | 0 | 0 | 0 | 0 | 0
| 5. 1987.......| X X X X | X X X X | X X X X | 0 | 0 | 0 | 0 | 0
| 6. 1988.......| X X X X | X X X X | X X X X | X X X X | 7 | 12 | 13 | 13
| 7. 1989.......| X X X X | X X X X | X X X X | X X X X | X X X X | 1 | 12 | 18
| 8. 1990.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 120 | 239
| 9. 1991.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 208
| 10. 1992.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X
| 11. 1993.......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X
-------------------------------------------------------------------------------------------------------------------------------
*Reported reserves only. Subsequent development relates only to subsequent
payments and reserves.
**Current year less first or second prior year, showing (redundant) or
adverse.
<FN>
- ------------------------------------------------------------------------------
| 1 | | Development** |
| | ----------------------------|---------------------------|
| Years in Which | 10 | 11 | 12 | 13 |
| Losses Were | 1992 | 1993 | One Year | Two Year |
| Incurred | | | | |
|------------------|-------------|---------------|-------------|-------------|
| | | | | |
| 1. Prior .... | 0 | 0 | 0 | 0 |
| 2. 1984...... | 0 | 0 | 0 | 0 |
| 3. 1985...... | 0 | 0 | 0 | 0 |
| 4. 1986...... | 0 | 3 | 3 | 3 |
| 5. 1987...... | 0 | 0 | 0 | 0 |
| 6. 1988...... | 13 | 13 | 0 | 0 |
| 7. 1989...... | 18 | 20 | 2 | 2 |
| 8. 1990...... | 340 | 426 | 86 | 187 |
| 9. 1991...... | 164 | 184 | 20 | (24)|
| 10. 1992...... | 91 | 379 | 288 | X X X X |
| 11. 1993...... | X X X X | 870 | X X X X | X X X X |
------------------------------------------------|-------------|-------------|
12. Totals | 399 | 168 |
---------------------------
</TABLE>
Page 85
Form 2
CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND
ITS AFFILIATED FIRE AND CASUALTY INSURERS
<TABLE>
<CAPTION>
SCHEDULE P - PART 3A - HOMEOWNERS/FARMOWNERS
-----------------------------------------------------------------------------------------------------------------------
| 1 | Cumulative Paid Losses and Allocated Expenses at Year End (000 omitted)
| |--------------------------------------------------------------------------------------------------
| Years in Which | | | | | | | |
| Losses Were | 2 | 3 | 4 | 5 | 6 | 7 | 8 |
| Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 |
| | | | | | | | |
|--------------------|-------------|-------------|-------------|-------------|-------------|-------------|-------------|
| | | | | | | | |
<S> <C> <C> <C> <C> <C> <C> <C>
| 1. Prior .......| 000 | 6,804 | 12,096 | 16,242 | 17,348 | 17,567 | 18,156 |
| 2. 1984.........| 89,116 | 119,429 | 123,827 | 127,083 | 128,807 | 129,777 | 130,046 |
| 3. 1985.........| X X X X | 115,057 | 151,486 | 156,034 | 159,189 | 161,415 | 162,308 |
| 4. 1986.........| X X X X | X X X X | 92,590 | 123,363 | 129,682 | 133,986 | 135,731 |
| 5. 1987.........| X X X X | X X X X | X X X X | 81,167 | 110,930 | 116,296 | 119,779 |
| 6. 1988.........| X X X X | X X X X | X X X X | X X X X | 82,160 | 113,632 | 117,560 |
| 7. 1989.........| X X X X | X X X X | X X X X | X X X X | X X X X | 99,281 | 139,429 |
| 8. 1990.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 93,167 |
| 9. 1991.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 10. 1992.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 11. 1993.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
-----------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
| 1 | 12 | 13 |
| -----------------------------------------| Number of | Number of |
| Years in Which | | | | Claims | Claims |
| Losses Were | 9 | 10 | 11 | Closed | Closed |
| Incurred | 1991 | 1992 | 1993 | With Loss | Without |
| | | | | Payment |Loss Payment |
|--------------------|-------------|-------------|-------------|-------------|-------------|
| | | | | | |
| 1. Prior .......| 18,632 | 18,725 | 18,992 | 1,164 | 670 |
| 2. 1984.........| 130,202 | 130,248 | 130,337 | 56,634 | 13,373 |
| 3. 1985.........| 163,243 | 163,510 | 163,780 | 68,941 | 15,733 |
| 4. 1986.........| 137,420 | 138,265 | 138,720 | 53,622 | 13,772 |
| 5. 1987.........| 121,830 | 123,370 | 124,308 | 48,547 | 13,946 |
| 6. 1988.........| 121,324 | 122,770 | 124,064 | 45,330 | 13,784 |
| 7. 1989.........| 144,266 | 147,076 | 149,106 | 57,974 | 16,963 |
| 8. 1990.........| 127,235 | 132,665 | 135,782 | 50,527 | 16,039 |
| 9. 1991.........| 113,582 | 151,510 | 157,213 | 56,001 | 17,947 |
| 10. 1992.........| X X X X | 126,000 | 167,477 | 48,067 | 15,973 |
| 11. 1993.........| X X X X | X X X X | 74,300 | 34,642 | 12,334 |
------------------------------------------------------------------------------------------
SCHEDULE P - PART 3B - PRIVATE PASSENGER AUTO LIABILITY/MEDICAL
-----------------------------------------------------------------------------------------------------------------------
| 1 | Cumulative Paid Losses and Allocated Expenses at Year End (000 omitted)
| |--------------------------------------------------------------------------------------------------
| Years in Which | | | | | | | |
| Losses Were | 2 | 3 | 4 | 5 | 6 | 7 | 8 |
| Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 |
| | | | | | | | |
|--------------------|-------------|-------------|-------------|-------------|-------------|-------------|-------------|
| | | | | | | | |
| 1. Prior .......| 000 | 65,939 | 104,802 | 122,628 | 135,531 | 145,142 | 147,389 |
| 2. 1984.........| 98,299 | 195,966 | 245,346 | 267,362 | 282,144 | 292,515 | 297,168 |
| 3. 1985.........| X X X X | 103,218 | 214,911 | 267,415 | 296,891 | 317,114 | 325,175 |
| 4. 1986.........| X X X X | X X X X | 105,317 | 207,471 | 258,603 | 289,164 | 306,025 |
| 5. 1987.........| X X X X | X X X X | X X X X | 102,959 | 198,718 | 248,056 | 278,173 |
| 6. 1988.........| X X X X | X X X X | X X X X | X X X X | 96,163 | 195,472 | 245,103 |
| 7. 1989.........| X X X X | X X X X | X X X X | X X X X | X X X X | 97,508 | 206,044 |
| 8. 1990.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 100,690 |
| 9. 1991.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 10. 1992.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 11. 1993.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
-----------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
| 1 | 12 | 13 |
| -----------------------------------------| Number of | Number of |
| Years in Which | | | | Claims | Claims |
| Losses Were | 9 | 10 | 11 | Closed | Closed |
| Incurred | 1991 | 1992 | 1993 | With Loss | Without |
| | | | | Payment |Loss Payment |
|--------------------|-------------|-------------|-------------|-------------|-------------|
| | | | | | |
| 1. Prior .......| 149,341 | 151,516 | 153,837 | 9,687 | 3,914 |
| 2. 1984.........| 301,359 | 302,044 | 303,171 | 111,390 | 43,962 |
| 3. 1985.........| 328,339 | 329,622 | 330,070 | 114,135 | 43,848 |
| 4. 1986.........| 314,030 | 316,518 | 318,243 | 106,210 | 41,260 |
| 5. 1987.........| 292,406 | 296,871 | 302,413 | 96,165 | 37,248 |
| 6. 1988.........| 274,391 | 285,653 | 291,860 | 91,030 | 34,868 |
| 7. 1989.........| 258,100 | 284,531 | 298,685 | 88,687 | 33,776 |
| 8. 1990.........| 207,436 | 246,934 | 277,729 | 82,604 | 30,830 |
| 9. 1991.........| 103,524 | 208,156 | 267,329 | 71,799 | 28,345 |
| 10. 1992.........| X X X X | 77,150 | 156,696 | 53,071 | 22,005 |
| 11. 1993.........| X X X X | X X X X | 72,022 | 30,910 | 12,837 |
------------------------------------------------------------------------------------------
SCHEDULE P - PART 3C - COMMERCIAL AUTO/TRUCK LIABILITY/MEDICAL
-----------------------------------------------------------------------------------------------------------------------
| 1 | Cumulative Paid Losses and Allocated Expenses at Year End (000 omitted)
| |--------------------------------------------------------------------------------------------------
| Years in Which | | | | | | | |
| Losses Were | 2 | 3 | 4 | 5 | 6 | 7 | 8 |
| Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 |
| | | | | | | | |
|--------------------|-------------|-------------|-------------|-------------|-------------|-------------|-------------|
| | | | | | | | |
| 1. Prior .......| 000 | 90,529 | 139,862 | 168,829 | 184,202 | 190,581 | 193,195 |
| 2. 1984.........| 56,233 | 126,832 | 182,183 | 218,648 | 239,956 | 253,266 | 259,209 |
| 3. 1985.........| X X X X | 67,128 | 161,406 | 228,393 | 267,725 | 296,309 | 313,989 |
| 4. 1986.........| X X X X | X X X X | 66,520 | 148,007 | 214,438 | 255,656 | 283,055 |
| 5. 1987.........| X X X X | X X X X | X X X X | 61,095 | 145,291 | 203,988 | 245,594 |
| 6. 1988.........| X X X X | X X X X | X X X X | X X X X | 60,080 | 139,053 | 201,965 |
| 7. 1989.........| X X X X | X X X X | X X X X | X X X X | X X X X | 51,868 | 127,921 |
| 8. 1990.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 51,439 |
| 9. 1991.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 10. 1992.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 11. 1993.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
-----------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
| 1 | 12 | 13 |
| -----------------------------------------| Number of | Number of |
| Years in Which | | | | Claims | Claims |
| Losses Were | 9 | 10 | 11 | Closed | Closed |
| Incurred | 1991 | 1992 | 1993 | With Loss | Without |
| | | | | Payment |Loss Payment |
|--------------------|-------------|-------------|-------------|-------------|-------------|
| | | | | | |
| 1. Prior .......| 195,387 | 199,369 | 200,698 | 5,657 | 3,005 |
| 2. 1984.........| 261,678 | 262,729 | 263,059 | 61,814 | 24,119 |
| 3. 1985.........| 322,448 | 328,062 | 330,234 | 66,457 | 26,318 |
| 4. 1986.........| 294,455 | 301,794 | 304,786 | 56,703 | 23,017 |
| 5. 1987.........| 274,061 | 285,955 | 292,793 | 52,026 | 21,700 |
| 6. 1988.........| 243,146 | 260,397 | 268,986 | 47,228 | 19,353 |
| 7. 1989.........| 193,076 | 229,864 | 248,073 | 43,617 | 17,327 |
| 8. 1990.........| 132,153 | 177,937 | 211,206 | 39,185 | 16,378 |
| 9. 1991.........| 43,431 | 104,451 | 150,229 | 30,893 | 14,166 |
| 10. 1992.........| X X X X | 31,098 | 72,856 | 24,911 | 12,093 |
| 11. 1993.........| X X X X | X X X X | 25,501 | 15,256 | 7,781 |
------------------------------------------------------------------------------------------
SCHEDULE P - PART 3D - WORKERS' COMPENSATION
-----------------------------------------------------------------------------------------------------------------------
| 1 | Cumulative Paid Losses and Allocated Expenses at Year End (000 omitted)
| |--------------------------------------------------------------------------------------------------
| Years in Which | | | | | | | |
| Losses Were | 2 | 3 | 4 | 5 | 6 | 7 | 8 |
| Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 |
| | | | | | | | |
|--------------------|-------------|-------------|-------------|-------------|-------------|-------------|-------------|
| | | | | | | | |
| 1. Prior .......| 000 | 142,530 | 250,985 | 353,173 | 420,767 | 473,689 | 524,696 |
| 2. 1984.........| 113,619 | 232,500 | 297,440 | 340,126 | 370,363 | 390,235 | 406,336 |
| 3. 1985.........| X X X X | 125,317 | 272,341 | 352,953 | 405,406 | 438,237 | 463,028 |
| 4. 1986.........| X X X X | X X X X | 129,275 | 256,810 | 336,848 | 385,302 | 419,084 |
| 5. 1987.........| X X X X | X X X X | X X X X | 127,476 | 262,831 | 330,325 | 378,370 |
| 6. 1988.........| X X X X | X X X X | X X X X | X X X X | 132,278 | 279,538 | 367,993 |
| 7. 1989.........| X X X X | X X X X | X X X X | X X X X | X X X X | 132,318 | 307,603 |
| 8. 1990.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 131,068 |
| 9. 1991.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 10. 1992.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 11. 1993.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
-----------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
| 1 | 12 | 13 |
| -----------------------------------------| Number of | Number of |
| Years in Which | | | | Claims | Claims |
| Losses Were | 9 | 10 | 11 | Closed | Closed |
| Incurred | 1991 | 1992 | 1993 | With Loss | Without |
| | | | | Payment |Loss Payment |
|--------------------|-------------|-------------|-------------|-------------|-------------|
| | | | | | |
| 1. Prior .......| 572,931 | 609,356 | 650,207 | 19,169 | 3,359 |
| 2. 1984.........| 418,441 | 429,251 | 436,036 | 43,407 | 3,439 |
| 3. 1985.........| 482,893 | 497,067 | 510,948 | 46,853 | 4,199 |
| 4. 1986.........| 444,813 | 461,871 | 470,818 | 42,575 | 3,990 |
| 5. 1987.........| 419,643 | 440,887 | 453,900 | 39,210 | 3,918 |
| 6. 1988.........| 424,742 | 461,087 | 481,115 | 41,819 | 4,168 |
| 7. 1989.........| 412,167 | 471,076 | 511,904 | 43,307 | 4,675 |
| 8. 1990.........| 279,877 | 365,754 | 420,467 | 39,674 | 4,338 |
| 9. 1991.........| 102,910 | 208,085 | 270,790 | 32,837 | 4,266 |
| 10. 1992.........| X X X X | 66,055 | 137,483 | 22,511 | 3,898 |
| 11. 1993.........| X X X X | X X X X | 30,004 | 8,154 | 1,677 |
------------------------------------------------------------------------------------------
SCHEDULE P - PART 3E - COMMERCIAL MULTIPLE PERIL
-----------------------------------------------------------------------------------------------------------------------
| 1 | Cumulative Paid Losses and Allocated Expenses at Year End (000 omitted)
| |--------------------------------------------------------------------------------------------------
| Years in Which | | | | | | | |
| Losses Were | 2 | 3 | 4 | 5 | 6 | 7 | 8 |
| Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 |
| | | | | | | | |
|--------------------|-------------|-------------|-------------|-------------|-------------|-------------|-------------|
| | | | | | | | |
| 1. Prior .......| 000 | 35,285 | 62,251 | 84,215 | 100,397 | 109,495 | 125,402 |
| 2. 1984.........| 64,563 | 98,421 | 114,389 | 129,425 | 141,074 | 149,193 | 154,129 |
| 3. 1985.........| X X X X | 71,158 | 110,772 | 129,654 | 149,909 | 166,634 | 177,366 |
| 4. 1986.........| X X X X | X X X X | 64,384 | 98,950 | 119,499 | 136,584 | 148,644 |
| 5. 1987.........| X X X X | X X X X | X X X X | 53,661 | 89,211 | 107,156 | 123,977 |
| 6. 1988.........| X X X X | X X X X | X X X X | X X X X | 76,340 | 144,648 | 174,450 |
| 7. 1989.........| X X X X | X X X X | X X X X | X X X X | X X X X | 107,105 | 191,421 |
| 8. 1990.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 118,896 |
| 9. 1991.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 10. 1992.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 11. 1993.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
-----------------------------------------------------------------------------------------------------------------------
Note: Net of salvage and subrogation received.
<FN>
-------------------------------------------------------------------------------------------
| 1 | 12 | 13 |
| -----------------------------------------| Number of | Number of |
| Years in Which | | | | Claims | Claims |
| Losses Were | 9 | 10 | 11 | Closed | Closed |
| Incurred | 1991 | 1992 | 1993 | With Loss | Without |
| | | | | Payment |Loss Payment |
|--------------------|-------------|-------------|-------------|-------------|-------------|
| | | | | | |
| 1. Prior .......| 129,142 | 131,656 | 135,081 | 3,679 | 5,030 |
| 2. 1984.........| 156,903 | 160,038 | 161,279 | 29,722 | 12,000 |
| 3. 1985.........| 186,848 | 191,821 | 195,076 | 31,696 | 13,404 |
| 4. 1986.........| 158,824 | 170,923 | 175,284 | 24,656 | 12,236 |
| 5. 1987.........| 156,006 | 172,963 | 177,270 | 21,659 | 11,970 |
| 6. 1988.........| 214,079 | 243,297 | 263,206 | 37,726 | 21,040 |
| 7. 1989.........| 249,666 | 292,770 | 326,053 | 50,524 | 27,466 |
| 8. 1990.........| 204,136 | 255,940 | 302,906 | 47,949 | 28,231 |
| 9. 1991.........| 114,986 | 180,550 | 229,123 | 43,755 | 27,247 |
| 10. 1992.........| X X X X | 102,008 | 180,206 | 38,218 | 24,768 |
| 11. 1993.........| X X X X | X X X X | 110,882 | 30,353 | 19,931 |
------------------------------------------------------------------------------------------
</TABLE>
Page 86
Form 2
CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND
ITS AFFILIATED FIRE AND CASUALTY INSURERS
<TABLE>
<CAPTION>
SCHEDULE P - PART 3F - SECTION 1 - MEDICAL MALPRACTICE - OCCURRENCE
-----------------------------------------------------------------------------------------------------------------------
| 1 | Cumulative Paid Losses and Allocated Expenses at Year End (000 omitted)
| |--------------------------------------------------------------------------------------------------
| Years in Which | | | | | | | |
| Losses Were | 2 | 3 | 4 | 5 | 6 | 7 | 8 |
| Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 |
| | | | | | | | |
|--------------------|-------------|-------------|-------------|-------------|-------------|-------------|-------------|
| | | | | | | | |
<S> <C> <C> <C> <C> <C> <C> <C>
| 1. Prior .......| 000 | 15,024 | 29,302 | 39,911 | 47,495 | 53,354 | 58,668 |
| 2. 1984.........| 42 | 603 | 2,999 | 4,668 | 7,227 | 8,717 | 9,303 |
| 3. 1985.........| X X X X | 146 | 465 | 1,118 | 2,271 | 3,027 | 3,374 |
| 4. 1986.........| X X X X | X X X X | 7 | 6 | 7 | 8 | 4 |
| 5. 1987.........| X X X X | X X X X | X X X X | 7 | 7 | 11 | 17 |
| 6. 1988.........| X X X X | X X X X | X X X X | X X X X | 0 | 0 | 4 |
| 7. 1989.........| X X X X | X X X X | X X X X | X X X X | X X X X | 8 | 7 |
| 8. 1990.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 |
| 9. 1991.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 10. 1992.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 11. 1993.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
-----------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
| 1 | 12 | 13 |
| -----------------------------------------| Number of | Number of |
| Years in Which | | | | Claims | Claims |
| Losses Were | 9 | 10 | 11 | Closed | Closed |
| Incurred | 1991 | 1992 | 1993 | With Loss |Without Loss |
| | | | | Payment | Payment |
|--------------------|-------------|-------------|-------------|-------------|-------------|
| | | | | | |
| 1. Prior .......| 60,266 | 62,668 | 64,077 | 677 | 947 |
| 2. 1984.........| 8,737 | 9,358 | 9,306 | 192 | 517 |
| 3. 1985.........| 3,871 | 3,969 | 4,538 | 111 | 192 |
| 4. 1986.........| 4 | 4 | 4 | 1 | 1 |
| 5. 1987.........| 17 | 17 | 17 | 2 | 3 |
| 6. 1988.........| 38 | 43 | 43 | 2 | 2 |
| 7. 1989.........| 24 | 24 | 24 | 2 | 2 |
| 8. 1990.........| 0 | 19 | 358 | 1 | 3 |
| 9. 1991.........| 0 | 0 | 35 | 1 | 0 |
| 10. 1992.........| X X X X | 0 | 0 | 0 | 0 |
| 11. 1993.........| X X X X | X X X X | 0 | 0 | 1 |
------------------------------------------------------------------------------------------
SCHEDULE P - PART 3F - SECTION 2 - MEDICAL MALPRACTICE - CLAIMS-MADE
- ------------------------------------------------------------------------------------------------------------------------
| 1 | Cumulative Paid Losses and Allocated Expenses at Year End (000 omitted) |
| |-------------------------------------------------------------------------------------------------|
| Years in Which | | | | | | | |
| Losses Were | 2 | 3 | 4 | 5 | 6 | 7 | 8 |
| Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 |
| | | | | | | | |
|--------------------|-------------|-------------|-------------|-------------|-------------|-------------|-------------|
| | | | | | | | |
| 1. Prior .......| 000 | 0 | 0 | 0 | 0 | 0 | 0 |
| 2. 1984.........| 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| 3. 1985.........| X X X X | 0 | 0 | 662 | 1,018 | 1,037 | 1,037 |
| 4. 1986.........| X X X X | X X X X | 0 | 10 | 16 | 32 | 32 |
| 5. 1987.........| X X X X | X X X X | X X X X | 0 | 0 | 0 | 24 |
| 6. 1988.........| X X X X | X X X X | X X X X | X X X X | 0 | 1 | 101 |
| 7. 1989.........| X X X X | X X X X | X X X X | X X X X | X X X X | 1 | 9 |
| 8. 1990.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 1 |
| 9. 1991.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 10. 1992.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 11. 1993.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
-----------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
| 1 | 12 | 13 ||
| -----------------------------------------| Number of | Number of ||
| Years in Which | | | | Claims | Claims ||
| Losses Were | 9 | 10 | 11 | Closed | Closed ||
| Incurred | 1991 | 1992 | 1993 | With Loss |Without Loss ||
| | | | | Payment | Payment ||
|------------------- |-------------|-------------|-------------|-------------|-------------||
| | | | | | ||
| 1. Prior .......| 0 | 0 | 0 | 0 | 0 ||
| 2. 1984.........| 0 | 0 | 0 | 0 | 0 ||
| 3. 1985.........| 945 | 945 | 945 | 0 | 0 ||
| 4. 1986.........| 32 | 32 | 32 | 0 | 0 ||
| 5. 1987.........| 24 | 24 | 24 | 0 | 0 ||
| 6. 1988.........| 117 | 120 | 141 | 0 | 0 ||
| 7. 1989.........| 25 | 240 | 255 | 0 | 0 ||
| 8. 1990.........| 10 | 99 | 266 | 0 | 0 ||
| 9. 1991.........| 0 | 4 | 9 | 0 | 0 ||
| 10. 1992.........| X X X X | 0 | 3 | 0 | 0 ||
| 11. 1993.........| X X X X | X X X X | 0 | 0 | 0 ||
------------------------------------------------------------------------------------------
SCHEDULE P - PART 3G - SPECIAL LIABILITY (OCEAN MARINE, AIRCRAFT
(ALL PERILS), BOILER AND MACHINERY)
- ------------------------------------------------------------------------------------------------------------------------
| 1 | Cumulative Paid Losses and Allocated Expenses at Year End (000 omitted) |
| |-------------------------------------------------------------------------------------------------|
| Years in Which | | | | | | | |
| Losses Were | 2 | 3 | 4 | 5 | 6 | 7 | 8 |
| Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 |
| | | | | | | | |
|--------------------|-------------|-------------|-------------|-------------|-------------|-------------|-------------|
| | | | | | | | |
| 1. Prior .......| 000 | 2,200 | 4,449 | 5,842 | 6,581 | 7,221 | 7,453 |
| 2. 1984.........| 9,233 | 12,800 | 13,717 | 14,160 | 14,339 | 14,730 | 14,777 |
| 3. 1985.........| X X X X | 8,762 | 14,339 | 16,267 | 17,244 | 18,178 | 18,680 |
| 4. 1986.........| X X X X | X X X X | 13,767 | 20,949 | 24,613 | 27,333 | 29,370 |
| 5. 1987.........| X X X X | X X X X | X X X X | 9,533 | 17,862 | 24,502 | 26,695 |
| 6. 1988.........| X X X X | X X X X | X X X X | X X X X | 9,231 | 16,454 | 19,180 |
| 7. 1989.........| X X X X | X X X X | X X X X | X X X X | X X X X | 11,402 | 16,737 |
| 8. 1990.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 7,945 |
| 9. 1991.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 10. 1992.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 11. 1993.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
-----------------------------------------------------------------------------------------------------------------------
- --------------------- ----------------------------------------------------------------------
| 1 | | 12 | 13 |
| |-----------------------------------------| Number of | Number of |
| Years in Which | | | | Claims | Claims |
| Losses Were | 9 | 10 | 11 | Closed | Closed |
| Incurred | 1991 | 1992 | 1993 | With Loss |Without Loss |
| | | | | Payment | Payment |
|------------------- |-------------|-------------|-------------|-------------|-------------|
| | | | | | |
| 1. Prior .......| 7,532 | 7,688 | 7,996 | X X X X | X X X X |
| 2. 1984.........| 14,821 | 14,909 | 14,912 | X X X X | X X X X |
| 3. 1985.........| 19,100 | 19,025 | 19,068 | X X X X | X X X X |
| 4. 1986.........| 29,415 | 29,450 | 29,187 | X X X X | X X X X |
| 5. 1987.........| 27,769 | 28,522 | 28,827 | X X X X | X X X X |
| 6. 1988.........| 20,912 | 22,588 | 23,225 | X X X X | X X X X |
| 7. 1989.........| 19,342 | 21,705 | 22,545 | X X X X | X X X X |
| 8. 1990.........| 14,633 | 16,945 | 18,666 | X X X X | X X X X |
| 9. 1991.........| 9,730 | 15,533 | 17,363 | X X X X | X X X X |
| 10. 1992.........| X X X X | 5,677 | 8,448 | X X X X | X X X X |
| 11. 1993.........| X X X X | X X X X | 5,338 | X X X X | X X X X |
------------------------------------------------------------------------------------------
SCHEDULE P - PART 3H - SECTION 1 - OTHER LIABILITY - OCCURRENCE
- ------------------------------------------------------------------------------------------------------------------------
| 1 | Cumulative Paid Losses and Allocated Expenses at Year End (000 omitted) |
| |-------------------------------------------------------------------------------------------------|
| Years in Which | | | | | | | |
| Losses Were | 2 | 3 | 4 | 5 | 6 | 7 | 8 |
| Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 |
| | | | | | | | |
|--------------------|-------------|-------------|-------------|-------------|-------------|-------------|-------------|
| | | | | | | | |
| 1. Prior .......| 000 | 117,828 | 220,405 | 307,210 | 370,275 | 431,506 | 478,211 |
| 2. 1984.........| 16,591 | 41,121 | 68,519 | 96,906 | 120,553 | 146,912 | 158,239 |
| 3. 1985.........| X X X X | 17,555 | 47,982 | 88,943 | 124,960 | 153,560 | 176,920 |
| 4. 1986.........| X X X X | X X X X | 18,393 | 45,614 | 82,671 | 120,553 | 150,472 |
| 5. 1987.........| X X X X | X X X X | X X X X | 21,818 | 52,420 | 87,499 | 122,123 |
| 6. 1988.........| X X X X | X X X X | X X X X | X X X X | 10,761 | 27,514 | 48,724 |
| 7. 1989.........| X X X X | X X X X | X X X X | X X X X | X X X X | 8,733 | 21,122 |
| 8. 1990.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 11,619 |
| 9. 1991.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 10. 1992.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 11. 1993.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
-----------------------------------------------------------------------------------------------------------------------
- --------------------- ----------------------------------------------------------------------
| 1 | | 12 | 13 |
| |-----------------------------------------| Number of | Number of |
| Years in Which | | | | Claims | Claims |
| Losses Were | 9 | 10 | 11 | Closed | Closed |
| Incurred | 1991 | 1992 | 1993 | With Loss |Without Loss |
| | | | | Payment | Payment |
|--------------------|-------------|-------------|-------------|-------------|-------------|
| | | | | | |
| 1. Prior .......| 505,896 | 535,285 | 572,654 | 9,075 | 14,011 |
| 2. 1984.........| 167,366 | 173,558 | 178,268 | 25,721 | 13,612 |
| 3. 1985.........| 192,605 | 197,272 | 206,127 | 24,896 | 14,826 |
| 4. 1986.........| 172,690 | 185,334 | 195,092 | 19,607 | 12,343 |
| 5. 1987.........| 157,422 | 173,081 | 190,522 | 16,643 | 11,535 |
| 6. 1988.........| 72,687 | 102,251 | 114,779 | 12,952 | 8,165 |
| 7. 1989.........| 36,345 | 52,958 | 65,520 | 8,305 | 6,058 |
| 8. 1990.........| 25,544 | 48,198 | 65,946 | 8,065 | 6,971 |
| 9. 1991.........| 5,929 | 15,617 | 27,507 | 5,542 | 4,747 |
| 10. 1992.........| X X X X | 3,682 | 8,472 | 2,788 | 2,701 |
| 11. 1993.........| X X X X | X X X X | 3,122 | 1,403 | 1,236 |
------------------------------------------------------------------------------------------
SCHEDULE P - PART 3H - SECTION 2 - OTHER LIABILITY - CLAIMS-MADE
- ------------------------------------------------------------------------------------------------------------------------
| 1 | Cumulative Paid Losses and Allocated Expenses at Year End (000 omitted) |
| |-------------------------------------------------------------------------------------------------|
| Years in Which | | | | | | | |
| Losses Were | 2 | 3 | 4 | 5 | 6 | 7 | 8 |
| Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 |
| | | | | | | | |
--------------------|-------------|-------------|-------------|-------------|-------------|-------------|-------------|
| | | | | | | | |
| 1. Prior .......| 000 | 0 | 0 | 0 | 0 | 0 | 0 |
| 2. 1984.........| 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| 3. 1985.........| X X X X | 0 | 0 | 29 | 40 | 58 | 72 |
| 4. 1986.........| X X X X | X X X X | 0 | 209 | 341 | 389 | 328 |
| 5. 1987.........| X X X X | X X X X | X X X X | 0 | 0 | 0 | (6)|
| 6. 1988.........| X X X X | X X X X | X X X X | X X X X | 69 | 111 | 218 |
| 7. 1989.........| X X X X | X X X X | X X X X | X X X X | X X X X | 248 | 446 |
| 8. 1990.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 143 |
| 9. 1991.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 10. 1992.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 11. 1993.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
-----------------------------------------------------------------------------------------------------------------------
Note: Net of salvage and subrogation received.
<FN>
- --------------------- ----------------------------------------------------------------------
| 1 | | 12 | 13 |
| |-----------------------------------------| Number of | Number of |
| Years in Which | | | | Claims | Claims |
| Losses Were | 9 | 10 | 11 | Closed | Closed |
| Incurred | 1991 | 1992 | 1993 | With Loss |Without Loss |
| | | | | Payment | Payment |
--------------------|-------------|-------------|-------------|-------------|-------------|
| | | | | | |
| 1. Prior .......| 0 | 0 | 0 | 0 | 0 |
| 2. 1984.........| 0 | 0 | 0 | 0 | 0 |
| 3. 1985.........| 90 | 88 | 99 | 0 | 0 |
| 4. 1986.........| 393 | 367 | 411 | 1 | 0 |
| 5. 1987.........| (6)| (6)| (6)| 0 | 2 |
| 6. 1988.........| 225 | 626 | 626 | 70 | 41 |
| 7. 1989.........| 640 | 687 | 730 | 126 | 59 |
| 8. 1990.........| 269 | 285 | 949 | 85 | 70 |
| 9. 1991.........| 159 | 234 | 301 | 70 | 83 |
| 10. 1992.........| X X X X | 88 | 854 | 59 | 67 |
| 11. 1993.........| X X X X | X X X X | 85 | 34 | 32 |
------------------------------------------------------------------------------------------
</TABLE>
Page 87
Form 2
CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND ITS
AFFILIATED FIRE AND CASUALTY INSURERS
<TABLE>
<CAPTION>
SCHEDULE P - PART 3I - SPECIAL PROPERTY (FIRE, ALLIED LINES,
INLAND MARINE, EARTHQUAKE, GLASS, BURGLARY
AND THEFT)
-----------------------------------------------------------------------------------------------------------------------
| 1 | Cumulative Paid Losses and Allocated Expenses at Year End (000 omitted)
| |--------------------------------------------------------------------------------------------------
| Years in Which | | | | | | | |
| Losses Were | 2 | 3 | 4 | 5 | 6 | 7 | 8 |
| Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 |
| | | | | | | | |
|--------------------|-------------|-------------|-------------|-------------|-------------|-------------|-------------|
| | | | | | | | |
<S> <C> <C> <C> <C> <C> <C> <C>
| 1. Prior .......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 2. 1992.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 3. 1993.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
-----------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
| 1 | 12 | 13 |
| ------------------------------------------| Number of | Number of |
| Years in Which | | | | Claims |Claims Closed|
| Losses Were | 9 | 10 | 11 | Closed With | Without |
| Incurred | 1991 | 1992 | 1993 |Loss Payment |Loss Payment |
| | | | | | |
|-------------------|--------------|-------------|-------------|-------------|-------------|
| | | | | | |
| 1. Prior ......|. 000 | 39,918 | 49,120 | X X X X | X X X X |
| 2. 1992........|. X X X X | 47,224 | 71,318 | X X X X | X X X X |
| 3. 1993........|. X X X X | X X X X | 51,154 | X X X X | X X X X |
------------------------------------------------------------------------------------------
SCHEDULE P - PART 3J - AUTO PHYSICAL DAMAGE
-----------------------------------------------------------------------------------------------------------------------
| 1 | Cumulative Paid Losses and Allocated Expenses at Year End (000 omitted)
| |--------------------------------------------------------------------------------------------------
| Years in Which | | | | | | | |
| Losses Were | 2 | 3 | 4 | 5 | 6 | 7 | 8 |
| Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 |
| | | | | | | | |
|--------------------|-------------|-------------|-------------|-------------|-------------|-------------|-------------|
| | | | | | | | |
| 1. Prior .......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 2. 1992.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 3. 1993.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
-----------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
| 1 | | 12 | 13 |
| |------------------------------------------| Number of | Number of |
| Years in Which | | | | Claims |Claims Closed|
| Losses Were | 9 | 10 | 11 | Closed With | Without |
| Incurred | 1991 | 1992 | 1993 |Loss Payment |Loss Payment |
| | | | | | |
|--------------------|----------------------------|-------------|-------------|-------------|
| | | | | | |
| 1. Prior .......| 000 | 20,750 | 22,009 | 442 | 264 |
| 2. 1992.........| X X X X | 131,558 | 148,167 | 100,524 | 24,968 |
| 3. 1993.........| X X X X | X X X X | 105,665 | 80,138 | 17,119 |
------------------------------------------------------------------------------------------
SCHEDULE P - PART 3K - FIDELITY, SURETY, FINANCIAL GUARANTY, MORTGAGE GUARANTY
-----------------------------------------------------------------------------------------------------------------------
| 1 | Cumulative Paid Losses and Allocated Expenses at Year End (000 omitted)
| |--------------------------------------------------------------------------------------------------
| Years in Which | | | | | | | |
| Losses Were | 2 | 3 | 4 | 5 | 6 | 7 | 8 |
| Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 |
| | | | | | | | |
| 1. Prior .......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 2. 1992.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 3. 1993.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
-----------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
| 1 | | 12 | 13 |
| |------------------------------------------| Number of | Number of |
| Years in Which | | | | Claims |Claims Closed|
| Losses Were | 9 | 10 | 11 |Closed With | Without |
| Incurred | 1991 | 1992 | 1993 |Loss Payment|Loss Payment |
| | | | | | |
- ---------------------|----------------------------|-------------|------------|-------------|
| | | | | | |
| 1. Prior .......| 000 | 16,673 | 31,956 | X X X X | X X X X |
| 2. 1992.........| X X X X | 2,960 | 30,157 | X X X X | X X X X |
| 3. 1993.........| X X X X | X X X X | 8,254 | X X X X | X X X X |
--------------------------------------------------------------------------------------------
SCHEDULE P - PART 3L - OTHER (INCLUDING CREDIT, ACCIDENT AND HEALTH)
-----------------------------------------------------------------------------------------------------------------------
| 1 | Cumulative Paid Losses and Allocated Expenses at Year End (000 omitted)
| |--------------------------------------------------------------------------------------------------
| Years in Which | | | | | | | |
| Losses Were | 2 | 3 | 4 | 5 | 6 | 7 | 8 |
| Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 |
| | | | | | | | |
|
| 1. Prior .......| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 2. 1992.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 3. 1993.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
-----------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
| 1 | | 12 | 13 |
| |------------------------------------------| Number of | Number of |
| Years in Which | | | | Claims |Claims Closed|
| Losses Were | 9 | 10 | 11 | Closed With | Without |
| Incurred | 1991 | 1992 | 1993 |Loss Payment |Loss Payment |
| | | | | | |
- ---------------------------------------------------------------------------------------------
| | | | |
| 1. Prior .......| 000 | 69 | 108 | X X X X | X X X X |
| 2. 1992.........| X X X X | 0 | 0 | X X X X | X X X X |
| 3. 1993.........| X X X X | X X X X | 0 | X X X X | X X X X |
------------------------------------------------------------------------------------------
SCHEDULE P - PART 3M - INTERNATIONAL
-----------------------------------------------------------------------------------------------------------------------
| 1 | Cumulative Paid Losses and Allocated Expenses at Year End (000 omitted)
| |--------------------------------------------------------------------------------------------------
| Years in Which | | | | | | | |
| Losses Were | 2 | 3 | 4 | 5 | 6 | 7 | 8 |
| Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 |
| | | | | | | | |
- ------------------------------------------------------------------------------------------------------------------|
| 1. Prior .......| 000 | 0 | 0 | 0 | 0 | 0 | 0 |
| 2. 1984.........| 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| 3. 1985.........| X X X X | 0 | 0 | 0 | 0 | 0 | 0 |
| 4. 1986.........| X X X X | X X X X | 0 | 0 | 0 | 0 | 0 |
| 5. 1987.........| X X X X | X X X X | X X X X | 0 | 0 | 0 | 0 |
| 6. 1988.........| X X X X | X X X X | X X X X | X X X X | 4,610 | 10,615 | 12,406 |
| 7. 1989.........| X X X X | X X X X | X X X X | X X X X | X X X X | 3,850 | 8,531 |
| 8. 1990.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 3,585 |
| 9. 1991.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 10. 1992.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 11. 1993.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
-----------------------------------------------------------------------------------------------------------------------
Note: Net of salvage and subrogation received.
<FN>
---------------------------------------------------------------------------------------------
| 1 | | 12 | 13 |
| |------------------------------------------| Number of | Number of |
| Years in Which | | | | Claims |Claims Closed|
| Losses Were | 9 | 10 | 11 | Closed With | Without |
| Incurred | 1991 | 1992 | 1993 |Loss Payment |Loss Payment |
| |---------------------------------------------------------------------
| 1. Prior .......| 0 | 0 | 0 | X X X X | X X X X |
| 2. 1984.........| 0 | 0 | 0 | X X X X | X X X X |
| 3. 1985.........| 0 | 0 | 0 | X X X X | X X X X |
| 4. 1986.........| 0 | 0 | 0 | X X X X | X X X X |
| 5. 1987.........| 0 | 0 | 0 | X X X X | X X X X |
| 6. 1988.........| 13,164 | 13,562 | 13,619 | X X X X | X X X X |
| 7. 1989.........| 9,812 | 10,323 | 10,358 | X X X X | X X X X |
| 8. 1990.........| 8,889 | 10,293 | 10,486 | X X X X | X X X X |
| 9. 1991.........| 4,478 | 6,649 | 7,364 | X X X X | X X X X |
| 10. 1992.........| X X X X | 1,232 | 2,920 | X X X X | X X X X |
| 11. 1993.........| X X X X | X X X X | 355 | X X X X | X X X X |
------------------------------------------------------------------------------------------
</TABLE>
Page 88
Form 2
CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND
ITS AFFILIATED FIRE AND CASUALTY INSURERS
<TABLE>
<CAPTION>
SCHEDULE P - PART 3N - REINSURANCE A
-----------------------------------------------------------------------------------------------------------------------
| 1 | Cumulative Paid Losses and Allocated Expenses at Year End (000 Omitted)
| |--------------------------------------------------------------------------------------------------
| Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 |
| Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 |
| Incurred | | | | | | | |
| | | | | | | | |
|--------------------|-------------|-------------|-------------|-------------|-------------|-------------|-------------|
<S> <C> <C> <C> <C> <C> <C> <C> |
| 1. 1988.........| X X X X | X X X X | X X X X | X X X X | 2,283 | 4,302 | 5,753 |
| 2. 1989.........| X X X X | X X X X | X X X X | X X X X | X X X X | 5,873 | 8,625 |
| 3. 1990.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 4,784 |
| 4. 1991.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 5. 1992.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 6. 1993.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
-----------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
| 1 | 12 | 13 |
| -----------------------------------------| Number of | Number of |
| Years in Which | 9 | 10 | 11 | Claims | Claims |
| Losses Were | 1991 | 1992 | 1993 | Closed | Closed |
| Incurred | | | | With Loss |Without Loss |
| | | | | Payment | Payment |
|--------------------|-------------|-------------|-------------|-------------|-------------|
| 1. 1988.........| 6,950 | 9,296 | 10,510 | X X X X | X X X X |
| 2. 1989.........| 10,264 | 11,671 | 12,053 | X X X X | X X X X |
| 3. 1990.........| 6,108 | 9,592 | 9,867 | X X X X | X X X X |
| 4. 1991.........| 1,301 | 4,570 | 5,463 | X X X X | X X X X |
| 5. 1992.........| X X X X | 6,875 | 2,140 | X X X X | X X X X |
| 6. 1993.........| X X X X | X X X X | 1,083 | X X X X | X X X X |
------------------------------------------------------------------------------------------
SCHEDULE P - PART 3O - REINSURANCE B
-----------------------------------------------------------------------------------------------------------------------
| 1 | Cumulative Paid Losses and Allocated Expenses at Year End (000 Omitted)
| |--------------------------------------------------------------------------------------------------
| Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 |
| Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 |
| Incurred | | | | | | | |
| | | | | | | | |
|--------------------|-------------|-------------|-------------|-------------|-------------|-------------|-------------|
| | | | | | | | |
| 1. 1988.........| X X X X | X X X X | X X X X | X X X X | 1,108 | 2,954 | 3,793 |
| 2. 1989.........| X X X X | X X X X | X X X X | X X X X | X X X X | 10,817 | 11,867 |
| 3. 1990.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 1,567 |
| 4. 1991.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 5. 1992.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 6. 1993.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
-----------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
| 1 | 12 | 13 |
| -----------------------------------------| Number of | Number of |
| Years in Which | 9 | 10 | 11 | Claims | Claims |
| Losses Were | 1991 | 1992 | 1993 | Closed | Closed |
| Incurred | | | | With Loss |Without Loss |
| | | | | Payment | Payment |
|--------------------|-------------|-------------|-------------|-------------|-------------|
| | | | | | |
| 1. 1988.........| 4,770 | 5,650 | 6,476 | X X X X | X X X X |
| 2. 1989.........| 12,902 | 13,472 | 13,773 | X X X X | X X X X |
| 3. 1990.........| 2,232 | 6,826 | 7,073 | X X X X | X X X X |
| 4. 1991.........| 402 | 1,555 | 2,022 | X X X X | X X X X |
| 5. 1992.........| X X X X | 10,626 | 10,354 | X X X X | X X X X |
| 6. 1993.........| X X X X | X X X X | 485 | X X X X | X X X X |
------------------------------------------------------------------------------------------
SCHEDULE P - PART 3P - REINSURANCE C
-----------------------------------------------------------------------------------------------------------------------
| 1 | Cumulative Paid Losses and Allocated Expenses at Year End (000 Omitted)
| |--------------------------------------------------------------------------------------------------
| Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 |
| Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 |
| Incurred | | | | | | | |
| | | | | | | | |
|--------------------|-------------|-------------|-------------|-------------|-------------|-------------|-------------|
| | | | | | | | |
| 1. 1988.........| X X X X | X X X X | X X X X | X X X X | 0 | 200 | 200 |
| 2. 1989.........| X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 0 |
| 3. 1990.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 0 |
| 4. 1991.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 5. 1992.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 6. 1993.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
-----------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
| 1 | | 12 | 13 |
| |-----------------------------------------| Number of | Number of |
| Years in Which | 9 | 10 | 11 | Claims | Claims |
| Losses Were | 1991 | 1992 | 1993 | Closed | Closed |
| Incurred | | | | With Loss |Without Loss |
| | | | | Payment | Payment |
|--------------------|-------------|-------------|-------------|-------------|-------------|
| | | | | | |
| 1. 1988.........| 200 | 200 | 401 | X X X X | X X X X |
| 2. 1989.........| 0 | 0 | 0 | X X X X | X X X X |
| 3. 1990.........| 0 | 0 | 0 | X X X X | X X X X |
| 4. 1991.........| 0 | 0 | 0 | X X X X | X X X X |
| 5. 1992.........| X X X X | 0 | 0 | X X X X | X X X X |
| 6. 1993.........| X X X X | X X X X | X X X X | X X X X | X X X X |
------------------------------------------------------------------------------------------
SCHEDULE P - PART 3Q - REINSURANCE D
-----------------------------------------------------------------------------------------------------------------------
| 1 | Cumulative Paid Losses and Allocated Expenses at Year End (000 Omitted)
| |--------------------------------------------------------------------------------------------------
| Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 |
| Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 |
| Incurred | | | | | | | |
| | | | | | | | |
|--------------------|-------------|-------------|-------------|-------------|-------------|-------------|-------------|
| | | | | | | | |
| 1. Prior .......| 000 | 0 | 0 | 0 | 0 | 0 | 0 |
| 2. 1984.........| (27,008)| (25,173)| (24,786)| (24,448)| (24,335)| (23,634)| 2,942 |
| 3. 1985.........| X X X X | 1,856 | 11,761 | 17,564 | 18,244 | 18,601 | 18,927 |
| 4. 1986.........| X X X X | X X X X | 8,482 | 20,448 | 24,661 | 26,542 | 27,789 |
| 5. 1987.........| X X X X | X X X X | X X X X | (119,003)| (150,152)| (152,812)| 27,625 |
-----------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
| 1 | | 12 | 13 |
| |-----------------------------------------| Number of | Number of |
| Years in Which | 9 | 10 | 11 | Claims | Claims |
| Losses Were | 1991 | 1992 | 1993 | Closed | Closed |
| Incurred | | | | With Loss |Without Loss |
| | | | | Payment | Payment |
|--------------------|-------------|-------------|-------------|-------------|-------------|
| | | | | | |
| 1. Prior .......| 0 | 0 | 0 | X X X X | X X X X |
| 2. 1984.........| 2,958 | 2,903 | 2,901 | X X X X | X X X X |
| 3. 1985.........| 19,025 | 18,879 | 18,478 | X X X X | X X X X |
| 4. 1986.........| 28,421 | 29,168 | 28,682 | X X X X | X X X X |
| 5. 1987.........| 28,886 | 29,549 | 29,830 | X X X X | X X X X |
- --------------------------------------------------------------------------------------------
SCHEDULE P - PART 3R - SECTION 1 - PRODUCTS LIABILITY - OCCURRENCE
------------------------------------------------------------------------------------------------------------------------
| 1 | Cumulative Paid Losses and Allocated Expenses at Year End (000 Omitted)
| |--------------------------------------------------------------------------------------------------
| Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 |
| Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 |
| Incurred | | | | | | | |
| | | | | | | | |
|--------------------|-------------|-------------|-------------|-------------|-------------|-------------|-------------|
| | | | | | | | |
| 1. Prior .......| 000 | 12,496 | 22,105 | 34,509 | 49,032 | 62,402 | 76,730 |
| 2. 1984.........| 944 | 2,618 | 7,065 | 11,564 | 13,654 | 18,600 | 21,284 |
| 3. 1985.........| X X X X | 692 | 2,067 | 5,349 | 10,599 | 15,704 | 20,191 |
| 4. 1986.........| X X X X | X X X X | 535 | 1,397 | 3,706 | 8,522 | 13,765 |
| 5. 1987.........| X X X X | X X X X | X X X X | 1,046 | 3,165 | 6,478 | 13,019 |
| 6. 1988.........| X X X X | X X X X | X X X X | X X X X | 168 | 2,599 | 6,118 |
| 7. 1989.........| X X X X | X X X X | X X X X | X X X X | X X X X | 375 | 2,727 |
| 8. 1990.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 459 |
| 9. 1991.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 10. 1992.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 11. 1993.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
-----------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
| 1 | | 12 | 13 |
| |-----------------------------------------| Number of | Number of |
| Years in Which | 9 | 10 | 11 | Claims | Claims |
| Losses Were | 1991 | 1992 | 1993 | Closed | Closed |
| Incurred | | | | With Loss |Without Loss |
| | | | | Payment | Payment |
|--------------------|-------------|-------------|-------------|-------------|-------------|
| | | | | | |
| 1. Prior .......| 88,637 | 96,792 | 100,560 | 934 | 5,607 |
| 2. 1984.........| 22,971 | 24,114 | 25,233 | 800 | 623 |
| 3. 1985.........| 22,232 | 23,153 | 24,247 | 807 | 667 |
| 4. 1986.........| 18,809 | 21,089 | 24,179 | 627 | 693 |
| 5. 1987.........| 19,099 | 22,219 | 23,955 | 523 | 583 |
| 6. 1988.........| 10,643 | 12,598 | 15,102 | 420 | 410 |
| 7. 1989.........| 5,374 | 8,197 | 11,508 | 481 | 464 |
| 8. 1990.........| 1,290 | 2,326 | 4,785 | 472 | 437 |
| 9. 1991.........| 434 | 1,152 | 4,246 | 258 | 250 |
| 10. 1992.........| X X X X | 205 | 559 | 114 | 227 |
| 11. 1993.........| X X X X | X X X X | 1,218 | 87 | 55 |
------------------------------------------------------------------------------------------
SCHEDULE P - PART 3R - SECTION 2 - PRODUCTS LIABILITY - CLAIMS-MADE
-----------------------------------------------------------------------------------------------------------------------
| 1 | Cumulative Paid Losses and Allocated Expenses at Year End (000 Omitted)
| |--------------------------------------------------------------------------------------------------
| Years in Which | 2 | 3 | 4 | 5 | 6 | 7 | 8 |
| Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 |
| Incurred | | | | | | | |
| | | | | | | | |
|--------------------|-------------|-------------|-------------|-------------|-------------|-------------|-------------|
| | | | | | | | |
| 1. Prior .......| 000 | 0 | 0 | 0 | 0 | 0 | 0 |
| 2. 1984.........| 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| 3. 1985.........| X X X X | 0 | 0 | 0 | 0 | 0 | 0 |
| 4. 1986.........| X X X X | X X X X | 0 | 0 | 0 | 0 | 0 |
| 5. 1987.........| X X X X | X X X X | X X X X | 0 | 0 | 0 | 0 |
| 6. 1988.........| X X X X | X X X X | X X X X | X X X X | 1 | 5 | 13 |
| 7. 1989.........| X X X X | X X X X | X X X X | X X X X | X X X X | 0 | 4 |
| 8. 1990.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | 20 |
| 9. 1991.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 10. 1992.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 11. 1993.........| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
-----------------------------------------------------------------------------------------------------------------------
Note: Net of salvage and subrogation received.
<FN>
-------------------------------------------------------------------------------------------
| 1 | | 12 | 13 |
| |-----------------------------------------| Number of | Number of |
| Years in Which | 9 | 10 | 11 | Claims | Claims |
| Losses Were | 1991 | 1992 | 1993 | Closed | Closed |
| Incurred | | | | With Loss |Without Loss |
| | | | | Payment | Payment |
|--------------------|-------------|-------------|-------------|-------------|-------------|
| | | | | | |
| 1. Prior .......| 0 | 0 | 0 | 0 | 0 |
| 2. 1984.........| 0 | 0 | 0 | 0 | 0 |
| 3. 1985.........| 0 | 0 | 0 | 0 | 0 |
| 4. 1986.........| 0 | 0 | 0 | 0 | 0 |
| 5. 1987.........| 0 | 0 | 0 | 0 | 0 |
| 6. 1988.........| 13 | 13 | 13 | 4 | 2 |
| 7. 1989.........| 18 | 18 | 18 | 1 | 1 |
| 8. 1990.........| 170 | 291 | 426 | 5 | 3 |
| 9. 1991.........| 21 | 55 | 167 | 4 | 7 |
| 10. 1992.........| X X X X | 7 | 31 | 1 | 5 |
| 11. 1993.........| X X X X | X X X X | 20 | 0 | 2 |
------------------------------------------------------------------------------------------
</TABLE>
Page 89
Form 2
CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND
ITS AFFILIATED FIRE AND CASUALTY INSURERS
<TABLE>
<CAPTION>
SCHEDULE P - PART 4A - HOMEOWNERS/FARMOWNERS
------------------------------------------------------------------------------------------------------------------------------
| 1 |BULK AND INCURRED BUT NOT REPORTED RESERVES ON LOSSES AND ALLOCATED EXPENSES AT YEAR END
| |(000 OMITTED)
| |------------------------------------------------------------------------------------------------
| Years in Which | | | | | | |
| Losses Were | 2 | 3 | 4 | 5 | 6 | 7 |
| Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 |
| | | | | | | |
|-----------------------------|---------------|---------------|---------------|---------------|---------------|---------------|
| | | | | | | |
<S> <C> <C> <C> <C> <C> <C>
| 1. Prior ..............| 8,408 | 4,501 | 1,090 | 531 | 307 | 264 |
| 2. 1984................| 14,690 | 3,627 | 1,780 | 819 | 276 | 73 |
| 3. 1985................| X X X X | 21,677 | 3,598 | 2,218 | 1,424 | 489 |
| 4. 1986................| X X X X | X X X X | 26,818 | 8,442 | 6,075 | 3,916 |
| 5. 1987................| X X X X | X X X X | X X X X | 34,155 | 14,953 | 10,076 |
| 6. 1988................| X X X X | X X X X | X X X X | X X X X | 26,295 | 8,421 |
| 7. 1989................| X X X X | X X X X | X X X X | X X X X | X X X X | 29,666 |
| 8. 1990................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 9. 1991................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 10. 1992................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 11. 1993................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
| 1 | |
| |---------------------------------------------------------------|
| Years in Which | | | | |
| Losses Were | 8 | 9 | 10 | 11 |
| Incurred | 1990 | 1991 | 1992 | 1993 |
| | | | | |
|----------------------------|---------------|---------------|---------------|---------------|
| | | | | |
| 1. Prior .............|. 275 | 115 | 52 | 8 |
| 2. 1984...............|. 165 | 129 | 82 | 48 |
| 3. 1985...............|. 534 | 200 | 234 | 159 |
| 4. 1986...............|. 2,588 | 1,079 | 763 | 516 |
| 5. 1987...............|. 6,872 | 2,075 | 1,617 | 1,208 |
| 6. 1988...............|. 5,420 | 2,061 | 1,322 | 716 |
| 7. 1989...............|. 7,917 | 3,082 | 2,177 | 918 |
| 8. 1990...............|. 23,709 | 5,481 | 3,249 | 1,085 |
| 9. 1991...............|. X X X X | 23,758 | 5,380 | 2,233 |
| 10. 1992...............|. X X X X | X X X X | 21,121 | 4,065 |
| 11. 1993...............|. X X X X | X X X X | X X X X | 13,203 |
---------------------------------------------------------------------------------------------
SCHEDULE P - PART 4B - PRIVATE PASSENGER AUTO LIABILITY/MEDICAL
------------------------------------------------------------------------------------------------------------------------------
| 1 |BULK AND INCURRED BUT NOT REPORTED RESERVES ON LOSSES AND ALLOCATED EXPENSES AT YEAR END
| |(000 OMITTED)
| |------------------------------------------------------------------------------------------------
| Years in Which | | | | | | |
| Losses Were | 2 | 3 | 4 | 5 | 6 | 7 |
| Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 |
| | | | | | | |
|-----------------------------|---------------|---------------|---------------|---------------|---------------|---------------|
| | | | | | | |
| 1. Prior ..............| 40,853 | 23,930 | 10,084 | 4,748 | 3,474 | 1,568 |
| 2. 1984................| 68,284 | 28,845 | 14,844 | 5,790 | 3,853 | 2,381 |
| 3. 1985................| X X X X | 76,623 | 33,084 | 13,453 | 7,756 | 4,835 |
| 4. 1986................| X X X X | X X X X | 100,864 | 44,855 | 25,884 | 8,775 |
| 5. 1987................| X X X X | X X X X | X X X X | 103,612 | 47,271 | 24,394 |
| 6. 1988................| X X X X | X X X X | X X X X | X X X X | 95,979 | 47,928 |
| 7. 1989................| X X X X | X X X X | X X X X | X X X X | X X X X | 111,634 |
| 8. 1990................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 9. 1991................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 10. 1992................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 11. 1993................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
| 1 | |
| |---------------------------------------------------------------|
| | | | | |
| Years in Which | 8 | 9 | 10 | 11 |
| Losses Were | 1990 | 1991 | 1992 | 1993 |
| Incurred | | | | |
| | | | | |
|-----------------------------|---------------|---------------|---------------|---------------|
| | | | | |
| 1. Prior ..............| 1,054 | 822 | 785 | 6,468 |
| 2. 1984................| 1,076 | 654 | 784 | 392 |
| 3. 1985................| 2,605 | 1,133 | 7,293 | 4,015 |
| 4. 1986................| 4,734 | 2,021 | 6,250 | 4,162 |
| 5. 1987................| 12,635 | 4,094 | 6,719 | 4,856 |
| 6. 1988................| 24,340 | 7,862 | 12,097 | 8,460 |
| 7. 1989................| 54,405 | 19,073 | 11,678 | 5,459 |
| 8. 1990................| 135,402 | 57,174 | 23,091 | 11,912 |
| 9. 1991................| X X X X | 153,113 | 65,878 | 28,461 |
| 10. 1992................| X X X X | X X X X | 103,343 | 48,345 |
| 11. 1993................| X X X X | X X X X | X X X X | 79,287 |
---------------------------------------------------------------------------------------------
SCHEDULE P - PART 4C - COMMERCIAL AUTO/TRUCK LIABILITY/MEDICAL
------------------------------------------------------------------------------------------------------------------------------
| 1 |BULK AND INCURRED BUT NOT REPORTED RESERVES ON LOSSES AND ALLOCATED EXPENSES AT YEAR END
| |(000 OMITTED)
| |------------------------------------------------------------------------------------------------
| Years in Which | | | | | | |
| Losses Were | 2 | 3 | 4 | 5 | 6 | 7 |
| Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 |
| | | | | | | |
- ----------------------------------------------------------------------------------------------|--------------|---------------|
| 1. Prior ........... | 59,301 | 47,117 | 20,750 | 4,324 | 3,432 | 2,698 |
| 2. 1984...............| 84,676 | 53,041 | 26,692 | 11,429 | 4,044 | 3,198 |
| 3. 1985...............| X X X X | 113,446 | 60,304 | 27,174 | 10,184 | 6,271 |
| 4. 1986...............| X X X X | X X X X | 202,473 | 112,979 | 51,470 | 15,808 |
| 5. 1987...............| X X X X | X X X X | X X X X | 248,615 | 133,340 | 59,272 |
| 6. 1988...............| X X X X | X X X X | X X X X | X X X X | 149,682 | 82,498 |
| 7. 1989...............| X X X X | X X X X | X X X X | X X X X | X X X X | 178,608 |
| 8. 1990...............| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 9. 1991...............| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 10. 1992...............| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 11. 1993...............| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
| 1 | |
| |---------------------------------------------------------------|
| | | | | |
| Years in Which | 8 | 9 | 10 | 11 |
| Losses Were | 1990 | 1991 | 1992 | 1993 |
| Incurred | | | | |
--------------------------------------------|---------------|---------------|---------------|
| 1. Prior ........... | 1,914 | 3,598 | 3,269 | 2,001 |
| 2. 1984...............| 1,586 | 1,485 | 1,731 | 1,865 |
| 3. 1985...............| 3,557 | 2,446 | 2,725 | 2,960 |
| 4. 1986...............| 21,272 | 4,655 | 3,884 | 3,241 |
| 5. 1987...............| 29,793 | 9,555 | 6,531 | 7,344 |
| 6. 1988...............| 51,411 | 15,394 | 8,560 | 5,279 |
| 7. 1989...............| 70,725 | 39,054 | 23,430 | 11,156 |
| 8. 1990...............| 152,903 | 89,729 | 45,468 | 18,673 |
| 9. 1991...............| X X X X | 150,745 | 82,270 | 37,108 |
| 10. 1992...............| X X X X | X X X X | 117,172 | 51,518 |
| 11. 1993...............| X X X X | X X X X | X X X X | 80,775 |
--------------------------------------------------------------------------------------------
SCHEDULE P - PART 4D - WORKERS' COMPENSATION
------------------------------------------------------------------------------------------------------------------------------
| 1 |BULK AND INCURRED BUT NOT REPORTED RESERVES ON LOSSES AND ALLOCATED EXPENSES AT YEAR END
| |(000 OMITTED)
| |------------------------------------------------------------------------------------------------
| Years in Which | | | | | | |
| Losses Were | 2 | 3 | 4 | 5 | 6 | 7 |
| Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 |
| | | | | | | |
|---------------------------------------------------------------------------------------------|---------------|---------------|
| | | | | | | |
| 1. Prior ..............| 137,202 | 86,094 | 41,049 | 28,509 | 24,853 | 42,879 |
| 2. 1984................| 138,587 | 75,358 | 38,284 | 16,841 | 11,316 | 11,511 |
| 3. 1985................| X X X X | 190,788 | 88,806 | 31,769 | 19,387 | 19,052 |
| 4. 1986................| X X X X | X X X X | 256,925 | 146,642 | 72,609 | 45,722 |
| 5. 1987................| X X X X | X X X X | X X X X | 225,586 | 100,780 | 54,322 |
| 6. 1988................| X X X X | X X X X | X X X X | X X X X | 217,855 | 95,573 |
| 7. 1989................| X X X X | X X X X | X X X X | X X X X | X X X X | 240,622 |
| 8. 1990................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 9. 1991................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 10. 1992................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 11. 1993................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
| 1 | |
| |---------------------------------------------------------------|
| | | | | |
| Years in Which | 8 | 9 | 10 | 11 |
| Losses Were | 1990 | 1991 | 1992 | 1993 |
| Incurred | | | | |
| | | | | |
|---------------------------------------------|---------------|---------------|---------------|
| | | | | |
| 1. Prior ..............| 48,345 | 71,429 | 89,513 | 127,475 |
| 2. 1984................| 14,574 | 18,760 | 23,503 | 31,073 |
| 3. 1985................| 23,741 | 29,136 | 33,745 | 51,253 |
| 4. 1986................| 28,594 | 30,038 | 28,176 | 52,740 |
| 5. 1987................| 50,283 | 39,361 | 34,549 | 61,164 |
| 6. 1988................| 79,054 | 54,422 | 46,533 | 60,793 |
| 7. 1989................| 124,810 | 116,610 | 81,195 | 91,398 |
| 8. 1990................| 258,997 | 128,726 | 100,789 | 99,092 |
| 9. 1991................| X X X X | 167,039 | 142,657 | 84,057 |
| 10. 1992................| X X X X | X X X X | 109,895 | 66,943 |
| 11. 1993................| X X X X | X X X X | X X X X | 67,534 |
- ----------------------------------------------------------------------------------------------
SCHEDULE P - PART 4E - COMMERCIAL MULTIPLE PERIL
------------------------------------------------------------------------------------------------------------------------------
| 1 |BULK AND INCURRED BUT NOT REPORTED RESERVES ON LOSSES AND ALLOCATED EXPENSES AT YEAR END
| |(000 OMITTED)
| |------------------------------------------------------------------------------------------------
| Years in Which | | | | | | |
| Losses Were | 2 | 3 | 4 | 5 | 6 | 7 |
| Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 |
| | | | | | | |
|---------------------------------------------------------------------------------------------|---------------|---------------|
| | | | | | | |
| 1. Prior ..............| 42,870 | 26,354 | 20,390 | 15,671 | 11,295 | 8,768 |
| 2. 1984................| 38,390 | 23,862 | 18,284 | 10,922 | 8,617 | 6,842 |
| 3. 1985................| X X X X | 59,058 | 33,833 | 20,461 | 14,944 | 12,074 |
| 4. 1986................| X X X X | X X X X | 70,183 | 33,146 | 21,992 | 18,627 |
| 5. 1987................| X X X X | X X X X | X X X X | 79,374 | 34,475 | 27,072 |
| 6. 1988................| X X X X | X X X X | X X X X | X X X X | 181,058 | 117,500 |
| 7. 1989................| X X X X | X X X X | X X X X | X X X X | X X X X | 272,787 |
| 8. 1990................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 9. 1991................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 10. 1992................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 11. 1993................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
| 1 | |
| |---------------------------------------------------------------|
| | | | | |
| Years in Which | 8 | 9 | 10 | 11 |
| Losses Were | 1990 | 1991 | 1992 | 1993 |
| Incurred | | | | |
| | | | | |
|---------------------------------------------|---------------|---------------|---------------|
| | | | | |
| 1. Prior ..............| 6,818 | 6,846 | 4,331 | 5,982 |
| 2. 1984................| 4,807 | 5,022 | 2,872 | 2,417 |
| 3. 1985................| 8,356 | 6,673 | 4,514 | 3,309 |
| 4. 1986................| 13,659 | 10,074 | 6,226 | 4,622 |
| 5. 1987................| 42,558 | 8,503 | 12,476 | 10,554 |
| 6. 1988................| 83,612 | 47,275 | 42,361 | 29,455 |
| 7. 1989................| 184,073 | 117,913 | 70,317 | 57,597 |
| 8. 1990................| 240,641 | 194,651 | 139,082 | 91,692 |
| 9. 1991................| X X X X | 234,305 | 176,395 | 123,218 |
| 10. 1992................| X X X X | X X X X | 225,071 | 146,435 |
| 11. 1993................| X X X X | X X X X | X X X X | 181,370 |
----------------------------------------------------------------------------------------------
</TABLE>
Page 90
Form 2
CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND
ITS AFFILIATED FIRE AND CASUALTY INSURERS
<TABLE>
<CAPTION>
SCHEDULE P - PART 4F - SECTION 1 - MEDICAL MALPRACTICE - OCCURRENCE
------------------------------------------------------------------------------------------------------------------------------
| 1 |BULK AND INCURRED BUT NOT REPORTED RESERVES ON LOSSES AND ALLOCATED EXPENSES AT YEAR-END
| |(000 omitted)
| |------------------------------------------------------------------------------------------------
| Years in Which | | | | | | |
| Losses Were | 2 | 3 | 4 | 5 | 6 | 7 |
| Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 |
| | | | | | | |
|-----------------------------|---------------|---------------|---------------|---------------|---------------|---------------|
| | | | | | | |
<S> <C> <C> <C> <C> <C> <C>
| 1. Prior ..............| 26,512 | 21,939 | 12,255 | 7,399 | 6,807 | 4,825 |
| 2. 1984................| 9,269 | 6,853 | 5,085 | 3,864 | 4,478 | 3,429 |
| 3. 1985................| X X X X | 9,518 | 9,830 | 5,261 | 1,978 | 1,853 |
| 4. 1986................| X X X X | X X X X | 68 | (4)| 0 | 1 |
| 5. 1987................| X X X X | X X X X | X X X X | 0 | 96 | 1 |
| 6. 1988................| X X X X | X X X X | X X X X | X X X X | 165 | 4 |
| 7. 1989................| X X X X | X X X X | X X X X | X X X X | X X X X | 2 |
| 8. 1990................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 9. 1991................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 10. 1992................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 11. 1993................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
| 1 |
| ----------------------------------------------------------------|
| Years in Which | | | | |
| Losses Were | 8 | 9 | 10 | 11 |
| Incurred | 1990 | 1991 | 1992 | 1993 |
| | | | | |
|-----------------------------|---------------|---------------|---------------|---------------|
| | | | | |
| 1. Prior ..............| 4,995 | 3,133 | 1,610 | 4,848 |
| 2. 1984................| 2,997 | 1,630 | 1,254 | 866 |
| 3. 1985................| 1,491 | 944 | 730 | 519 |
| 4. 1986................| 0 | 0 | 0 | 0 |
| 5. 1987................| 0 | 0 | 0 | 0 |
| 6. 1988................| 9 | 0 | 0 | 0 |
| 7. 1989................| 4 | 0 | 0 | 0 |
| 8. 1990................| 5 | 0 | 88 | 0 |
| 9. 1991................| X X X X | 3 | 0 | 0 |
| 10. 1992................| X X X X | X X X X | 0 | 0 |
| 11. 1993................| X X X X | X X X X | X X X X | 0 |
---------------------------------------------------------------------------------------------
SCHEDULE P - PART 4F - SECTION 2 - MEDICAL MALPRACTICE - CLAIMS-MADE
------------------------------------------------------------------------------------------------------------------------------
| 1 |BULK AND INCURRED BUT NOT REPORTED RESERVES ON LOSSES AND ALLOCATED EXPENSES AT YEAR-END
| |(000 omitted)
| |------------------------------------------------------------------------------------------------
| Years in Which | | | | | | |
| Losses Were | 2 | 3 | 4 | 5 | 6 | 7 |
| Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 |
| | | | | | | |
|-----------------------------|---------------|---------------|---------------|---------------|---------------|---------------|
| | | | | | | |
| 1. Prior ..............| 0 | 0 | 0 | 0 | 0 | 0 |
| 2. 1984................| 0 | 0 | 0 | 0 | 0 | 0 |
| 3. 1985................| X X X X | 0 | 0 | 134 | 1 | 0 |
| 4. 1986................| X X X X | X X X X | 0 | 4 | 4 | 0 |
| 5. 1987................| X X X X | X X X X | X X X X | 0 | 0 | 94 |
| 6. 1988................| X X X X | X X X X | X X X X | X X X X | 0 | 163 |
| 7. 1989................| X X X X | X X X X | X X X X | X X X X | X X X X | 161 |
| 8. 1990................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 9. 1991................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 10. 1992................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 11. 1993................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------|
| 1 |
| |
| ----------------------------------------------------------------|
| Years in Which | | | | |
| Losses Were | 8 | 9 | 10 | 11 |
| Incurred | 1990 | 1991 | 1992 | 1993 |
| | | | | |
|-----------------------------|---------------|---------------|---------------|---------------|
| | | | | |
| 1. Prior ..............| 0 | 0 | 0 | 0 |
| 2. 1984................| 0 | 0 | 0 | 0 |
| 3. 1985................| 0 | 0 | 0 | 0 |
| 4. 1986................| 0 | 0 | 0 | 0 |
| 5. 1987................| 88 | 64 | 55 | 24 |
| 6. 1988................| 280 | 0 | 0 | 0 |
| 7. 1989................| 129 | 0 | 0 | 0 |
| 8. 1990................| 73 | 30 | 0 | 0 |
| 9. 1991................| X X X X | 212 | 200 | 97 |
| 10. 1992................| X X X X | X X X X | 177 | 135 |
| 11. 1993................| X X X X | X X X X | X X X X | 40 |
---------------------------------------------------------------------------------------------
SCHEDULE P - PART 4G - SPECIAL LIABILITY (OCEAN MARINE, AIRCRAFT
(ALL PERILS), BOILER AND MACHINERY)
------------------------------------------------------------------------------------------------------------------------------
| 1 |BULK AND INCURRED BUT NOT REPORTED RESERVES ON LOSSES AND ALLOCATED EXPENSES AT YEAR-END
| |(000 omitted)
| |------------------------------------------------------------------------------------------------
| Years in Which | | | | | | |
| Losses Were | 2 | 3 | 4 | 5 | 6 | 7 |
| Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 |
| | | | | | | |
|-----------------------------|---------------|---------------|---------------|---------------|---------------|---------------|
| | | | | | | |
| 1. Prior ..............| 1,152 | 1,376 | 695 | 296 | 280 | 193 |
| 2. 1984................| 2,365 | 962 | 178 | 60 | 0 | 0 |
| 3. 1985................| X X X X | 3,931 | 966 | 333 | 200 | 55 |
| 4. 1986................| X X X X | X X X X | 8,647 | 3,035 | 1,998 | 1,619 |
| 5. 1987................| X X X X | X X X X | X X X X | 11,245 | 5,428 | 3,595 |
| 6. 1988................| X X X X | X X X X | X X X X | X X X X | 11,836 | 3,750 |
| 7. 1989................| X X X X | X X X X | X X X X | X X X X | X X X X | 7,701 |
| 8. 1990................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 9. 1991................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 10. 1992................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 11. 1993................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------|
| 1 |
| |
| ----------------------------------------------------------------|
| Years in Which | | | | |
| Losses Were | 8 | 9 | 10 | 11 |
| Incurred | 1990 | 1991 | 1992 | 1993 |
| | | | | |
|-----------------------------|---------------|---------------|---------------|---------------|
| | | | | |
| 1. Prior ..............| 0 | 0 | 4 | 4 |
| 2. 1984................| 0 | 0 | 8 | 8 |
| 3. 1985................| 22 | 2 | 0 | 0 |
| 4. 1986................| 823 | 165 | 125 | 215 |
| 5. 1987................| 1,491 | 367 | 383 | 863 |
| 6. 1988................| 1,624 | 353 | 189 | 771 |
| 7. 1989................| 1,995 | 617 | 294 | 453 |
| 8. 1990................| 6,682 | 1,759 | 1,050 | 189 |
| 9. 1991................| X X X X | 5,660 | 2,064 | 318 |
| 10. 1992................| X X X X | X X X X | 4,727 | 547 |
| 11. 1993................| X X X X | X X X X | X X X X | 3,631 |
---------------------------------------------------------------------------------------------
SCHEDULE P - PART 4H - SECTION 1 - OTHER LIABILITY - OCCURRENCE
------------------------------------------------------------------------------------------------------------------------------
| 1 |BULK AND INCURRED BUT NOT REPORTED RESERVES ON LOSSES AND ALLOCATED EXPENSES AT YEAR-END
| |(000 omitted)
| |------------------------------------------------------------------------------------------------
| Years in Which | | | | | | |
| Losses Were | 2 | 3 | 4 | 5 | 6 | 7 |
| Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 |
| | | | | | | |
|-----------------------------|---------------|---------------|---------------|---------------|---------------|---------------|
| | | | | | | |
| 1. Prior ..............| 179,088 | 148,377 | 101,181 | 65,292 | 52,245 | 40,610 |
| 2. 1984................| 97,898 | 74,206 | 56,747 | 40,196 | 30,886 | 26,244 |
| 3. 1985................| X X X X | 140,056 | 95,657 | 65,153 | 52,126 | 41,785 |
| 4. 1986................| X X X X | X X X X | 218,982 | 188,844 | 140,570 | 76,095 |
| 5. 1987................| X X X X | X X X X | X X X X | 255,083 | 201,512 | 128,329 |
| 6. 1988................| X X X X | X X X X | X X X X | X X X X | 188,732 | 130,153 |
| 7. 1989................| X X X X | X X X X | X X X X | X X X X | X X X X | 124,748 |
| 8. 1990................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 9. 1991................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 10. 1992................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 11. 1993................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------|
| 1 |
| |
| ----------------------------------------------------------------|
| Years in Which | | | | |
| Losses Were | 8 | 9 | 10 | 11 |
| Incurred | 1990 | 1991 | 1992 | 1993 |
| | | | | |
|------------------------------|---------------|---------------|---------------|---------------|
| | | | | |
| 1. Prior ...............| 29,001 | 56,098 | 66,741 | 106,445 |
| 2. 1984.................| 20,342 | 13,815 | 20,223 | 26,876 |
| 3. 1985.................| 36,612 | 34,047 | 30,415 | 31,330 |
| 4. 1986.................| 49,571 | 43,325 | 41,594 | 35,822 |
| 5. 1987.................| 87,279 | 61,191 | 63,292 | 42,081 |
| 6. 1988.................| 145,770 | 66,435 | 61,503 | 36,881 |
| 7. 1989.................| 104,146 | 82,543 | 55,293 | 41,007 |
| 8. 1990.................| 125,630 | 109,041 | 90,026 | 55,009 |
| 9. 1991.................| X X X X | 98,570 | 87,514 | 55,193 |
| 10. 1992.................| X X X X | X X X X | 64,920 | 46,732 |
| 11. 1993.................| X X X X | X X X X | X X X X | 47,924 |
----------------------------------------------------------------------------------------------
SCHEDULE P - PART 4H - SECTION 2 - OTHER LIABILITY - CLAIMS-MADE
------------------------------------------------------------------------------------------------------------------------------
| 1 |BULK AND INCURRED BUT NOT REPORTED RESERVES ON LOSSES AND ALLOCATED EXPENSES AT YEAR-END
| |(000 omitted)
| |------------------------------------------------------------------------------------------------
| Years in Which | | | | | | |
| Losses Were | 2 | 3 | 4 | 5 | 6 | 7 |
| Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 |
| | | | | | | |
|-----------------------------|---------------|---------------|---------------|---------------|---------------|---------------|
| | | | | | | |
| 1. Prior ..............| 0 | 0 | 0 | 0 | 0 | 0 |
| 2. 1984................| 0 | 0 | 0 | 0 | 0 | 0 |
| 3. 1985................| X X X X | 0 | 0 | (27)| (33)| (25)|
| 4. 1986................| X X X X | X X X X | 0 | 34 | (21)| (52)|
| 5. 1987................| X X X X | X X X X | X X X X | 2 | 0 | 0 |
| 6. 1988................| X X X X | X X X X | X X X X | X X X X | 40 | 30 |
| 7. 1989................| X X X X | X X X X | X X X X | X X X X | X X X X | 116 |
| 8. 1990................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 9. 1991................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 10. 1992................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 11. 1993................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------|
| 1 |
| |
| ----------------------------------------------------------------|
| Years in Which | | | | |
| Losses Were | 8 | 9 | 10 | 11 |
| Incurred | 1990 | 1991 | 1992 | 1993 |
| | | | | |
|-----------------------------|---------------|---------------|---------------|---------------|
| | | | | |
| 1. Prior ..............| 0 | 0 | 0 | 40 |
| 2. 1984................| 0 | 0 | 0 | 12 |
| 3. 1985................| (44)| (9)| (57)| 5 |
| 4. 1986................| (208)| (91)| 20 | 31 |
| 5. 1987................| 0 | 0 | 0 | 3 |
| 6. 1988................| 23 | 162 | 0 | 3 |
| 7. 1989................| 83 | 32 | 20 | 0 |
| 8. 1990................| 99 | 45 | 45 | 119 |
| 9. 1991................| X X X X | 217 | 98 | 134 |
| 10. 1992................| X X X X | X X X X | 348 | 86 |
| 11. 1993................| X X X X | X X X X | X X X X | 13 |
---------------------------------------------------------------------------------------------
</TABLE>
Page 91
Form 2
CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND
ITS AFFILIATED FIRE AND CASUALTY INSURERS
<TABLE>
<CAPTION>
SCHEDULE P - PART 4I - SPECIAL PROPERTY (FIRE, ALLIED LINES, INLAND
MARINE, EARTHQUAKE, GLASS, BURGLARY AND THEFT)
------------------------------------------------------------------------------------------------------------------------------
| |BULK AND INCURRED BUT NOT REPORTED RESERVES ON LOSSES AND ALLOCATED EXPENSES AT YEAR END
| |(000 omitted)
| 1 |------------------------------------------------------------------------------------------------
| | | | | | | |
| Years in Which | 2 | 3 | 4 | 5 | 6 | 7 |
| Losses Were | | | | | | |
| Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 |
| | | | | | | |
| | | | | | | |
|-----------------------------|---------------|---------------|---------------|---------------|---------------|---------------|
| | | | | | | |
<S> <C> <C> <C> <C> <C>
| 1. Prior ..............| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 2 1992................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 3. 1993................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
| |
| 1 ----------------------------------------------------------------|
| | | | | |
| Years in Which | 8 | 9 | 10 | 11 |
| Losses Were | | | | |
| Incurred | 1990 | 1991 | 1992 | 1993 |
| | | | | |
| | | | | |
|-----------------------------|---------------|---------------|---------------|---------------|
| | | | | |
| 1. Prior ..............| X X X X | 32,120 | 21,344 | 10,977 |
| 2 1992................| X X X X | X X X X | 16,111 | 2,061 |
| 3. 1993................| X X X X | X X X X | X X X X | 6,097 |
---------------------------------------------------------------------------------------------
SCHEDULE P - PART 4J - AUTO PHYSICAL DAMAGE
------------------------------------------------------------------------------------------------------------------------------
| |BULK AND INCURRED BUT NOT REPORTED RESERVES ON LOSSES AND ALLOCATED EXPENSES AT YEAR END
| |(000 omitted)
| 1 |------------------------------------------------------------------------------------------------
| | | | | | | |
| Years in Which | 2 | 3 | 4 | 5 | 6 | 7 |
| Losses Were | | | | | | |
| Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 |
| | | | | | | |
| | | | | | | |
|-----------------------------|---------------|---------------|---------------|---------------|---------------|---------------|
| | | | | | | |
| 1. Prior ..............| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 2 1992................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 3. 1993................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------|
| |
| |
| 1 ----------------------------------------------------------------|
| | | | | |
| Years in Which | 8 | 9 | 10 | 11 |
| Losses Were | | | | |
| Incurred | 1990 | 1991 | 1992 | 1993 |
| | | | | |
| | | | | |
|-----------------------------|---------------|---------------|---------------|---------------|
| | | | | |
| 1. Prior ..............| X X X X | 18,208 | 12,862 | 6,347 |
| 2 1992................| X X X X | X X X X | 4,424 | (343)|
| 3. 1993................| X X X X | X X X X | X X X X | 5,847 |
----------------------------------------------------------------------------------------------
SCHEDULE P - PART 4K - FIDELITY, SURETY, FINANCIAL GUARANTY, MORTGAGE GUARANTY
------------------------------------------------------------------------------------------------------------------------------
| |BULK AND INCURRED BUT NOT REPORTED RESERVES ON LOSSES AND ALLOCATED EXPENSES AT YEAR END
| |(000 omitted)
| 1 |------------------------------------------------------------------------------------------------
| | | | | | | |
| Years in Which | 2 | 3 | 4 | 5 | 6 | 7 |
| Losses Were | | | | | | |
| Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 |
| | | | | | | |
| | | | | | | |
|-----------------------------|---------------|---------------|---------------|---------------|---------------|---------------|
| | | | | | | |
| 1. Prior ..............| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 2 1992................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 3. 1993................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------|
| |
| 1 ----------------------------------------------------------------|
| | | | | |
| Years in Which | 8 | 9 | 10 | 11 |
| Losses Were | | | | |
| Incurred | 1990 | 1991 | 1992 | 1993 |
| | | | | |
| | | | | |
|-----------------------------|---------------|---------------|---------------|---------------|
| | | | | |
| 1. Prior ..............| X X X X | 7,223 | 4,210 | 6,918 |
| 2 1992................| X X X X | X X X X | 9,776 | 5,338 |
| 3. 1993................| X X X X | X X X X | X X X X | 15,103 |
---------------------------------------------------------------------------------------------
SCHEDULE P - PART 4L - OTHER (INCLUDING CREDIT, ACCIDENT AND HEALTH)
------------------------------------------------------------------------------------------------------------------------------
| |BULK AND INCURRED BUT NOT REPORTED RESERVES ON LOSSES AND ALLOCATED EXPENSES AT YEAR END
| |(000 omitted)
| 1 |------------------------------------------------------------------------------------------------
| | | | | | | |
| Years in Which | 2 | 3 | 4 | 5 | 6 | 7 |
| Losses Were | | | | | | |
| Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 |
| | | | | | | |
| | | | | | | |
|-----------------------------|---------------|---------------|---------------|---------------|---------------|---------------|
| | | | | | | |
| 1. Prior ..............| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 2 1992................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 3. 1993................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------|
| | |
| | |
| 1 |---------------------------------------------------------------|
| | | | | |
| Years in Which | 8 | 9 | 10 | 11 |
| Losses Were | | | | |
| Incurred | 1990 | 1991 | 1992 | 1993 |
| | | | | |
| | | | | |
|-----------------------------|---------------------------------------------------------------
| | | | | |
| 1. Prior ..............| X X X X | 20 | (4) | 4 |
| 2 1992................| X X X X | X X X X | 8 | 0 |
| 3. 1993................| X X X X | X X X X | X X X X | 0 |
---------------------------------------------------------------------------------------------
SCHEDULE P - PART 4M - INTERNATIONAL
------------------------------------------------------------------------------------------------------------------------------
| |BULK AND INCURRED BUT NOT REPORTED RESERVES ON LOSSES AND ALLOCATED EXPENSES AT YEAR END
| |(000 omitted)
| 1 |------------------------------------------------------------------------------------------------
| | | | | | | |
| Years in Which | 2 | 3 | 4 | 5 | 6 | 7 |
| Losses Were | | | | | | |
| Incurred | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 |
| | | | | | | |
| | | | | | | |
|-----------------------------|---------------|---------------|---------------|---------------|---------------|---------------|
| | | | | | | |
| 1. Prior ..............| 0 | 0 | 0 | 0 | 0 | 0 |
| 2. 1984................| 0 | 0 | 0 | 0 | 0 | 0 |
| 3. 1985................| X X X X | 0 | 0 | 0 | 0 | 0 |
| 4. 1986................| X X X X | X X X X | 0 | 0 | 0 | 0 |
| 5. 1987................| X X X X | X X X X | X X X X | 0 | 0 | 0 |
| 6. 1988................| X X X X | X X X X | X X X X | X X X X | 6,976 | 4,332 |
| 7. 1989................| X X X X | X X X X | X X X X | X X X X | X X X X | 4,930 |
| 8. 1990................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 9. 1991................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 10. 1992................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 11. 1993................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------|
| | |
| | |
| 1 |---------------------------------------------------------------|
| | | | | |
| Years in Which | 8 | 9 | 10 | 11 |
| Losses Were | | | | |
| Incurred | 1990 | 1991 | 1992 | 1993 |
| | | | | |
| | | | | |
|-----------------------------|---------------------------------------------------------------|
| | | | | |
| 1. Prior ..............| 0 | 0 | 0 | 0 |
| 2. 1984................| 0 | 0 | 0 | 0 |
| 3. 1985................| 0 | 0 | 0 | 0 |
| 4. 1986................| 0 | 0 | 0 | 0 |
| 5. 1987................| 0 | 0 | 0 | 0 |
| 6. 1988................| 3,098 | 1,388 | 1,425 | 1,694 |
| 7. 1989................| 2,760 | 1,775 | 1,523 | 1,444 |
| 8. 1990................| 5,303 | 3,754 | 2,259 | 958 |
| 9. 1991................| X X X X | 5,740 | 3,247 | 1,728 |
| 10. 1992................| X X X X | X X X X | 2,293 | 1,735 |
| 11. 1993................| X X X X | X X X X | X X X X | 4,466 |
---------------------------------------------------------------------------------------------
</TABLE>
Page 92
Form 2
CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND
ITS AFFILIATED FIRE AND CASUALTY INSURERS
<TABLE>
<CAPTION>
SCHEDULE P - PART 4N - REINSURANCE A
------------------------------------------------------------------------------------------------------------------------------
| |BULK AND INCURRED BUT NOT REPORTED RESERVES ON LOSSES AND ALLOCATED EXPENSES AT YEAR END
| |(000 omitted)
| 1 |------------------------------------------------------------------------------------------------
| | | | | | | |
| Years in Which | 2 | 3 | 4 | 5 | 6 | 7 |
| Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 |
| Incurred | | | | | | |
| | | | | | | |
| | | | | | | |
|-----------------------------|---------------|---------------|---------------|---------------|---------------|---------------|
<S> <C> <C> <C> <C> <C> <C>
| 1. 1988................| X X X X | X X X X | X X X X | X X X X | 29,167 | 20,669 |
| 2. 1989................| X X X X | X X X X | X X X X | X X X X | X X X X | 14,575 |
| 3. 1990................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 4. 1991................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 5. 1992................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 6. 1993................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------|
| |
| |
| 1 ----------------------------------------------------------------|
| | | | | |
| Years in Which | 8 | 9 | 10 | 11 |
| Losses Were | 1990 | 1991 | 1992 | 1993 |
| Incurred | | | | |
| | | | | |
| | | | | |
|-----------------------------|---------------|---------------|---------------|---------------|
| 1. 1988................| 16,864 | 5,599 | 3,332 | 3,611 |
| 2. 1989................| 13,294 | 13,088 | 11,443 | 4,941 |
| 3. 1990................| 17,082 | 17,746 | 15,433 | 5,074 |
| 4. 1991................| X X X X | 32,597 | 23,320 | 6,916 |
| 5. 1992................| X X X X | X X X X | 23,417 | 18,544 |
| 6. 1993................| X X X X | X X X X | X X X X | 34,972 |
---------------------------------------------------------------------------------------------
SCHEDULE P - PART 4O - REINSURANCE B
------------------------------------------------------------------------------------------------------------------------------
| |BULK AND INCURRED BUT NOT REPORTED RESERVES ON LOSSES AND ALLOCATED EXPENSES AT YEAR END
| |(000 omitted)
| 1 |------------------------------------------------------------------------------------------------
| | | | | | | |
| Years in Which | 2 | 3 | 4 | 5 | 6 | 7 |
| Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 |
| Incurred | | | | | | |
| | | | | | | |
| | | | | | | |
|-----------------------------|---------------|---------------|---------------|---------------|---------------|---------------|
| | | | | | | |
| 1. 1988................| X X X X | X X X X | X X X X | X X X X | 18,119 | 12,928 |
| 2. 1989................| X X X X | X X X X | X X X X | X X X X | X X X X | 6,987 |
| 3. 1990................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 4. 1991................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 5. 1992................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 6. 1993................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------|
| |
| |
| 1 ----------------------------------------------------------------|
| | | | | |
| Years in Which | 8 | 9 | 10 | 11 |
| Losses Were | 1990 | 1991 | 1992 | 1993 |
| Incurred | | | | |
| | | | | |
| | | | | |
|-----------------------------|---------------|---------------|---------------|---------------|
| 1. 1988................| 10,228 | 2,583 | 1,598 | 1,815 |
| 2. 1989................| 5,714 | 4,607 | 3,651 | 2,163 |
| 3. 1990................| 5,534 | 5,443 | 4,686 | 1,822 |
| 4. 1991................| X X X X | 11,202 | 9,182 | 4,041 |
| 5. 1992................| X X X X | X X X X | 13,249 | 8,686 |
| 6. 1993................| X X X X | X X X X | X X X X | 9,690 |
---------------------------------------------------------------------------------------------
SCHEDULE P - PART 4P - REINSURANCE C
------------------------------------------------------------------------------------------------------------------------------
| |BULK AND INCURRED BUT NOT REPORTED RESERVES ON LOSSES AND ALLOCATED EXPENSES AT YEAR END
| |(000 omitted)
| 1 |------------------------------------------------------------------------------------------------
| | | | | | | |
| Years in Which | 2 | 3 | 4 | 5 | 6 | 7 |
| Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 |
| Incurred | | | | | | |
| | | | | | | |
| | | | | | | |
|-----------------------------|---------------|---------------|---------------|---------------|---------------|---------------|
| | | | | | | |
| 1. 1988................| X X X X | X X X X | X X X X | X X X X | 0 | 0 |
| 2. 1989................| X X X X | X X X X | X X X X | X X X X | X X X X | 0 |
| 3. 1990................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 4. 1991................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 5. 1992................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 6. 1993................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------|
| |
| |
| 1 ----------------------------------------------------------------|
| | | | | |
| Years in Which | 8 | 9 | 10 | 11 |
| Losses Were | 1990 | 1991 | 1992 | 1993 |
| Incurred | | | | |
| | | | | |
| | | | | |
|-----------------------------|---------------|---------------|---------------|---------------|
| 1. 1988................| 0 | 0 | 0 | 0 |
| 2. 1989................| 0 | 0 | 0 | 0 |
| 3. 1990................| 0 | 0 | 0 | 0 |
| 4. 1991................| X X X X | 0 | 0 | 0 |
| 5. 1992................| X X X X | X X X X | 0 | 0 |
| 6. 1993................| X X X X | X X X X | X X X X | 0 |
---------------------------------------------------------------------------------------------
SCHEDULE P - PART 4Q - REINSURANCE D
------------------------------------------------------------------------------------------------------------------------------
| |BULK AND INCURRED BUT NOT REPORTED RESERVES ON LOSSES AND ALLOCATED EXPENSES AT YEAR END
| |(000 omitted)
| 1 |------------------------------------------------------------------------------------------------
| | | | | | | |
| Years in Which | 2 | 3 | 4 | 5 | 6 | 7 |
| Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 |
| Incurred | | | | | | |
| | | | | | | |
| | | | | | | |
|-----------------------------|---------------|---------------|---------------|---------------|---------------|---------------|
| | | | | | | |
| 1. Prior ..............| 0 | 0 | 0 | 0 | 0 | 0 |
| 2. 1984................| 452 | 3,340 | 179 | 4 | 23 | 0 |
| 3. 1985................| X X X X | 6,413 | 7,117 | 931 | 346 | 125 |
| 4. 1986................| X X X X | X X X X | 15,706 | 7,079 | 3,446 | 2,206 |
| 5. 1987................| X X X X | X X X X | X X X X | 20,805 | 10,661 | 6,768 |
------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------|
| |
| |
| 1 ----------------------------------------------------------------|
| | | | | |
| Years in Which | 8 | 9 | 10 | 11 |
| Losses Were | 1990 | 1991 | 1992 | 1993 |
| Incurred | | | | |
| | | | | |
| | | | | |
|-----------------------------|---------------|---------------|---------------|---------------|
| 1. 1988................| | | | |
| 2. 1989................| 0 | 0 | 0 | 0 |
| 3. 1990................| 0 | 0 | 0 | 0 |
| 4. 1991................| 195 | 2 | 0 | 0 |
| 5. 1992................| 1,663 | 814 | 590 | 442 |
| 6. 1993................| 5,997 | 2,624 | 2,139 | 2,492 |
---------------------------------------------------------------------------------------------
SCHEDULE P - PART 4R - SECTION 1 - PRODUCTS LIABILITY - OCCURRENCE
------------------------------------------------------------------------------------------------------------------------------
| |BULK AND INCURRED BUT NOT REPORTED RESERVES ON LOSSES AND ALLOCATED EXPENSES AT YEAR END
| |(000 omitted)
| 1 |------------------------------------------------------------------------------------------------
| | | | | | | |
| Years in Which | 2 | 3 | 4 | 5 | 6 | 7 |
| Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 |
| Incurred | | | | | | |
| | | | | | | |
| | | | | | | |
|-----------------------------|---------------|---------------|---------------|---------------|---------------|---------------|
| | | | | | | |
| 1. Prior ..............| 24,190 | 23,576 | 11,272 | 8,962 | 8,552 | 4,944 |
| 2. 1984................| 7,309 | 5,947 | 6,196 | 4,975 | 4,101 | 3,498 |
| 3. 1985................| X X X X | 10,485 | 7,804 | 7,597 | 6,977 | 5,298 |
| 4. 1986................| X X X X | X X X X | 26,221 | 19,150 | 16,072 | 9,372 |
| 5. 1987................| X X X X | X X X X | X X X X | 24,856 | 18,904 | 15,562 |
| 6. 1988................| X X X X | X X X X | X X X X | X X X X | 17,164 | 13,768 |
| 7. 1989................| X X X X | X X X X | X X X X | X X X X | X X X X | 13,345 |
| 8. 1990................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 9. 1991................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 10. 1992................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 11. 1993................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------|
| |
| |
| 1 ----------------------------------------------------------------|
| | | | | |
| Years in Which | 8 | 9 | 10 | 11 |
| Losses Were | 1990 | 1991 | 1992 | 1993 |
| Incurred | | | | |
| | | | | |
| | | | | |
|-----------------------------|---------------|---------------|---------------|---------------|
| | | | | |
| 1. Prior ..............| 13,286 | 20,381 | 25,550 | 29,795 |
| 2. 1984................| 2,584 | 1,627 | 2,026 | 2,914 |
| 3. 1985................| 4,066 | 3,226 | 2,847 | 3,452 |
| 4. 1986................| 5,213 | 4,975 | 3,763 | 4,275 |
| 5. 1987................| 11,129 | 6,489 | 4,705 | 5,581 |
| 6. 1988................| 14,915 | 4,998 | 5,183 | 5,022 |
| 7. 1989................| 9,827 | 5,407 | 3,061 | 3,546 |
| 8. 1990................| 10,345 | 7,066 | 5,154 | 4,032 |
| 9. 1991................| X X X X | 7,951 | 6,021 | 4,756 |
| 10. 1992................| X X X X | X X X X | 6,687 | 4,483 |
| 11. 1993................| X X X X | X X X X | X X X X | 5,486 |
---------------------------------------------------------------------------------------------
SCHEDULE P - PART 4R - SECTION 2 - PRODUCTS LIABILITY - CLAIMS-MADE
------------------------------------------------------------------------------------------------------------------------------
| |BULK AND INCURRED BUT NOT REPORTED RESERVES ON LOSSES AND ALLOCATED EXPENSES AT YEAR END
| |(000 omitted)
| 1 |------------------------------------------------------------------------------------------------
| | | | | | | |
| Years in Which | 2 | 3 | 4 | 5 | 6 | 7 |
| Losses Were | 1984 | 1985 | 1986 | 1987 | 1988 | 1989 |
| Incurred | | | | | | |
| | | | | | | |
| | | | | | | |
|-----------------------------|---------------|---------------|---------------|---------------|---------------|---------------|
| | | | | | | |
| 1. Prior ..............| 0 | 0 | 0 | 0 | 0 | 0 |
| 2. 1984................| 0 | 0 | 0 | 0 | 0 | 0 |
| 3. 1985................| X X X X | 0 | 0 | 0 | 0 | 0 |
| 4. 1986................| X X X X | X X X X | 0 | 0 | 0 | 0 |
| 5. 1987................| X X X X | X X X X | X X X X | 0 | 0 | 0 |
| 6. 1988................| X X X X | X X X X | X X X X | X X X X | 2 | 2 |
| 7. 1989................| X X X X | X X X X | X X X X | X X X X | X X X X | 0 |
| 8. 1990................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 9. 1991................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 10. 1992................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
| 11. 1993................| X X X X | X X X X | X X X X | X X X X | X X X X | X X X X |
------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------|
| |
| |
| 1 ----------------------------------------------------------------|
| | | | | |
| Years in Which | 8 | 9 | 10 | 11 |
| Losses Were | 1990 | 1991 | 1992 | 1993 |
| Incurred | | | | |
| | | | | |
| | | | | |
|-----------------------------|---------------|---------------|---------------|---------------|
| | | | | |
| 1. Prior ..............| 0 | 0 | 0 | 0 |
| 2. 1984................| 0 | 0 | 0 | 0 |
| 3. 1985................| 0 | 0 | 0 | 0 |
| 4. 1986................| 0 | 0 | 0 | 3 |
| 5. 1987................| 0 | 0 | 0 | 0 |
| 6. 1988................| 0 | 0 | 0 | 0 |
| 7. 1989................| 2 | 0 | 0 | 2 |
| 8. 1990................| 29 | 19 | 14 | 0 |
| 9. 1991................| X X X X | 52 | 31 | 12 |
| 10. 1992................| X X X X | X X X X | 24 | 348 |
| 11. 1993................| X X X X | X X X X | X X X X | 0 |
----------------------------------------------------------------------------------------------
</TABLE>
Page # 93
Form 2
CONSOLIDATED ANNUAL STATEMENT FOR THE YEAR 1993 OF
THE UNITED STATES FIDELITY AND GUARANTY COMPANY AND
ITS AFFILIATED FIRE AND CASUALTY INSURERS
<TABLE>
<CAPTION>
SCHEDULE P INTERROGATORIES
---------------------------------------------------------------------------------------------------------------------------
|
|
| 1. Computation of excess statutory reserves over statement reserves. See Instructions for explanation and formulas.
|
| (a) Auto Liability (private passenger and commercial)
|
<S> <C> <C> <C> <C> <C>
| 1993 ( 60.0%) 1992 ( 60.0%)
| ------------------------------------------- -----------------------------------------
| 1991 ( 60.0%) Total
| ------------------------------------------ -------------------------
|
|
| (b) Other Liability and Products Liability
|
| 1993 ( 60.0%) 1992 ( 60.0%)
| ------------------------------------------ ------------------------------------------
| 1991 ( 60.0%) Total
| ------------------------------------------ -------------------------
|
| (c) Medical Malpractice
|
| 1993 ( 60.0%) 1992 ( 60.0%)
| ------------------------------------------ ------------------------------------------
| 1991 ( 60.0%) Total
| ------------------------------------------ -------------------------
|
| (d) Workers' Compensation
|
| 1993 ( 65.0%) 1992 ( 65.0%)
| ------------------------------------------- ---------------------------------------
| 1991 ( 65.0%) Total
| ------------------------------------------ -------------------------
|
| (e) Credit Total
| -------------------------
|
| (f) All Lines Total (Report here and Page 3) Total ________________________
|
</TABLE>
|
|
| 2. What is the extended loss and expense reserve-direct and assumed-for the
| following classes? An example of an extended loss and expense reserve is
| is the actuarial reserve for the free-tail coverage arising upon death,
| disability or retirement in most medical malpractice policies. Such a
| liability is to be reported here even if it was not reported elsewhere
| in Schedule P, but otherwise reported as a liability item on page 3.
| Show the full reserve amount, not just the change during the current
| year.
|
<TABLE>
<CAPTION>
|
| ------------------------------------------------------------------------------ -----------------------------------------
| | Year in which premiums | 1 | 2 | 3 |
| | were earned and losses | Medical | Other | Products |
| | were incurred | Malpractice | Liability | Liability |
| |---------------------------------------------------|-------------------------|-------------------------|---------------|
| <S> <C> <C> <C> <C>
| | (a) 1987 | 0 | 0 | 0 |
| | (b) 1988 | 0 | 0 | 0 |
| | (c) 1989 | 0 | 0 | 0 |
| | (d) 1990 | 0 | 0 | 0 |
| | (e) 1991 | 0 | 0 | 0 |
| | (f) 1992 | 0 | 0 | 0 |
| | (g) 1993 | 0 | 0 | 0 |
| |---------------------------------------------------|-------------------------|-------------------------|---------------|
| | (h) Totals | 0 | 0 | 0 |
| -----------------------------------------------------------------------------------------------------------------------
</TABLE>
3. The term "Loss expense" includes all payments for legal expenses,
including attorney's and witness fees and court costs,salaries
and expenses of investigators, adjustors and field men,rents,
stationery, telegraph and telephone charges,postage, salaries and
expenses of office employees, home office expenses and all other
payments under or on account of such injuries, whether the payments
are allocated to specific claims or are unallocated. Are they so
reported in this statement? Answer: Yes [ X ] No [ ]
4. The unallocated loss expense payments paid during the most
recent calendar year should be distributed to the various
years in which losses were incurred as follows: (1) 45% to
the most recent year, (2) 5% to the next most recent year, and
(3) the balance to all years, including the most recent, in
proportion to the amount of loss payments paid for each year
during the most recent calendar year. If the distribution in
(1) or (2) produces an accumulated distribution to such year
in excess of 10% of the premiums earned for such year,
disregarding all distributions made under (3), such accumulated
distribution should be limited to 10% of premiums earned and the
balance distributed in accordance with (3). Are they so reported
in this Statement? Answer: Yes [ ] No [ X ]
See note below !
5. Do any lines in Schedule P include reserves which are reported
gross of any discount to present value of future payments, but
are reported net of such discounts on page 10? Yes [ X ] No [ ]
If yes, proper reporting must be made in the Notes to Financial
Statements, as specified in the Instructions. Also, the discounts
must be reported in Schedule P - Part 1, Columns 31 and 32.
Schedule P must be completed gross of non-tabular discounting. Work
papers relating to discount calculations must be available for
examination upon request.
Discounting is allowed only if expressly permitted by the state
insurance department to which this Annual Statement is being filed.
6. What were the net premiums in force at the end of the year for:
(in thousands of dollars)
<TABLE>
<CAPTION>
<S> <C> <C>
(a) Fidelity $17,308
(b) Surety $94,380
</TABLE>
7. Claim count information is reported (check one)
If not the same in all years, explain in Question 8.
(a) per claim
----------------------
(b) per claimant X
----------------------
8. The information provided in Schedule P will be used by many persons
to estimate the adequacy of the current loss and expense reserves,
among other things. Are there any especially significant events,
coverage, retention or accounting changes which have occurred
which must be considered when making such analyses (An
extended statement may be attached)? In 1993, for the first
time, USF&G explicitly reduced carried reserves for anticipated
Salvage & Subrogation recoveries. To eliminate distortions in the
one and two year developments shown in Part 2 we also restated
carried reserves as of 12/91 and 12/92 for Parts 2 & 4 to be net of
anticipated Salvage & Subrogation. The 1993 Earned Premiums for
Part 10 - Reins. B reflects $60,000,000 of net ceded premiums
associated with two reinsurance contracts. These excess of loss
contracts cover risk reinsurance assumed through the operation of
our Reinsurance Management Company, F&G Re. No losses were ceded
under these contracts as of December 31, 1993. In 1984 United
States Fidelity and Guaranty began actively writing reinsurance.
This book of business is managed by F&G Re. It is characterized
by relatively large IBNR reserves and by slower payment patterns.
In 1985, United States Fidelity and Guaranty began increasing the
use of structured settlements to close claims. This has the effect
of speeding up loss payment patterns. See Footnote #17 for the
impact of the WCRB commutation.
ITEM 4 NOTE - The accident year distribution of the calendar year
1993 ULAE Payments was based on cost accounting studies.
