Exhibit 99(a)
Note 12 - Discontinued Operations
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Life Insurance Segment
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On April 26, 2001, we announced an agreement by our
subsidiary, St. ▇▇▇▇ Fire and Marine Insurance Company
("Fire and Marine"), to sell its life insurance company,
Fidelity and Guaranty Life Insurance Company, and its
subsidiary, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ Life, (together, "F&G Life") to
Old Mutual plc ("Old Mutual") for $335 million in cash and
$300 million in shares of Old Mutual stock. The
consideration is subject to possible adjustment related to
F&G Life's investment portfolio. If the market value of
specified securities within that portfolio changes between
March 31, 2001 and the closing date, or if any securities
within that portfolio experience specified credit rating
downgrades prior to closing, the consideration is subject to
adjustment. Pursuant to the purchase agreement, The St.
▇▇▇▇, or any direct or indirect wholly owned subsidiary of
The St. ▇▇▇▇, must hold the Old Mutual stock received for
one year after the closing of the transaction. The
consideration is also subject to possible additional
adjustment based on the market price of Old Mutual's stock
at the end of that one-year period, as described in greater
detail in the purchase agreement. The sale is subject to
regulatory approvals and other conditions, and is expected
to close later in 2001. We expect to realize a modest gain
on the sale of F&G Life, the exact amount of which will be
determined at closing.
The measurement date for the sale of F&G Life occurred prior
to the filing of this Quarterly Report on Form 10-Q; as a
result, our consolidated statements of income presented
herein reflect F&G Life's results of operations in
discontinued operations for the three months ended March 31,
2001 and 2000. In the first quarter of 2001, F&G Life
recorded a net loss of $424,000, which was driven by after-
tax realized investment losses of $15 million. Those losses
were primarily the result of writedowns in the carrying
value of certain fixed maturity investments. In the first
quarter of 2000, F&G Life recorded net income of $13
million. In addition, on our consolidated balance sheet as
of March 31, 2001, F&G Life's net assets of $626 million
were included in "Other Assets," classified as net assets of
discontinued operations.
Presented on the following pages are The St. Paul's pro
forma consolidated, condensed income statement for the year
ended Dec. 31, 2000, which assumes the sale of F&G Life
occurred at the beginning of 2000, and The St. Paul's
restated consolidated balance sheet as of Dec. 31, 2000.
Included are condensed historical statements as reported
before the sale of F&G Life, pro forma adjustments, and the
pro forma statements after the sale. The pro forma data is
provided for illustrative purposes only, and does not
purport to be indicative of the results that would have
actually occurred if the sale of the life insurance segment
had been consummated at the beginning of 2000, or that may
be obtained in the future.
Statements of Income
Twelve Months Ended Dec. 31, 2000
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Restated
Previously for sale of
(In millions, except share data) Reported F&G Life F&G Life
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Revenues:
Premiums earned $5,898 $306 $5,592
Net investment income 1,616 354 1,262
Asset management 356 - 356
Realized investment gains (losses) 607 (25) 632
Other 146 1 145
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Total revenues 8,623 636 7,987
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Expenses:
Insurance losses and loss
adjustment expenses 3,913 - 3,913
Life policy benefits 494 494 -
Policy acquisition expenses 1,442 46 1,396
Operating and administrative expenses 1,320 43 1,277
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Total expenses 7,169 583 6,586
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Income from continuing operations
before income taxes 1,454 53 1,401
Income tax expense 441 10 431
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Income from continuing operations 1,013 43 970
Discontinued operations, net of taxes (20) (43) 23
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Net income $ 993 $ - $ 993
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Basic earnings per common share:
Income from continuing operations $4.59 $0.20 $4.39
Discontinued operations, net of taxes (0.09) (0.20) $0.11
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Net income $4.50 $ - $4.50
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Diluted earnings per common share:
Income from continuing operations $4.32 $0.18 $4.14
Discontinued operations, net of taxes (0.08) (0.18) $0.10
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Net income $4.24 $ - $4.24
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For purposes of calculating basic earnings per share,
weighted average shares outstanding totaled 216.7 million.
For purposes of calculating diluted earnings per share,
weighted average shares outstanding totaled 232.9 million.
Balance Sheet
As of December 31, 2000
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Net Assets Restated
Previously of Discontinued for Sale of
(In millions) Reported F&G Life Operations F&G Life
----------- ----------- --------- --------------- ------------
Assets:
Fixed maturities $20,470 $ 4,533 $ - $15,937
Other investments 6,629 514 - 6,115
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Total investments 27,099 5,047 - 22,052
Reinsurance
recoverable on
unpaid losses 5,196 545 - 4,651
Other assets 8,910 698 587 8,799
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Total assets $41,205 $6,290 $587 $35,502
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Liabilities:
Losses and loss
adjustment expense
reserves 18,196 - - 18,196
Future policy
benefits 5,460 5,460 - -
Unearned premium
reserves 3,648 - - 3,648
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Total insurance
reserves 27,304 5,460 - 21,844
Other liabilities 6,674 243 - 6,431
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Total liabilities 33,978 5,703 - 28,275
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Shareholders' equity 7,227 587 587 7,227
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Total liabilities and
shareholders' equity $41,205 $6,290 $587 $35,502
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