The St. Paul Reports $646.7 Million Loss

Jay Fishman, St. Paul chairman and chief executive officer, who outlined the results in a conference call, would not guarantee there would not be more "realignment actions" in the near future.

In mid-December, the Minnesota-based company announced that it would exit its worldwide health care business, significantly reposition its reinsurance and Lloyd's operations, and withdraw from some non-U.S. primary insurance markets.

Mr. Fishman said the company is pleased with where it stands now with its remaining "core" business.

But when an analyst asked Mr. Fishman if his comments implied that the actions already taken were all that were necessary to produce acceptable results going forward, the CEO gave a two-part answer.

First, referring to balance sheet clean-up actions, he said, "There are certainly no reserve actions, no prior period provisions, that are looming in background."

"That does not mean we are necessarily done with all the strategic actions we may take," he said. "It wouldn't shock me if we take more business realignment actions as we get further on in the year."

He explained that The St. Paul "continues to look at each of our business lines, to test the profitability, to test the sustainability, to test the appropriateness of continued investment in those lines."

"I think good managements do that continuously," he said.

More specifically, he commented that the company's Lloyd's business continues to be one that The St. Paul is looking at carefully. "Even on a core basis," adjusted for earlier actions, "I think the returns there? continue to look not as strong as you would like them to be given the exposure," he said.

In addition, he said, "the dynamics of the reinsurance business and terrorism and federal legislation change hour to hour and minute to minute," suggesting that the reinsurance area is also under review.

Commenting later in the call on the issue of terrorism coverage and how it has been handled in the reinsurance marketplace generally, he said that, as a buyer of reinsurance, the company witnessed "some variability and some widening tolerance" to accept terrorism risk in reinsurance.

"It is not a universal position that terrorism across all lines of business is excluded from reinsurance coverage," he said, noting that this was true for existing reinsurers and new players in the market.

Noting that as a seller of reinsurance, The St. Paul sets a return-on-equity goal of 20 percent on each reinsurance transaction, he said that every reinsurer brings its own loss, investment income, and pricing assumptions to individual reinsurance deals. "We don't always win a contract because we lose on price," he said, noting that assumption about the other areas differ for different reinsurers on each transaction.

"A lot of people thought [the reinsurance market] was going to be a sellers market and that capital was available at the price named by the seller. It's not that way. There's still competition," he said.

The after-tax fourth-quarter operating loss of $646.7 million, or $3.14 per share, reported by The St. Paul, as well as a $940.8 million operating loss for the year, included the following items:

? $612 million, or $2.96 per share, of reserve strengthening, restructuring charges and goodwill writedown announced in December 2001;

? $109 million, or 53 cents per share, of underwriting losses from businesses being runoff business, tax-effected at 35 percent rate;

? $54 million, or 26 cents per share, from not being able to recognize tax benefits related to underwriting losses in international operations;

? $10 million, or 5 cents per share, in losses related Enron exposures.

In 2000, the company reported fourth-quarter after-tax operating earnings of $128.6 million, or 55 cents per share, and full-year earnings of $566.8 million, or $2.41 per share.