SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File Number: 333-56336
A. Full title of the plan and the address of the plan, if different
from that of the issuer named below:
State Auto Insurance Companies Capital Accumulation Plan
B. Name of issuer of the securities held pursuant to the plan and
the address of its principal executive office:
State Auto Financial Corporation
518 East Broad Street
Columbus, Ohio 43215-3976
REQUIRED INFORMATION
The following financial statements and supplemental schedules for the
State Auto Insurance Companies Capital Accumulation Plan are being filed
herewith:
Financial Statements and Supplemental Schedule:
-----------------------------------------------
December 31, 2002 and 2001 and the year ended December 31, 2002
---------------------------------------------------------------
Report of Independent Auditors
Audited Financial Statements:
Statements of Assets Available for Benefits
Statement of Changes in Assets Available for Benefits
Notes to Financial Statements
Supplemental Schedule:
Schedule of Assets (Held at End of Year)
The following exhibits are being filed herewith:
Exhibit No. Description
----------- -----------
1 Consent of Ernst & Young LLP Included herein
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Included herein
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Included herein
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Report of Independent Auditors
Plan Administrative Committee
State Auto Insurance Companies Capital Accumulation Plan
We have audited the accompanying statements of assets available for benefits of
the State Auto Insurance Companies Capital Accumulation Plan as of December 31,
2002 and 2001, and the related statement of changes in assets available for
benefits for the year ended December 31, 2002. These financial statements are
the responsibility of the Plan's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the assets available for benefits of the Plan as of
December 31, 2002 and 2001, and the changes in assets available for benefits for
the year ended December 31, 2002, in conformity with accounting principles
generally accepted in the United States.
Our audits were performed for the purpose of forming an opinion on the financial
statements taken as a whole. The accompanying schedule of assets (held at end of
year) as of December 31, 2002 is presented for the purpose of additional
analysis and is not a required part of the financial statements but is
supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. The supplemental schedule has been subjected to the
auditing procedures applied in our audits of the financial statements and, in
our opinion, is fairly stated in all material respects in relation to the
financial statements taken as a whole.
/s/ ERNST & YOUNG LLP
May 30, 2003
STATE AUTO INSURANCE COMPANIES CAPITAL ACCUMULATION PLAN
STATEMENTS OF ASSETS AVAILABLE FOR BENEFITS
December 31,
-------------------------------------------
2002 2001
------------------ -----------------
Assets
Investments:
Shares of registered investment companies $ 73,368,432 $ 86,175,336
Interest-bearing cash 14,051,438 12,002,060
Common /collective trusts 15,108,988 12,982,969
Affiliated stock 561,189 430,230
Loans to participants 2,466,686 2,657,113
------------------ -----------------
Total investments 105,556,733 114,247,708
Contribution receivables:
Employee 11,000 56,451
Employer 6,500 25,578
------------------ -----------------
Total receivables 17,500 82,029
------------------ -----------------
Assets available for benefits $ 105,574,233 $ 114,329,737
================== =================
See accompanying notes.
STATE AUTO INSURANCE COMPANIES CAPITAL ACCUMULATION PLAN
STATEMENT OF CHANGES IN ASSETS AVAILABLE FOR BENEFITS
Year ended December 31, 2002
Additions:
Interest and dividends $ 2,014,616
Contributions:
Employer 2,597,286
Employee 6,609,902
------------------
9,207,188
Total additions 11,221,804
Deductions:
Benefit payments 6,228,766
Participant loan fees 16,031
------------------
6,244,797
Net depreciation in fair value of investments (13,732,511)
Net decrease (8,755,504)
Assets available for benefits:
Beginning of year 114,329,737
------------------
End of year $ 105,574,233
==================
See accompanying notes.
State Auto Insurance Companies Capital Accumulation Plan
Notes to the Financial Statements
December 31, 2002
1. DESCRIPTION OF THE PLAN
ORGANIZATION
The State Auto Insurance Companies Capital Accumulation Plan (the Plan), a
defined-contribution plan, was adopted effective June 1, 1982, by State
Automobile Mutual Insurance Company and its affiliates (the Company) for the
purpose of providing a savings plan for the benefit of its employees.
The following description of the Plan provides only general information.
Participants should refer to the Plan Document for a complete description of the
Plan.
GENERAL
An employee of the company is eligible to participate in the Plan as of the
first pay period subsequent to thirty days after the employee's hire date,
provided the employee is or will attain age 21 during the calendar year
following the employee's hire date.
The Plan was amended and restated effective January 1, 1997 including subsequent
amendments through October 1, 2001 to meet recent legislation, regulation and
rulings.
CONTRIBUTIONS
Each participant may contribute any full percentage of their salary between 1%
and 50% beginning January 1, 2002 and 1% and 16% for years prior (basic
contribution). Subject to certain limitations, the Company matches the first 2%
of basic contributions of participant salary at the rate of 75 cents for each
dollar contributed; basic contributions of 3% to 6% are matched at a rate of 50
cents for each dollar contributed. Participants can change their rate of savings
as of any given pay date up to a maximum of four times per calendar year.
Participants may also suspend contributions at any time.
Prior to January 1, 2002, the Plan permitted participants to make supplemental
voluntary cash payment contributions to the Plan subject to certain limitations.
These supplemental contributions were not eligible for matching contributions by
the Company. Effective January 1, 2002, participants were no longer eligible to
make supplemental voluntary cash payment contributions to the Plan. Participants
may still elect to make supplemental contributions in the form of after tax
salary deferrals. Total participant contributions may not exceed 50% of salary.
State Auto Insurance Companies Capital Accumulation Plan
Notes to the Financial Statements
December 31, 2002
PARTICIPANT'S ACCOUNTS
Each participant's account is credited with the participant's contributions and
allocations of a) the Company's contributions and b) Plan earnings, and is
charged with applicable participant loan fees. Allocations are based on
participant earnings or account balances, as defined. The benefit to which a
participant is entitled is the benefit that can be provided from the
participant's account. All administrative expenses and trustee fees are paid by
the Company.
INVESTMENT OPTIONS
Under the Plan trust agreement, participants may designate how their plan
contributions are to be invested.
Plan contributions may be invested in the following ten funds:
Fidelity Puritan Fund: Consists of a diversified portfolio of
high-yielding equity securities and bonds.
Fidelity Contrafund: Consists primarily of seemingly undervalued common
stocks and convertible securities with potential for market growth.
Fidelity Equity Income Fund: Consists primarily of stocks which may pay
a higher than average dividend and stocks with potential for market
growth.
Fidelity U.S. Government Reserves Fund: Consists of short-term
instruments issued by the U.S. Government and/or its agencies and
repurchase agreements secured by U.S. Government obligations.
Fidelity Managed Income Portfolio Fund: Consists primarily of high quality
short and long-term investment contracts. Investment contracts have both
variable and fixed rates.
Fidelity Aggressive Growth Fund: Consists primarily of equity securities
of companies with growth potential.
Spartan U.S. Equity Index Fund: Consists of equity securities that
correspond to those listed in the Standard & Poor's 500 Index.
Fidelity Intermediate Bond Fund: Consists primarily of intermediate
term, investment grade debt securities of U.S. corporations and
U.S. Government Agencies.
Fidelity Diversified International Fund: Consists primarily of foreign
securities.
State Auto Insurance Companies Capital Accumulation Plan
Notes to the Financial Statements
December 31, 2002
State Auto Financial Corporation Common Stock Fund: Consists of publicly
traded common stock of the State Auto Financial Corporation, an affiliate
to the Company. The stock is traded on the NASDAQ under the ticker symbol,
STFC.
PARTICIPANT LOANS
Participants may borrow from their fund accounts a minimum of $1,000 up to a
maximum of the lesser of $50,000 or 50% of their vested account balance. Loan
terms range from 1-5 years or up to 10 years for the purchase of a primary
residence. The loans are secured by the balance in the participant's account
and bear interest at a rate commensurate with local prevailing rates as
determined quarterly by the Plan Administrative Committee. Principal and
interest is paid ratably through bi-weekly payroll deductions.
VESTING
Plan participants are immediately fully vested in employee contributions and
related net earnings or losses. Full vesting in employer contributions and
related net earnings and losses occurs upon three completed years of service.
Any employee terminating prior to three completed years of service vests in
employer contributions and related net earnings and losses at percentages set
forth by the Plan document.
In addition, employer contributions and related net earnings or losses are fully
vested upon retirement at age 65, death or total and permanent disability.
Any forfeitures of nonvested employer contributions and related net earnings or
losses reduce future employer contributions.
PAYMENT OF BENEFITS
Upon termination of service, participants generally receive a lump-sum amount
equal to the value of their account less outstanding loan balances.
Alternatively, qualifying participants can elect to receive their account value
less outstanding loan balances in installments over a period not to exceed 10
years or, in the case of a retired participant, over a period not to exceed
normal life expectancy.
Participants may semiannually withdraw from their supplemental accumulated
contributions and, subject to certain conditions, participants may withdraw from
their accumulated basic and supplemental contributions based on financial
hardship. After participants have been in the plan for five years, and once
every two years thereafter, participants may withdraw the vested portion of
employer contributions credited to their account.
State Auto Insurance Companies Capital Accumulation Plan
Notes to the Financial Statements
December 31, 2002
PLAN TERMINATION
While the Company has not expressed any intent to terminate the Plan or to
discontinue contributions, it is free to do so at any time, subject to the
provisions set forth in the Employee Retirement Income Security Act of 1974.
Should the Plan be terminated at some future time, all participants become 100%
vested in benefits earned as of the termination date.
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accounting records of the Plan are maintained in conformity with accounting
principles generally accepted in the United States.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
INVESTMENT VALUATION
Investments are stated at fair value. The common/collective trust is valued
based on quoted redemption value on the last business day of the Plan year.
Shares of registered investment companies and shares of the State Auto Financial
Corporation Common Stock Fund are valued at quoted market prices that represent
the net asset values of shares held by the Plan at year-end. Loans to plan
participants, which must be approved by the Plan Advisory Committee, are valued
at their outstanding balances, which approximate fair value.
INVESTMENT INCOME
Investment income, including appreciation and depreciation in fair value of
investments, is allocated to participant accounts daily based upon the ratio of
each participants account to the total fund balance.
State Auto Insurance Companies Capital Accumulation Plan
Notes to the Financial Statements
December 31, 2002
3. INVESTMENTS
The following investments, at fair value, represented 5% or more of assets
available for benefits as of December 31, 2002 and 2001:
December 31
2002 2001
--------------------------------------
Investments in shares of registered investment companies:
Fidelity Puritan Fund $ 8,527,111 $ 9,152,913
Fidelity Contrafund 28,424,895 32,237,442
Fidelity Equity Income Fund 20,823,057 25,199,972
Fidelity U.S. Government Reserves Fund 14,051,438 12,002,060
Spartan U.S. Equity Index Fund 5,268,450 7,102,444
Fidelity Aggressive Growth Fund 4,096,228 6,778,088
Investment in common/collective trusts:
Fidelity Managed Income Portfolio Fund 15,108,988 12,982,969
During the year ended December 31, 2002, the net depreciation of $13,732,511 in
fair value of investments (including investments bought and sold, as well as
held during the year) was derived from the Plan's investments in shares of
registered investment companies.
4. FEDERAL INCOME TAX STATUS
The Plan has received a determination letter from the Internal Revenue Service
dated August 16, 2002, stating that the Plan is qualified under Section 401(a)
of the Internal Revenue Code (the "Code") and, therefore, the related trust is
exempt from taxation. Once qualified, the Plan is required to operate in
conformity with the Code to maintain its qualification. The plan administrator
believes the Plan is being operated in compliance with the applicable
requirements of the Code and, therefore, believes that the Plan is qualified and
the related trust is tax exempt.
State Auto Insurance Companies Capital Accumulation Plan
Notes to the Financial Statements
December 31, 2002
5. RECONCILIATION TO FORM 5500
The following is a reconciliation of net assets available for benefits per the
financial statements to the Form 5500 as of December 31, 2002:
Net assets available for benefits per the financial statements $105,574,233
Contributions receivable included in the financial statements (17,500)
------------
Net assets available for benefits per the 5500 $105,556,733
============
The following is a reconciliation of the changes in net assets per the financial
statements to the Form 5500 for the year ended December 31, 2002:
Financial Contributions Form
Statements Receivable 5500
---------------------------------------------------------
Contributions per Employee $ 6,609,902 $ (11,000) $ 6,598,902
Contributions per Employer 2,597,286 (6,500) 2,590,786
STATE AUTO INSURANCE COMPANIES CAPITAL ACCUMULATION PLAN
SCHEDULE H, LINE 4I - SCHEDULE OF ASSETS (HELD AT END OF YEAR)
EIN # 31-4316080 /Plan # 004
December 31, 2002
Description of Current
Identity of Issue Investment Units Cost Value
----------------- ---------------- ---- -----
Shares of Registered Investment Companies:
Fidelity Puritan Fund 540,032 shares $ 9,549,251 $ 8,527,111
Fidelity Contrafund 736,396 shares 32,728,723 28,424,895
Fidelity Equity Income Fund 524,907 shares 23,612,887 20,823,057
Fidelity Intermediate Bond Fund 245,529 shares 2,521,631 2,634,526
Fidelity U.S. Government Reserves Fund 14,051,438 shares 14,051,438 14,051,438
Fidelity Aggressive Growth Fund 366,062 shares 12,568,748 4,096,228
Fidelity Diversified International Fund 209,450 shares 4,506,757 3,594,165
Spartan U.S. Equity Index Fund 169,132 shares 6,810,055 5,268,450
Investment in common/collective trusts:
Fidelity Managed Income Portfolio Fund 15,108,988 shares 15,108,988 15,108,988
Affiliated Stock
* State Auto Financial Corporation Common Stock Fund 36,206 shares 569,519 561,189
Participant Loan Fund Interest rates range from 3.75% to 5.25% - 2,466,686
--------- ---------
$122,027,997 $105,556,733
============ ============
* - Indicated a party-in-interest to the Plan.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the trustees (or other persons who administer the employee benefit plan) have
duly caused this annual report to be signed on its behalf by the undersigned
thereunto duly authorized.
STATE AUTO INSURANCE COMPANIES
CAPITAL ACCUMULATION PLAN
Date: June 27, 2003 By /s/ Steven J. Johnston
--------------------------------------------
Printed Name: Steven J. Johnston
------------------------
Title: Sr. Vice President and CFO
-------------------------------
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
1 Consent of Ernst & Young LLP Included herein
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Included herein
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Included herein
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002