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, 2001
21ST CENTURY INSURANCE COMPANY SAVINGS AND SECURITY PLAN
--------------------------------------------------------
(Exact name of the plan)
21ST CENTURY INSURANCE GROUP
----------------------------
(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
Reports on Audited Financial Statements and Supplemental Schedule
For the Years Ended December 31, 2001 and 2000
21st Century Insurance Company Savings and Security Plan
Financial Statements
and Supplemental Schedule
Years ended December 31, 2001 and 2000
CONTENTS
Report of Independent Accountants. . . . . . . . . . . . . . . . . . . . . 1
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . 2
Audited Financial Statements:
Statements of Net Assets Available for Benefits as of
December 31, 2001 and 2000. . . . . . . . . . . . . . . . . . . . . . 3
Statements of Changes in Net Assets Available for
Benefits for the Years Ended December 31, 2001 and 2000 . . . . . . . . 4
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . 5-11
Supplemental Schedule:
Schedule H, Line 4i - Schedule of Assets Held for
Investment Purposes as of December 31, 2001 . . . . . . . . . . . . . . 13
Consent of Independent Accountants . . . . . . . . . . . . . . . . . . . . 14
Consent of Independent Auditors. . . . . . . . . . . . . . . . . . . . . . 15
REPORT OF INDEPENDENT ACCOUNTANTS
To the Participants and Plan Administrator of the 21st Century Insurance Company
Savings and Security Plan
In our opinion, the accompanying statement of net assets available for benefits
and the related statement 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, 2001 and the changes in net assets available for benefits for the
year ended December 31, 2001 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 audit. We conducted our audit
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 audit provides a reasonable basis for our opinion.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule of assets held
for investment purposes as of December 31, 2001 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 audit 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 21, 2002
1
1
REPORT OF INDEPENDENT AUDITORS
21st Century Insurance Group as Plan Administrator of the
21st Century Insurance Company Savings and Security Plan
We have audited the accompanying statement of net assets available for benefits
of the 21st Century Insurance Company Savings and Security Plan (formerly, the
21st Century Insurance Group Savings and Security Plan) (the Plan) as of
December 31, 2000 and the related statement of changes in net assets available
for benefits for the year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan at
December 31, 2000 and the changes in its net assets available for benefits for
the year then ended, in conformity with accounting principles generally accepted
in the United States.
/s/ Ernst & Young LLP
Los Angeles, California
May 24, 2001
2
21st Century Insurance Company Savings and Security Plan
Statements of Net Assets Available for Benefits
AS OF DECEMBER 31
2001 2000
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ASSETS:
Investments, at fair value:
Mutual funds $ 63,030,544 $ 65,716,980
21st Century Insurance Group common stock 4,904,846 3,681,095
Short-term investment funds 124,111 61,342
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68,059,501 69,459,417
Guaranteed investment contract, at fair value 30,565,310 26,415,654
Loans to participants 6,915,554 7,199,999
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Total investments 105,540,365 103,075,070
Receivables:
Employer contribution - 138,197
Employee contributions - 246,468
------------ ------------
Total assets $105,540,365 $103,459,735
LIABILITIES:
Other $ 25,138 $ -
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Total liabilities $ 25,138 $ -
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Net assets available for benefits $105,515,227 $103,459,735
============ ============
The accompanying notes are an integral part of the financial statements.
3
21st Century Insurance Company Savings and Security Plan
Statements of Changes in Net Assets Available for Benefits
YEAR ENDED DECEMBER 31
2001 2000
------------- -------------
Additions to net assets:
Investment income:
Net depreciation in the fair value of mutual funds $ (8,295,589) $ (7,833,900)
Net appreciation (depreciation) in the fair value of
21st Century Insurance Group common stock 1,342,951 (1,168,034)
Interest and dividends 2,892,947 5,318,121
Participant loan interest income 698,090 653,235
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(3,361,601) (3,030,578)
Contributions:
Employer 3,925,862 3,377,624
Employee 7,313,685 6,581,704
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11,239,547 9,959,328
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Total additions 7,877,946 6,928,750
Deductions from net assets:
Benefits paid to participants 5,660,258 5,735,143
Administrative expenses 162,196 32,195
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Net increase in net assets 2,055,492 1,161,412
Net assets available for benefits:
Beginning of year 103,459,735 102,298,323
------------- -------------
End of year $105,515,227 $103,459,735
============= =============
The accompanying notes are an integral part of the financial statements.
4
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, 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 categories. Plan participants
have 15 investment categories 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 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. Effective June
17, 1991, Employer contributions follow the participant's fund election.
5
21st Century Insurance Company Savings and Security Plan
Notes to financial Statements (continued)
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, including any
Company Stock Fund subaccount. Generally, no loan may exceed the lesser of fifty
percent of the participant's vested account balances or fifty thousand dollars.
Loans made for purposes other than the purchase of a primary residence are
charged interest at the prime rate plus two percent. Loans made for the purchase
of a home are charged interest at the prime rate. Generally, loans are payable
within five years except that the repayment period for loans made for the
purchase of a home may be up to fifteen 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.
6
21st Century Insurance Company Savings and Security Plan
Notes to financial Statements (continued)
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.
VALUATION OF INVESTMENTS AND INCOME RECOGNITION
Investments are reported at fair value, using quoted market prices. Participant
loans are reported at amounts owed by the participants, which approximates fair
value. Dividend and interest income are recorded as earned.
RECLASSIFICATION
Certain prior year balances have been reclassified to conform with current year
presentation.
7
21st Century Insurance Company Savings and Security Plan
Notes to financial Statements (continued)
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 6.50% for 2001 and 6.25% for 2000. The
account is credited with deposits and interest earnings and charged with Plan
withdrawals. The Employer pays the contract administration charge.
Per the contract, no transfer may be made out of the account by an individual
participant directly to a competing fixed income fund offered by the Plan.
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 13 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. Fidelity Investments and 21st Century
Insurance Group with its wholly owned subsidiaries are considered parties in
interest to the Plan.
8
21st Century Insurance Company Savings and Security Plan
Notes to financial Statements (continued)
4. INVESTMENTS (CONTINUED)
The following table presents the Plan's individual investments, at fair value:
AS OF DECEMBER 31
2001 2000
------------ ------------
Investments at fair value:
Guaranteed Investment Contract $30,565,310* $26,415,654*
Mutual Funds:
Fidelity Magellan Fund 26,068,841* 28,755,925*
Fidelity Equity-Income Fund 13,275,038* 13,612,201*
Spartan U.S. Equity Index Fund 5,450,021* 5,726,535*
Fidelity Contrafund 5,970,665* 6,342,191*
Fidelity Retirement Government Money Market
Portfolio 3,088,576 2,038,486
INVESCO Small Company Growth Fund 4,373,566 5,108,434
Dreyfus Founders Balanced Fund 615,143 564,829
Templeton Foreign Fund I 1,094,968 1,052,676
Fidelity Freedom 2000 Fund 139,102 125,179
Fidelity Freedom 2010 Fund 1,058,096 873,197
Fidelity Freedom 2020 Fund 793,796 611,573
Fidelity Freedom 2030 Fund 958,715 862,556
Fidelity Freedom Income Fund 144,017 43,198
21st Century Insurance Group Common Stock 4,904,846 3,681,095
Loans to participants 6,915,554* 7,199,999*
Short-Term Investment Funds 124,111 61,342
------------ ------------
$105,540,365 $103,075,070
============ ============
*Represents 5% or more of net assets available for benefits.
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.
9
21st Century Insurance Company Savings and Security Plan
Notes to financial Statements (continued)
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.
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.
10
21st Century Insurance Company Savings and Security Plan
Notes to financial Statements (continued)
8. RECONCILIATION TO FORM 5500
There were no differences in 2001.
The following schedule represents reconciliation between the amounts on Form
5500 and the financial statements for 2000. Differences related to
contributions, which are presented on an accrual basis in the GAAP financial
statements, and on a cash basis in the Form 5500.
Per Per Financial
Form 5500 Statements Difference
------------ -------------- ------------
December 31,2000
Employer contribution receivable $ - $ 138,197 $ 138,197
Employee contribution receivable - 246,468 246,468
Net assets available for benefits 103,075,070 103,459,735 384,665
Employer contributions 3,239,427 3,377,624 138,197
Employee contributions 5,995,936 6,581,704 585,768
Other contributions 339,300 - (399,300)
Net increase in net assets 776,747 1,161,412 384,665
9. RELATED PARTY NOTE
Certain Plan investments are shares of mutual funds managed by Fidelity.
Fidelity is the acting Trustee as defined by the Plan and, therefore, these
transactions qualify as party-in-interest transactions. Fees paid to Fidelity
for investment management services amounted to $162,196 and $32,195 for the
years ended December 31, 2001 and 2000.
11
Supplemental Schedule
12
21st Century Insurance Company Savings and Security Plan
EIN: 95-2565072 Plan: 001
Schedule H, Line 4i - Schedule of Assets Held for Investment Purposes
As of December 31, 2001
DESCRIPTION OF INVESTMENTS,
IDENTITY OF ISSUE, INCLUDING MATURITY DATE,
BORROWER, LESSOR RATE OF INTEREST, PAR OR CURRENT
OR SIMILAR PARTY MATURITY VALUE COST VALUE
------------------------------------- ------------------------------------- ------------ -----------
Pacific Life Insurance Company Guaranteed Investment
Fidelity Retirement Government Money Contract $ 30,565,310 $ 30,565,310
Market Fund (1) 3,088,576 Money Market Fund Shares 3,088,576 3,088,576
Fidelity Equity-Income Fund (1) 272,197 Mutual Fund Shares 12,767,014 13,275,038
Fidelity Magellan Fund (1) 250,133 Mutual Fund Shares 25,975,481 26,068,841
Fidelity Freedom Income Fund (1) 13,176 Mutual Fund Shares 145,597 144,017
Fidelity Freedom 2000 Fund (1) 12,075 Mutual Fund Shares 142,379 139,102
Fidelity Freedom 2010 Fund (1) 83,909 Mutual Fund Shares 1,097,814 1,058,096
Fidelity Freedom 2020 Fund (1) 63,100 Mutual Fund Shares 883,993 793,796
Fidelity Freedom 2030 Fund (1) 76,331 Mutual Fund Shares 1,129,900 958,715
Dreyfus Founders Balanced Fund (1) 75,109 Mutual Fund Shares 778,518 615,143
Spartan U.S. Equity Index Fund 134,105 Mutual Fund Shares 5,787,191 5,450,021
Fidelity Contrafund (1) 139,599 Mutual Fund Shares 7,333,125 5,970,665
INVESCO Small Company Growth
Fund 360,261 Mutual Fund Shares 5,682,343 4,373,566
Templeton Foreign Fund I 118,375 Mutual Fund Shares 1,189,042 1,094,968
Fidelity Short Term Investment
Fund (1) Short-Term Investment Fund 124,111 124,111
21st Century Insurance Group Common
Stock (2) 252,169 Common Stock Shares 4,468,454 4,904,846
Participant Loans (1) Interest rates between 8.5% and 10.5% - 6,915,554
------------
$105,540,365
============
(1) Party-in-interest to the Plan, for which a statutory exemption exists
(2) Sponsor and employer, therefore, a party-in-interest to the Plan, for which a statutory
exemption exists.
13
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-80180) of 21st Century Insurance Group of our
report dated June 21, 2002, with respect to the financial statements and
schedule of the 21st Century Insurance Company Savings and Security Plan which
appears in this Form 11-K.
/s/ PricewaterhouseCoopers LLP
Los Angeles, California
June 27, 2002
14
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-80180) pertaining to the 21ST Century Insurance Group Savings and
Security Plan of our report dated May 24, 2001, with respect to the December 31,
2000 financial statements of the 21ST Century Insurance Company Savings and
Security Plan included in this Annual Report (Form 11-K).
/s/ Ernst & Young LLP
Los Angeles, California
June 26, 2002
15
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 28, 2002
By: /s/ Richard Andre
-----------------------------------
Richard Andre, Senior Vice President
21st Century Insurance Company
Chairman Benefits Committee
16