1
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 SEPTEMBER 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 33-33691
THE TRAVELERS INSURANCE COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CONNECTICUT 06-0566090
(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 40,000,000 shares of common stock,
par value $2.50 per share, of the registrant, all of which were owned by The
Travelers Insurance Group Inc., 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 INSURANCE COMPANY AND SUBSIDIARIES
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page
----
ITEM 1. FINANCIAL STATEMENTS
- -----------------------------
Condensed Consolidated Statements of Income for the
Three and Nine Months Ended September 30, 2000 and 1999 (unaudited)....................................................3
Condensed Consolidated Balance Sheets as of September 30, 2000 (unaudited) and
December 31, 1999......................................................................................................4
Condensed Consolidated Statements of Changes in Retained Earnings and
Accumulated Other Changes in Equity from Non-Owner Sources
For the Three and Nine Months Ended September 30, 2000 and 1999 (unaudited)............................................5
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2000 and 1999 (unaudited)..............................................................6
Notes to Condensed Consolidated Financial Statements (unaudited).......................................................7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.........................................................................12
- ---------------------------------------------
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.............................................................................16
- -----------------------------------------
SIGNATURES............................................................................................................17
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
($ IN MILLIONS)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
- ----------------------------------------------------------------------------------------------------------------------
2000 1999 2000 1999
---- ---- ---- ----
REVENUES
Premiums $ 428 $ 432 $1,475 $1,275
Net investment income 662 650 2,020 1,871
Realized investment gains (losses) 20 24 (113) 44
Fee Income 124 108 380 319
Other revenues 45 18 91 68
- ----------------------------------------------------------------------------------------------------------------------
Total Revenues 1,279 1,232 3,853 3,577
- ----------------------------------------------------------------------------------------------------------------------
BENEFITS AND EXPENSES
Current and future insurance benefits 367 383 1,296 1,091
Interest credited to contractholders 264 239 757 696
Amortization of deferred acquisition costs 90 77 263 233
General and administrative expenses 128 122 373 373
- ----------------------------------------------------------------------------------------------------------------------
Total Benefits and Expenses 849 821 2,689 2,393
- ----------------------------------------------------------------------------------------------------------------------
Income from operations before federal income taxes 430 411 1,164 1,184
Federal income taxes 144 140 387 402
- ----------------------------------------------------------------------------------------------------------------------
Net Income $ 286 $ 271 $ 777 $ 782
======================================================================================================================
See Notes to Condensed Consolidated Financial Statements.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
($ IN MILLIONS)
SEPTEMBER 30, 2000 DECEMBER 31, 1999
(UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------
ASSETS
Investments $36,779 $33,488
Separate and variable accounts 24,739 22,199
Reinsurance recoverable 3,971 3,234
Deferred acquisition costs 2,858 2,688
Other assets 2,253 1,922
- ------------------------------------------------------------------------------------------------------------------------
Total Assets $70,600 $63,531
- ------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Contractholder funds $18,748 $17,567
Future policy benefits and claims 13,132 12,563
Separate and variable accounts 24,734 22,194
Other liabilities 5,789 3,587
- ------------------------------------------------------------------------------------------------------------------------
Total Liabilities 62,403 55,911
- ------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER'S EQUITY
Common stock, par value $2.50; 40 million shares authorized,
issued and outstanding 100 100
Additional paid-in capital 3,841 3,819
Retained earnings 4,366 4,099
Accumulated other changes in equity from non-owner sources (110) (398)
- ------------------------------------------------------------------------------------------------------------------------
Total Shareholder's Equity 8,197 7,620
- ------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholder's Equity $70,600 $63,531
========================================================================================================================
See Notes to Condensed Consolidated Financial Statements.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN RETAINED EARNINGS
AND ACCUMULATED OTHER CHANGES IN EQUITY FROM NON-OWNER SOURCES
(UNAUDITED)
($ IN MILLIONS)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
- -----------------------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN RETAINED EARNINGS 2000 1999 2000 1999
- -----------------------------------------------------------------------------------------------------------------------
Balance, beginning of period $4,250 $3,838 $4,099 $3,602
Net income 286 271 777 782
Dividends to parent (170) (138) (510) (413)
- -----------------------------------------------------------------------------------------------------------------------
Balance, end of period $4,366 $3,971 $4,366 $3,971
=======================================================================================================================
STATEMENTS OF ACCUMULATED OTHER CHANGES
IN EQUITY FROM NON-OWNER SOURCES
- -----------------------------------------------------------------------------------------------------------------------
Balance, beginning of period $ (295) $ (61) $ (398) $ 598
Unrealized gains (losses), net of tax 185 (170) 288 (829)
- -----------------------------------------------------------------------------------------------------------------------
Balance, end of period $ (110) $ (231) $ (110) $ (231)
=======================================================================================================================
SUMMARY OF CHANGES IN EQUITY
FROM NON-OWNER SOURCES
- -----------------------------------------------------------------------------------------------------------------------
Net Income $ 286 $ 271 $ 777 $782
Other changes in equity from non-owner sources 185 (170) 288 (829)
- -----------------------------------------------------------------------------------------------------------------------
Total changes in equity from non-owner sources $ 471 $ 101 $1,065 $ (47)
=======================================================================================================================
See Notes to Condensed Consolidated Financial Statements.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
(UNAUDITED)
($ IN MILLIONS)
NINE MONTHS ENDED
SEPTEMBER 30,
2000 1999
- -----------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 1,139 $ 811
- -----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investments
Fixed maturities 3,364 2,662
Mortgage loans 266 475
Proceeds from sales of investments
Fixed maturities 8,643 10,125
Equity securities 371 48
Real estate held for sale 207 72
Purchases of investments
Fixed maturities (14,140) (15,033)
Equity securities (242) (164)
Mortgage loans (220) (340)
Policy loans, net 9 644
Short-term securities (purchases) sales, net (977) 666
Other investments purchases, net (204) (282)
Securities transactions in course of settlement, net 1,054 (113)
- -----------------------------------------------------------------------------------------------------------
Net cash used in investing activities (1,869) (1,240)
- -----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Contractholder fund deposits 4,665 4,773
Contractholder fund withdrawals (3,323) (3,830)
Dividends to parent company (510) (413)
- -----------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 832 530
- -----------------------------------------------------------------------------------------------------------
Net increase in cash 102 101
Cash at beginning of period 85 65
- -----------------------------------------------------------------------------------------------------------
Cash at end of period $ 187 $ 166
===========================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Income taxes paid $ 319 $ 303
===========================================================================================================
See Notes to Condensed Consolidated Financial Statements.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The interim consolidated financial statements of The Travelers Insurance
Company (TIC; together with its subsidiaries, the Company), a direct
subsidiary of The Travelers Insurance Group Inc. (TIGI) and an indirect
wholly owned subsidiary of Citigroup Inc. (Citigroup), have been prepared
in conformity with generally accepted accounting principles (GAAP) and are
unaudited. The consolidated financial statements include the accounts of
TIC and its insurance and non-insurance subsidiaries on a fully
consolidated basis. In the opinion of management, the interim financial
statements reflect all adjustments necessary (all of which were normal
recurring adjustments) for a fair presentation for the periods reported.
The accompanying condensed consolidated financial statements should be read
in conjunction with the consolidated 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. The Company will adopt
FAS 133, as amended, as of January 1, 2001.
The Company has estimated that the pro forma cumulative effect of FAS 133,
as amended, at September 30, 2000 would not be significant. For its
estimate, the Company used holdings and applied rates available at the
balance sheet date, and did not anticipate future guidance or changes in
guidance on matters not yet addressed or not yet concluded by FASB on
implementation matters related to insurance and insurance-related
contracts. The Company anticipates a significant and continuing increase in
the complexity of the
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
accounting and the recordkeeping requirements for hedging activities and
for insurance-related contracts and may make changes to its risk management
strategies. The Company does not expect that FAS 133, as amended, will have
a significant impact on the results of operations, financial condition or
liquidity in future periods.
In September 2000, the FASB issued Statement of Financial Accounting
Standards No. 140, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities, a replacement of FASB Statement
No. 125" (FAS 140). Provisions of FAS 140 primarily relating to transfers
of financial assets and securitizations that differ from provisions of FAS
125 are effective for transfers taking place after March 31, 2001. Special
purpose entities (SPEs) used in securitizations that are currently
qualifying SPEs under FAS 125 will continue to be treated as qualifying
SPEs so long as they issue no new beneficial interests and accept no new
asset transfers after March 31, 2001, other than transfers committed to
prior to that date. Under FAS 140 qualifying SPEs are not consolidated by
the transferor. It is not expected that there will be a significant effect
on the results of operations, financial condition or liquidity relating to
a change in consolidation status for existing qualifying SPEs under FAS
140. FAS 140 also amends the accounting for collateral and requires new
disclosures for collateral, securitizations, and retained interests in
securitizations. These provisions are effective for financial statements
for fiscal years ending after December 15, 2000. The accounting for
collateral, as amended, requires collateral previously recorded under FAS
125 to be derecognized in financial statements for all years presented, and
revises the criteria for reclassifying collateral pledged to an encumbered
account. The change in accounting for collateral is not expected to have a
significant effect on the results of operations, financial condition or
liquidity.
2. COMMERCIAL PAPER AND LINES OF CREDIT
TIC has issued commercial paper directly to investors in prior years. No
commercial paper was outstanding at September 30, 2000 or December 31,
1999. TIC must maintain bank lines of credit at least equal to the amount
of the outstanding commercial paper. Citigroup and TIC have an agreement
with a syndicate of banks to provide $1.0 billion of revolving credit, to
be allocated to Citigroup or TIC. TIC's participation in this agreement is
limited to $250 million. The agreement consists of a five-year revolving
credit facility that expires in June 2001. At September 30, 2000 and
December 31, 1999, no credit under this agreement was allocated to TIC.
Under this facility TIC is required to maintain certain minimum equity and
risk-based capital levels. At September 30, 2000, the Company was in
compliance with these provisions. If TIC had borrowings outstanding on this
facility, the interest rate would be based upon LIBOR plus a contractually
negotiated margin.
3. SHAREHOLDER'S EQUITY
Statutory capital and surplus of the Company was $5.03 billion 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 $679 million is available in 2000 for dividend payments by the
Company without prior approval of the Connecticut Insurance Department. The
Company paid $510 million and $413 million in dividends to its parent
during the nine months ended September 30, 2000 and 1999, respectively.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
4. COMMITMENTS AND CONTINGENCIES
The Company is a defendant or co-defendant in various litigation matters in
the normal course of business. Although there can be no assurances, as of
September 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 15.
5. BUSINESS DISPOSITION
Effective July 1, 2000, the Company sold 90% of its individual long-term
care insurance business to General Electric Capital Assurance Company in
the form of an indemnity reinsurance arrangement. The proceeds were $410
million, resulting in an after-tax deferred gain of approximately $150
million. Full year 1999 written and earned premiums were $239.7 million and
$230.0 million, respectively.
6. OPERATING SEGMENTS
The Company has two reportable business segments that are managed
separately due to differences in products, services, marketing strategy and
resource management. The business of each segment is maintained and
reported through separate legal entities within the Company. The management
groups of each segment report separately to the common ultimate parent,
Citigroup Inc.
The TRAVELERS LIFE & ANNUITY business segment consolidates primarily the
business of TIC and The Travelers Life and Annuity Company (TLAC).
Travelers Life & Annuity core offerings include individual annuity, group
annuity and individual life insurance products distributed by TIC and TLAC
under the Travelers name. Among the range of individual products offered
are fixed and variable deferred annuities, payout annuities and term,
universal and variable life insurance. The group products include
institutional pensions, including guaranteed investment contracts, payout
annuities, group annuities to employer-sponsored retirement and savings
plans and structured finance transactions.
The PRIMERICA LIFE business segment consolidates primarily the business of
Primerica Life Insurance Company, Primerica Life Insurance Company of
Canada and National Benefit Life Insurance Company. The Primerica Life
business segment offers individual life products, primarily term insurance,
to customers through a nationwide sales force of approximately 85,000 full
and part-time licensed Personal Financial Analysts.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
BUSINESS SEGMENT INFORMATION:
- -----------------------------------------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED TRAVELERS LIFE & PRIMERICA LIFE
SEPTEMBER 30, 2000 ($ IN MILLIONS) ANNUITY INSURANCE TOTAL
- -----------------------------------------------------------------------------------------------------------------
BUSINESS VOLUME:
Premiums $ 153 $275 $ 428
Deposits 3,048 - 3,048
------- ---- -------
Total business volume 3,201 275 3,476
Net investment income 591 71 662
Net realized investment gains (losses) 21 (1) 20
Other revenues 147 22 169
Less: Deposits (3,048) -- (3,048)
-------- ---- -------
Total revenues $ 912 $367 $ 1,279
Operating Income (excludes realized gains or
losses and the related FIT) $ 178 $ 94 $ 272
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED TRAVELERS LIFE & PRIMERICA LIFE
SEPTEMBER 30, 1999 ($ IN MILLIONS) ANNUITY INSURANCE TOTAL
- -----------------------------------------------------------------------------------------------------------------
BUSINESS VOLUME:
Premiums $ 167 $265 $ 432
Deposits 2,252 -- 2,252
------- ---- -------
Total business volume 2,419 265 2,684
Net investment income 584 66 650
Net realized investment gains 23 1 24
Other revenues 106 20 126
Less: Deposits (2,252) -- (2,252)
------- ---- -------
Total revenues $ 880 $352 $ 1,232
Operating Income (excludes realized gains or
losses and the related FIT) $ 165 $ 90 $ 255
- -----------------------------------------------------------------------------------------------------------------
BUSINESS SEGMENT RECONCILIATION:
- ------------------------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED
SEPTEMBER 30 ($ IN MILLIONS)
- ------------------------------------------------------------------------------------------------
INCOME: 2000 1999
- ------------------------------------------------------------------------------------------------
Total operating income of segments $272 $255
Realized investment gains net of tax 14 16
- ------------------------------------------------------------------------------------------------
Net Income $286 $271
================================================================================================
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
BUSINESS SEGMENT INFORMATION:
- -----------------------------------------------------------------------------------------------------------------
FOR THE NINE MONTHS ENDED TRAVELERS LIFE & PRIMERICA LIFE
SEPTEMBER 30, 2000 ($ IN MILLIONS) ANNUITY INSURANCE TOTAL
- -----------------------------------------------------------------------------------------------------------------
BUSINESS VOLUME:
- ----------------
Premiums $ 652 $ 823 $ 1,475
Deposits 8,830 -- 8,830
------- ------- ------
Total business volume 9,482 823 10,305
Net investment income 1,810 210 2,020
Net realized investment losses (61) (52) (113)
Other revenues 401 70 471
Less: Deposits (8,830) -- (8,830)
------- ------- -------
Total revenues $ 2,802 $1,051 $ 3,853
Operating Income (excludes realized gains or losses and
the related FIT) $ 570 $ 280 $ 850
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
FOR THE NINE MONTHS ENDED TRAVELERS LIFE & PRIMERICA LIFE
SEPTEMBER 30, 1999 ($ IN MILLIONS) ANNUITY INSURANCE TOTAL
- -----------------------------------------------------------------------------------------------------------------
BUSINESS VOLUME:
- ----------------
Premiums $ 475 $ 800 $ 1,275
Deposits 8,214 -- 8,214
------- ------ -------
Total business volume 8,689 800 9,489
Net investment income 1,679 192 1,871
Net realized investment gains 37 7 44
Other revenues 325 62 387
Less: Deposits (8,214) -- (8,214)
------- ------ -------
Total revenues $ 2,516 $1,061 $ 3,577
Operating Income (excludes realized gains or losses and
the related FIT) $ 485 $ 268 $ 753
- -----------------------------------------------------------------------------------------------------------------
BUSINESS SEGMENT RECONCILIATION:
- ------------------------------------------------------------------------------------------------
FOR THE NINE MONTHS ENDED
SEPTEMBER 30 ($ IN MILLIONS)
- ------------------------------------------------------------------------------------------------
INCOME: 2000 1999
- ------------------------------------------------------------------------------------------------
Total operating income of segments $850 $753
Realized investment gains (losses) net of tax (73) 29
- ------------------------------------------------------------------------------------------------
Net Income $777 $782
================================================================================================
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's narrative analysis of the results of operations is presented in
lieu of Management's Discussion and Analysis of Financial Condition and Results
of Operations, pursuant to General Instruction H(2)(a) of Form 10-Q.
CONSOLIDATED OVERVIEW ($ in millions)
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS
SEPTEMBER 30, ENDED SEPTEMBER 30,
2000 1999 2000 1999
---- ---- ---- ----
Revenues $1,279 $1,232 $3,853 $3,577
====== ====== ====== ======
Net income $ $286 $ 271 $ 777 $ 782
====== ====== ====== ======
The Travelers Insurance Company (TIC; together with its subsidiaries, the
Company) is comprised of two business segments, Travelers Life & Annuity and
Primerica Life Insurance. Operating income, defined as income before net
realized investment gains or losses, was $272 million and $850 million for the
quarter and nine months ended September 30, 2000, respectively, up from $255
million and $753 million for the 1999 comparable periods. Revenues increased 4%
and 8% to $1.3 billion and $3.9 billion for the 2000 quarter and nine months,
respectively, reflecting increased business volume and strong investment
results, partially offset by realized losses taken in 2000 to enhance investment
yield. The increased business volume also drove the 3% and 12% increases in
benefits and expenses for the quarter and nine months ended September 30, 2000,
respectively.
The following discussion presents in more detail each business segment's
performance.
TRAVELERS LIFE & ANNUITY
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 1999
---- ----
($ in millions)
Revenues $912 $880
==== ====
Net income $192 $181
==== ====
Travelers Life & Annuity (TLA) core offerings include individual annuity, group
annuity and individual life products distributed by TIC and The Travelers Life
and Annuity Company (TLAC) under the Travelers name. Among the range of
individual products offered are fixed and variable deferred annuities, payout
annuities and term, universal and variable life insurance. The group products
include institutional pensions, including guaranteed investment contracts,
payout annuities, group annuities to employer-sponsored retirement and savings
plans and structured finance transactions. The majority of the annuity business
and a substantial portion of the life business written by TLA are accounted for
as investment contracts, with the result that the deposits collected are
reported as liabilities and are not included in revenues.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
Operating income was $178 million in the third quarter of 2000 compared to $165
million in the third quarter of 1999. The 8% improvement in 2000 reflects
increased business volume, a strong capital base and particularly strong
investment income versus the prior year period. During the third quarter of
2000, TLA achieved double-digit business volume
growth in individual annuity and group annuity account balances and life
periodic premiums versus the prior year quarter, reflecting both greater
popularity of estate planning products and significant cross-selling initiatives
through Citigroup distribution channels.
The cross-selling of TLA products through the Primerica Financial Services, Inc.
(Primerica), Citibank, and Salomon Smith Barney (SSB) distribution channels,
along with improved sales through a nationwide network of independent agents and
strong group sales through various intermediaries reflect ongoing efforts to
build market share by strengthening relationships in key distribution channels.
Also, TLA continues to show strong sales through CitiStreet Retirement Services,
formerly by the Copeland Companies, a joint venture between Citigroup and State
Street Bank.
Significant individual annuity sales, combined with favorable market returns
from variable annuities, drove account balances to $28.7 billion at September
30, 2000, up 9% from $26.4 billion at December 31, 1999 and up 24% from $23.2
billion at September 30, 1999. Net premiums and deposits increased 23% in the
third quarter of 2000 to $1.6 billion, from $1.3 billion in the third quarter of
1999. The strong sales reflect significant increased production at SSB and
increased sales from all TLA core distribution channels.
Group annuity account balances and benefit reserves were $16.7 billion at
September 30, 2000, up 11% from $15.1 billion at December 31, 1999 and up 10%
from $15.2 billion at September 30, 1999. The group annuity businesses
experienced continued strong sales momentum in guaranteed investment contracts,
employer-sponsored group plans and cross-selling of structured settlement
annuities through Travelers Property Casualty Corp. (TAP), an affiliate of the
Company. Net premiums and deposits (excluding Citigroup's employee pension plan
deposits) were $1.5 billion in the third quarter of 2000, up 22% from $1.2
billion in the comparable period of 1999.
Direct periodic premiums for individual life insurance of $135.8 million in the
third quarter of 2000 were up 54% from $88.3 million in the comparable period of
1999, reflecting strong agency results and increased corporate-owned life
insurance sales. Life insurance in force was $65.2 billion at September 30,
2000, up from $60.6 billion at December 31, 1999 and $58.4 billion at September
30, 1999.
Effective July 1, 2000, the Company sold 90% of its individual long-term care
insurance business to General Electric Capital Assurance Company in the form of
an indemnity reinsurance arrangement. Proceeds from the sale were $410 million,
resulting in an after-tax deferred gain of approximately $150 million. Full year
1999 written and earned premiums were $239.7 million and $230.0 million,
respectively.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
PRIMERICA LIFE INSURANCE
- ------------------------
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 1999
---- ----
($ in millions)
Revenues $367 $352
==== ====
Net income $ 94 $ 90
==== ====
The Primerica Life Insurance business segment offers individual life products,
primarily term insurance, to customers through a nationwide sales force of
approximately 85,000 full and part-time licensed Personal Financial Analysts.
Operating income was $94 million in the third quarter of 2000 compared to $90
million in the third quarter of 1999, reflecting strong investment income,
partially offset by increased infrastructure investment.
Earned premiums net of reinsurance were $275 million in the third quarter of
2000 compared to $265 million in the prior year period, including $259 million
and $251 million, respectively, for Primerica individual term life policies.
The face amount of new term life insurance sales was $16.8 billion for the three
month period ended September 30, 2000, compared to $12.4 billion for the prior
year period. Life insurance in force reached $408.4 billion, up from $394.9
billion at December 31, 1999 and $392.8 billion at September 30, 1999,
continuing to reflect good policy persistency.
TRAVELERS LIFE & ANNUITY
- ------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 1999
---- ----
($ in millions)
Revenues $2,802 $2,516
====== ======
Net income $ 530 $ 509
====== ======
Operating income increased 18% to $570 million in the nine months ended
September 30, 2000, compared to $485 million in the nine months ended September
30, 1999. Earnings growth was driven by business volume, investment performance
and a higher capital base.
For individual annuities, net written premiums and deposits were $4.6 billion in
the first nine months of 2000, up 29% from $3.6 billion in the comparable period
of 1999, reflecting increased growth in the sales of variable annuities.
Group annuity net premiums and deposits were $4.4 billion in the first nine
months of 2000, compared to $4.7 billion in the prior year period. The 6%
decrease reflects particularly strong structured finance transactions in the
first nine months of 1999.
For individual life insurance, direct periodic premiums were $366 million for
the first nine months of 2000, up 41% from $260 million in the prior year
period. Face amount of individual life insurance issued during the first nine
months of 2000 was $8.8 billion, up from $6.9 billion in the prior period of
1999.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
PRIMERICA LIFE INSURANCE
- ------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 1999
---- ----
($ in millions)
Revenues $1,051 $1,061
====== ======
Net income $ 247 $ 273
====== ======
Earnings before net realized investment gains and losses for the first nine
months of 2000 increased 4% to $280 million, compared to $268 million in the
first nine months of 1999. Face amount of new term life insurance sales was
$50.3 billion in the first nine months of 2000, up from $41.5 billion in the
prior year period.
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 September 30, 2000, 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 $679 million. The
Company paid $510 million and $413 million in dividends to its parent during the
nine months ended September 30, 2000 and 1999, respectively.
FUTURE APPLICATION OF ACCOUNTING STANDARDS
See Note 1 of Notes to Condensed Consolidated 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 INSURANCE COMPANY AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
EXHIBIT NO. DESCRIPTION
3.01 Charter of The Travelers Insurance Company (the
"Company"), as effective October 19, 1994, incorporated
by reference to Exhibit 3.01 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended
September 30, 1994 (File No. 33-33691) (the "Company's
September 30, 1994 10-Q").
3.02 By-laws of the Company, as effective October 20, 1994,
incorporated by reference to Exhibit 3.02 to the
Company's September 30, 1994 10-Q.
27.01+ Financial Data Schedule
- ----------------------
+ Filed herewith.
(b) REPORTS ON FORM 8-K.
None
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
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 INSURANCE COMPANY
-------------------------------
(Registrant)
Date November 13, 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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