The St. Paul Travelers Companies, Inc. - Commercial Insurance -  Category Directory

651-310-7911

385 Washington Street

Saint Paul, MN 55102
www.stpaultravelers.com

Sales

$8.9 billion

Business Description
Property-Liability Insurance

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.

Further information about these lines of business, including types of coverage that are specific to an operating segment, are included in the segment descriptions that follow this section.

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. The “Environmental and Asbestos Claims” section of Management’s Discussion and Analysis included in this report provides additional information regarding our historical exposure to and losses from asbestos and environmental claims.

Property-Liability Underwriting Segments

In the first quarter of 2003, we revised our property-liability insurance business segment reporting structure to reflect the manner in which those businesses are managed. Our property-liability underwriting operations consist of two segments constituting our ongoing operations (Specialty Commercial and Commercial Lines), and one segment predominantly comprised of our runoff operations (Other). The composition of those respective segments is described in greater detail in the following discussion. The following is a summary of changes made to our segments in the first quarter of 2003.

· Our Surety & Construction operations, previously reported together as a separate specialty segment, are now separate components of our Specialty Commercial segment.

· Our ongoing International operations and our ongoing operations at Lloyd’s, previously reported together as a separate specialty segment, are now separate components of our Specialty Commercial segment.

· Our Health Care, Reinsurance and Other operations, each previously reported as a separate runoff business segment, have been combined into a single Other runoff segment and are under common management. “Runoff” means that we have ceased or plan to cease underwriting business as soon as possible.

· The results of our participation in voluntary insurance pools, as well as loss development on business underwritten prior to 1980 (prior to 1988 for business acquired in our merger with USF&G Corporation in 1998), previously included in our Commercial Lines segment, are now included in the Other segment. In addition to our participation in voluntary insurance pools, this prior year business includes the majority of our environmental and asbestos liability exposures. The oversight of these exposures is the responsibility of the same management team responsible for oversight of the other components of the Other segment.

In addition, in the fourth quarter of 2003, our Specialty Programs business center, previously reported in our Specialty Commercial segment, was moved to our Commercial Lines segment to more accurately reflect the manner in which this business is underwritten and managed. All data for 2002 and 2001 in this report were restated to be consistent with the changes made to our segment reporting structure in the first and fourth quarters of 2003. The following discussion describes the composition of our three property-liability underwriting segments.

Specialty Commercial. This segment includes business centers that we have designated specialty commercial operations because each provides dedicated underwriting, claim and risk control services that require specialized expertise, and each focuses exclusively on the respective customers it serves. Insurance coverage in these business centers is often provided on proprietary insurance forms. This segment also includes our ongoing specialty international operations, and our ongoing operations at Lloyd’s. The Specialty Commercial segment collectively generated $4.50 billion of net earned premiums in 2003 (accounting for 64% of our consolidated earned premium volume). The following discussion describes the operations that comprise our Specialty Commercial segment.

The Surety business center underwrites surety bonds, which are agreements under which one party (the surety) guarantees to another party (the owner or obligee) that a third party (the contractor or principal) will perform in accordance with contractual or legal obligations. The surety is responsible for evaluating the risk to be covered and for determining if the principal meets the underwriting requirements for the bond. The premium charged will reflect the size and type of the obligation. By offering a bond, the surety is offering assurance that its customer will meet its obligations as specified under the bond.

According to data published by the Surety Association of America, our domestic Surety operations were the second-largest in the United States based on 2002 direct premiums written. In addition to its U.S. operations, our Surety business center also includes Afianzadora Insurgentes, the leading surety underwriter in Mexico, and our Canadian operations, St. Paul Guarantee, the largest surety bond underwriter in Canada.

For Contract Surety, we provide bid, performance and payment bonds to a broad spectrum of clients specializing in general contracting, highway and bridge construction, asphalt paving, underground and pipeline construction, manufacturing, civil and heavy engineering, and mechanical and electrical construction. Bid bonds provide financial assurance that bids have been submitted in good faith and that the contractor intends to enter into the contract at the price bid and provide the required performance and payment bonds. Performance bonds require us to fulfill the contractor’s obligations to the obligee should the contractor fail to perform under the contract. Payment bonds guarantee that the contractor will pay certain subcontractor, labor and material bills associated with a project.

For Commercial Surety, which comprises bonds covering obligations often required by law, the bonds that we currently underwrite are as follows.

· license and permit bonds, which are required by statutes or regulations for a number of purposes, including guaranteeing the payment of certain taxes and fees and providing consumer protection as a condition to granting licenses related to selling real estate, including tax and customs bonds;

· reclamation bonds, which cover reclamation costs for mining and other industrial companies;

· fiduciary bonds, which are required by statutes, courts or contracts for the protection of those on whose behalf a fiduciary (such as an executor of an estate or a guardian of a minor) acts, including probate bonds and depository bonds;

· court bonds, which are bonds that may be required of either a plaintiff or a defendant in a lawsuit;

· public official bonds, which are required by statutes and regulations to guarantee the lawful and faithful performance of the duties of office by public officials;

· indemnity bonds, which are obligations to hold a third party harmless of damages related to an underlying obligation to perform, maintain or pay;

· workers’ compensation self-insurer bonds, which are required by statutes and regulations to guarantee the payment of workers’ compensation benefits to injured workers of companies that wish to self-insure those obligations;

· transfer agent indemnity bonds, which protect the issuer of securities and the transfer agent against the possibility that a lost share certificate may be presented later by an innocent purchaser for value; and

· other miscellaneous bonds.

Like contract surety bonds, commercial surety bonds expose us to the risk that the principal (e.g., the fiduciary in a fiduciary bond or the mining company in a reclamation bond) will not perform the duties required by the contract, applicable law or regulation. Accordingly, we underwrite and price these products by analyzing, among other things, the principal’s creditworthiness and ability to perform.

Certain sectors of our commercial surety business tend to be characterized by low frequency but potentially high severity losses. In October 2000, we made a strategic decision to significantly reduce the exposures in these sectors. Since that time, we had reduced our total commercial surety gross open bond exposure by over 56% by December 31, 2003.

Within these sectors of our commercial surety business, we have exposures related to a small number of accounts, which are in various stages of bankruptcy proceedings. In addition, certain other accounts have experienced deterioration in creditworthiness since we issued bonds to them. Given the current economic climate and its impact on these companies, we may experience an increase in claims and, possibly, incur high severity losses. Such losses would be recognized in the period in which the claims are filed and determined to be a valid loss under the provisions of the surety bond issued.

We continue to exit the segments of the commercial surety market that are characterized by low frequency but potentially high severity bonds by ceasing to write new business and, where possible, terminating the outstanding bonds. We continue to be a market for traditional commercial surety business, which includes low-limit business such as license and permit, probate, public official, and customs bonds.

Our Construction business center offers a variety of products and services, including traditional insurance, consisting of workers’ compensation, general liability and commercial auto coverages, and other risk management solutions, to a broad range of contractors and parties responsible for construction projects.

Financial & Professional Services provides property and liability coverages for financial institutions, professional liability and management liability coverages for corporations and nonprofit organizations against losses caused by the negligence or misconduct of named directors and officers, and errors and omissions coverages for a variety of professionals such as lawyers, insurance agents and real estate agents for liability from errors and omissions committed in the course of professional conduct or practice. Although we have not observed any notable increase in directors and officers claims in this business center, in view of recent allegations of corporate malfeasance and professional misconduct, and the Sarbanes-Oxley Act of 2002 (and regulations issued by the Securities and Exchange Commission pursuant to that law), the frequency and severity of such claims could increase.

Technology offers a portfolio of specialty products and services to companies involved in telecommunications, information technology, health sciences and electronics manufacturing. These products include property, commercial auto, general liability, workers’ compensation, umbrella, Internet liability, and technology errors and omissions coverages. The services provided by this business center include dedicated underwriting, risk control and specialized claim handling.

The Umbrella/Excess and Surplus Lines Group consists of two distinct business units. Specialty Excess and Umbrella focuses on umbrella and excess liability business for retail agents and brokers, where other insurance companies are providing the primary coverage. The coverages underwritten are typically commercial auto, general liability and product liability. Umbrella coverage may also be underwritten over a company that retains risk or has a self-insured retention, instead of a scheduled underlying policy. The Excess & Surplus Lines unit underwrites non-admitted individual risk business for established wholesale distributors. The coverages typically underwritten include commercial auto, general liability and product liability.

The E&S Underwriting Facilities business center underwrites liability and property facilities produced by wholesalers and managing general agents, which are licensed insurance agents that manage all or part of an insurer’s customers with unique requirements—primarily those with moderate to high hazard exposures requiring expertise in the surplus lines marketplace and the ability to use policy forms not subject to regulatory requirements. Coverages include property, commercial auto, general liability and a small amount of umbrella.

Public Sector Services markets insurance products and services to municipalities, counties, Indian Nation gaming and selected special government districts, including water and sewer utilities, and non-rail transit authorities. The policies written by this business center typically cover property, commercial auto, general liability, workers’ compensation and errors and omissions exposures.

Discover Re, which principally provides commercial auto liability, general liability, workers’ compensation, and property coverages, serves retail brokers and insureds that are committed to the alternative risk transfer market. Alternative risk transfer techniques are typically utilized by sophisticated insureds that are financially able to assume a substantial portion of their own losses. Discover Re is organized in two underwriting units, each of which underwrites primary insurance in connection with arrangements that involve the client or a captive insurer agreeing to bear much of the covered risk. The individual risk unit markets products to individual insureds that are comfortable retaining the more predictable layer of their expected losses through either large deductible or true self-insured retention programs. Under a large deductible structure, we are exposed not only to the risk of loss under the policy but also to the risk of the insured’s inability or unwillingness to pay its obligations under the terms of the agreement. We mitigate the latter risk by collateralizing all or a portion of the expected losses in the insured’s retained layer. The second underwriting unit is the captive/program unit, which focuses on captive business. Similar to the individual risk accounts, the captives retain the more predictable frequency layer of expected losses, with Discover Re providing excess coverage above the captives’ retention. In some instances the captive/program unit may retain little or no risk, but earns revenues primarily from fees collected for providing access to policies from an admitted insurance company.

Oil and Gas provides specialized property and liability products for customers involved in the exploration and production of oil and gas including operators, drillers and servicing contractors. The policies written by this business center insure drilling rigs, natural gas facilities, pipelines, production and gathering platforms, and cover risks including physical damage, liability and business interruption.

Ocean Marine underwrites a diverse portfolio of coverages for all forms of marine transportation and the companies that serve them, as well as other businesses involved in international trade. Our product offerings fall under four main coverage categories: marine liability; cargo; hull and machinery, protection and indemnity; and marine property-liability.

Personal Catastrophe Risk underwrites personal property coverages in certain states exposed to earthquakes and hurricanes, including principally California, Texas and Florida. As with our commercial catastrophe risk coverages underwritten in our Commercial Lines segment, a single loss event may produce heavy losses under a number of policies. We attempt to manage the risk to which we are exposed through natural catastrophe reinsurance coverage. The “Natural Catastrophe Risk Management” section of Management’s Discussion and Analysis included in this report, which includes a discussion of our natural catastrophe risk management procedures, is incorporated herein by reference.

Our International & Lloyd’s operation consists of the following components: our ongoing operations at Lloyd’s, and our ongoing specialty commercial operations outside of the United States, including our Global Accounts business center (collectively referred to hereafter as “international specialties”).

Lloyd’s is a subscription insurance market in which member individuals and firms participate to provide insurance to customers seeking coverage for a variety of risks. The members of Lloyd’s are organized into “syndicates” consisting of one or more members. The members provide underwriting capacity with which the syndicate makes coverage available to particular customers. Syndicates are operated by managing agencies that receive fees in respect of the services they provide in both underwriting and claims administration. Coverage is placed by insurance brokers acting on behalf of insureds.

In 2003 at Lloyd’s, we underwrote four principal lines of business—aviation, marine, global property and personal lines—through a single syndicate for which we provide 100% of the capital. This syndicate was established in 1996 as Syndicate 1211 and re-branded as Syndicate 5000 in November 2002. Aviation underwrites a broad spectrum of international airline, manufacturer, airport and general aviation business. Marine underwrites energy, cargo and hull coverages. Global property underwrites property coverages worldwide. Personal lines provides specialized accident and health coverages for international clients, including personal accident, kidnap and ransom, and payment protection insurance. Prior to 2003, the aviation and personal lines businesses were underwritten through other syndicates that we managed and in which we participated with other members of Lloyd’s. We do not provide Syndicate 5000 with direct capital contributions, but rather obtain bank letters of credit to support the syndicate’s insurance exposure. We are liable, however, if these letters of credit are called upon to cover any losses of the syndicate and must reimburse the banks that issue the letters of credit for any amounts they pay on our behalf.