UNITED STATES
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
FOR ANNUAL REPORTS OF EMPLOYEE STOCK PURCHASE, SAVINGS
AND SIMILAR PLANS PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
21ST CENTURY INSURANCE COMPANY SAVINGS AND SECURITY PLAN
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(Exact name of the plan)
21ST CENTURY INSURANCE GROUP
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(Name of issuer)
6301 Owensmouth Avenue, Woodland Hills, California 91367
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(Address of principal executive offices) (Zip Code)
21st Century Insurance Company Savings and Security Plan
Report on Audited Financial Statements and Supplemental Schedule
For the Years Ended December 31, 2002 and 2001
21st Century Insurance Company Savings and Security Plan
Financial Statements
and Supplemental Schedule
Years ended December 31, 2002 and 2001
Contents
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . 1
Audited Financial Statements:
Statements of Net Assets Available for Benefits as of December 31, 2002 and
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Statements of Changes in Net Assets Available for Benefits for the Years
Ended December 31, 2002 and 2001 . . . . . . . . . . . . . . . . . . . 3
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . 4
Supplemental Schedule:
Schedule H, Line 4i - Schedule of Assets Held at End of Year as of
December 31, 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Index to Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Report of Independent Auditors
To the Participants and Plan Administrator of the 21st Century Insurance Company
Savings and Security Plan
In our opinion, the accompanying statements of net assets available for benefits
and the related statements of changes in net assets available for benefits
present fairly, in all material respects, the net assets available for benefits
of the 21st Century Insurance Company Savings and Security Plan (the "Plan") at
December 31, 2002 and 2001 and the changes in net assets available for benefits
for the years then ended in conformity with accounting principles generally
accepted in the United States of America. 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 of these statements in accordance with auditing standards generally
accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental 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 basic 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 is the responsibility of the
Plan's management. The supplemental schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
/s/ PricewaterhouseCoopers LLP
Los Angeles, California
June 20, 2003
1
21st Century Insurance Company Savings and Security Plan
Statements of Net Assets Available for Benefits
As of December 31,
2002 2001
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Assets:
Investments, at fair value (See Note 4) $61,592,342 $ 74,975,055
Guaranteed investment contract, at contract value 34,807,681 30,565,310
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Total investments 96,400,023 105,540,365
Receivables:
Accrued interest income 5,329 -
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Total assets 96,405,352 105,540,365
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Liabilities:
Other 26,223 25,138
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Total liabilities 26,223 25,138
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Net assets available for benefits $96,379,129 $105,515,227
=========================
The accompanying notes are an integral part of the financial statements.
2
21st Century Insurance Company Savings and Security Plan
Statements of Changes in Net Assets Available for Benefits
Year ended December 31,
2002 2001
-----------------------------
Additions to net assets:
Investment income (loss):
Net depreciation in the fair value of investments $(14,436,155) $ (6,952,638)
(See Note 4)
Interest and dividends 2,509,380 2,892,947
Participant loans interest income 558,737 698,090
Other 392 -
-----------------------------
Total investment loss (11,367,646) (3,361,601)
-----------------------------
Contributions:
Employer 4,088,333 3,925,862
Employee 7,607,457 7,313,685
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Total contributions 11,695,790 11,239,547
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Total additions 328,144 7,877,946
Deductions from net assets:
Benefits paid to participants and other distributions to 9,222,770 5,660,258
participants
Administrative expenses 241,472 162,196
-----------------------------
Net (decrease) increase in net assets (9,136,098) 2,055,492
Net assets available for benefits:
Beginning of year 105,515,227 103,459,735
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End of year $ 96,379,129 $ 105,515,227
=============================
The accompanying notes are an integral part of the financial statements.
3
21st Century Insurance Company Savings and Security Plan
Notes to Financial Statements
1. Description of Plan
The following brief description of the 21st Century Insurance Company Savings
and Security Plan ("Plan") provides only general information. Participants
should refer to the Plan Document for more complete information. Copies of the
Plan Document are available from the Human Resources Benefits Office.
Prior to January 1, 2002, the name of the Plan was "21st Century Insurance Group
Savings and Security Plan". Effective January 1, 2002, the sponsorship and
administration of the Plan was assumed by 21st Century Insurance Company (the
"Company" or "Plan Sponsor"), a wholly owned subsidiary of 21st Century
Insurance Group, and the present name of the Plan was adopted. The Plan is
referred to in these financial statements by its new name.
General
The Plan is a defined contribution plan incorporating the provisions of Section
401(k) of the Internal Revenue Code and covering substantially all employees of
21st Century Insurance Group ("Employer"). Any employee who has attained the age
of 20 is eligible to participate in the Plan. The Plan enables participants to
make contributions which the Employer matches in part. Contributions by and on
behalf of participants are invested in accordance with the participants'
investment designations in one or more investment fund options. Plan
participants have 16 investment fund options from which they may choose to have
their funds invested.
The Plan is subject to the provisions of the Employee Retirement Income Security
Act of 1974 ("ERISA").
Contributions
Each participant can contribute up to the lesser of $11,000 or 12% of earnings
on a before-tax basis and up to an additional 5% of earnings on an after-tax
basis. The Employer matches $.75 for every dollar contributed by a participant
(before tax) up to a maximum of 6% of the participant's earnings. Forfeitures
are used to offset future Employer-matching contributions. Participants may
change their contribution percentages or cease making contributions at any time
during the Plan year. In addition, they may elect to stop making contributions
entirely. Employer contributions follow the participant's fund election.
4
21st Century Insurance Company Savings and Security Plan
Notes to Financial Statements
1. Description of Plan (continued)
Vesting
Participants are immediately vested in their own contributions. Vesting in the
Employer-contributed amount is based on years of service. A participant vests
25% after two years of service and an additional 25% for each additional year. A
participant is 100% vested after five years of credited service.
Participant Accounts
Each participant's account is credited with his or her contributions, any
Employer matching contribution and an allocation of Plan earnings, and is
charged with any withdrawals.
Participant Loans
Each participant may obtain loans against his or her vested account balance. Any
loans made to a participant are secured by a hierarchical portion of the
participant's vested interest in his investment fund subaccounts. Generally, no
loan may exceed the lesser of 50% of the participant's vested account balances
or $50,000 dollars. Loans made for purposes other than the purchase of a
primary residence are charged interest at the prime rate plus 2%. Loans made for
the purchase of a home are charged interest at the prime rate. Generally, loans
are payable within 5 years except that the repayment period for loans made for
the purchase of a home may be up to 15 years. Upon termination of employment,
including death, any outstanding loan balance becomes due and payable and the
participant may elect to repay it or treat it as a partial distribution.
Payment of Benefits
Upon termination of service, a participant may generally elect to receive the
value of his or her account in either a lump-sum amount (if eligible) or in
installment payments for up to 15 years. Benefits become payable to participants
upon their termination of employment with the Employer or in the event of
elective withdrawal as permitted by the Plan.
5
21st Century Insurance Company Savings and Security Plan
Notes to Financial Statements
1. Description of Plan (continued)
Plan Termination
Although it has not expressed any intention to do so, the Employer has the right
under the Plan to terminate the Plan subject to the provisions set forth in
ERISA. Should the Plan terminate, or should contributions be discontinued, at
some future time, the rights of each affected participant to the entire amount
credited to his or her account on the date of such termination or discontinuance
shall be non-forfeitable and fully vested. Payment of such amounts to each
participant or beneficiary, upon the termination of the Plan or upon the
complete discontinuance of contributions under the Plan, shall be made by the
Plan administrator at such time and in such manner as the Plan administrator
shall state, provided, however, that all participants and beneficiaries
similarly situated shall be treated in a nondiscriminatory manner.
2. Summary of Significant Accounting Policies
Basis of Accounting
The financial statements of the Plan are prepared on the accrual basis of
accounting in conformity with accounting principles generally accepted in the
United States of America ("GAAP").
Use of Estimates
The preparation of financial statements in accordance with GAAP requires the
Plan's management to make estimates and assumptions that affect amounts reported
in the financial statements and accompanying notes. Actual results could differ
from these estimates.
Investments
Mutual funds and common stock are reported at fair value, using quoted market
prices. Participant loans are reported at amounts owed by the participants,
which approximates fair value. Deemed distributions relating to participant
loans in default, which are included in benefits paid in the statement of
changes in net assets available for benefits, amounted to $35,143.00 and $-0- in
2002 and 2001, respectively. The guaranteed investment contract is reported at
contract value because the contract is fully benefit responsive.
6
21st Century Insurance Company Savings and Security Plan
Notes to Financial Statements
2. Summary of Significant Accounting Policies (continued)
Investments (continued)
Purchases and sales of securities are reflected on a trade date basis. The basis
for all securities sold is determined by average cost. Dividend income is
recorded on the ex-dividend date and interest income is recorded on the accrual
basis. The Plan presents in the statement of changes in net assets available for
benefits the net appreciation (depreciation) in the fair value of its
investments, which consists of the realized gains or losses and unrealized
appreciation or depreciation on those investments.
Reclassification
Certain prior year balances have been reclassified to conform with current year
presentation.
3. Guaranteed Investment Contract
The fixed rate fund is a guaranteed investment contract consisting of funds
deposited with Pacific Life Insurance Company ("Pacific Life"). Pacific Life
maintains the contributions in an unallocated account, with a guaranteed
interest rate which is set annually not less than 30 days prior to the beginning
of the Plan year. The set rate was 5.65% for 2002 and 6.50% for 2001, which also
approximates the average yield. The account is credited with deposits and
interest earnings and charged with Plan withdrawals. The Employer pays the
contract administration charge. The contract included in the financial
statements is at contract value, which represents contributions made under the
contract, plus earnings, less withdrawals. Participants generally may direct the
withdrawal or transfer of all or a portion of their contract value, however, no
transfer may be made out of the account by an individual participant directly to
a competing fixed income fund offered by the Plan.
There are no reserves against contract value for credit risk of the contract
issuer or otherwise. The contract value of the guaranteed investment contract at
December 31, 2002 and 2001 approximated its fair value.
7
21st Century Insurance Company Savings and Security Plan
Notes to Financial Statements
3. Guaranteed Investment Contract (continued)
The Employer may cancel the contract at any time by giving notice to Pacific
Life. Ordinarily, transfer of the balance in the account would be made in four
substantially equal annual installments starting within 90 days of cancellation.
However, if the announced guaranteed interest rate is less than the current rate
and the balance in the account 60 days prior to the end of the Plan year exceeds
75% of the balance in the account at the beginning of the current Plan year, the
Employer may cancel the contract within 30 days of the new rate announcement and
may withdraw the total account balance within 30 days of cancellation.
4. Investments
The Plan's investments are invested in the Pacific Life guaranteed investment
contract, 21st Century Insurance Group Common Stock and in 14 mutual funds
administered by Fidelity Investments, which also acts as Trustee for the Plan.
Funds in transit to and from any of the investment options and the Plan Sponsor
or the participants or other investment options are temporarily invested in
short-term investments by the trustee.
8
21st Century Insurance Company Savings and Security Plan
Notes to Financial Statements
4. Investments (continued)
The following table presents the Plan's individual investments:
As of December 31,
2002 2001
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Guaranteed investment contract, at contract value $34,807,681* $30,565,310*
Investments at fair value:
Mutual Funds:
Fidelity Magellan Fund 19,077,215* 26,068,841*
Fidelity Equity-Income Fund 10,489,989* 13,275,038*
Fidelity Contrafund 5,734,703* 5,970,665*
Spartan U.S. Equity Index Fund 4,681,942 5,450,021*
Fidelity Retirement Government Money Market
Portfolio 4,334,351 3,088,576
INVESCO Small Company Growth Fund 3,144,429 4,373,566
Templeton Foreign Fund I 1,315,088 1,094,968
Fidelity Freedom 2010 Fund 943,134 1,058,096
Fidelity Freedom 2020 Fund 880,497 793,796
Fidelity Freedom 2030 Fund 898,117 958,715
Fidelity Freedom Income Fund 249,636 144,017
Ariel Appreciation 171,961 -
Fidelity Freedom 2000 Fund 122,963 139,102
Dreyfus Founders Balanced Fund - 615,143
Fidelity Freedom 2040 Fund 23,591 -
21st Century Insurance Group common stock 3,300,472 4,904,846
Loans to participants 6,132,327* 6,915,554*
Short-Term Investment Funds 91,927 124,111
--------------------------
$ 96,400,023 $105,540,365
==========================
*Represents 5% or more of net assets available for benefits.
During 2002 and 2001, the Plan's investments (including gains and losses on
investments bought and sold, as well as held during the year) depreciated in
value by $14,436,155 and $6,952,638 as follows:
2002 2001
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Mutual funds $(12,835,611) $(8,295,589)
21st Century Insurance Group
common stock (1,600,544) 1,342,951
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$(14,436,155) $(6,952,638)
9
21st Century Insurance Company Savings and Security Plan
Notes to Financial Statements
5. Risks and Uncertainties
The Plan provides for various investment options in any combination of stocks,
bonds, fixed-income securities, mutual funds, and other investment securities.
Investment securities are exposed to various risks, such as interest rates,
market and credit risks. Due to the level of risk associated with certain
investment securities and the level of uncertainty related to changes in the
value of investment securities, it is at least reasonably possible that changes
in risks in the near term could materially affect participants' account balances
and the amounts reported in the Statements of Net Assets Available for Benefits
and the Statements of Changes in Net Assets Available for Benefits.
6. Income Tax Status
The Internal Revenue Service has issued a determination letter dated May 11,
1995, that the Plan qualifies, in form, under Sections 401(a) and 401(k) of the
Internal Revenue Code of 1986, as amended (the "Code"), and the underlying trust
is, therefore, exempt from federal income taxes under Section 501(a) of the
Code. The Plan is required to operate in accordance with the Code to maintain
its tax qualification. The Plan administrator is not aware of any course of
actions or series of events that have occurred which might adversely affect the
Plan's qualified status.
Plan Amendments subsequent to the effective date of the IRS determination letter
are not covered by the letter. The Company believes that the Plan is designed
and being operated in compliance with the applicable requirements of the Code.
The Company intends to make any additional amendments necessary to be in
compliance with the Code.
7. Federal Income Taxes Applicable to Participants
The income tax rules affecting Plan participation are complex, subject to
interpretation by the Secretary of the Treasury, and subject to change. A
general summary of the federal tax consequences of participation in the Plan
follows.
In general, salary reduction contributions and Company matching contributions
are not subject to tax when made. In addition, earnings and gains on a
participant's account are not subject to tax when credited.
10
21st Century Insurance Company Savings and Security Plan
Notes to Financial Statements
7. Federal Income Taxes Applicable to Participants (continued)
Generally, distributions from the Plan are subject to tax in the year received
from the Plan. However, under certain circumstances, a distribution, or part of
thereof, may not be taxed if rolled over to an Individual Retirement Account or
other qualified plan. If taxable, a distribution may be eligible for special
tax treatment under the Code.
In additional to regular taxes, most distributions received before a participant
is age 59-1/2 will be subject to a 10% additional tax. Under limited
circumstances, distributions in excess of Code-determined limits will be subject
to a 15% excise tax.
8. Reconciliation to Form 5500
There were no differences between the amounts on Form 5500 and the financial
statements for plan years 2002 and 2001.
11
21st Century Insurance Company Savings and Security Plan
Notes to Financial Statements
9. Related-Party Transactions
Certain Plan investments are shares of mutual funds managed by Fidelity
Investments. Fidelity Investments is the acting Trustee as defined by the Plan
and, therefore, these transactions qualify as party-in-interest transactions for
which a statutory exemption exists. Fees paid to Fidelity for investment
management services amounted to $241,472 and $162,196 for the years ended
December 31, 2002 and 2001. Certain administrative expenses are paid by the Plan
Sponsor.
21st Century Insurance Company is the sponsor and employer and therefore
qualifies as a party-in-interest to the Plan, for which a statutory exemption
exists.
12
21st Century Insurance Company Savings and Security Plan
EIN: 95-2565072 Plan: 001
Schedule H, Line 4i - Schedule of Assets Held at End of Year (3)
As of December 31, 2002
Description of Investments,
Identity of Issue, Including Maturity Date,
Borrower, Lessor Rate of Interest, Par or Current
or Similar Party Maturity Value Value
------------------------------------- --------------------------------- -----------
Pacific Life Insurance Company (1) 34,807,681 Guaranteed
Investment Contract Shares $34,807,681
Fidelity Magellan Fund (2) 241,606 Mutual Fund Shares 19,077,215
Fidelity Equity-Income Fund (2) 264,431 Mutual Fund Shares 10,489,989
Fidelity Contrafund (2) 148,567 Mutual Fund Shares 5,734,703
Spartan U.S. Equity Index Fund (2) 150,303 Mutual Fund Shares 4,681,942
Fidelity Retirement Government Money 4,334,351 Money Market Fund
Market Fund (2) Shares 4,334,351
INVESCO Small Company Growth
Fund 377,483 Mutual Fund Shares 3,144,429
Templeton Foreign Fund I 158,254 Mutual Fund Shares 1,315,088
Fidelity Freedom 2010 Fund (2) 82,442 Mutual Fund Shares 943,134
Fidelity Freedom 2030 Fund (2) 87,707 Mutual Fund Shares 898,117
Fidelity Freedom 2020 Fund (2) 82,754 Mutual Fund Shares 880,497
Fidelity Freedom Income Fund (2) 23,551 Mutual Fund Shares 249,636
Ariel Appreciation 5,201 Mutual Fund Shares 171,961
Fidelity Freedom 2000 Fund (2) 11,168 Mutual Fund Shares 122,963
Fidelity Short Term Investment 97,256 Short-Term Investment
Fund (2) Fund Shares 91,927
Fidelity Freedom 2040 Fund (2) 4,026 Mutual Fund Shares 23,591
21st Century Insurance Group Common
Stock (2) 263,616 Common Stock Shares 3,300,472
Participant Loans (2) Interest rates between 4.75% and
11.5% 6,132,327
-----------
$96,400,023
===========
(1) Contract value approximates current value
(2) Party-in-interest to the Plan, for which a statutory exemption exists.
(3) Under ERISA, an asset held at end of year is any asset held by the Plan on
the last day of the Plan's fiscal year or acquired any time during the
Plan's fiscal year and disposed of any time before the last day of the
Plan's fiscal year, with certain exceptions.
See Report of Independent Auditors
13
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 hereunto
duly authorized.
21st Century Insurance Company Savings and Security Plan
Date: June 30, 2003
By: /s/ Richard Andre
-----------------------------------
Richard Andre, Senior Vice President
21st Century Insurance Company
Chairman Benefits Committee
14
INDEX TO EXHIBITS
Exhibit No. Description
23 Consent of Independent Accountants
99.1 Certification pursuant to 18 U.S.C. Section 1350
15