The St. Paul Companies Reports 4thQ 2001 Results

January 25, 2002

On Jan. 23, The St. Paul Companies announced a 2001 fourth-quarter after-tax operating loss of $646.7 million, or $3.14 per diluted share, reflecting previously disclosed charges and other actions related to its decision to exit or restructure certain businesses. In the fourth quarter of 2000, the company reported after-tax operating earnings of $128.6 million, or $0.55 per diluted share. After-tax operating results exclude realized investment gains or losses and the results of discontinued operations from previously disposed businesses.

As announced in December, the company is exiting its worldwide Health Care business, significantly repositioning its Reinsurance and Lloyd’s operations, and exiting a number of non-U.S. primary insurance markets. The businesses being exited are termed “runoff” business. Ongoing operations are considered “core” business. The pro forma underwriting results for these two categories combined comprise the company’s reported underwriting results.

The company’s fourth-quarter after-tax operating loss of $646.7 million, or $3.14 per share, includes the following after-tax items: $612 million, or $2.96 per share, of reserve strengthening, restructuring charges and goodwill writedown announced in December 2001; $109 million, or $0.53 per share, of pro forma underwriting losses from the runoff business, tax-effected at a statutory 35 percent rate; $54 million, or $0.26 per share, from not being able to recognize tax benefits related to underwriting losses in international operations; and $10 million, or $0.05 per share, in losses related to previously announced Enron exposures.

“We are making progress on all the initiatives we announced in December, and we are very much on course,” said Chairman and CEO Jay Fishman. “The businesses that form the foundation of the company’s future are performing very well, buoyed by very strong price increases. Price increases in most lines approached 20 percent in the quarter. Our powerful franchise, broad underwriting expertise, strong financial ratings, and solid relationships with agents, together with our position as the fifth largest U.S. commercial insurer, will enable us to reap the benefits of the hardening market. Further, increased customer appreciation for risk management products and services are expanding opportunities for us to capitalize on our strengths. All of these factors make us confident that both the strategic and economic assumptions we set forth in December for both our core and runoff business for the year 2002 remain valid. In fact, we are ahead of where we expected to be in our expense reduction efforts and will exceed the expense savings target set in December of last year thanks to the hard work of our people.”

The company has taken the necessary actions to eliminate $80 million in annual direct expenses related to the runoff operations and to secure an additional $50 million in corporate expense reductions by the end of 2002.

For the year 2001, the company reported an after-tax operating loss of $940.8 million, or $4.52 per share. In 2000, the company reported after-tax operating earnings of $566.8 million, or $2.41 per diluted share.

The company reported a net loss for the fourth quarter of $736.0 million, or $3.57 per share, which includes $17.7 million in after-tax losses from discontinued operations and $71.6 million in after-tax realized investment losses. Investment losses included a $13 million after-tax writedown in the carrying value of Argentine securities and an after-tax loss of $12 million for the writedown in the carrying value of Enron securities. Book value per share at the end of 2001 decreased to $24.35 from $32.88 one year ago. In addition to the impact of the net losses, approximately $1.23 of the decline was due to share repurchases, while approximately $1.38 of the decline was driven by changes in unrealized gains on investments. Adjusting its holdings of money manager John Nuveen to market, The St. Paul’s book value per share was $29.02.

In the fourth quarter, the company issued $575 million of preferred capital securities, with an annual coupon of 7.6 percent. The proceeds were ultimately contributed to its insurance subsidiaries.

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