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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) - FEBRUARY 24, 1999
MINNESOTA POWER, INC.
A Minnesota Corporation
Commission File No. 1-3548
IRS Employer Identification No. 41-0418150
30 West Superior Street
Duluth, Minnesota 55802
Telephone - (218) 722-2641
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ITEM 5. OTHER EVENTS.
Reference is made to the Annual Report on Form 10-K for the year ended December
31, 1998 (1998 Form 10-K) of Minnesota Power, Inc. (Minnesota Power or Company)
for background information on the following update. The cited reference is to
the Company's 1998 Form 10-K.
Ref. Page 22 - Fifth and Six Paragraphs.
Minnesota Power has a 21 percent equity investment in Capital Re Corporation
(Capital Re), a financial guaranty reinsurance and specialty insurance company.
On February 24, 1999 Capital Re reported that its 1998 financial results
included a $44.1 million pre-tax charge. The charge is due to the establishment
of a loss reserve with respect to Capital Re's reinsurance of approximately $150
million of three issues of asset-backed securities originated by Commercial
Financial Services Inc. (CFS). CFS is under investigation by the Securities and
Exchange Commission, and the Oklahoma Securities Commission for allegations of
irregularities relating to these securities. CFS filed for Chapter 11 bankruptcy
protection on December 11, 1998. Capital Re believes the CFS loss reserve is
conservative and represents a best estimate of all currently anticipated and
probable future losses. Minnesota Power's first quarter 1999 financial results
will be reduced by a one-time charge of approximately $1.7 million to reflect
the impact of the reserve established by Capital Re.
Excluding the CFS loss, Capital Re's operating results for 1998 are consistent
with the expectations of its management. Total revenue comprised principally of
net premiums earned, investment income and fee income, increased 36 percent to
$236.5 million ($173.4 million in 1997). Gross and net premiums written
increased 25 percent and net premiums earned increased 46 percent.
Capital Re Financial Information
Year Ended December 31 1998 1997
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Millions
Investment Portfolio $1,175.1 $1,008.0
Other Assets $333.7 $337.8
Liabilities $417.1 $327.8
Deferred Revenue $405.9 $374.0
Net Revenue $236.5 $173.4
Net Income $41.5 $70.1
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Capital Re also announced that ACE Bermuda Insurance, Ltd. (ACE), a subsidiary
of ACE Limited, has agreed to invest $75 million in Capital Re through a
purchase of common stock. The proceeds will be used to augment the surplus of
Capital Re's operating subsidiaries. Upon completion of the stock purchase, ACE
will have an ownership interest of approximately 11 percent. Minnesota Power's
ownership interest will decline from 21 percent to 18 percent. Closing is
contingent on customary conditions, the affirmation of the financial strength
ratings of Capital Re's major subsidiaries, which are currently under review by
Standard and Poor's and Moody's Investors Service, and regulatory approval.
Capital Re and ACE Limited have had a strategic joint venture in place since
1997. Minnesota Power continues to view Capital Re as a sound investment and may
increase its ownership interest through open market purchases.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Minnesota Power, Inc.
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(Registrant)
February 26, 1999 D. G. Gartzke
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D. G. Gartzke
Senior Vice President - Finance
and Chief Financial Officer
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