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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
___ FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
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 33-58677
THE TRAVELERS LIFE AND ANNUITY COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CONNECTICUT 06-0904249
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE TOWER SQUARE, HARTFORD, CONNECTICUT 06183
(Address of principal executive offices) (Zip Code)
(860) 277-0111
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No_____
As of the date hereof, there were outstanding 30,000 shares of common stock, par
value $100 per share, of the registrant, all of which were owned by The
Travelers Insurance Company, an indirect wholly owned subsidiary of Citigroup
Inc.
REDUCED DISCLOSURE FORMAT
The registrant meets the conditions set forth in General Instruction H(1)(a) and
(b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced
disclosure format.
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THE TRAVELERS LIFE AND ANNUITY COMPANY
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page
ITEM 1. FINANCIAL STATEMENTS
Condensed Statements of Income for the
Six Months Ended June 30, 2000 and 1999 (unaudited)...........................3
Condensed Balance Sheets as of June 30, 2000 (unaudited) and
December 31, 1999.............................................................4
Condensed Statements of Changes in Retained Earnings and
Accumulated Other Changes in Equity from Non-Owner Sources
for the Six Months Ended June 30, 2000 and 1999 (unaudited)...................5
Condensed Statements of Cash Flows for the
Six Months Ended June 30, 2000 and 1999 (unaudited)...........................6
Notes to Condensed Financial Statements (unaudited)...........................7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................................9
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K....................................11
SIGNATURES...................................................................12
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THE TRAVELERS LIFE AND ANNUITY COMPANY
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
($ IN THOUSANDS)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
2000 1999 2000 1999
-------- -------- -------- --------
REVENUES
Premiums $ 9,816 $ 6,302 $ 16,585 $ 11,615
Net investment income 55,462 44,668 104,625 87,079
Realized investment gains (losses) 11,069 (2,117) 1,820 6,727
Fee income 33,948 10,778 57,083 18,963
Other revenues 7,678 4,777 15,461 9,129
-------- -------- -------- --------
Total revenues 117,973 64,408 195,574 133,513
-------- -------- -------- --------
BENEFITS AND EXPENSES
Current and future insurance benefits 22,809 21,316 40,720 41,568
Interest credited to contractholders 17,872 13,255 34,077 26,131
Amortization of deferred acquisition costs 15,833 5,764 30,331 9,589
Operating expenses 3,482 1,916 7,065 4,596
-------- -------- -------- --------
Total benefits and expenses 59,996 42,251 112,193 81,884
-------- -------- -------- --------
Income before federal income taxes 57,977 22,157 83,381 51,629
-------- -------- -------- --------
Federal income taxes 20,277 7,742 29,155 18,043
-------- -------- -------- --------
Net income $ 37,700 $ 14,415 $ 54,226 $ 33,586
======== ======== ======== ========
See Notes to Condensed Financial Statements.
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THE TRAVELERS LIFE AND ANNUITY COMPANY
CONDENSED BALANCE SHEETS
($ IN THOUSANDS)
JUNE 30, 2000 DECEMBER 31, 1999
(UNAUDITED)
------------- -----------------
ASSETS
Investments $ 2,381,347 $ 2,174,577
Separate accounts 6,002,166 4,795,165
Deferred acquisition costs 454,878 350,088
Other assets 209,848 181,503
----------- -----------
Total assets $ 9,048,239 $ 7,501,333
----------- -----------
LIABILITIES
Future policy benefits $ 999,582 $ 1,007,776
Contractholder funds 1,358,281 1,117,819
Separate accounts 6,002,166 4,795,165
Other liabilities 165,423 114,408
----------- -----------
Total liabilities 8,525,452 7,035,168
----------- -----------
SHAREHOLDER'S EQUITY
Common stock, par value $100; 100,000 shares authorized,
30,000 issued and outstanding 3,000 3,000
Additional paid-in capital 167,316 167,316
Retained earnings 389,387 335,161
Accumulated other changes in equity from non-owner sources (36,916) (39,312)
----------- -----------
Total shareholder's equity 522,787 466,165
----------- -----------
Total liabilities and shareholder's equity $ 9,048,239 $ 7,501,333
=========== ===========
See Notes to Condensed Financial Statements.
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THE TRAVELERS LIFE AND ANNUITY COMPANY
CONDENSED STATEMENTS OF CHANGES IN RETAINED EARNINGS AND ACCUMULATED OTHER
CHANGES IN EQUITY FROM
NON-OWNER SOURCES
(UNAUDITED)
($ IN THOUSANDS)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------------------------------------
STATEMENTS OF CHANGES IN RETAINED EARNINGS 2000 1999 2000 1999
--------- --------- --------- ---------
Balance, beginning of period $ 351,687 $ 301,726 $ 335,161 $ 282,555
Net income 37,700 14,415 54,226 33,586
--------- --------- --------- ---------
Balance, end of period $ 389,387 $ 316,141 $ 389,387 $ 316,141
========= ========= ========= =========
STATEMENTS OF ACCUMULATED OTHER CHANGES
IN EQUITY FROM NON-OWNER SOURCES
Balance, beginning of period $ (25,725) $ 40,233 $ (39,312) $ 87,889
Unrealized gains (losses), net of tax (11,191) (37,588) 2,396 (85,244)
--------- --------- --------- ---------
Balance, end of period $ (36,916) $ 2,645 $ (36,916) $ 2,645
========= ========= ========= =========
SUMMARY OF CHANGES IN EQUITY
FROM NON-OWNER SOURCES
Net income $ 37,700 $ 14,415 $ 54,226 $ 33,586
Other changes in equity from
non-owner sources (11,191) (37,588) 2,396 (85,244)
--------- --------- --------- ---------
Total changes in equity from
non-owner sources $ 26,509 $ (23,173) $ 56,622 $ (51,658)
========= ========= ========= =========
See Notes to Condensed Financial Statements.
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THE TRAVELERS LIFE AND ANNUITY COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
(UNAUDITED)
($ IN THOUSANDS)
SIX MONTHS ENDED
JUNE 30,
2000 1999
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES $ (66,602) $ (41,630)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investments
Fixed maturities 98,524 66,783
Mortgage loans 11,547 6,061
Proceeds from sales of investments
Fixed maturities 493,296 447,287
Equity securities 9,691 975
Real estate held for sale 2,115 --
Purchases of investments
Fixed maturities (778,018) (545,599)
Equity securities (11,970) (8,932)
Mortgage loans (8,867) (3,004)
Policy loans (1,413) (2,998)
Short-term securities sales, net 1,489 78,606
Other investment purchases, net (14,855) (11,381)
Securities transactions in course of settlement, net 37,968 2,705
--------- ---------
Net cash provided by (used in) investing activities (160,493) 30,503
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Contractholder fund deposits 286,078 26,503
Contractholder fund withdrawals (45,560) (14,689)
--------- ---------
Net cash provided by financing activities 240,518 11,814
--------- ---------
Net increase in cash 13,423 687
Cash at beginning of period 21 624
--------- ---------
Cash at end of period $ 13,444 $ 1,311
--------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Income taxes paid $ 18,742 $ 20,343
========= =========
See Notes to Condensed Financial Statements.
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THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The interim financial statements of The Travelers Life and Annuity Company
(the Company), a wholly owned subsidiary of The Travelers Insurance Company
(TIC), an indirect wholly owned subsidiary of Citigroup Inc. (Citigroup),
have been prepared in conformity with generally accepted accounting
principles (GAAP) and are unaudited. In the opinion of management, the
interim financial statements reflect all adjustments necessary (all of
which were normal recurring adjustments) for a fair presentation of results
for the periods reported. The accompanying condensed financial statements
should be read in conjunction with the financial statements and related
notes included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1999.
Certain financial information that is normally included in financial
statements prepared in accordance with GAAP but is not required for interim
reporting purposes has been condensed or omitted.
Certain prior year amounts have been reclassified to conform with the
current year's presentation.
FUTURE APPLICATION OF ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (FAS 133). In June 1999, the
FASB issued Statement of Financial Standards No. 137, "Deferral of the
Effective Date of FASB Statement No. 133" (FAS 137), which allows entities
that have not yet adopted FAS 133 to defer its effective date to all fiscal
quarters of all fiscal years beginning after June 15, 2000. In June 2000,
the FASB issued Statement of Financial Accounting Standards No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging
Activities, an amendment of FASB Statement No. 133" which amends the
accounting and reporting standards of FAS 133. FAS 133 establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts (collectively
referred to as derivatives), and for hedging activities. It requires that
an entity recognize all derivatives as either assets or liabilities in the
consolidated balance sheet and measure those instruments at fair value. If
certain conditions are met, a derivative may be specifically designated as
(a) a hedge of the exposure to changes in the fair value of a recognized
asset or liability or an unrecognized firm commitment, (b) a hedge of the
exposure to variable cash flows of a recognized asset or liability or of a
forecasted transaction, or (c) a hedge of the foreign currency exposure of
a net investment in a foreign operation, an unrecognized firm commitment,
an available-for-sale security, or a foreign-currency-denominated
forecasted transaction. The accounting for changes in the fair value of a
derivative (that is, gains and losses) depends on the intended use of the
derivative and the resulting designation. Upon initial application of FAS
133, hedging relationships must be designated anew and documented pursuant
to the provisions of this statement. The Company adopted the deferral
provisions of FAS 137, effective January 1, 2000 and has not yet determined
the impact that FAS 133 will have on its consolidated financial statements.
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THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
2. SHAREHOLDER'S EQUITY
Statutory capital and surplus of the Company was $294 million at December
31, 1999. The Company is subject to various regulatory restrictions that
limit the maximum amount of dividends available to be paid to its parent
without prior approval of insurance regulatory authorities. Statutory
surplus of $29 million is available in 2000 for dividend payments by the
Company without prior approval of the Connecticut Insurance Department. The
Company did not pay any dividends to its parent during the six months ended
June 30, 2000 and 1999.
3. COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Company is a defendant or
co-defendant in various litigation matters. Although there can be no
assurances, as of June 30, 2000, the Company believes, based on information
currently available, that the ultimate resolution of these legal
proceedings would not be likely to have a material adverse effect on its
results of operations, financial condition or liquidity. This statement is
a forward-looking statement within the meaning of the Private Securities
Litigation Reform Act. See "Forward-Looking Statements" on page 10.
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THE TRAVELERS LIFE AND ANNUITY COMPANY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's narrative analysis of the results of operations is presented in
lieu of Management's Discussion and Analysis of Financial Condition and Results
of Operations, pursuant to General Instruction H(2)(a) of Form 10-Q.
RESULTS OF OPERATIONS ($ in millions)
FOR THE SIX MONTHS ENDED JUNE 30, 2000 1999
------- -------
Revenues $ 195.6 $ 133.5
======= =======
Net income $ 54.2 $ 33.6
======= =======
The Travelers Life and Annuity Company (the Company) offers fixed and variable
deferred annuities and individual life insurance to individuals and small
businesses. These products are distributed primarily through Salomon Smith
Barney (SSB) and Primerica Financial Services (Primerica), affiliates of the
Company, and a nationwide network of independent agents. The majority of the
annuity business and a substantial portion of the individual life business
written by the Company are accounted for as investment contracts, with the
result that the deposits collected from contractholders are reported as
liabilities and are not included in revenues.
The Company has assets held in a separate account related to reserves on
structured settlement contracts that provide guarantees for the contractholders
independent of the investment performance of the separate account assets. The
assets held in this separate account are owned by the Company and
contractholders do not share in their investment performance. These contracts
were purchased by the insurance subsidiaries of Travelers Property Casualty
Corp. (TAP), an affiliate of the Company, in connection with the settlement of
certain of their policyholder obligations. All new structured settlement
contracts are being written by TIC.
Net income for the six months ended June 30, 2000 was $54.2 million, compared to
$33.6 million for the six months ended June 30, 1999. Included in net income for
the first six months of 2000 were net after-tax realized gains on investments of
$1.2 million versus $4.4 million of net after-tax realized gains on investments
in the first six months of 1999. Operating income, defined as income before net
realized gains or losses on investments, increased 82% to $53.0 million for the
first six months of 2000 from $29.2 million for the prior year period. The
increase in operating income resulted from increases in business volume and
strong investment income results. The business volume is reflected in the growth
of fee income and other revenues in the individual annuity and universal life
businesses. This increased business volume also resulted in increased benefits
and expenses, and in particular increased amortization of deferred acquisition
costs from $9.6 million in the first half of 1999 to $30.3 million in the first
half of 2000.
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THE TRAVELERS LIFE AND ANNUITY COMPANY
PREMIUMS AND DEPOSITS ($ in millions)
FOR THE SIX MONTHS ENDED JUNE 30, 2000 1999
------ ------
Individual Annuities $1,549 $1,055
Universal Life 75 56
Traditional Life 12 11
Payout Annuities 7 --
------ ------
Total $1,643 $1,122
====== ======
The increase in individual annuity premiums and deposits is primarily
attributable to a 61% increase in sales at SSB. This sales momentum was driven
by a newly designed product for SSB customers.
Policyholder benefit reserves, contractholder funds and separate account
reserves totaled $8.4 billion at June 30, 2000, up from $5.3 billion at June 30,
1999, primarily as a result of growth in the variable annuity separate account
business included in individual annuities.
INSURANCE REGULATIONS
Risk-based capital requirements are used as minimum capital requirements by the
National Association of Insurance Commissioners and the states to identify
companies that merit further regulatory action. At December 31, 1999, the
Company had adjusted capital in excess of amounts requiring any regulatory
action.
The Company is subject to various regulatory restrictions that limit the maximum
amount of dividends available to be paid to its parent without prior approval of
insurance regulatory authorities in the state of domicile. The maximum amount of
dividends available to be paid to the Company's shareholder in 2000 without
prior approval of the Connecticut Insurance Department is $29 million. The
Company did not pay any dividends to its parent during the six months ended June
30, 2000 and 1999.
FUTURE APPLICATIONS OF ACCOUNTING STANDARDS
See Note 1 of Notes to Condensed Financial Statements for Future Application of
Accounting Standards.
FORWARD-LOOKING STATEMENTS
Certain of the statements contained herein that are not historical facts are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act. The Company's actual results may differ materially from
those included in the forward-looking statements. Forward-looking statements are
typically identified by the words "believe," "expect," "anticipate," "intend,"
"estimate," "may increase," "may fluctuate," and similar expressions or future
or conditional verbs such as "will," "should," "would," and "could." These
forward-looking statements involve risks and uncertainties including, but not
limited to, the resolution of legal proceedings.
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THE TRAVELERS LIFE AND ANNUITY COMPANY
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
EXHIBIT NO. DESCRIPTION
3.01 Charter of The Travelers Life and Annuity Company (the
"Company"), as amended on April 10, 1990, incorporated
herein by reference to Exhibit 6(a) to the Registration
Statement on Form N-4, File No. 33-58131, filed on March
17, 1995.
3.02 By-laws of the Company, as amended on October 20, 1994,
incorporated herein by reference to Exhibit 6(b) to the
Registration Statement on Form N-4, File No.
33-58131, filed on March 17, 1995.
27.01+ Financial Data Schedule
- ------------
+ Filed herewith.
(b) REPORTS ON FORM 8-K.
None.
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THE TRAVELERS LIFE AND ANNUITY COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE TRAVELERS LIFE AND ANNUITY COMPANY
(Registrant)
Date August 11, 2000 /s/ Glenn D. Lammey
Glenn D. Lammey
Executive Vice President,
Chief Financial Officer and Chief Accounting Officer
(Principal Financial Officer and Principal Accounting
Officer)
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