The St. Paul Companies,'Inc., is incorporated as a general business corporation
under the laws of the State of Minnesota. The St. Paul and its subsidiaries constitute
one of the oldest insurance organizations in the United States, dating back to
1853. We are a management company principally engaged, through our subsidiaries,
in providing commercial property-liability insurance products and services. We
also have a presence in the asset management industry through our 79% majority
ownership of Nuveen Investments,'Inc. As a management company, we oversee the
operations of our subsidiaries and provide them with capital, management and administrative
services.
Our property-liability insurance operations underwrite insurance and provide
insurance-related products and services to commercial and professional customers
throughout the United States and in selected international markets. Our largest
insurance underwriting subsidiary is St. Paul Fire and Marine Insurance Company
('Fire and Marine'). The primary sources of property-liability revenues are
premiums earned from insurance policies, income earned from the investment portfolio
and net realized gains from sales of investments. According to the most recent
industry statistics published in 'Best's Review' with respect to commercial
lines property-liability insurers doing business in the United States, our property-liability
underwriting operations ranked as the sixth-largest on the basis of 2002 direct
written premiums.
Principal Departments and Products
In general, our property-liability insurance operations underwrite the following
types, or 'lines,' of insurance coverages.
''general liability, which provides coverage for liability exposures including
personal injury and property damage arising from general business operations,
products sold and completed work;
''liability coverages for corporations and nonprofit organizations, including
their directors and officers, and for a variety of professionals such as lawyers,
insurance agents and real estate agents;
''property insurance, which insures tangible property for loss, damage or loss
of use;
''commercial multi-peril, which provides a combination of property coverage
(for damages such as those caused by fire, wind, hail, water, theft, and vandalism)
and liability coverage (for third-party liability from accidents occurring on
the insureds' premises or arising out of their operations);
''commercial auto, which provides coverage for businesses against losses resulting
from their ownership, maintenance or use of automobiles and trucks, including
losses resulting from bodily injury to third parties, physical damage to an
insured's vehicle and property damage to other vehicles and other property;
''workers' compensation, which provides coverage for employers for specified
benefits payable under state or federal law for workplace injuries, disabilities
or death to employees, without regard to fault;
''inland marine, which provides coverage for property which is generally mobile
in nature, such as contractors' equipment or cargo being shipped by truck or
rail, as well as instrumentalities of transportation or communication such as
bridges, tunnels and computers, and certain property risks such as builders'
risk;
''aviation and ocean marine insurance;
''contract surety bonds and commercial surety bonds; and
''umbrella coverages, which provide specified layers of coverage on accounts
where we do not provide the primary liability coverage.
Through one or more lines underwritten by our business segments, including
property and general liability, we are exposed to losses from environmental
claims and mold claims. Environmental claims include claims of liability for
alleged damage from hazardous or toxic materials. The majority of our general
liability policies include an absolute pollution exclusion; however, in several
business centers, particularly Oil and Gas and Umbrella/Excess'& Surplus
Lines in our Specialty Commercial segment, we continue to underwrite new business
with limited pollution coverage. In addition, most business that we underwrite
in the United Kingdom and Ireland do not normally include absolute pollution
exclusions. Under certain policies we underwrite, we are exposed to losses from
claims of mold and moisture infiltration, which can cause personal injury and
damage to property. Certain policyholders have submitted claims to us under
their property and general liability polices that include damages related to
the presence of mold. Predominantly, these mold claims are for property damage
submitted under a first-party property policy, or for construction defect third-party
liability submitted under a general liability policy. Few personal injury claims
related to mold under workers' compensation or general liability policies have
been submitted to us. The cause and type of damage of each property damage or
bodily injury incident involving mold determines whether the claim may be a
covered loss under a property policy or if there is a duty to defend and/or
indemnify an insured in a third-party claim. In addition, we have exposure to
claims arising from the use of asbestos in building materials and construction.
Competition
Property-Liability Insurance
The property-liability insurance industry is highly competitive in the areas
of price, service, product offerings, technology and agent relationships. Ratings
issued by independent ratings agencies are also a competitive factor in the
insurance business. Increasing the competitive pressure is the current low interest
rate environment that is impacting investment returns and making underwriting
decisions even more critical. Our domestic and international insurance subsidiaries
compete with other stock companies, mutual companies, alternative risk sharing
groups and other underwriting organizations. Competitors in this market are
primarily national property-liability insurance companies willing to write most
classes of business using traditional products and pricing and, to a lesser
extent, regional insurance companies and companies that have developed niche
programs for specific industry segments. In addition, many large commercial
customers self-insure their risks or utilize large deductibles on purchased
insurance. There are approximately 3,400 property and liability insurance companies
in the United States operating independently or in groups, and no single company
or group is dominant. According to'A.M.'Best, we are the sixth-largest United
States commercial lines property and liability insurance group based on 2002
direct premiums written. Some of our competitors are larger and have greater
access to capital. In various markets, we also compete based on ratings and
several of our competitors are more highly rated.
In addition, the financial services industry in general continues to be affected
by an intensifying competitive environment, as demonstrated by consolidation
through mergers and acquisitions and competition from new entrants, as well
as established competitors using new technologies, including the Internet, to
establish or expand their businesses. The Gramm-Leach-Bliley Act, passed in
1999, which repealed U.S. laws that separated commercial banking, investment
banking and insurance activities, together with changes to the industry resulting
from previous reforms, has increased the number of companies competing for a
similar customer base.
Our competitors in the Specialty Commercial and Commercial Lines segments include
American International Group, The Chubb Corporation, CNA Financial Corporation,
Hartford Insurance Group, SAFECO Corporation and Travelers Property Casualty
Corp.
Our competitors in the Surety'& Construction segment include CNA Surety
Corporation, American International Group, Travelers Property Casualty Corp.,
and Zurich North America. In our International and Lloyd's segment, our international
specialties compete with numerous insurers in the United Kingdom, Canada and
Ireland while competitors in Lloyd's markets in which we are active include
various insurance companies and other members of Lloyd's.
Our subsidiaries compete principally by attempting to offer a combination of
superior products, underwriting expertise and services at a competitive, yet
profitable, price. Additionally, our relatively large size and underwriting
capacity provide us with opportunities not available to smaller companies.
Asset Management
Nuveen Investments is subject to substantial competition in all aspects of
its business. The registered representatives that distribute Nuveen Investments'
investment products also distribute numerous competing products, often including
products sponsored by the retail distribution firms where they are employed.
There are relatively few barriers to entry for new investment management firms.
Nuveen Investments' managed account business is also subject to substantial
competition from other investment management firms seeking to be approved as
managers in the various 'wrap-fee' programs. The sponsor firms have a limited
number of approved managers at the highest and most attractive levels of their
programs and closely monitor the investment performance and customer service
aspects of such firms on an on-going basis as they evaluate which firms are
eligible for continued participation in these programs.
Nuveen Investments is also subject to competition in obtaining the commitment
of underwriters to underwrite its exchange traded fund offerings. To the extent
the increased competition for underwriting and distribution causes higher distribution
costs, Nuveen Investments' net revenue and earnings will be reduced.
Investment products are sold to the public by broker/dealers, banks, insurance
companies and others, and many competing investment product sponsors offer a
broader array of investment products. Many of these institutions have substantially
greater resources than Nuveen. In addition, continuing consolidation in the
financial services industry and the recent bear market environment are altering
the landscape in which Nuveen Investments' distributors compete and the economics
of many of the products they offer. The effect that these continuing changes
in the brokerage and investment management industries will have on Nuveen Investments
and its competitors cannot be predicted. Nuveen Investments competes with other
providers of products primarily on the basis of the range of products offered,
the investment performance of such products, quality of service, fees charged,
the level and type of broker compensation, the manner in which such products
are marketed and distributed, and the services provided to registered representatives
and investors.