<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
----- OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
------------------
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
----- OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
-------------- ---------------
Commission File Number 0-3021
------
THE ST. PAUL COMPANIES, INC.
----------------------------
(Exact name of Registrant as specified in its charter)
Minnesota 41-0518860
------------------------ --------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
385 Washington St., Saint Paul, MN 55102
---------------------------------- ---------
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code (612) 310-7911
-------------
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file
such reports) and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
------ ------
The number of shares of the Registrant's Common Stock, without par
value, outstanding at November 10, 1997, was 83,640,143.
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page No.
--------
PART I. FINANCIAL INFORMATION
Consolidated Statements of Income (Unaudited), Three
and Nine Months Ended September 30, 1997 and 1996 3
Consolidated Balance Sheets, September 30, 1997
(Unaudited) and December 31, 1996 4
Consolidated Statements of Shareholders' Equity,
Nine Months Ended September 30, 1997 (Unaudited) and
Twelve Months Ended December 31, 1996 6
Consolidated Statements of Cash Flows (Unaudited),
Nine Months Ended September 30, 1997 and 1996 7
Notes to Consolidated Financial Statements (Unaudited) 8
Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
PART II. OTHER INFORMATION
Item 1 through Item 6 23
Signatures 24
EXHIBIT INDEX 25
<PAGE>
PART I FINANCIAL INFORMATION
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
Unaudited
(In thousands)
Three Months Ended Nine Months Ended
September 30 September 30
------------------- ------------------
1997 1996 1997 1996
---- ---- ---- ----
Revenues:
Premiums earned $1,154,691 1,168,908 3,491,441 3,254,868
Net investment income 223,528 204,980 659,760 594,160
Realized investment gains 47,312 37,556 310,818 132,981
Investment banking-asset
management 61,939 55,544 180,299 161,468
Other 9,578 9,170 32,644 27,046
--------- --------- --------- ---------
Total revenues 1,497,048 1,476,158 4,674,962 4,170,523
--------- --------- --------- ---------
Expenses:
Insurance losses and loss
adjustment expenses 825,867 905,943 2,540,230 2,440,204
Policy acquisition expenses 252,593 249,736 780,067 712,015
Operating and administrative 216,018 204,556 598,508 551,918
--------- --------- --------- ---------
Total expenses 1,294,478 1,360,235 3,918,805 3,704,137
--------- --------- --------- ---------
Income from continuing
operations before
income taxes 202,570 115,923 756,157 466,386
Income tax expense (benefit):
Federal current 47,214 17,874 204,658 90,956
Other (8,048) (16,774) (34,728) (19,099)
--------- --------- --------- ---------
Total income tax expense 39,166 1,100 169,930 71,857
--------- --------- --------- ---------
Income from continuing
operations 163,404 114,823 586,227 394,529
Discontinued operations:
Operating loss, net
of taxes - (1,889) - (22,721)
Gain (loss) on disposal,
net of taxes - 16,000 (67,750) 16,000
--------- --------- --------- ---------
Gain (loss) from
discontinued operations - 14,111 (67,750) (6,721)
--------- --------- --------- ---------
Net income $163,404 128,934 518,477 387,808
========= ========= ========= =========
Primary earnings per
common share:
Income from continuing
operations $ 1.88 1.33 6.82 4.58
Gain (loss) from
discontinued operations - 0.17 (0.81) (.08)
--------- --------- --------- ---------
Net income $ 1.88 1.50 6.01 4.50
========= ========= ========= =========
Fully diluted earnings per
common share:
Income from continuing
operations $1.76 1.26 6.35 4.31
Gain (loss) from
discontinued operations - .16 (0.73) (.07)
--------- --------- --------- ---------
Net income $ 1.76 1.42 5.62 4.24
========= ========= ========= =========
Dividends declared on
common stock $ 0.47 0.44 1.41 1.32
========= ========= ========= =========
See notes to consolidated financial statements.
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
September 30, December 31,
ASSETS 1997 1996
- ------ ------------ -----------
(Unaudited)
Investments:
Fixed maturities, at estimated market value $12,295,571 11,944,085
Equities, at estimated market value 1,011,309 808,295
Real estate, at cost less accumulated
depreciation of $89,017 (1996; $81,764) 731,138 693,910
Venture capital, at estimated market value 455,618 586,222
Other investments 43,827 43,311
Short-term investments, at cost 428,590 289,793
---------- ----------
Total investments 14,966,053 14,365,616
Cash 36,931 37,214
Investment banking inventory securities 59,580 143,594
Reinsurance recoverables:
Unpaid losses 1,864,214 1,890,105
Paid losses 50,720 68,692
Receivables:
Underwriting premiums 1,559,817 1,558,967
Interest and dividends 220,135 213,883
Other 117,118 104,865
Deferred policy acquisition expenses 403,771 401,768
Ceded unearned premiums 206,032 243,663
Deferred income taxes 900,559 908,220
Office properties and equipment, at cost
less accumulated depreciation
of $249,683 (1996; $217,454) 286,128 281,093
Goodwill 383,132 167,338
Other assets 406,509 295,958
---------- ----------
Total assets $21,460,699 20,680,976
========== ==========
See notes to consolidated financial statements.
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (continued)
(In thousands)
September 30, December 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1996
- ------------------------------------ ----------- -----------
(Unaudited)
Liabilities:
Insurance reserves:
Losses and loss adjustment expenses $11,818,140 11,673,148
Unearned premiums 2,440,565 2,566,551
---------- ----------
Total insurance reserves 14,258,705 14,239,699
Debt 762,450 689,141
Payables:
Income taxes 273,632 219,081
Reinsurance premiums 144,992 181,524
Accrued expenses and other 671,980 484,062
Other liabilities 693,699 656,649
---------- ----------
Total liabilities 16,805,458 16,470,156
---------- ----------
Company-obligated mandatorily
redeemable preferred securities of
St. Paul Capital L.L.C. 207,000 207,000
---------- ----------
Shareholders' equity:
Preferred:
Series B convertible preferred stock;
1,450 shares authorized; 965 shares
outstanding (985 shares in 1996) 139,575 142,131
Guaranteed obligation - PSOP (121,167) (126,068)
---------- ----------
Total preferred shareholders' equity 18,408 16,063
---------- ----------
Common:
Common stock, 240,000 shares authorized; 83,582
shares outstanding (83,198 shares in 1996) 503,879 475,710
Retained earnings 3,307,321 2,935,928
Guaranteed obligation - ESOP (11,231) (20,353)
Unrealized appreciation of investments 644,528 616,968
Unrealized loss on foreign currency translation (14,664) (20,496)
---------- ----------
Total common shareholders' equity 4,429,833 3,987,757
---------- ----------
Total shareholders' equity 4,448,241 4,003,820
---------- ----------
Total liabilities, redeemable preferred
securities and shareholders' equity $21,460,699 20,680,976
========== ==========
See notes to consolidated financial statements.
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
(In thousands)
Nine Twelve
Months Ended Months Ended
September 30, December 31,
1997 1996
------------ ------------
Preferred shareholders' equity: (Unaudited)
Series B convertible preferred stock:
Beginning of period $142,131 144,165
Change during period (2,556) (2,034)
---------- ----------
End of period 139,575 142,131
---------- ----------
Guaranteed obligation - PSOP:
Beginning of period (126,068) (133,293)
Principal payments 4,901 7,225
---------- ----------
End of period (121,167) (126,068)
---------- ----------
Total preferred shareholders' equity 18,408 16,063
---------- ----------
Common shareholders' equity:
Common stock:
Beginning of period 475,710 460,458
Stock issued under stock incentive plans 30,295 21,393
Stock issued for acquisition - 1,664
Reacquired common shares (2,126) (7,805)
---------- ----------
End of period 503,879 475,710
---------- ----------
Retained earnings:
Beginning of period 2,935,928 2,704,075
Net income 518,477 450,099
Dividends declared on common stock (117,517) (145,956)
Dividends declared on PSOP
preferred stock, net of taxes (6,516) (8,664)
Reacquired common shares (24,377) (67,445)
Tax benefit on employee
stock options and awards 1,326 3,819
---------- ----------
End of period 3,307,321 2,935,928
---------- ----------
Guaranteed obligation - ESOP:
Beginning of period (20,353) (32,294)
Principal payments 9,122 11,941
---------- ----------
End of period (11,231) (20,353)
---------- ----------
Unrealized appreciation of investments, net of
taxes:
Beginning of period 616,968 627,791
Change during the period 27,560 (10,823)
---------- ----------
End of period 644,528 616,968
---------- ----------
Unrealized loss on foreign currency
translation, net of taxes:
Beginning of period (20,496) (40,781)
Currency translation adjustments 5,832 (5,309)
Realized loss relating to
discontinued operations - 25,594
---------- ----------
End of period (14,664) (20,496)
---------- ----------
Total common shareholders' equity 4,429,833 3,987,757
---------- ----------
Total shareholders' equity $ 4,448,241 4,003,820
========== ==========
See notes to consolidated financial statements.
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Unaudited
(In thousands)
Nine Months Ended
September 30
--------------------
1997 1996
---- ----
OPERATING ACTIVITIES
Underwriting:
Net income 563,791 374,034
Adjustments:
Change in net insurance reserves 26,278 362,377
Change in underwriting premiums receivable 28,718 (51,027)
Deferred tax benefit (28,301) (27,823)
Realized investment gains (304,482) (124,944)
Other 106,333 182,695
--------- ---------
Total underwriting 392,337 715,312
--------- ---------
Investment banking-asset management:
Net income 40,557 41,100
Adjustments:
Change in inventory securities 84,105 111,950
Change in short-term investments 58,896 (58,457)
Change in short-term borrowings - (25,000)
Change in open security transactions 5,548 (1,502)
Other 6,399 16,319
--------- ---------
Total investment banking-asset management 195,505 84,410
--------- ---------
Parent company and consolidating eliminations:
Net loss from continuing operations (18,121) (20,605)
Adjustments:
Realized investment gains (6,336) (8,037)
Other (19,180) (16,494)
--------- ---------
Total parent company and
consolidating eliminations (43,637) (45,136)
--------- ---------
Net cash provided by operating activities 544,205 754,586
--------- ---------
Cash outflow resulting from sale of
discontinued operations (44,776) -
--------- ---------
INVESTING ACTIVITIES
Purchase of investments (2,363,090) (2,241,359)
Proceeds from sales and maturities of
investments 2,216,935 1,823,783
Change in short-term investments (191,704) 10,760
Change in open security transactions 59,465 16,925
Net purchases of office properties and equipment (38,465) (24,864)
Acquisitions (149,263) (184,568)
Other 23,999 (13,757)
--------- ---------
Net cash used in investing activities (442,123) (613,080)
--------- ---------
FINANCING ACTIVITIES
Dividends paid on common and preferred stock (123,735) (115,808)
Proceeds from issuance of debt 181,386 44,238
Repayment of debt (100,000) -
Repurchase of common shares (26,503) (60,310)
Other 11,286 (1,406)
--------- ---------
Net cash used in financing activities (57,566) (133,286)
--------- ---------
Effect of exchange rate changes on cash (23) (49)
--------- ---------
Increase (decrease) in cash (283) 8,171
Cash at beginning of period 37,214 25,475
--------- ---------
Cash at end of period 36,931 33,646
========= =========
See notes to consolidated financial statements.
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Unaudited
September 30, 1997
Note 1 Basis of Presentation
- -----------------------------
The financial statements include The St. Paul Companies, Inc. and
subsidiaries, and have been prepared in conformity with generally
accepted accounting principles.
These consolidated financial statements rely, in part, on
estimates. In the opinion of management, all necessary
adjustments have been reflected for a fair presentation of the
results of operations, financial position and cash flows in the
accompanying unaudited consolidated financial statements. The
results for the period are not necessarily indicative of the
results to be expected for the entire year.
Reference should be made to the "Notes to Consolidated Financial
Statements" on pages 53 to 69 of the Registrant's annual report
to shareholders for the year ended December 31, 1996. The
amounts in those notes have not changed except as a result of
transactions in the ordinary course of business or as otherwise
disclosed in these notes.
Some figures in the 1996 consolidated financial statements have
been reclassified to conform with the 1997 presentation. These
reclassifications had no effect on net income or shareholders'
equity, as previously reported.
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Note 2 Earnings per Share
- --------------------------
Earnings per common share (EPS) amounts were calculated by
dividing net income, as adjusted, by the adjusted average common
shares outstanding.
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
1997 1996 1997 1996
------ ------ ------ ------
(In thousands)
PRIMARY
Net income, as reported $163,404 128,934 518,477 387,808
PSOP preferred dividends declared
(net of taxes) (2,163) (2,179) (6,516) (6,503)
Premium on preferred shares redeemed (1,523) (224) (2,434) (664)
-------- -------- -------- --------
Net income, as adjusted $ 159,718 126,531 509,527 380,641
======== ======== ======== ========
FULLY DILUTED
Net income, as reported $163,404 128,934 518,477 387,808
Dividends on monthly income preferred
securities (net of taxes) 2,018 2,018 6,055 6,055
Additional PSOP expense (net of
taxes) due to assumed conversion
of preferred stock (659) (752) (1,995) (2,265)
Premium on preferred shares redeemed (1,523) (224) (2,434) (664)
-------- -------- -------- --------
Net income, as adjusted $ 163,240 129,976 520,103 390,934
======== ======== ======== ========
ADJUSTED AVERAGE COMMON SHARES
OUTSTANDING
Primary 85,024 84,254 84,796 84,644
======== ======== ======== ========
Fully diluted 92,518 91,840 92,496 92,179
======== ======== ======== ========
Adjusted average common shares outstanding include the common and
common equivalent shares outstanding for the period and, for
fully diluted EPS, common shares that would be issuable upon
conversion of PSOP preferred stock and the company-obligated
mandatorily redeemable preferred securities of St. Paul Capital
L.L.C. (monthly income preferred securities).
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Note 3 Investments
- -------------------
Investment Activity. A summary of investment transactions is presented
below.
Nine Months Ended September 30
------------------------------
1997 1996
------ ------
(In thousands)
Purchases:
Fixed maturities $1,136,367 1,418,142
Equities 1,028,635 700,308
Real estate 82,077 18,807
Venture capital 98,360 74,375
Other investments 17,651 29,727
--------- ---------
Total purchases 2,363,090 2,241,359
--------- ---------
Proceeds from sales and maturities:
Fixed maturities:
Sales 450,860 390,401
Maturities and redemptions 441,532 637,362
Equities 1,041,505 682,462
Venture capital 241,854 102,741
Real estate 37,662 8,577
Other investments 3,522 2,240
--------- ---------
Total sales and maturities 2,216,935 1,823,783
--------- ---------
Net purchases $ 146,155 417,576
========= =========
Change in Unrealized Appreciation. The increase (decrease) in
unrealized appreciation of investments recorded in common
shareholders' equity was as follows:
Nine Months Ended Twelve Months Ended
September 30, 1997 December 31, 1996
------------------ --------------------
(In thousands)
Fixed maturities $86,517 (198,855)
Equities 84,513 25,975
Venture capital (128,903) 163,110
----------- -----------
Total change in pretax
unrealized appreciation 42,127 (9,770)
Decrease in deferred tax asset (14,567) (1,053)
----------- -----------
Total change in unrealized
appreciation, net of taxes $27,560 (10,823)
=========== ===========
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Note 4 Income Taxes
- --------------------
The components of income tax expense on continuing operations are as
follows:
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -------------------
1997 1996 1997 1996
------ ------ ------ ------
(In thousands)
Federal current tax expense $47,214 17,874 204,658 90,956
Federal deferred tax benefit (15,933) (24,375) (54,959) (40,393)
-------- -------- -------- --------
Total federal income tax
expense (benefit) 31,281 (6,501) 149,699 50,563
Foreign income taxes 6,383 6,249 15,712 17,082
State income taxes 1,502 1,352 4,519 4,212
-------- -------- -------- --------
Total income tax expense on
continuing operations $39,166 1,100 169,930 71,857
======== ======== ======== ========
Note 5 Contingent Liabilities
- ------------------------------
In the ordinary course of conducting business, the company and
some of its subsidiaries have been named as defendants in various
lawsuits. Some of these lawsuits attempt to establish liability
under insurance contracts issued by those companies. Plaintiffs
in these lawsuits are asking for money damages or to have the
court direct the activities of our operations in certain ways.
Although it is possible that the settlement of a contingency may
be material to the company's results of operations and liquidity
in the period in which the settlement occurs, the company
believes that the total amounts that it or its subsidiaries will
ultimately have to pay in all of these lawsuits will have no
material effect on its overall financial position.
In some cases, plaintiffs seek to establish coverage for their
liability under environmental protection laws. See
"Environmental and Asbestos Claims" in Management's Discussion
and Analysis for information on these claims.
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Note 6 Debt
- ------------
Debt consists of the following:
September 30, December 31,
1997 1996
------------------- ------------------
Book Fair Book Fair
Value Value Value Value
------ ------ ------ ------
(In thousands)
Medium-term notes $511,922 524,800 430,427 435,500
Commercial paper 206,751 206,751 131,610 131,610
Nuveen notes payable 25,000 25,000 - -
Real estate mortgage debt 13,220 13,300 13,220 13,220
Guaranteed ESOP debt 5,557 5,600 13,890 14,000
9 3/8% notes - - 99,994 101,500
------- ------- ------- -------
Total debt $762,450 775,451 689,141 695,830
======= ======= ======= =======
Note 7 Reinsurance
- -------------------
The company's consolidated financial statements reflect the
effects of assumed and ceded reinsurance transactions. Assumed
reinsurance refers to the company's acceptance of certain
insurance risks that other insurance companies have underwritten.
Ceded reinsurance involves transferring certain insurance risks
the company has underwritten to other insurance companies who
agree to share these risks. The primary purpose of ceded
reinsurance is to protect the company from potential losses in
excess of the amount it is prepared to accept.
The company expects those with whom it has ceded reinsurance to
honor their obligations. In the event these companies are unable
to honor their obligations, the company will pay these amounts.
The company has established allowances for possible nonpayment of
amounts due to it.
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The effect of assumed and ceded reinsurance on premiums written,
premiums earned and insurance losses and loss adjustment expenses
is as follows:
Three Months Ended Nine Months Ended
September 30 September 30
------------------ ------------------
1997 1996 1997 1996
------ ------ ------ ------
(In thousands)
Premiums written:
Direct $1,083,347 1,120,234 2,903,887 2,813,855
Assumed 198,798 273,631 786,483 789,490
Ceded (99,308) (146,895) (292,028) (343,838)
--------- --------- --------- ---------
Net premiums written $1,182,837 1,246,970 3,398,342 3,259,507
========= ========= ========= =========
Premiums earned:
Direct $1,034,808 1,045,971 3,084,273 2,891,156
Assumed 230,865 270,119 738,278 749,765
Ceded (110,982) (147,182) (331,110) (386,053)
--------- --------- --------- ---------
Net premiums earned $1,154,691 1,168,908 3,491,441 3,254,868
========= ========= ========= =========
Insurance losses and loss
adjustment expenses:
Direct $767,907 830,977 2,272,125 2,127,265
Assumed 157,607 151,748 487,794 531,170
Ceded (99,647) (76,782) (219,689) (218,231)
--------- --------- --------- ---------
Net insurance losses
and loss adjustment
expenses $825,867 905,943 2,540,230 2,440,204
========= ========= ========= =========
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Note 8 Discontinued Operations
- -------------------------------
In May 1997, The St. Paul completed the sale of its brokerage
operation, Minet, to Aon Corporation. The St. Paul's gross
proceeds from the sale were approximately equal to its remaining
carrying value of Minet. In connection with the transaction, The
St. Paul agreed to indemnify Aon against most preclosing
liabilities of the Minet businesses. The company recorded a net
after-tax loss on disposal of $67.8 million in the first quarter
of 1997, which resulted primarily from The St. Paul's agreement
to be responsible for certain severance, employee benefits,
future lease commitments and other costs relating to Minet.
The following summarizes discontinued operations for the third
quarter and first nine months of 1997 and 1996:
Three Months Ended, Nine Months Ended
September 30 September 30
------------------- -----------------
1997 1996 1997 1996
------ ------ ------ ------
(In thousands)
Operating loss, before
income taxes $ - (2,447) - (20,379)
Income tax expense - 558 - (2,342)
------- ------- ------- -------
Operating loss, net of taxes - (1,889) - (22,721)
------- ------- ------- -------
Loss on disposal, before
income taxes - (250,000) (103,280) (250,000)
Income tax benefit - 266,000 35,530 266,000
------- ------- ------- -------
Gain (loss) on
disposal, net of taxes - 16,000 (67,750) 16,000
------- ------- ------- -------
Gain (loss) from
discontinued operations $ 14,111 (67,750) (6,721)
======= ======= ======= =======
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and
Results of Operations
September 30, 1997
Consolidated Results
--------------------
The St. Paul's consolidated pretax income from continuing
operations totaled $203 million in the third quarter of 1997, an
increase of 75% over pretax income of $116 million in the same
period of 1996. Improvement in underwriting results and growth
in investment income were the primary factors driving the
increase in third quarter 1997 earnings. Pretax earnings of
$756 million through nine months of 1997 were $290 million
higher than the same period of 1996, largely the result of
increases of $178 million and $66 million in realized investment
gains and investment income, respectively.
The St. Paul's net income of $518 million for the first nine
months of 1997 includes an after-tax loss from discontinued
operations of $67.8 million relating to the sale of its
brokerage operation, Minet. Refer to Note 8 on page 14 of this
report for further information regarding The St. Paul's
discontinued operations.
Consolidated revenues in the third quarter totaled $1.50
billion, a slight increase over third quarter 1996 revenues of
$1.48 billion. Year-to-date revenues of $4.67 billion in 1997
were $504 million, or 12%, higher than the same period of 1996.
Growth in premiums earned, investment income and realized
investment gains accounted for the increased revenue through the
first nine months of 1997.
The following table summarizes The St. Paul's results for the third
quarter and year-to-date.
Three Months Nine Months
Ended September 30 Ended September 30
(in millions) ------------------ ------------------
1997 1996 1997 1996
Pretax income (loss): ---- ---- ---- ----
Underwriting:
GAAP underwriting result $(32) (87) (140) (168)
Net investment income 220 202 655 585
Realized investment gains 45 36 304 125
Other (30) (40) (65) (88)
--- --- --- ---
Total underwriting 203 111 754 454
Investment banking-
asset management 23 23 67 67
Parent and other (23) (18) (65) (55)
--- --- --- ---
Income from continuing
operations before
income taxes 203 116 756 466
Income tax expense 40 1 170 71
--- --- --- ---
Income from
continuing operations 163 115 586 395
Income (loss) from
discontinued operations,
net of taxes - 14 (68) (7)
--- --- --- ---
Net income $163 129 518 388
=== === === ===
Fully diluted net income
per common share $1.76 1.42 5.62 4.24
==== ==== ==== ====
Income tax expense for the third quarter of 1996 was nominal due
to a downward revision in The St. Paul's estimated annual
effective tax rate for 1996. The effective tax rate for the
first nine months of 1997 is higher than the comparable 1996
period, due to much higher projected annual earnings for 1997.
This projection is driven by substantial additional realized
investment gains and improved underwriting results, both of which
generate income tax expense predominantly at the statutory income
tax rate of 35% and thereby increase The St. Paul's annual
estimated effective tax rate for 1997.
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Management's Discussion, Continued
Underwriting
------------
The following summarizes key financial results by underwriting
operation:
% of Three Months Nine Months
1997 Ended September 30 Ended September 30
Written ------------------ ------------------
($ in Millions) Premiums 1997 1996 1997 1996
--------- ---- ---- ---- ----
Specialized Commercial:
Written Premiums 28% $334 342 961 947
Underwriting Result $26 18 11 27
Combined Ratio 92.5 93.3 99.1 97.3
Commercial:
Written Premiums 20% $216 220 667 530
Underwriting Result ($22) (35) (50) (46)
Combined Ratio 110.9 117.0 110.4 109.8
Personal Insurance:
Written Premiums 17% $203 193 583 546
Underwriting Result ($17) (61) (53) (150)
Combined Ratio 107.9 133.3 108.9 128.0
Medical Services:
Written Premiums 11% $190 201 372 401
Underwriting Result ($1) 7 7 47
Combined Ratio 100.2 92.7 101.9 92.0
---- ----- ----- ----- -----
Total St. Paul Fire &
Marine:
Written Premiums 76% $943 956 2,583 2,424
Underwriting Result ($14) (71) (85) (122)
Combined Ratio 101.3 106.9 104.6 105.7
St. Paul International
Underwriting:
Written Premiums 7% $80 118 227 229
Underwriting Result ($13) (4) (34) (16)
Combined Ratio 114.0 100.0 115.2 106.2
---- ----- ----- ----- -----
Total Worldwide Insurance
Operations:
Written Premiums 83% $1,023 1,074 2,810 2,653
Underwriting Result ($27) (75) (119) (138)
Combined Ratio 102.3 106.2 105.3 105.8
St. Paul Re:
Written Premiums 17% $160 173 588 607
Underwriting Result ($5) (12) (21) (30)
Combined Ratio 104.7 108.6 103.2 104.8
---- ----- ----- ----- -----
Total Underwriting:
Written Premiums 100% $1,183 1,247 3,398 3,260
GAAP Underwriting Result ($32) (87) (140) (168)
Statutory Combined Ratio:
Loss and Loss Expense Ratio 71.5 77.5 72.8 75.0
Underwriting Expense Ratio 31.0 29.1 32.2 30.6
----- ----- ----- -----
Combined Ratio 102.5 106.6 105.0 105.6
===== ===== ===== =====
Combined Ratio Incl.
Policyholders' Dividends 103.5 106.9 105.6 105.8
===== ===== ===== =====
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Management's Discussion, Continued
Written Premiums
- ----------------
Third quarter 1997 written premiums of $1.18 billion decreased 5%
from comparable 1996 premiums of $1.25 billion. The St. Paul's
Specialized Commercial and Commercial operations experienced
premium declines of 3% and 2%, respectively, reflecting
competitive conditions throughout the many commercial market
sectors served by those operations. Personal Insurance volume of
$203 million grew 5% over 1996, primarily due to price increases
on policies renewed during the quarter. Medical Services'
premiums were down 5%, to $190 million, in the third quarter of
1997. The medical liability insurance market remains intensely
competitive. International's 31% third quarter premium decline
compared with 1996 was distorted by differences in the timing of
recording premiums; by year-end 1997, premiums for both years are
expected to be comparable.
For the first nine months of 1997, consolidated premiums were 4%
ahead of 1996. In August 1996, The St. Paul acquired Northbrook
Holdings, Inc. and its three commercial underwriting companies
(Northbrook). Through the first nine months of 1997, Northbrook
accounted for $145 million of incremental premiums in The St.
Paul's underwriting operations. Factoring out the
Northbrook impact, consolidated premiums for the first nine
months of 1997 were virtually level with the same period of 1996.
Medical Services premiums for the first nine months were down 7%
from the same period of 1996. International's year-to-date
premiums of $227 million were slightly below 1996 premiums of
$230 million.
Underwriting Results
- --------------------
The third quarter 1997 GAAP underwriting loss was $32 million, an
improvement of $55 million over 1996's third quarter loss of $87
million. Significant improvement in Personal Insurance's core
underwriting results and a decline in catastrophe losses were the
primary factors contributing to the 1997 result.
Key factors in the change in third quarter underwriting results
from 1996 were as follows:
- Personal Insurance - $44 million better than 1996 - A $13
million decline in catastrophe losses, improvement in
current year noncatastrophe loss experience and expense
control initiatives were all factors in the substantial
improvement over 1996.
- Commercial - $13 million better than 1996 - Favorable
current year noncatastrophe loss experience accounted for
the improvement over 1996. Catastrophe losses totaled
$16 million in the quarter, compared with $11 million in
last year's third quarter.
- Specialized Commercial - $8 million better than 1996 -
Catastrophe losses declined, driving the improvement in
underwriting results.
- Reinsurance - $7 million better than 1996 - Reduced
catastrophe losses were the primary factor in the
improvement over 1996.
- International - $9 million worse than 1996 - Start-up
costs for new operations being developed in Europe and
certain emerging markets, and difficult market conditions
in the United Kingdom negatively impacted underwriting
results in the third quarter.
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Management's Discussion, Continued
The year-to-date GAAP underwriting loss of $140 million was $28
million better than the 1996 nine-month loss of $168 million.
Personal insurance underwriting results were $97 million better
than last year, but that improvement was partially offset by a
$40 million decline in Medical Services' profitability and a $18
million increase in International's underwriting loss. Total
catastrophe losses through nine months of $97 million were down
significantly from losses of $181 million in the same period of
1996. The decline in catastrophes accounted for approximately
$40 million of the improvement in Personal Insurance results in
1997. The decline in Medical Services' underwriting profit was
due to an increase in losses and declining prices.
Investments
- -----------
Pretax investment income in the underwriting segment for the
third quarter was $220 million, up 9% from $202 million in 1996.
Year-to-date investment income increased by $70 million, or 12%,
over last year. Approximately half of the increase through nine
months of 1997 was attributable to income earned on fixed
maturity investments acquired in last year's Northbrook purchase.
Another factor contributing to investment income growth was
strong investment cash flows over the last twelve months, which
have fueled growth in invested assets. New money available for
fixed maturity investments so far in 1997 has been predominantly
directed toward taxable securities due to The St. Paul's current
consolidated tax position. The weighted average pretax yield on
the underwriting segment's fixed maturities portfolio was 7.0% at
Sept. 30, 1997, down slightly from 7.1% at the same time a year
ago.
Pretax realized investment gains totaled $45 million in the third
quarter, compared with gains of $36 million in last year's third
quarter. Year-to-date pretax gains in 1997 of $304 million were
well ahead of last year's nine-month gains of $125 million.
Sales of venture capital and equity security investments in
favorable market conditions accounted for virtually all of 1997's
gains. The sale of a single venture capital investment generated
pretax gains of $129 million in 1997.
Environmental and Asbestos Claims
---------------------------------
The St. Paul's underwriting operations continue to receive claims
under policies written many years ago alleging injuries from
environmental pollution or alleging covered property damages for
the cost to clean up polluted sites. These operations also
receive asbestos claims arising out of product liability
coverages under general liability policies. Significant legal
issues, primarily pertaining to issues of coverage, exist with
regard to the company's alleged liability for both environmental
and asbestos claims. In the company's opinion, court decisions
in certain jurisdictions have tended to expand insurance coverage
beyond the intent of the original policies.
The underwriting operations' ultimate liability for environmental
claims is difficult to estimate. Insured parties have submitted
claims for losses not covered in the insurance policy, and the
ultimate resolution of these claims may be subject to lengthy
litigation. In addition, variables, such as the length of time
necessary to clean up a polluted site, controversies surrounding
the identity of the responsible party and the degree of
remediation deemed necessary, make it difficult to estimate the
total cost of an environmental claim.
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Management's Discussion, Continued
Estimating the ultimate liability for asbestos claims is equally
difficult. The primary factors influencing the estimate of the
total cost of these claims are case law and a history of prior
claims experience, both of which are still developing.
In 1995, The St. Paul's underwriting operations recorded
additional gross reserves of $360 million and specifically
reallocated $113 million of previously recorded net reserves for
North American environmental and asbestos losses on policies
written in the United Kingdom prior to 1980.
The following table represents a reconciliation of total gross
and net environmental reserve development for the nine months
ended September 30, 1997, and the years ended Dec. 31, 1996 and
1995. Amounts in the "net" column are reduced by reinsurance
recoverables.
Environmental
- -------------
1997
(nine months) 1996 1995
----------- ------------ ------------
(in millions) Gross Net Gross Net Gross Net
----- --- ----- ---- ----- ---
Beginning reserves $581 368 528 319 275 200
Reserves acquired - - 18 7 - -
Incurred losses 14 19 67 72 59 68
Reserve reallocation - - - - 233 79
Paid losses (28) (19) (32) (30) (39) (28)
---- ---- ---- ---- ---- ----
Ending reserves $567 368 581 368 528 319
==== ==== ==== ==== ==== ====
Many significant environmental claims currently being brought
against insurance companies arise out of contamination that
occurred 20 to 30 years ago. Since 1970, the underwriting
operations' General Liability policy form has included a specific
pollution exclusion, and, since 1986, an industry standard
absolute pollution exclusion for policies underwritten in the
United States.
The following table represents a reconciliation of total gross
and net reserve development for asbestos claims for the nine
months ended September 30, 1997, and the years ended Dec. 31,
1996 and 1995:
Asbestos
- -------- 1997
(nine months) 1996 1995
------------ ------------ -------------
(in millions) Gross Net Gross Net Gross Net
----- --- ----- --- ----- ---
Beginning reserves $278 169 283 158 185 145
Reserves acquired - - 6 6 - -
Incurred losses 18 (4) 12 18 (13) (9)
Reserve reallocation - - - - 127 34
Paid losses (19) (9) (23) (13) (16) (12)
---- ---- ---- ---- ---- ----
Ending reserves $277 156 278 169 283 158
==== ==== ==== ==== ==== ====
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Management's Discussion, Continued
Most of the asbestos claims the company has received pertain to
policies written prior to 1986. Since 1986, for policies
underwritten in the United States, the underwriting operations'
Commercial General Liability policy has included the industry
standard absolute pollution exclusion, which the company believes
applies to asbestos claims.
Based on all information currently available, The St. Paul's
reserves for environmental and asbestos losses represent its best
estimate of its ultimate liability for such losses. Because of
the difficulty inherent in estimating such losses, however, the
company cannot give assurances that its ultimate liability for
environmental and asbestos losses will, in fact, match current
reserves. The company continues to evaluate new information and
developing loss patterns, but it believes any future additional
loss provisions for environmental and asbestos claims will not
materially impact its results of operations, liquidity or
financial position.
Total gross environmental and asbestos reserves at September 30,
1997, of $844 million represented approximately 7% of gross
consolidated reserves of $11.82 billion.
Investment Banking-Asset Management
-----------------------------------
The company's portion of third quarter pretax earnings of The
John Nuveen Company (Nuveen) was $23 million, level with the same
period of 1996. Through the first nine months of 1997, the
company's portion was $67 million, also level with the comparable
period of 1996. The company currently owns 77% of Nuveen.
Nuveen's asset management fee revenue of $57 million for the
third quarter was $10 million, or 22%, higher than in the same
period of 1996. Nuveen has made two acquisitions in 1997 which
have expanded its product base and significantly added to its
managed asset base. In January, Nuveen acquired Flagship
Resources, Inc., a tax-exempt mutual fund and money management
firm. The total cost of that acquisition was $63 million
(substantially all of which represented goodwill), plus as much
as an additional $20 million, contingent upon meeting future
growth targets. Nuveen partially funded the Flagship purchase by
the issuance of $45 million of preferred stock. In September,
Nuveen finalized its acquisition of Rittenhouse Financial
Services, Inc., which manages individual equity and balanced
accounts for affluent investors. The total cost of that
acquisition was approximately $145 million, the majority of which
also represented goodwill.
As the result of these acquisitions, Nuveen's assets under
management grew to $48.1 billion at September 30, 1997, an
increase of 45% since year-end 1996.
Capital Resources
-----------------
The St. Paul's total capitalization (debt and equity) grew to
$5.4 billion at Sept. 30, 1997, an increase of $518 million, or
11%, since year-end 1996. Common shareholders' equity grew to a
new high of $4.43 billion at the end of the third quarter, driven
by the company's record nine-month net income of $518 million.
Strong bond markets in 1997 pushed the after-tax unrealized
appreciation on The St. Paul's fixed maturities portfolio to $362
million at quarter-end. The after-tax unrealized appreciation on
the company's equity and venture capital portfolios fell by $28
million since the end of 1996, reflecting sales of investments
that generated substantial realized gains through the first nine
months of 1997.
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Management's Discussion, Continued
The St. Paul repurchased and retired 353,900 of its common shares
in 1997 for a total cost of $26.4 million. The majority of these
repurchases occurred in the third quarter. The St. Paul may
continue its repurchase program in the future when such purchases
are deemed an appropriate use of capital.
Total debt outstanding at the end of September was $762 million,
up 11% from $689 million at the end of 1996. The company has
issued $82 million of medium-term notes through the first nine
months of 1997. The $512 million of such notes outstanding at
quarter-end bear a weighted average interest rate of 7.1% and
account for nearly 70% of The St. Paul's total debt outstanding.
Commercial paper outstanding has increased by $75 million in
1997. In June 1997, The St. Paul's $100 million, 9-3/8% Notes
matured. Debt outstanding at Sept. 30 included $25 million of
debt issued by Nuveen in connection with its acquisition of
Rittenhouse Financial Services in September. The balance of
Nuveen's acquisition of Rittenhouse was financed with internal
funds. Debt as a percentage of total capitalization at Sept. 30,
1997, was 14%, unchanged from year-end 1996.
The company anticipates that any major capital expenditures
during the fourth quarter of 1997 would involve acquisitions of
existing businesses or common stock repurchases; there are no
major capital improvements planned.
The company's ratio of earnings to fixed charges was 14.39 for
the first nine months of 1997, compared with 10.02 for the same
period of 1996. The company's ratio of earnings to combined
fixed charges and preferred stock dividends was 10.29 for the
first nine months of 1997, compared with 6.96 for the same period
of 1996. Fixed charges consist of interest expense before
reduction for capitalized interest and one-third of rental
expense, which is considered to be representative of an interest
factor.
Liquidity
---------
Liquidity refers to the company's ability to generate sufficient
funds to meet the cash requirements of its business operations.
Net cash provided by operations was $544 million in the first
nine months of 1997, compared with $755 million in 1996.
Although The St. Paul's operational cash flows have declined in
1997, the company's overall liquidity position remains strong due
to funds provided from substantial realized investment gains in
the underwriting segment.
Impact of Accounting Pronouncements to be Adopted in the Future
---------------------------------------------------------------
In February 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No.
128, "Earnings Per Share," which revises the calculation and
presentation provisions of Accounting Principles Board Opinion
No. 15 and its related interpretations. SFAS No. 128 is
effective for fiscal years and interim periods ending after
December 15, 1997. It replaces the presentation of primary
earnings per share with "basic earnings per share," and fully
diluted earnings per share with "diluted earnings per share." If
the provisions of SFAS No. 128 had been applied for the nine
months ended September 30, 1997 and 1996, basic earnings per
share would have been $6.94 and $4.64, respectively, for income
from continuing operations, and $6.13 and $4.56, respectively,
for net income. Diluted earnings per share would have been the
same as fully diluted earnings per share for both periods.
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Management's Discussion, Continued
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income," which establishes standards for reporting
and display of comprehensive income and its components in a full
set of general-purpose financial statements. Comprehensive
income includes all changes in equity during a period except
those resulting from investments by owners and distributions to
owners. SFAS No. 130 is effective for fiscal years beginning
after December 15, 1997. The St. Paul currently intends to adopt
the provisions of this Statement for the year ended December 31,
1997. This adoption will not impact The St. Paul's net income in
1997 or succeeding years.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information," which
establishes standards for the way public enterprises report
information about operating segments in annual financial
statements and requires that those enterprises report selected
segment information in interim financial reports. SFAS No. 131
is effective for fiscal years beginning after December 15, 1997.
The St. Paul currently intends to adopt the provisions of this
Statement for its 1997 annual financial statements. This
adoption is not expected to materially change The St. Paul's
current segment disclosures and will have no impact on net income
in 1997 and succeeding years.
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
The information set forth in Note 5 to the consolidated
financial statements is incorporated herein by
reference.
Item 2. Changes in Securities.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. An Exhibit Index is set forth as the last
page in this document.
(b) Reports on Form 8-K.
1) The St. Paul filed a Form 8-K Current
Report dated July 28, 1997, announcing its
financial results for the quarter ended June 30,
1997.
2) The St. Paul filed a Form 8-K Current
Report dated October 27, 1997, announcing its
financial results for the quarter ended
September 30, 1997.
<PAGE>
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.
THE ST. PAUL COMPANIES, INC.
(Registrant)
Date: November 12, 1997 By /s/ Bruce A. Backberg
---------------------
Bruce A. Backberg
Senior Vice President,
Chief Legal Counsel and
Corporate Secretary
(Authorized Signatory)
Date: November 12, 1997 By /s/ Howard E. Dalton
--------------------
Howard E. Dalton
Senior Vice President
Chief Accounting Officer
<PAGE>
EXHIBIT INDEX
----------------------
Method of
Exhibit Filing
- ------- ---------
(2) Plan of acquisition, reorganization, arrangement,
liquidation or succession*..............................
(3) Articles of incorporation and by-laws*. ...................
(4) Instruments defining the rights of security holders,
including indentures*...................................
(10) Material contracts*........................................
(11) Statement re computation of per share earnings**...........(1)
(12) Statement re computation of ratios**.......................(1)
(15) Letter re unaudited interim financial information*.........
(18) Letter re change in accounting principles*.................
(19) Report furnished to security holders*......................
(22) Published report regarding matters submitted to
vote of security holders*...............................
(23) Consents of experts and counsel*...........................
(24) Power of attorney*.........................................
(27) Financial data schedule**..................................(1)
(99) Additional exhibits*.......................................
* These items are not applicable.
** This exhibit is included only with the copies of this
report that are filed with the Securities and Exchange
Commission. However, a copy of the exhibit may be obtained
from the Registrant for a reasonable fee by writing to Legal
Services, The St. Paul Companies, Inc., 385 Washington Street,
Saint Paul, MN 55102.
(1) Filed electronically.
<PAGE>
Exhibit 11
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Computation of Earnings Per Share
(In thousands)
Three Months Ended Nine Months Ended
September 30 September 30
------------------- -----------------
1997 1996 1997 1996
----- ----- ----- -----
EARNINGS:
Primary:
Net income, as reported $163,404 128,934 518,477 387,808
PSOP preferred dividends declared
(net of taxes) (2,163) (2,179) (6,516) (6,503)
Premium on preferred shares redeemed (1,523) (224) (2,434) (664)
-------- -------- -------- --------
Net income, as adjusted $159,718 126,531 509,527 380,641
======== ======== ======== ========
Fully diluted:
Net income, as reported $163,404 128,934 518,477 387,808
Dividends on monthly income
preferred securities
(net of taxes) 2,018 2,018 6,055 6,055
Additional PSOP expense (net of
taxes) due to assumed
conversion of preferred stock (659) (752) (1,995) (2,265)
Premium on preferred shares redeemed (1,523) (224) (2,434) (664)
-------- -------- -------- --------
Net income, as adjusted $163,240 129,976 520,103 390,934
======== ======== ======== ========
SHARES:
Primary:
Weighted average number of common
shares outstanding, per consolidated
financial statements 83,658 83,286 83,546 83,594
Additional dilutive effect of
assumed exercise of outstanding
stock options (based on treasury
stock method using average
market price) 1,366 968 1,250 1,050
-------- -------- -------- --------
Weighted average, as adjusted 85,024 84,254 84,796 84,644
======== ======== ======== ========
Fully diluted:
Weighted average number of common
shares outstanding, per consolidated
financial statements 83,658 83,286 83,546 83,594
Additional dilutive effect of:
Assumed conversion of
PSOP preferred stock 3,880 3,963 3,909 3,977
Assumed conversion of monthly
income preferred securities 3,509 3,509 3,509 3,509
Assumed exercise of outstanding
stock options (based on treasury
stock method using market price
at end of period) 1,471 1,082 1,532 1,099
-------- -------- -------- --------
Weighted average, as adjusted 92,518 91,840 92,496 92,179
======== ======== ======== ========
EARNINGS PER COMMON SHARE:
Primary $1.88 1.50 6.01 4.50
Fully diluted $1.76 1.42 5.62 4.24
<PAGE>
THE ST. PAUL COMPANIES, INC. AND SUBSIDIARIES
Exhibit 12
Computation of Ratios
(In thousands, except ratios)
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
1997 1996 1997 1996
----- ----- ----- -----
EARNINGS:
Income from continuing
operations before income taxes $202,570 115,923 756,157 466,386
Add: fixed charges 19,091 18,067 56,488 51,703
-------- -------- -------- --------
Income, as adjusted $221,661 133,990 812,645 518,089
======== ======== ======== ========
FIXED CHARGES:
Interest costs $13,576 13,072 40,402 38,220
Rental expense (1) 5,515 4,995 16,086 13,483
-------- -------- -------- --------
Total fixed charges $19,091 18,067 56,488 51,703
======== ======== ======== ========
FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS:
Fixed charges $19,091 18,067 56,488 51,703
PSOP preferred stock dividends 4,352 4,458 13,168 13,422
Dividends on monthly income
preferred securities 3,105 3,105 9,315 9,315
-------- -------- -------- --------
Total fixed charges and
preferred stock dividends $26,548 25,630 78,971 74,440
======== ======== ======== ========
Ratio of earnings to fixed charges 11.61 7.42 14.39 10.02
======== ======== ======== ========
Ratio of earnings to combined
fixed charges and
preferred stock dividends 8.35 5.23 10.29 6.96
======== ======== ======== ========
(1) Interest portion deemed implicit in total rent expense.
<TABLE> <S> <C>
<ARTICLE> 7
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996 DEC-31-1995
<PERIOD-END> SEP-30-1997 SEP-30-1996 SEP-30-1995
<DEBT-HELD-FOR-SALE> 12,295,571 11,581,950 9,916,552
<DEBT-CARRYING-VALUE> 0 0 0
<DEBT-MARKET-VALUE> 0 0 0
<EQUITIES> 1,011,309 840,369 732,991
<MORTGAGE> 0 0 0
<REAL-ESTATE> 731,138 609,245 614,652
<TOTAL-INVEST> 14,966,053 14,119,951 12,185,616
<CASH> 36,931 33,646 12,158
<RECOVER-REINSURE> 50,720 59,654 84,176
<DEFERRED-ACQUISITION> 403,771 406,254 364,313
<TOTAL-ASSETS> 21,460,699 20,631,765 17,718,499
<POLICY-LOSSES> 11,818,140 11,735,119 9,817,471
<UNEARNED-PREMIUMS> 2,440,565 2,578,197 2,325,602
<POLICY-OTHER> 0 0 0
<POLICY-HOLDER-FUNDS> 0 0 0
<NOTES-PAYABLE> 762,450 707,560 613,935
207,000 207,000 207,000
18,408 16,765 11,456
<COMMON> 503,879 465,827 460,145
<OTHER-SE> 3,925,954 3,391,040 3,023,953
<TOTAL-LIABILITY-AND-EQUITY> 21,460,699 20,631,765 17,718,499
3,491,441 3,254,868 2,931,214
<INVESTMENT-INCOME> 659,760 594,160 549,124
<INVESTMENT-GAINS> 310,818 132,981 38,060
<OTHER-INCOME> 212,943 188,514 188,891
<BENEFITS> 2,540,230 2,440,204 2,118,131
<UNDERWRITING-AMORTIZATION> 780,067 712,015 642,785
<UNDERWRITING-OTHER> 598,508 551,918 463,131
<INCOME-PRETAX> 756,157 466,386 483,242
<INCOME-TAX> 169,930 71,857 100,409
<INCOME-CONTINUING> 586,227 394,529 382,833
<DISCONTINUED> (67,750) (6,721) (16,871)
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 518,477 387,808 365,962
<EPS-PRIMARY> 6.01 4.50 4.21
<EPS-DILUTED> 5.62 4.24 4.00
<RESERVE-OPEN> 0 0 0
<PROVISION-CURRENT> 0 0 0
<PROVISION-PRIOR> 0 0 0
<PAYMENTS-CURRENT> 0 0 0
<PAYMENTS-PRIOR> 0 0 0
<RESERVE-CLOSE> 0 0 0
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</TABLE>
