1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 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)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
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 I(1)(a) and
(b) of Form 10-K and is therefore filing this Form with the reduced disclosure
format.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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THE TRAVELERS LIFE AND ANNUITY COMPANY
TABLE OF CONTENTS
FORM 10-K
ITEM NUMBER PART I PAGE
- ----------- ------ ----
1. Business..............................................................2
2. Properties............................................................4
3. Legal Proceedings.....................................................4
4. Submission of Matters to a Vote of Security Holders...................4
PART II
-------
5. Market for Registrant's Common Equity and Related Stockholder
Matters.............................................................4
6. Selected Financial Data...............................................4
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations...............................................5
7A. Quantitative and Qualitative Disclosures About Market Risk............7
8. Financial Statements and Supplementary Data...........................9
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure...............................................35
PART III
--------
10. Directors and Executive Officers of the Registrant...................35
11. Executive Compensation...............................................35
12. Security Ownership of Certain Beneficial Owners and Management.......35
13. Certain Relationships and Related Transactions.......................35
PART IV
-------
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.....36
Exhibit Index........................................................37
Signatures...........................................................38
Index to Financial Statements and Financial Statement Schedules......39
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THE TRAVELERS LIFE AND ANNUITY COMPANY
ANNUAL REPORT ON FORM 10-K
PART I
ITEM 1. BUSINESS.
GENERAL
The Travelers Life and Annuity Company (the Company) is a wholly owned
subsidiary of The Travelers Insurance Company (TIC), which is an indirect wholly
owned subsidiary of Citigroup Inc. (Citigroup), a diversified holding company
whose businesses provide a broad range of financial services to consumer and
corporate customers around the world. The periodic reports of Citigroup provide
additional business and financial information concerning that company and its
consolidated subsidiaries.
The Company is a stock insurance company chartered in 1973 in the State of
Connecticut and has been continuously engaged in the insurance business since
that time. The Company is licensed to conduct life and annuity insurance
business in all the states except New Hampshire and New York, and is presently
intending to seek licensure in New Hampshire. The Company is also licensed to
conduct life and annuity insurance business in the District of Columbia and
Puerto Rico.
The Company offers fixed and variable deferred annuities and individual life
insurance to individuals and small businesses. The Company commenced writing
individual life and deferred annuity business in 1995. 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 financial professionals. CitiStreet Retirement Services
(formerly The Copeland Companies), a division of CitiStreet, a joint venture
between Citigroup and State Street Bank, and Citibank, N.A. (Citibank), also
affiliates of the Company, recently began distributing these products as well.
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 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. (TPC), an affiliate of the Company, in connection with the settlement of
certain of their policyholder obligations. Effective April 1, 1998, all new
structured settlement contracts have been written by TIC.
INSURANCE REGULATIONS
The National Association of Insurance Commissioners (NAIC) Insurance Regulatory
Information System ("IRIS") was developed to help state regulators identify
companies that may require special attention. The IRIS system consists of a
statistical phase and an analytical phase whereby financial examiners review
annual statements and financial ratios. The statistical phase consists of 12 key
financial ratios that are generated from the NAIC database annually; each ratio
has an established "usual range" of results. These ratios assist state insurance
departments in executing their statutory mandate to oversee the financial
condition of insurance companies.
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THE TRAVELERS LIFE AND ANNUITY COMPANY
ANNUAL REPORT ON FORM 10-K
A ratio result falling outside the usual range of IRIS ratios is not considered
a failing result; rather, unusual values are viewed as part of the regulatory
early monitoring system. Furthermore, in some years, it may not be unusual for
financially sound companies to have several ratios with results outside the
usual ranges. An insurance company may fall out of the usual range for one or
more ratios because of specific transactions that are in themselves immaterial.
Generally, an insurance company will become subject to regulatory scrutiny if it
falls outside the usual ranges for four or more of the ratios. In normal years,
15% of the companies included in the IRIS system are expected by the NAIC to be
outside the usual range on four or more ratios.
In each of the last three years, certain of the Company's IRIS ratios have
fallen outside of the usual range due to the growth in sales of deferred
annuities. In each instance, the regulators have been satisfied upon follow-up
that there was no solvency problem. It is possible that similar events could
occur this year, and management believes that resolution would be the same,
however no assurance can be given that such resolution will be the
same as in prior years. This statement is a forward-looking statement within the
meaning of the Private Securities Litigation Reform Act. See "Forward-Looking
Statements" on page 7. No regulatory action has been taken by any state
insurance department or the NAIC with respect to IRIS ratios of the Company for
the three years ended December 31, 2000.
In order to enhance the regulation of insurer solvency, the NAIC adopted a
formula and model law to implement Risk-Based Capital (RBC) requirements for
most life and annuity insurance companies, which is designed to assess minimum
capital requirements. RBC requirements are used as minimum capital requirements
by the NAIC and the states to identify companies that merit further regulatory
action. For this purpose, an insurer's surplus is measured in relation to its
specific asset and liability profiles. A company's risk-based capital is
calculated by applying factors to various asset, premium and reserve items,
where the factor is higher for those items with greater underlying risk and
lower for less risky items.
The RBC formula for life insurers measures four major areas of risk: asset risk
(i.e., the risk of asset default), insurance risk (i.e., the risk of adverse
mortality and morbidity experience), interest rate risk (i.e., the risk of loss
due to changes in interest rates) and business risk (i.e., normal business and
management risk). Pursuant to the law adopted by the states, insurers having
less statutory surplus than that required by the RBC calculation will be subject
to four varying degrees of regulatory action, depending upon the level of
capital inadequacy. The formulas have not been designed to differentiate among
adequately capitalized companies, which operate with higher levels of capital.
Therefore, it is inappropriate and ineffective to use the formula to rate or
rank companies.
At December 31, 2000, the Company had adjusted capital in excess of amounts
requiring any regulatory action at any of the four RBC levels.
The Company is domiciled in the State of Connecticut. The insurance holding
company law of Connecticut requires notice to, and approval by, the Connecticut
Insurance Department for the declaration or payment of any dividend, which
together with other distributions made within the preceding twelve months,
exceeds the greater of (i) 10% of the insurer's surplus or (ii) the insurer's
net gain from operations for the twelve-month period ending on the preceding
December 31st, in each case determined in accordance with statutory accounting
practices. Such declaration or payment is further limited by adjusted unassigned
funds (surplus), as determined in accordance with statutory accounting
practices. The Company does not have surplus available to pay dividends to TIC
in 2001 without prior approval of the Connecticut Insurance Department.
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THE TRAVELERS LIFE AND ANNUITY COMPANY
ANNUAL REPORT ON FORM 10-K
ITEM 2. PROPERTIES.
The Company's executive offices are located in Hartford, Connecticut. TIC owns
buildings containing approximately 1.4 million square feet of office space
located in Hartford serving as the home office for the Company, TIC and TPC. The
Company reimburses TIC for use of this space on a cost allocation method based
generally on estimated usage by department.
Management believes that these facilities are suitable and adequate for the
Company's current needs.
The foregoing discussion does not include information on investment properties.
ITEM 3. LEGAL PROCEEDINGS.
In the ordinary course of business, the Company is a defendant or co-defendant
in various litigation matters incidental to and typical of the businesses in
which it is engaged. Although there can be no assurances, as of December 31,
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 7.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Omitted pursuant to General Instruction I(2)(c) of Form 10-K.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company has 100,000 authorized shares of common stock, of which 30,000 are
issued and outstanding as of December 31, 2000. All outstanding shares of the
Company's common stock are held by TIC, and there exists no established public
trading market for the common stock of the Company. The Company did not pay
dividends in 2000 or 1999. See Note 6 of Notes to Financial Statements for
dividend restrictions.
ITEM 6. SELECTED FINANCIAL DATA.
Omitted pursuant to General Instruction I(2)(a) of Form 10-K.
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THE TRAVELERS LIFE AND ANNUITY COMPANY
ANNUAL REPORT ON FORM 10-K
ITEM 7. 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 I(2)(a) of Form 10-K.
RESULTS OF OPERATIONS ($ in millions)
FOR THE YEARS ENDED DECEMBER 31, 2000 1999
-------------------------------- ---- ----
Revenues $377.7 $265.3
====== ======
Net income (1) $ 90.9 $ 52.6
====== ======
(1) Includes net realized investment losses of $4.8 million and $3.2
million in 2000 and 1999, respectively.
Net income was $90.9 million and $52.6 million in 2000 and 1999, respectively.
Operating income, defined as income before net realized gains or losses on
investments, was $95.7 million and $55.8 million in 2000 and 1999, respectively.
The year over year increase in operating income was attributable to strong
business volumes and investment income. The business volume growth in the
individual annuity and individual life business is reflected in the 100% growth
in fee income from $63.7 million in 1999 to $127.4 million in 2000. The business
volume growth also contributed to the 29% increase in benefits and expenses, and
in particular interest credited to contractholders and amortization of deferred
acquisition costs.
PREMIUMS AND DEPOSITS ($ in millions)
FOR THE YEARS ENDED DECEMBER 31, 2000 1999
-------------------------------- ------ ------
Deferred Annuities $3,286 $2,328
Individual Life 207 151
Other Annuity 9 3
------ ------
$3,502 $2,482
====== ======
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 increase in individual annuity premiums and deposits reflects strong sales
growth across proprietary and non-proprietary distribution channels,
particularly SSB.
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THE TRAVELERS LIFE AND ANNUITY COMPANY
ANNUAL REPORT ON FORM 10-K
Policyholder benefit reserves, contractholder funds and separate account
reserves totaled $9.4 billion at December 31, 2000, up from $6.9 billion at
December 31, 1999, primarily as a result of growth in the variable annuity
separate account business included in individual annuities.
OUTLOOK
The Company is included in the Travelers Life & Annuity segment of TIC, and its
outlook should be considered within that context. Travelers Life & Annuity
should benefit from growth in the aging population which is becoming more
focused on the need to accumulate adequate savings for retirement, to protect
these savings and to plan for the transfer of wealth to the next generation.
Travelers Life & Annuity is well-positioned to take advantage of the favorable
long-term demographic trends through its strong financial position, widespread
brand name recognition and broad array of competitive life, annuity and
retirement and estate planning products sold through established distribution
channels.
However, competition in both product pricing and customer service is
intensifying. While there has been some consolidation within the insurance
industry, other financial services organizations are increasingly involved in
the sale and/or distribution of insurance products. Financial services reform is
likely to have many effects on the life insurance industry and the results will
take time to assess; however, heightened competition is expected. Also, the
annuities business is interest rate and market sensitive, and swings in interest
rates and equity markets could influence sales and retention of in-force
policies. In order to strengthen its competitive position, Travelers Life &
Annuity expects to maintain a current product portfolio, further diversify its
distribution channels and retain its financial position through increased sales
growth and maintenance of an efficient cost structure.
The President has proposed to Congress as a part of his tax cut plan the repeal
of the Estate and Gift Tax, potentially over a 10 year period. If this proposal
in its current form is enacted, it could potentially negatively affect demand
for certain life and annuity products; however, the overall impact is not
expected to be material to the Company's business.
The statements above are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act. See "Forward-Looking Statements" on
page 7.
FUTURE APPLICATION OF ACCOUNTING STANDARDS
See Note 1 of Notes to Financial Statements for Future Application of Accounting
Standards.
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THE TRAVELERS LIFE AND ANNUITY COMPANY
ANNUAL REPORT ON FORM 10-K
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, regulatory matters, proposed legislation, the resolution of legal
proceedings and the Company's market risk as well as the discussions of the
Company's prospects under "Outlook" on page 6.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss arising from adverse changes in market rates and
prices, such as interest rates, foreign currency exchange rates, and other
relevant market rate or price changes. Market risk is directly influenced by the
volatility and liquidity in the markets in which the related underlying assets
are traded. The following is a discussion of the Company's primary market risk
exposures and how those exposures are currently managed as of December 31, 2000.
The Company's market risk sensitive instruments are entered into for purposes
other than trading.
The primary market risk to the Company's investment portfolio is interest rate
risk. The Company's exposure to equity price risk and foreign exchange risk is
not significant. The Company has no direct commodity risk.
The interest rate risk taken in the investment portfolio is managed relative to
the duration of the liabilities. The portfolio is differentiated by business
unit, with each unit's portfolio structured to meet its particular needs.
Potential liquidity needs of the business are also key factors in managing the
investment portfolio. The portfolio duration relative to the liabilities'
duration is primarily managed through cash market transactions. For additional
information regarding the Company's investment portfolio see Note 2 of Notes to
Financial Statements.
There were no significant changes in the Company's primary market risk exposures
or in how those exposures are managed compared to the year ended December 31,
1999. The Company does not anticipate significant changes in the Company's
primary market risk exposures or in how those exposures are managed in future
reporting periods based upon what is known or expected to be in effect in future
reporting periods. The statements above are forward-looking statements within
the meaning of the Private Securities Litigation Reform Act. See
"Forward-Looking Statements" above.
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THE TRAVELERS LIFE AND ANNUITY COMPANY
ANNUAL REPORT ON FORM 10-K
Sensitivity Analysis
Sensitivity analysis is defined as the measurement of potential loss in future
earnings, fair values or cash flows of market sensitive instruments resulting
from one or more selected hypothetical changes in interest rates and other
market rates or prices over a selected time. In the Company's sensitivity
analysis model, a hypothetical change in market rates is selected that is
expected to reflect reasonably possible near-term changes in those rates. The
term "near-term" means a period of time going forward up to one year from the
date of the financial statements. Actual results may differ from the
hypothetical change in market rates assumed in this report, especially since
this sensitivity analysis does not reflect the results of any actions that would
be taken by the Company to mitigate such hypothetical losses in fair value.
In this sensitivity analysis model, the Company uses fair values to measure its
potential loss. The sensitivity analysis model includes the following financial
instruments: fixed maturities, mortgage loans, short-term securities, cash,
investment income accrued, policy loans, contractholder funds, and derivative
financial instruments. In addition, certain non-financial instrument liabilities
have been included in the sensitivity analysis model. These non-financial
instruments include future policy benefits and policy and contract claims. The
primary market risk to the Company's market sensitive instruments is interest
rate risk. The sensitivity analysis model uses a 100 basis point change in
interest rates to measure the hypothetical change in fair value of financial
instruments and the non-financial instruments included in the model.
For invested assets, duration modeling is used to calculate changes in fair
values. Durations on invested assets are adjusted for call, put and reset
features. Portfolio durations are calculated on a market value weighted basis,
including accrued investment income, using trade date holdings as of December
31, 2000 and 1999. The sensitivity analysis model used by the Company produces a
loss in fair value of interest rate sensitive invested assets of approximately
$141 million and $121 million based on a 100 basis point increase in interest
rates as of December 31, 2000 and 1999, respectively.
Liability durations are determined consistently with the determination of
liability fair values. Where fair values are determined by discounting expected
cash flows, the duration is the percentage change in the fair value for a 100
basis point change in the discount rate. Where liability fair values are set
equal to surrender values, option-adjusted duration techniques are used to
calculate changes in fair values. The sensitivity analysis model used by the
Company produces a decrease in fair value of interest rate sensitive insurance
policy and claims reserves of approximately $120 million and $101 million based
on a 100 basis point increase in interest rates as of December 31, 2000 and
1999, respectively.
Based on the sensitivity analysis model used by the Company, the net loss in
fair value of market sensitive instruments as a result of a 100 basis point
increase in interest rates as of December 31, 2000 and 1999 is not material.
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THE TRAVELERS LIFE AND ANNUITY COMPANY
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
PAGE
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Independent Auditors' Report...............................................10
Financial Statements:
Statements of Income for the years ended
December 31, 2000, 1999 and 1998........................................11
Balance Sheets as of December 31, 2000 and 1999.........................12
Statements of Changes in Retained Earnings and Accumulated Other
Changes in Equity from Non-Owner Sources for the years ended
December 31, 2000, 1999 and 1998........................................13
Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998........................................14
Notes to Financial Statements...........................................15
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INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholder
The Travelers Life and Annuity Company:
We have audited the accompanying balance sheets of The Travelers Life and
Annuity Company as of December 31, 2000 and 1999, and the related statements of
income, changes in retained earnings and accumulated other changes in equity
from non-owner sources and cash flows for each of the years in the three-year
period ended December 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Travelers Life and Annuity
Company as of December 31, 2000 and 1999, and the results of its operations and
its cash flows for each of the years in the three-year period ended December 31,
2000, in conformity with accounting principles generally accepted in the United
States of America.
/s/ KPMG LLP
Hartford, Connecticut
January 16, 2001
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THE TRAVELERS LIFE AND ANNUITY COMPANY
STATEMENTS OF INCOME
($ in thousands)
FOR THE YEAR ENDED DECEMBER 31, 2000 1999 1998
--------- --------- ---------
REVENUES
Premiums $ 33,941 $ 25,270 $ 23,677
Net investment income 214,174 177,179 171,003
Realized investment gains (losses) (7,396) (4,973) 18,493
Fee income 127,378 63,722 27,392
Other revenues 9,625 4,072 1,494
--------- --------- ---------
Total Revenues 377,722 265,270 242,059
--------- --------- ---------
BENEFITS AND EXPENSES
Current and future insurance benefits 78,403 78,072 81,371
Interest credited to contractholders 77,579 56,216 51,535
Amortization of deferred acquisition costs 68,254 38,902 15,956
Operating expenses 14,095 11,326 5,012
--------- --------- ---------
Total Benefits and Expenses 238,331 184,516 153,874
--------- --------- ---------
Income before federal income taxes 139,391 80,754 88,185
--------- --------- ---------
Federal income taxes
Current 11,738 21,738 18,917
Deferred 36,748 6,410 11,783
--------- --------- ---------
Total Federal Income Taxes 48,486 28,148 30,700
--------- --------- ---------
Net income $ 90,905 $ 52,606 $ 57,485
========= ========= =========
See Notes to Financial Statements.
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THE TRAVELERS LIFE AND ANNUITY COMPANY
BALANCE SHEETS
($ in thousands)
DECEMBER 31, 2000 1999
----------- -----------
ASSETS
Fixed maturities, available for sale at fair value (including $49,465 at
December 31, 2000 subject to securities lending agreements) $ 2,297,141 $ 1,713,948
Equity securities, at fair value 22,551 33,169
Mortgage loans 132,768 155,719
Short-term securities 247,377 81,119
Other invested assets 222,325 190,622
----------- -----------
Total Investments 2,922,162 2,174,577
----------- -----------
Separate accounts 6,802,985 4,795,165
Deferred acquisition costs 579,567 350,088
Deferred federal income taxes 11,296 74,478
Premium balances receivable 26,184 22,420
Other assets 153,423 84,605
----------- -----------
Total Assets $10,495,617 $ 7,501,333
----------- -----------
LIABILITIES
Future policy benefits and claims $ 989,576 $ 1,007,776
Contractholder funds 1,631,611 1,117,819
Separate accounts 6,802,985 4,795,165
Other liabilities 211,441 114,408
----------- -----------
Total Liabilities 9,635,613 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 417,316 167,316
Retained earnings 426,066 335,161
Accumulated other changes in equity from non-owner sources 13,622 (39,312)
----------- -----------
Total Shareholder's Equity 860,004 466,165
----------- -----------
Total Liabilities and Shareholder's Equity $10,495,617 $ 7,501,333
=========== ===========
See Notes to Financial Statements.
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THE TRAVELERS LIFE AND ANNUITY COMPANY
STATEMENTS OF CHANGES IN RETAINED EARNINGS AND ACCUMULATED
OTHER CHANGES IN EQUITY FROM NON-OWNER SOURCES
($ in thousands)
STATEMENTS OF CHANGES IN RETAINED EARNINGS 2000 1999 1998
--------- --------- ---------
Balance, beginning of year $ 335,161 $ 282,555 $ 225,070
Net income 90,905 52,606 57,485
--------- --------- ---------
Balance, end of year $ 426,066 $ 335,161 $ 282,555
========= ========= =========
STATEMENTS OF ACCUMULATED OTHER CHANGES
IN EQUITY FROM NON-OWNER SOURCES
Balance, beginning of year $ (39,312) $ 87,889 $ 70,277
Unrealized gains (losses), net of tax 52,934 (127,201) 17,612
--------- --------- ---------
Balance, end of year $ 13,622 $ (39,312) $ 87,889
========= ========= =========
SUMMARY OF CHANGES IN EQUITY
FROM NON-OWNER SOURCES
Net Income $ 90,905 $ 52,606 $ 57,485
Other changes in equity from
non-owner sources 52,934 (127,201) 17,612
--------- --------- ---------
Total changes in equity from
non-owner sources $ 143,839 $ (74,595) $ 75,097
========= ========= =========
See Notes to Financial Statements.
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THE TRAVELERS LIFE AND ANNUITY COMPANY
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
($ in thousands)
FOR THE YEARS ENDED DECEMBER 31, 2000 1999 1998
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Premiums collected $ 33,609 $ 24,804 $ 22,300
Net investment income received 186,362 150,107 146,158
Benefits and claims paid (96,890) (94,503) (90,872)
Interest credited to contractholders (77,579) (50,219) (51,535)
Operating expenses paid (325,180) (235,166) (122,327)
Income taxes paid (38,548) (29,369) (25,214)
Other, including fee income 176,822 46,028 46,099
----------- ----------- -----------
Net Cash Used in Operating Activities (141,404) (188,318) (75,391)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investments
Fixed maturities 220,841 213,402 113,456
Mortgage loans 28,477 28,002 25,462
Proceeds from sales of investments
Fixed maturities 843,856 774,096 1,095,976
Equity securities 30,772 5,146 6,020
Mortgage loans 15,260 -- --
Real estate held for sale 2,115 -- --
Purchases of investments
Fixed maturities (1,564,237) (1,025,110) (1,320,704)
Equity securities (20,361) (12,524) (13,653)
Mortgage loans (17,016) (8,520) (39,158)
Policy loans, net (2,675) (5,316) (2,010)
Short-term securities (purchases) sales, net (166,259) 45,057 43,054
Other investments (purchases) sales, net 327 (44,621) 1,110
Securities transactions in course of settlement, net 21,372 (7,033) 36,459
----------- ----------- -----------
Net Cash Used in Investing Activities (607,528) (37,421) (53,988)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Contractholder fund deposits 629,138 308,953 211,476
Contractholder fund withdrawals (115,289) (83,817) (83,036)
Contribution from parent company 250,000 -- --
----------- ----------- -----------
Net Cash Provided by Financing Activities 763,849 225,136 128,440
----------- ----------- -----------
Net increase (decrease) in cash 14,917 (603) (939)
Cash at beginning of period 21 624 315
----------- ----------- -----------
Cash at December 31, $ 14,938 $ 21 $ 624
=========== =========== ===========
See Notes to Financial Statements.
14
16
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies used in the preparation of the accompanying
financial statements follow.
BASIS OF PRESENTATION
The Travelers Life and Annuity Company (the Company) is a wholly owned
subsidiary of The Travelers Insurance Company (TIC), an indirect wholly
owned subsidiary of Citigroup Inc. (Citigroup). The financial statements
and accompanying footnotes of the Company are prepared in conformity with
accounting principles generally accepted in the United States of America
(GAAP). The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and benefits and expenses during the reporting
period. Actual results could differ from those estimates.
The Company offers a variety of variable annuity products where the
investment risk is borne by the contractholder, not the Company, and the
benefits are not guaranteed. The premiums and deposits related to these
products are reported in separate accounts. The Company considers it
necessary to differentiate, for financial statement purposes, the results
of the risks it has assumed from those it has not.
Certain prior year amounts have been reclassified to conform to the 2000
presentation.
ACCOUNTING CHANGES
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENTS OF LIABILITIES
In September 2000, the Financial Accounting Standards Board (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 Company's 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 (a) certain assets pledged as collateral to be separately reported
in the consolidated balance sheet from assets not so encumbered and (b)
disclosure of assets pledged as collateral that have not been reclassified
and separately reported. The change in accounting for collateral did not
have a significant effect on results of the Company's operations, financial
condition or liquidity. See Note 2.
15
17
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR
INTERNAL USE
During the third quarter of 1998, the Company adopted the Accounting
Standards Executive Committee of the American Institute of Certified Public
Accountants' (AcSEC) Statement of Position 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use" (SOP 98-1).
SOP 98-1 provides guidance on accounting for the costs of computer software
developed or obtained for internal use and for determining when specific
costs should be capitalized or expensed. The adoption of SOP 98-1 had no
impact on the Company's financial condition, statement of operations or
liquidity.
ACCOUNTING POLICIES
INVESTMENTS
Fixed maturities include bonds, notes and redeemable preferred stocks. Fair
values of investments in fixed maturities are based on quoted market prices
or dealer quotes or, if these are not available, discounted expected cash
flows using market rates commensurate with the credit quality and maturity
of the investment. Also included in fixed maturities are loan-backed and
structured securities, which are amortized using the retrospective method.
The effective yield used to determine amortization is calculated based upon
actual historical and projected future cash flows, which are obtained from
a widely accepted securities data provider. Fixed maturities are classified
as "available for sale" and are reported at fair value, with unrealized
investment gains and losses, net of income taxes, charged or credited
directly to shareholder's equity.
Equity securities, which include common and non-redeemable preferred
stocks, are classified as "available for sale" and are carried at fair
value based primarily on quoted market prices. Changes in fair values of
equity securities are charged or credited directly to shareholder's equity,
net of income taxes.
Mortgage loans are carried at amortized cost. A mortgage loan is considered
impaired when it is probable that the Company will be unable to collect
principal and interest amounts due. For mortgage loans that are determined
to be impaired, a reserve is established for the difference between the
amortized cost and fair market value of the underlying collateral. In
estimating fair value, the Company uses interest rates reflecting the
current real estate financing market. Impaired loans were insignificant at
December 31, 2000 and 1999.
Short-term securities, consisting primarily of money market instruments and
other debt issues purchased with a maturity of less than one year, are
carried at amortized cost, which approximates market.
Other invested assets include partnership investments and real estate joint
ventures accounted for on the equity method of accounting. All changes in
equity of these investments are recorded in net investment income. Also
included in other invested assets are policy loans which are carried at the
amount of the unpaid balances that are not in excess of the net cash
surrender values of the related insurance policies. The carrying value of
policy loans, which have no defined maturities, is considered to be fair
value.
16
18
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Accrual of investment income, included in other assets, is suspended on
fixed maturities or mortgage loans that are in default, or on which it is
likely that future payments will not be made as scheduled. Interest income
on investments in default is recognized only as payment is received.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses derivative financial instruments, including financial
futures, options, forward contracts and interest rate swaps, as a means of
hedging exposure to foreign currency, equity price changes and/or interest
rate risk on anticipated transactions or existing assets and liabilities.
Hedge accounting is generally used to account for derivatives. To qualify
for hedge accounting the changes in value of the derivative must be
expected to substantially offset the changes in value of the hedged item.
Hedges are monitored to ensure that there is a high correlation between the
derivative instruments and the hedged investment. Derivatives that do not
qualify for hedge accounting are marked to market with the changes in
market value reflected in realized investment gains (losses).
Gains and losses arising from financial futures contracts are used to
adjust the basis of hedged investments and are recognized in net investment
income over the life of the investment.
Payments to be received or made under interest rate swaps are accrued and
recognized in net investment income. Swaps hedging investments are carried
at fair value with unrealized gains and losses, net of taxes, charged or
credited directly to shareholder's equity.
Gains and losses arising from equity index options are marked to market
with changes in market value reflected in realized investment gains
(losses).
Forward contracts, equity swaps and interest rate options were not
significant at December 31, 2000 and 1999. Information concerning
derivative financial instruments is included in Note 8.
INVESTMENT GAINS AND LOSSES
Realized investment gains and losses are included as a component of pre-tax
revenues based upon specific identification of the investments sold on the
trade date. Also included are gains and losses arising from the
remeasurement of the local currency value of foreign investments to U.S.
dollars, the functional currency of the Company.
SEPARATE ACCOUNTS
The Company has separate account assets and liabilities representing funds
for which investment income and investment gains and losses accrue directly
to, and investment risk is borne by, the contractholders. Each of these
accounts have specific investment objectives. The assets and liabilities of
these accounts are carried at fair value, and amounts assessed to the
contractholders for management services are included in fee income.
Deposits, net investment income and realized investment gains and losses
for these accounts are excluded from revenues, and related liability
increases are excluded from benefits and expenses.
17
19
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
DEFERRED ACQUISITION COSTS
Costs of acquiring individual life insurance and annuity business,
principally commissions and certain expenses related to policy issuance,
underwriting and marketing, all of which vary with and are primarily
related to the production of new business, are deferred. Acquisition costs
relating to traditional life insurance are amortized in relation to
anticipated premiums; universal life in relation to estimated gross
profits; and annuity contracts employing a level yield method. A 15 to
20-year amortization period is used for life insurance, and a seven to
20-year period is employed for annuities. Deferred acquisition costs are
reviewed periodically for recoverability to determine if any adjustment is
required. Adjustments, if any, are charged to income.
VALUE OF INSURANCE IN FORCE
The value of insurance in force is an asset recorded at the time of
acquisition of an insurance company. It represents the actuarially
determined present value of anticipated profits to be realized from annuity
contracts at the date of acquisition using the same assumptions that were
used for computing related liabilities, where appropriate. The value of
insurance in force was the actuarially determined present value of the
projected future profits discounted at an interest rate of 16% for the
annuity business acquired. The annuity contracts are amortized employing a
level yield method. The value of insurance in force, which is included in
other assets, is reviewed periodically for recoverability to determine if
any adjustment is required. Adjustments, if any, are charged to income.
FUTURE POLICY BENEFITS
Benefit reserves represent liabilities for future insurance policy
benefits. Benefit reserves for life insurance and annuity policies have
been computed based upon mortality, morbidity, persistency and interest
assumptions applicable to these coverages, which range from 3.0% to 7.8%,
including a provision for adverse deviation. These assumptions consider
Company experience and industry standards. The assumptions vary by plan,
age at issue, year of issue and duration.
CONTRACTHOLDER FUNDS
Contractholder funds represent receipts from the issuance of universal
life, certain individual annuity contracts, and structured settlement
contracts. Contractholder fund balances are increased by such receipts and
credited interest and reduced by withdrawals, mortality charges and
administrative expenses charged to the contractholders. Interest rates
credited to contractholder funds range from 3.5% to 10.0%.
OTHER LIABILITIES
Included in Other Liabilities is the Company's estimate of its liability
for guaranty fund and other insurance-related assessments. State guaranty
fund assessments are based upon the Company's share of premium written or
received in one or more years prior to an insolvency occurring in the
industry. Once an insolvency has occurred, the Company recognizes a
liability for such assessments if it is probable that an assessment will be
imposed and the amount of the assessment can be reasonably estimated. At
December 31, 2000 and 1999, the Company's liability for guaranty fund
assessments was not significant.
18
20
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company, domiciled in the State of Connecticut, prepares statutory
financial statements in accordance with the accounting practices prescribed
or permitted by the State of Connecticut Insurance Department. Prescribed
statutory accounting practices include certain publications of the National
Association of Insurance Commissioners (NAIC) as well as state laws,
regulations, and general administrative rules. Permitted statutory
accounting practices encompass all accounting practices not so prescribed.
The impact of presently permitted accounting practices on the statutory
surplus of the Company is not material.
The NAIC recently completed a process intended to codify statutory
accounting practices for certain insurance enterprises. As a result of this
process, the NAIC issued a revised statutory Accounting Practices and
Procedures Manual - version effective January 1, 2001 (the revised Manual)
that will be effective for years beginning January 1, 2001. The State of
Connecticut will require that, effective January 1, 2001, insurance
companies domiciled in Connecticut prepare their statutory basis financial
statements in accordance with the revised Manual subject to any deviations
prescribed or permitted by the Connecticut insurance commissioner. Other
states have addressed compliance with the revised Manual in a similar
manner. The Company has estimated that the impact of this change on its
statutory capital and surplus will not be significant.
PREMIUMS
Premiums are recognized as revenues when due. Reserves are established for
the portion of premiums that will be earned in future periods.
FEE INCOME
Fee income includes mortality, administrative and equity protection
charges, and management fees earned on the Universal Life and Deferred
Annuity separate account businesses.
OTHER REVENUES
Other revenues include surrender, penalties and other charges.
FEDERAL INCOME TAXES
The provision for federal income taxes comprises two components, current
income taxes and deferred income taxes. Deferred federal income taxes arise
from changes during the year in cumulative temporary differences between
the tax basis and book basis of assets and liabilities.
19
21
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
FUTURE APPLICATION OF ACCOUNTING STANDARDS
In June 1998, the 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 determined that the cumulative effect of FAS 133, as
amended, will not be significant. The Company does, however, anticipate a
significant and continuing increase in the complexity of the 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 its results of operations, financial condition or
liquidity in future periods.
20
22
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
2. INVESTMENTS
FIXED MATURITIES
The amortized cost and fair values of investments in fixed maturities were
as follows:
GROSS GROSS
DECEMBER 31, 2000 AMORTIZED UNREALIZED UNREALIZED FAIR
($ in thousands) COST GAINS LOSSES VALUE
----------------- --------- ---------- ---------- -----
AVAILABLE FOR SALE:
Mortgage-backed securities - CMOs and
pass-through securities $ 219,851 $ 7,369 $ 1,767 $ 225,453
U.S. Treasury securities and obligations
of U.S. Government and government agencies
and authorities 112,021 12,200 286 123,935
Obligations of states and political
subdivisions 30,583 2,698 329 32,952
Debt securities issued by foreign
governments 50,624 1,149 939 50,834
All other corporate bonds 1,403,462 33,805 26,904 1,410,363
All other debt securities 442,390 10,734 7,837 445,287
Redeemable preferred stock 9,007 853 1,543 8,317
---------- ---------- ---------- ----------
Total Available For Sale $2,267,938 $ 68,808 $ 39,605 $2,297,141
---------- ---------- ---------- ----------
GROSS GROSS
DECEMBER 31, 1999 AMORTIZED UNREALIZED UNREALIZED FAIR
($ in thousands) COST GAINS LOSSES VALUE
----------------- --------- ---------- ---------- -----
AVAILABLE FOR SALE:
Mortgage-backed securities - CMOs and
pass-through securities $ 211,864 $ 2,103 $ 7,818 $ 206,149
U.S. Treasury securities and obligations
of U.S. Government and government agencies
and authorities 116,082 2,613 3,704 114,991
Obligations of states and political
subdivisions 29,801 7 3,312 26,496
Debt securities issued by foreign
governments 44,159 2,813 198 46,774
All other corporate bonds 1,059,552 6,592 42,458 1,023,686
All other debt securities 297,911 5,065 10,353 292,623
Redeemable preferred stock 3,654 41 466 3,229
---------- ---------- ---------- ----------
Total Available For Sale $1,763,023 $ 19,234 $ 68,309 $1,713,948
---------- ---------- ---------- ----------
Proceeds from sales of fixed maturities classified as available for sale
were $844 million, $774 million and $1.1 billion in 2000, 1999 and 1998,
respectively. Gross gains of $22.4 million, $24.6
21
23
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
million and $32.6 million and gross losses of $34.1 million, $22.0 million
and $17.0 million in 2000, 1999 and 1998, respectively were realized on
those sales.
Fair values of investments in fixed maturities are based on quoted market
prices or dealer quotes or, if these are not available, discounted expected
cash flows using market rates commensurate with the credit quality and
maturity of the investment. The fair value of investments for which a
quoted market price or dealer quote is not available amounted to $530.2
million and $486.2 million at December 31, 2000 and 1999, respectively.
The amortized cost and fair value of fixed maturities available for sale at
December 31, 2000, by contractual maturity, are shown below. Actual
maturities will differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or
prepayment penalties.
AMORTIZED FAIR
($ in thousands) COST VALUE
---------- ----------
MATURITY:
Due in one year or less $ 51,478 $ 51,005
Due after 1 year through 5 years 638,112 646,327
Due after 5 years through 10 years 675,953 679,957
Due after 10 years 682,544 694,399
---------- ----------
2,048,087 2,071,688
---------- ----------
Mortgage-backed securities 219,851 225,453
---------- ----------
Total Maturity $2,267,938 $2,297,141
---------- ----------
The Company makes significant investments in collateralized mortgage
obligations (CMOs). CMOs typically have high credit quality, offer good
liquidity, and provide a significant advantage in yield and total return
compared to U.S. Treasury securities. The Company's investment strategy is
to purchase CMO tranches, which are protected against prepayment risk,
including planned amortization class (PAC) tranches. Prepayment protected
tranches are preferred because they provide stable cash flows in a variety
of interest rate scenarios. The Company does invest in other types of CMO
tranches if an assessment indicates a favorable risk/return tradeoff. The
Company does not purchase residual interests in CMOs.
At December 31, 2000 and 1999, the Company held CMOs with a fair value of
$189.4 million and $167.7 million, respectively. The Company's CMO holdings
were 55.4% and 65.9% collateralized by GNMA, FNMA or FHLMC securities at
December 31, 2000 and 1999, respectively.
The Company engages in securities lending whereby certain securities from
its portfolio are loaned to other institutions for short periods of time.
The Company generally receives cash collateral from the borrower, equal to
at least the market value of the loaned securities plus accrued interest,
and
22
24
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
reinvests in a short-term investment pool. See Note 10. The loaned
securities remain a recorded asset of the Company, however, the Company
records a liability for the amount of the collateral held, representing its
obligation to return the collateral related to these loaned securities, and
reports that liability as part of other liabilities in the consolidated
balance sheet. At December 31, 2000 and 1999, the Company held collateral
of $50.7 million and $38.2 million, respectively.
EQUITY SECURITIES
The cost and fair values of investments in equity securities were as
follows:
GROSS GROSS
EQUITY SECURITIES: UNREALIZED UNREALIZED FAIR
($ in thousands) COST GAINS LOSSES VALUE
------- ------- ------- -------
DECEMBER 31, 2000
Common stocks $ 2,861 $ 29 $ 845 $ 2,045
Non-redeemable preferred stocks 21,150 480 1,124 20,506
------- ------- ------- -------
Total Equity Securities $24,011 $ 509 $ 1,969 $22,551
------- ------- ------- -------
DECEMBER 31, 1999
Common stocks $ 4,966 $ 730 $ 256 $ 5,440
Non-redeemable preferred stocks 29,407 533 2,211 27,729
------- ------- ------- -------
Total Equity Securities $34,373 $ 1,263 $ 2,467 $33,169
------- ------- ------- -------
Proceeds from sales of equity securities were $30.8 million, $5.1 million
and $6.0 million in 2000, 1999 and 1998, respectively. Gross gains of $3.3
million, $1.5 million and $2.6 million and gross losses of $.3 million, $.3
million and $.8 million were realized on those sales during 2000, 1999 and
1998, respectively.
MORTGAGE LOANS
Underperforming assets include delinquent mortgage loans over 90 days past
due, loans in the process of foreclosure and loans modified at interest
rates below market.
At December 31, 2000 and 1999, the Company's mortgage loan portfolios
consisted of the following:
($ in thousands) 2000 1999
-------- --------
Current Mortgage Loans $132,768 $151,814
Underperforming Mortgage Loans -- 3,905
-------- --------
Total $132,768 $155,719
-------- --------
23
25
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Aggregate annual maturities on mortgage loans at December 31, 2000 are as
follows:
($ in thousands)
2001 $ 17,550
2002 8,990
2003 5,089
2004 8,475
2005 6,277
Thereafter 86,387
--------
Total $132,768
========
CONCENTRATIONS
Significant individual investment concentrations included $52.8 million and
$63.2 million in the Tishman Speyer Joint Venture at December 31, 2000 and
1999, respectively.
The Company participates in a short-term investment pool maintained by an
affiliate. See Note 10.
Included in fixed maturities are below investment grade assets totaling
$143.8 million and $141.4 million at December 31, 2000 and 1999,
respectively. The Company defines its below investment grade assets as
those securities rated "Ba1" or below by external rating agencies, or the
equivalent by internal analysts when a public rating does not exist. Such
assets include publicly traded below investment grade bonds and certain
other privately issued bonds and notes that are classified as below
investment grade.
The Company's industry concentrations of investments, primarily fixed
maturities, at fair value were as follows:
($ in thousands) 2000 1999
-------- --------
Banking $222,984 $152,848
Finance 204,994 103,385
-------- --------
The Company held investments in foreign banks in the amount of $139 million
and $125 million at December 31, 2000 and 1999, respectively, which are
included in the table above.
Below investment grade assets included in the preceding table were not
significant.
Mortgage loan investments are relatively evenly disbursed throughout the
United States, with no significant holdings in any one state or property
type.
The Company monitors creditworthiness of counterparties to all financial
instruments by using controls that include credit approvals, limits and
other monitoring procedures. Collateral for fixed maturities often includes
pledges of assets, including stock and other assets, guarantees and letters
of credit. The Company's underwriting standards with respect to new
mortgage loans generally require loan to value ratios of 75% or less at the
time of mortgage origination.
24
26
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NON-INCOME PRODUCING INVESTMENTS
Investments included in the December 31, 2000 and 1999 balance sheets that
were non-income producing were insignificant.
RESTRUCTURED INVESTMENTS
Mortgage loan and debt securities which were restructured at below market
terms at December 31, 2000 and 1999 were insignificant. The new terms of
restructured investments typically defer a portion of contract interest
payments to varying future periods. The accrual of interest is suspended on
all restructured assets, and interest income is reported only as payment is
received. Gross interest income on restructured assets that would have been
recorded in accordance with the original terms of such assets was
insignificant. Interest on these assets, included in net investment income,
was insignificant.
NET INVESTMENT INCOME
FOR THE YEAR ENDED DECEMBER 31,
($ in thousands) 2000 1999 1998
-------- -------- --------
GROSS INVESTMENT INCOME
Fixed maturities $163,091 $136,039 $130,825
Joint ventures and partnerships 34,574 22,175 22,107
Mortgage loans 14,776 16,126 15,969
Other 4,398 4,417 3,322
-------- -------- --------
Total Gross Investment Income 216,839 178,757 172,223
-------- -------- --------
Investment expenses 2,665 1,578 1,220
-------- -------- --------
Net investment income $214,174 $177,179 $171,003
-------- -------- --------
REALIZED AND UNREALIZED INVESTMENT GAINS (LOSSES)
Net realized investment gains (losses) for the periods were as follows:
FOR THE YEAR ENDED DECEMBER 31,
($ in thousands) 2000 1999 1998
-------- -------- --------
REALIZED
Fixed maturities $(11,742) $ 2,657 $ 15,620
Joint ventures and partnerships (1,909) (10,450) 529
Mortgage Loans 3,825 602 623
Other 2,430 2,218 1,721
-------- -------- --------
Total Realized Investment Gains (Losses) $ (7,396) $ (4,973) $ 18,493
-------- -------- --------
25
27
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Changes in net unrealized investment gains (losses) that are included as
accumulated other changes in equity from non-owner sources in shareholder's
equity were as follows:
FOR THE YEAR ENDED DECEMBER 31,
($ in thousands) 2000 1999 1998
--------- --------- ---------
UNREALIZED
Fixed maturities $ 78,278 $(180,409) $ 24,336
Other 3,159 (15,285) 2,760
--------- --------- ---------
Total unrealized investment gains (losses) 81,437 (195,694) 27,096
Related taxes 28,503 (68,493) 9,484
--------- --------- ---------
Change in unrealized investment gains (losses) 52,934 (127,201) 17,612
Balance beginning of year (39,312) 87,889 70,277
--------- --------- ---------
Balance End of Year $ 13,622 $ (39,312) $ 87,889
--------- --------- ---------
3. REINSURANCE
The Company participates in reinsurance in order to limit losses, minimize
exposure to large risks, provide additional capacity for future growth and
to effect business-sharing arrangements. Reinsurance is accomplished
through various plans of reinsurance, primarily yearly renewable term
coinsurance and modified coinsurance. The Company remains primarily liable
as the direct insurer on all risks reinsured.
Total in-force business ceded under reinsurance contracts is $17.4 billion
and $12.8 billion at December 31, 2000 and 1999, including $28.9 million
and $62.8 million, respectively to TIC. Total life insurance premiums ceded
were $8.9 million, $6.5 million and $4.2 million in 2000, 1999 and 1998,
respectively. Ceded premiums paid to TIC were immaterial for these same
periods.
4. DEPOSIT FUNDS AND RESERVES
At December 31, 2000 and 1999, the Company had $2.6 billion and $2.1
billion of life and annuity deposit funds and reserves, respectively. Of
that total, $1.4 billion and $1.4 billion, respectively, were not subject
to discretionary withdrawal based on contract terms. The remaining amounts
were life and annuity products that were subject to discretionary
withdrawal by the contractholders. Included in the amount that is subject
to discretionary withdrawal were $.9 billion and $.5 billion of liabilities
that are surrenderable with market value adjustments. The remaining $.3
billion and $.2 billion of life insurance and individual annuity
liabilities are subject to discretionary withdrawals with an average
surrender charge of 5.4% and 4.9%, respectively. The life insurance risks
would have to be underwritten again if transferred to another carrier,
which is considered a significant deterrent for long-term policyholders.
Insurance liabilities that are surrendered or withdrawn from the Company
are reduced by outstanding policy loans and related accrued interest prior
to payout.
26
28
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
5. FEDERAL INCOME TAXES
The net deferred tax assets at December 31, 2000 and 1999 were comprised of
the tax effects of temporary differences related to the following assets
and liabilities:
($ in thousands) 2000 1999
--------- ---------
Deferred Tax Assets:
Benefit, reinsurance and other reserves $ 192,772 $ 161,629
Investments, net 0 14,270
Other 2,510 2,394
--------- ---------
Total 195,282 178,293
--------- ---------
Deferred Tax Liabilities:
Investments, net (16,956) --
Deferred acquisition costs and value of insurance in force (165,671) (100,537)
Other (1,359) (1,208)
--------- ---------
Total (183,986) (101,745)
--------- ---------
Net Deferred Tax Asset Before Valuation Allowance 11,296 76,548
Valuation Allowance for Deferred Tax Assets 0 (2,070)
--------- ---------
Net Deferred Tax Asset After Valuation Allowance $ 11,296 $ 74,478
--------- ---------
TIC and its life insurance subsidiaries, including the Company, file a
consolidated federal income tax return. Federal income taxes are allocated
to each member on a separate return basis adjusted for credits and other
amounts required by the consolidation process. Any resulting liability has
been, and will be, paid currently to TIC. Any credits for losses have been,
and will be, paid by TIC to the extent that such credits are for tax
benefits that have been utilized in the consolidated federal income tax
return.
The elimination of the valuation allowance for deferred tax assets in 2000
resulted from an analysis of the availability of capital gains to offset
capital losses. In management's opinion, there will be adequate capital
gains to make realization of existing capital losses more likely than not.
The reduction in the valuation allowance was recognized by reducing
goodwill.
In management's judgment, the $11.3 million net deferred tax asset as of
December 31, 2000, is fully recoverable against expected future years'
taxable ordinary income and capital gains. At December 31, 2000, the
Company had no ordinary or capital loss carryforwards.
The policyholders surplus account, which arose under prior tax law, is
generally that portion of the gain from operations that has not been
subjected to tax, plus certain deductions. The balance of this account is
approximately $2.1 million. Income taxes are not provided for on this
amount because under current U.S. tax rules such taxes will become payable
only to the extent such amounts are distributed as a dividend or exceed
limits prescribed by federal law. Distributions are not contemplated from
this account. At current rates the maximum amount of such tax would be
approximately $700 thousand.
27
29
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
6. SHAREHOLDER'S EQUITY
SHAREHOLDER'S EQUITY AND DIVIDEND AVAILABILITY
The Company's statutory net loss was $(66.2) million, $(23.4) million and
$(3.2) million for the years ended December 31, 2000, 1999 and 1998,
respectively.
Statutory capital and surplus was $476 million and $294 million at December
31, 2000 and 1999, respectively.
Effective January 1, 2001, the Company will prepare its statutory basis
financial statements in accordance with the revised Manual subject to any
deviations prescribed or permitted by its domicilary insurance
commissioners (see Note 1, Summary of Significant Accounting Policies,
Permitted Statutory Accounting Practices). The Company has estimated that
the impact of this change on statutory capital and surplus will not be
significant.
The Company is currently 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. The Company
does not have surplus available to pay dividends to TIC in 2001 without
prior approval of the Connecticut Insurance Department.
In 2000, TIC contributed $250 million as additional paid-in capital to the
Company.
28
30
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
ACCUMULATED OTHER CHANGES IN EQUITY FROM NON-OWNER SOURCES, NET OF TAX
Changes in each component of Accumulated Other Changes in Equity from Non-Owner
Sources were as follows:
NET ACCUMULATED
UNREALIZED FOREIGN OTHER CHANGES
GAIN (LOSS) ON CURRENCY IN EQUITY FROM
INVESTMENT TRANSLATION NON-OWNER
($ in thousands) SECURITIES ADJUSTMENT SOURCES
-------------- ----------- --------------
BALANCE, JANUARY 1, 1998 $ 70,277 $ -- $ 70,277
Unrealized gains on investment securities,
Net of tax of $15,957 29,632 -- 29,632
Less: reclassification adjustment for gains
Included in net income, net of tax of $(6,473) (12,020) -- (12,020)
--------- --------- ---------
CURRENT PERIOD CHANGE 17,612 -- 17,612
--------- --------- ---------
BALANCE, DECEMBER 31, 1998 87,889 -- 87,889
Unrealized loss on investment securities,
Net of tax of $(70,234) (130,433) -- (130,433)
Less: reclassification adjustment for losses
Included in net income, net of tax of $1,741 3,232 -- 3,232
--------- --------- ---------
CURRENT PERIOD CHANGE (127,201) -- (127,201)
--------- --------- ---------
BALANCE, DECEMBER 31, 1999 (39,312) -- (39,312)
Unrealized gains on investment securities,
Net of tax of $25,914 48,127 -- 48,127
Less: reclassification adjustment for losses
Included in net income, net of tax of $2,589 4,807 -- 4,807
--------- --------- ---------
CURRENT PERIOD CHANGE 52,934 -- 52,934
--------- --------- ---------
BALANCE, DECEMBER 31, 2000 $ 13,622 $ -- $ 13,622
========= ========= =========
7. BENEFIT PLANS
PENSION AND OTHER POSTRETIREMENT BENEFITS
The Company participates in a qualified, noncontributory defined benefit
pension plan sponsored by Citigroup. In addition, the Company provides
certain other postretirement benefits to retired employees through a plan
sponsored by The Travelers Insurance Group Inc. (TIGI), TIC's direct
parent. The Company's share of net expense for the qualified pension and
other postretirement benefit plans was not significant for 2000, 1999 and
1998.
401(K) SAVINGS PLAN
Substantially all of the Company's employees are eligible to participate in
a 401(k) savings plan sponsored by Citigroup. The Company's expenses in
connection with the 401(k) savings plan were not significant in 2000, 1999
and 1998.
29
31
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
8. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS
DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses derivative financial instruments, including financial
futures, interest rate swaps, equity swaps, options and forward contracts
as a means of hedging exposure to interest rate, equity price, and foreign
currency risk on anticipated transactions or existing assets and
liabilities. The Company does not hold or issue derivative instruments for
trading purposes. These derivative financial instruments have off-balance
sheet risk. Financial instruments with off-balance sheet risk involve, to
varying degrees, elements of credit and market risk in excess of the amount
recognized in the balance sheet.
The contract or notional amounts of these instruments reflect the extent of
involvement the Company has in a particular class of financial instrument.
However, the maximum loss of cash flow associated with these instruments
can be less than these amounts. For interest rate swaps, options, and
forward contracts, credit risk is limited to the amounts that it would cost
the Company to replace the contracts. Financial futures contracts and
purchased listed option contracts have very little credit risk since
organized exchanges are the counterparties. The Company as a writer of
option contracts has no credit risk since the counterparty has no
performance obligation after it has paid a cash premium.
The Company monitors creditworthiness of counterparties to these financial
instruments by using criteria of acceptable risk that are consistent with
on-balance sheet financial instruments. The controls include credit
approvals, limits and other monitoring procedures.
The Company uses exchange-traded financial futures contracts to manage its
exposure to changes in interest rates that arise from the sale of certain
insurance and investment products, or the need to reinvest proceeds from
the sale or maturity of investments. To hedge against adverse changes in
interest rates, the Company enters long or short positions in financial
futures contracts which offset asset price changes resulting from changes
in market interest rates until an investment is purchased or a product is
sold.
Margin payments are required to enter a futures contract and contract gains
or losses are settled daily in cash. The contract amount of futures
contracts represents the extent of the Company's involvement, but not
future cash requirements, as open positions are typically closed out prior
to the delivery date of the contract.
At December 31, 2000 and 1999, the Company held financial futures contracts
with notional amounts of $89.9 million and $48.7 million, respectively. The
deferred gains and/or losses on these contracts were not significant at
December 31, 2000 and 1999. At December 31, 2000 and 1999, the Company's
futures contracts had no fair value because these contracts are marked to
market and settled in cash daily.
The Company enters into interest rate swaps in connection with other
financial instruments to provide greater risk diversification and better
match assets and liabilities. Under interest rate swaps, the Company agrees
with other parties to exchange, at specified intervals, the difference
between fixed-
30
32
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
rate and floating-rate interest amounts calculated by reference to an
agreed notional principal amount. Generally, no cash is exchanged at the
outset of the contract and no principal payments are made by either party.
A single net payment is usually made by one counterparty at each due date.
Swap agreements are not exchange-traded so they are subject to the risk of
default by the counterparty.
As of December 31, 2000 and 1999, the Company held interest rate swap
contracts with notional amounts of $279.0 million and $231.1 million,
respectively. The fair value of these financial instruments was $2.0
million (loss position) at December 31, 2000, and was $9.5 million (loss
position) at December 31, 1999. The fair values were determined using the
discounted cash flow method. At December 31, 2000 and 1999, the Company
held swap contracts with affiliate counterparties, included above, with a
notional amount of $37.0 million and $43.7 million and a fair value of $1.8
million (loss position) and $4.7 million (loss position), respectively.
The Company uses equity option contracts to manage its exposure to changes
in equity market prices that arise from the sale of certain insurance
products. To hedge against adverse changes in the equity market prices, the
Company enters long positions in equity option contracts with major
financial institutions. These contracts allow the Company, for a fee, the
right to receive a payment if the Standard and Poor's 500 Index falls below
agreed upon strike prices.
At December 31, 2000 and 1999, the Company held equity option contracts
with notional amounts of $291.5 million and $275.4 million, respectively.
The fair value of these financial instruments was $6.9 million (gain
position) and $32.6 million (gain position) at December 31, 2000 and 1999,
respectively. The fair value of these contracts represents the estimated
replacement cost as quoted by independent third party brokers.
The off-balance sheet risks of interest rate options, equity swaps and
forward contracts were not significant at December 31, 2000 and 1999.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
In the normal course of business, the Company issues fixed and variable
rate loan commitments and has unfunded commitments to partnerships and
joint ventures. The off-balance sheet risk of these financial instruments
was not significant at December 31, 2000 and 1999.
FAIR VALUE OF CERTAIN FINANCIAL INSTRUMENTS
The Company uses various financial instruments in the normal course of its
business. Fair values of financial instruments that are considered
insurance contracts are not required to be disclosed and are not included
in the amounts discussed.
At December 31, 2000, investments in fixed maturities had a carrying value
and a fair value of $2.3 billion compared with a carrying value and a fair
value of $1.8 billion and $1.7 billion, respectively, at December 31, 1999.
See Notes 1 and 2.
At December 31, 2000, mortgage loans had a carrying value of $132.7 million
and a fair value of $134.1 million and in 1999 had a carrying value of
$155.7 million and a fair value of $156.0 million.
31
33
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
In estimating fair value, the Company used interest rates reflecting the
current real estate financing market.
The carrying values of short-term securities were $247.4 million and $81.1
million in 2000 and 1999, respectively, which approximated their fair
values. Policy loans which are included in other invested assets had
carrying values of $12.9 million and $10.2 million in 2000 and 1999,
respectively, which also approximated their fair values.
The carrying values of $101.4 million and $57.6 million of financial
instruments classified as other assets approximated their fair values at
December 31, 2000 and 1999, respectively. The carrying values of $173.5
million and $100.2 million of financial instruments classified as other
liabilities also approximated their fair values at December 31, 2000 and
1999, respectively. Fair value is determined using various methods,
including discounted cash flows, as appropriate for the various financial
instruments.
At December 31, 2000, contractholder funds with defined maturities had a
carrying value of $1,204 million and a fair value of $1,170 million,
compared with a carrying value of $879 million and a fair value of $781
million at December 31, 1999. The fair value of these contracts is
determined by discounting expected cash flows at an interest rate
commensurate with the Company's credit risk and the expected timing of cash
flows. Contractholder funds without defined maturities had a carrying value
of $583 million and a fair value of $477 million at December 31, 2000,
compared with a carrying value of $482 million and a fair value of $409
million at December 31, 1999. These contracts generally are valued at
surrender value.
9. COMMITMENTS AND CONTINGENCIES
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
See Note 8.
LITIGATION
In the ordinary course of business, the Company is a defendant or
co-defendant in various litigation matters incidental to and typical of the
businesses in which it is engaged. In the opinion of the Company's
management, 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.
10. RELATED PARTY TRANSACTIONS
The principal banking functions, including payment of salaries and
expenses, for certain subsidiaries and affiliates of TIGI, including the
Company, are handled by two companies. TIC handles banking functions for
the life and annuity operations of Travelers Life & Annuity and some of its
non-insurance affiliates. The Travelers Indemnity Company handles banking
functions for the property-casualty operations, including most of its
property-casualty insurance and non-insurance affiliates. Settlements
between companies are made at least monthly. TIC provides various employee
benefit coverages to certain subsidiaries of TIGI. The premiums for these
coverages were charged in accordance with cost allocation procedures based
upon salaries or census. In addition, investment
32
34
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
advisory and management services, data processing services and claims
processing services are provided by affiliated companies. Charges for these
services are shared by the companies on cost allocation methods based
generally on estimated usage by department.
TIC maintains a short-term investment pool in which the Company
participates. The position of each company participating in the pool is
calculated and adjusted daily. At December 31, 2000 and 1999, the pool
totaled approximately $4.4 billion and $2.6 billion, respectively. The
Company's share of the pool amounted to $172.5 million and $31.4 million at
December 31, 2000 and 1999, respectively, and is included in short-term
securities in the balance sheet.
In the normal course of business, management of both the Company and TIC
conducts reviews of the investment portfolios of each company to properly
match assets with liabilities. As a result of these reviews, the Company
sold $100 million of investments to TIC at arm's length, with a related
loss of $1.3 million.
The Company's TTM Modified Guaranteed Annuity Contracts are subject to a
limited guarantee agreement by TIC in a principal amount of up to $450
million. TIC's obligation is to pay in full to any owner or beneficiary of
the TTM Modified Guaranteed Annuity Contracts principal and interest as and
when due under the annuity contract to the extent that the Company fails to
make such payment. In addition, TIC guarantees that the Company will
maintain a minimum statutory capital and surplus level.
The Company sold structured settlement annuities to the insurance
affiliates of Travelers Property Casualty Corp. (TPC). During 1998 it was
decided to use TIC as the primary issuer of structured settlement annuities
and the Company as the assignment company. Policy reserves and
contractholder fund liabilities associated with these structured
settlements were $726 million and $766 million at December 31, 2000 and
1999, respectively.
The Company began distributing variable annuity products through its
affiliate, Salomon Smith Barney (SSB) in 1995. Premiums and deposits
related to these products were $1.6 billion, $1.1 billion and $932.1
million in 2000, 1999 and 1998, respectively. In 1996, the Company began
marketing various life products through SSB as well. Premiums related to
such products were $59.3 million, $40.8 million and $44.5 million in 2000,
1999 and 1998, respectively.
During 1998, the Company began distributing deferred annuity products
through its affiliates Primerica Financial Services (Primerica), CitiStreet
Retirement Services (formerly The Copeland Companies), a division of
CitiStreet, a joint venture between Citigroup and State Street Bank, and
Citibank, N.A. (Citibank). Deposits received from Primerica were $844
million, $763 million and $216 million in 2000, 1999 and 1998 respectively.
Deposits from Citibank and CitiStreet Retirement Services were $131
million and $220 million, respectively for 2000, and were insignificant in
1999 and 1998.
The Company participates in a stock option plan sponsored by Citigroup that
provides for the granting of stock options in Citigroup common stock to
officers and key employees. To further encourage employee stock ownership,
Citigroup introduced the WealthBuilder stock option program during 1997.
Under this program, all employees meeting certain requirements are granted
Citigroup stock options.
33
35
THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
Most leasing functions for TIGI and its subsidiaries are handled by TPC.
Rent expense related to these leases is shared by the companies on a cost
allocation method based generally on estimated usage by department. The
Company's rent expense was insignificant in 2000, 1999 and 1998.
At December 31, 2000 and 1999, the Company had investments in Tribeca
Investments LLC, an affiliate of the Company, in the amounts of $29.4
million and $22.3 million, respectively.
The Company also had investments in an affiliated joint venture, Tishman
Speyer, in the amount of $52.8 million and $63.2 million at December 31,
2000 and 1999, respectively.
The Company has other affiliated investments. The individual investment
with any one affiliate was insignificant at December 31, 2000 and 1999.
11. RECONCILIATION OF NET INCOME TO NET CASH USED IN OPERATING ACTIVITIES
The following table reconciles net income to net cash used in operating
activities:
FOR THE YEAR ENDED DECEMBER 31, 2000 1999 1998
($ in thousands) ---- ---- ----
Net Income From Continuing Operations $ 90,905 $ 52,606 $ 57,485
Adjustments to reconcile net income to cash used in
operating activities:
Realized (gains) losses 7,396 4,973 (18,493)
Deferred federal income taxes 36,748 6,410 11,783
Amortization of deferred policy acquisition costs 68,254 38,902 15,956
Additions to deferred policy acquisition costs (297,733) (211,182) (120,278)
Investment income accrued (27,812) (27,072) (3,821)
Premium balances (332) (466) (6,786)
Insurance reserves (18,487) (16,431) (8,431)
Other (343) (36,058) (2,806)
--------- --------- ---------
Net cash used in operations $(141,404) $(188,318) $ (75,391)
--------- --------- ---------
12. NON-CASH INVESTING AND FINANCING ACTIVITIES
There were no significant non-cash investing and financing activities for
2000, 1999 and 1998.
34
36
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Omitted pursuant to General Instruction I(2)(c) of Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
Omitted pursuant to General Instruction I(2)(c) of Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Omitted pursuant to General Instruction I(2)(c) of Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Omitted pursuant to General Instruction I(2)(c) of Form 10-K.
35
37
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Documents filed:
(1) Financial Statements. See index on page 9 of this report.
(2) Financial Statement Schedules. See index on page 39 of this report.
(3) Exhibits. See Exhibit Index on page 37.
(b) Reports on Form 8-K:
None.
36
38
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
3. Articles of Incorporation and By-Laws
a.) 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.
b.) By-laws of the Company as amended 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.
37
39
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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, on the 14th day of March,
2001.
THE TRAVELERS LIFE AND ANNUITY COMPANY
(Registrant)
By: /s/Glenn D. Lammey
----------------------------------------
Glenn D. Lammey
Executive Vice President,
Chief Financial Officer and Chief Accounting Officer
(Principal Financial Officer and Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the registrant and in the
capacities indicated on the 14th day of March, 2001.
SIGNATURE CAPACITY
- --------- --------
/s/ George C. Kokulis Director, Chief Executive Officer
- --------------------------- (Principal Executive Officer)
(George C. Kokulis)
/s/ Glenn D. Lammey Director, Chief Financial Officer and Chief Accounting Officer
- --------------------------- (Principal Financial Officer and Principal Accounting Officer)
(Glenn D. Lammey)
/s/ Marla Berman Lewitus Director
- ---------------------------
(Marla Berman Lewitus)
/s/ Katherine M. Sullivan Director
- ---------------------------
(Katherine M. Sullivan)
Supplemental Information to be Furnished With Reports Filed Pursuant to Section
15(d) of the Act by Registrants Which Have Not Registered Securities pursuant to
Section 12 of the Act: NONE
No Annual Report to Security Holders covering the registrant's last fiscal year
or proxy material with respect to any meeting of security holders has been sent,
or will be sent, to security holders.
38
40
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Page
----
The Travelers Life and Annuity Company
Independent Auditors' Report *
Statements of Income *
Balance Sheets *
Statements of Changes in Retained Earnings and Accumulated
Other Changes in Equity from Non-Owner Sources *
Statements of Cash Flows *
Notes to Financial Statements *
Independent Auditors' Report 40
Schedule I - Summary of Investments - Other than Investments in
Related Parties 2000 41
Schedule III - Supplementary Insurance Information 1998-2000 42
Schedule IV - Reinsurance 1998-2000 43
All other schedules are inapplicable for this filing.
* See index on page 9.
39
41
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholder
The Travelers Life and Annuity Company:
Under date of January 16, 2001, we reported on the balance sheets of The
Travelers Life and Annuity Company as of December 31, 2000 and 1999, and the
related statements of income, changes in retained earnings and accumulated other
changes in equity from non-owner sources and cash flows for each of the years in
the three-year period ended December 31, 2000, which are included in this Form
10-K. In connection with our audits of the aforementioned financial statements,
we also audited the related financial statement schedules listed in the
accompanying index. These financial statement schedules are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statement schedules based on our audits.
In our opinion, such financial statement schedules, when considered in relation
to the basic financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
/s/ KPMG LLP
Hartford, Connecticut
January 16, 2001
40
42
THE TRAVELERS LIFE AND ANNUITY COMPANY
SCHEDULE I
SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 2000
($ in thousands)
AMOUNT SHOWN IN
TYPE OF INVESTMENT COST VALUE BALANCE SHEET (1)
---------- ---------- -----------------
Fixed Maturities:
Bonds:
U.S. Government and government agencies and
authorities $ 202,815 $ 218,585 $ 218,585
States, municipalities and political subdivisions 30,583 32,952 32,952
Foreign governments 50,624 50,834 50,834
Public utilities 170,977 172,059 172,059
Convertible bonds and bonds with warrants attached 28,128 27,380 27,380
All other corporate bonds 1,775,804 1,787,014 1,787,014
---------- ---------- ----------
Total Bonds 2,258,931 2,288,824 2,288,824
Redeemable Preferred Stocks 9,007 8,317 8,317
---------- ---------- ----------
Total Fixed Maturities 2,267,938 2,297,141 2,297,141
---------- ---------- ----------
Equity Securities:
Common Stocks:
Industrial, miscellaneous and all other 2,861 2,045 2,045
---------- ---------- ----------
Total Common Stocks 2,861 2,045 2,045
Non-Redeemable Preferred Stocks 21,150 20,506 20,506
---------- ---------- ----------
Total Equity Securities 24,011 22,551 22,551
---------- ---------- ----------
Mortgage Loans 132,768 132,768
Policy Loans 12,895 12,895
Short-Term Securities 247,377 247,377
Other Investments (2) (3) 161,793 155,891
---------- ----------
Total Investments $2,846,782 $2,868,623
========== ==========
(1) Determined in accordance with methods described in Notes 1 and 2 of Notes
to Financial Statements.
(2) Excludes investments in related parties of $53,539.
(3) Includes derivatives marked to market and recorded at fair value in the
balance sheet.
41
43
THE TRAVELERS LIFE AND ANNUITY COMPANY
SCHEDULE III
SUPPLEMENTARY INSURANCE INFORMATION
1998-2000
($ in thousands)
FUTURE POLICY BENEFITS,
BENEFITS, LOSSES, NET CLAIMS, LOSSES OTHER
DEFERRED POLICY CLAIMS AND LOSS PREMIUM INVESTMENT AND SETTLEMENT AMORTIZATION OF DEFERRED OPERATING PREMIUMS
ACQUISITION COSTS EXPENSES (1) REVENUE INCOME EXPENSES (2) POLICY ACQUISITION COSTS EXPENSES WRITTEN
----------------- ----------------- ------- ---------- -------------- ------------------------ --------- --------
2000 $579,567 $2,621,187 $33,941 $214,174 $155,982 $68,254 $14,095 $33,941
1999 $350,088 $2,125,595 $25,270 $177,179 $134,288 $38,902 $11,326 $25,270
1998 $177,808 $1,910,582 $23,677 $171,003 $132,906 $15,956 $5,012 $23,677
(1) Includes contractholder funds.
(2) Includes interest credited on contractholder funds.
42
44
THE TRAVELERS LIFE AND ANNUITY COMPANY
SCHEDULE IV
REINSURANCE
($ in thousands)
PERCENTAGE
CEDED TO ASSUMED OF AMOUNT
OTHER FROM OTHER NET ASSUMED TO
GROSS AMOUNT COMPANIES COMPANIES AMOUNT NET
------------ ----------- ---------- ----------- ----------
2000
----
Life Insurance In Force $21,637,160 $17,355,206 $ -- $ 4,281,954 --%
Premiums:
Annuity $ 6,034 $ -- $ -- $ 6,034
Individual Life 36,770 8,863 -- 27,907
----------- ----------- ------- -----------
Total Premiums $ 42,804 $ 8,863 $ -- $ 33,941 --%
=========== =========== ======= ===========
1999
----
Life Insurance In Force $15,597,352 $12,839,072 $ -- $ 2,758,280 --%
Premiums:
Annuity $ 1,317 $ -- $ -- $ 1,317
Individual life 30,502 6,549 -- 23,953
----------- ----------- ------- -----------
Total Premiums $ 31,819 $ 6,549 $ -- $ 25,270 --%
=========== =========== ======= ===========
1998
----
Life Insurance In Force $10,709,709 $ 8,829,229 $ -- $ 1,880,480 --%
Premiums:
Annuity $ 5,557 $ -- $ -- $ 5,557
Individual life 22,340 4,220 -- 18,120
----------- ----------- ------- -----------
Total Premiums $ 27,897 $ 4,220 $ -- $ 23,677 --%
=========== =========== ======= ===========
43