1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
--- THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
--- THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO__________
COMMISSION FILE NUMBER 33-33691
THE TRAVELERS INSURANCE COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CONNECTICUT 06-0566090
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE TOWER SQUARE, HARTFORD, CONNECTICUT 06183
(Address of principal executive offices) (Zip Code)
(860) 277-0111
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
As of the date hereof, there were outstanding 40,000,000 shares of common stock,
par value $2.50 per share, of the registrant, all of which were owned by The
Travelers Insurance Group Inc., an indirect wholly owned subsidiary of Citigroup
Inc.
REDUCED DISCLOSURE FORMAT
The registrant meets the conditions set forth in General Instruction H(1)(a) and
(b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced
disclosure format.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
TABLE OF CONTENTS
Page
----
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Statements of Income for the
Three Months Ended March 31, 2001 and 2000 (unaudited).................... 3
Condensed Consolidated Balance Sheets as of March 31, 2001 (unaudited) and
December 31, 2000......................................................... 4
Condensed Consolidated Statements of Changes in Retained Earnings and
Accumulated Other Changes in Equity from Nonowner Sources
for the Three Months Ended March 31, 2001 and 2000 (unaudited)............ 5
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2001 and 2000 (unaudited).................... 6
Notes to Condensed Consolidated Financial Statements (unaudited).......... 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................. 13
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................. 16
SIGNATURES................................................................ 17
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3
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
($ in millions)
THREE MONTHS ENDED
MARCH 31,
- --------------------------------------------------------------------------------
2001 2000
------ ------
REVENUES
Premiums $ 621 $ 551
Net investment income 724 655
Realized investment gains (losses) 93 (155)
Fee income 126 136
Other revenues 33 22
- --------------------------------------------------------------------------------
Total Revenues 1,597 1,209
- --------------------------------------------------------------------------------
BENEFITS AND EXPENSES
Current and future insurance benefits 565 476
Interest credited to contractholders 286 245
Amortization of deferred acquisition costs 92 85
General and administrative expenses 108 142
- --------------------------------------------------------------------------------
Total Benefits and Expenses 1,051 948
- --------------------------------------------------------------------------------
Income from operations before federal income taxes and
cumulative effect of change in accounting principle 546 261
Federal income taxes 184 85
- --------------------------------------------------------------------------------
Income before cumulative effect of change in accounting
principle 362 176
Cumulative effect of change in accounting for derivative
instruments and hedging activities, net of tax (6) --
- --------------------------------------------------------------------------------
Net Income $ 356 $ 176
================================================================================
See Notes to Condensed Consolidated Financial Statements
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in millions)
MARCH 31, 2001 DECEMBER 31, 2000
(UNAUDITED)
- -------------------------------------------------------------------------------------------------
ASSETS
Investments (including $1,574 and $1,494 subject to
securities lending agreements) $39,738 $37,233
Separate and variable accounts 22,709 24,006
Reinsurance recoverable 3,935 3,977
Deferred acquisition costs 3,098 2,989
Other assets 2,432 2,088
- -------------------------------------------------------------------------------------------------
Total Assets $71,912 $70,293
- -------------------------------------------------------------------------------------------------
LIABILITIES
Contractholder funds $20,454 $19,394
Future policy benefits and claims 13,592 13,300
Separate and variable accounts 22,707 23,994
Other liabilities 6,418 5,211
- -------------------------------------------------------------------------------------------------
Total Liabilities 63,171 61,899
- -------------------------------------------------------------------------------------------------
SHAREHOLDER'S EQUITY
Common stock, par value $2.50; 40 million shares authorized,
issued and outstanding 100 100
Additional paid-in capital 3,855 3,848
Retained earnings 4,541 4,342
Accumulated other changes in equity from nonowner sources 245 104
- -------------------------------------------------------------------------------------------------
Total Shareholder's Equity 8,741 8,394
- -------------------------------------------------------------------------------------------------
Total Liabilities and Shareholder's Equity $71,912 $70,293
=================================================================================================
See Notes to Condensed Consolidated Financial Statements.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN RETAINED EARNINGS
AND ACCUMULATED OTHER CHANGES IN EQUITY FROM NONOWNER SOURCES
(UNAUDITED)
($ in millions)
THREE MONTHS ENDED
MARCH 31,
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN RETAINED EARNINGS 2001 2000
- --------------------------------------------------------------------------------
Balance, beginning of period $ 4,342 $ 4,099
Net income 356 176
Dividends to parent (157) (170)
- --------------------------------------------------------------------------------
Balance, end of period $ 4,541 $ 4,105
================================================================================
STATEMENTS OF ACCUMULATED OTHER CHANGES
IN EQUITY FROM NONOWNER SOURCES
- --------------------------------------------------------------------------------
Balance, beginning of period $ 104 $ (398)
Cumulative effect of accounting for derivative
instruments and hedging activities, net of tax (29) --
Unrealized gains, net of tax 187 214
Hedging activities, net of tax (17) --
- --------------------------------------------------------------------------------
Balance, end of period $ 245 $ (184)
================================================================================
SUMMARY OF CHANGES IN EQUITY
FROM NONOWNER SOURCES
- --------------------------------------------------------------------------------
Net Income $ 356 $ 176
Other changes in equity from nonowner sources 141 214
- --------------------------------------------------------------------------------
Total changes in equity from nonowner sources $ 497 $ 390
================================================================================
See Notes to Condensed Consolidated Financial Statements.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
(UNAUDITED)
($ in millions)
THREE MONTHS ENDED
MARCH 31,
2001 2000
- --------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 240 $ 251
- --------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investments
Fixed maturities 639 897
Mortgage loans 69 90
Proceeds from sales of investments
Fixed maturities 4,293 4,479
Equity securities 29 125
Real estate held for sale 2 --
Purchases of investments
Fixed maturities (6,797) (6,207)
Equity securities (12) (95)
Mortgage loans (19) (122)
Policy loans, net 7 5
Short-term securities purchases, net (86) (139)
Other investment (purchases) sales, net 4 (104)
Securities transactions in course of settlement, net 753 671
- --------------------------------------------------------------------------------
Net cash used in investing activities (1,118) (400)
- --------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Contractholder fund deposits 2,597 1,497
Contractholder fund withdrawals (1,546) (1,161)
Dividends to parent company (157) (170)
- --------------------------------------------------------------------------------
Net cash provided by financing activities 894 166
- --------------------------------------------------------------------------------
Net increase in cash 16 17
Cash at beginning of period 150 85
- --------------------------------------------------------------------------------
Cash at end of period $ 166 $ 102
================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Income taxes paid $ 13 $ 47
================================================================================
See Notes to Condensed Consolidated Financial Statements.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The Travelers Insurance Company (TIC, together with its subsidiaries, the
Company), is a wholly owned subsidiary of The Travelers Insurance Group
Inc. (TIGI), an indirect wholly owned subsidiary of Citigroup Inc.
(Citigroup). Citigroup is a diversified holding company whose businesses
provide a broad range of financial services to consumer and corporate
customers around the world. The condensed consolidated financial statements
and accompanying footnotes of the Company are prepared in conformity with
accounting principles generally accepted in the United States of America
(GAAP) and are unaudited. The consolidated financial statements include the
accounts of the Company and its insurance and non-insurance subsidiaries on
a fully consolidated basis. In the opinion of management, the interim
financial statements reflect all adjustments necessary (all of which were
normal recurring adjustments) for a fair presentation for the periods
reported. The accompanying condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements
and related notes included in the Company's Annual Report on Form 10-K for
the year ended December 31, 2000.
Certain financial information that is normally included in annual financial
statements prepared in accordance with GAAP, but is not required for
interim reporting purposes, has been condensed or omitted.
Certain prior year amounts have been reclassified to conform to the 2001
presentation.
2. CHANGES IN ACCOUNTING PRINCIPLES & ACCOUNTING STANDARDS NOT YET ADOPTED
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Effective January 1, 2001, the Company adopted the Financial Accounting
Standards Board (FASB) Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" (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.
The Company uses derivative financial instruments, including financial
futures contracts, interest rate swaps, currency swaps, equity swaps,
options and forward contracts, as a means of hedging exposure to interest
rate, equity price change and foreign currency risk. The Company, through
Tribeca Investments LLC, a subsidiary that is a broker/dealer, holds and
issues derivative instruments for trading purposes.
To qualify as a hedge, the hedge relationship is designated and formally
documented at inception detailing the particular risk management objective
and strategy for the hedge which includes the item and risk that is being
hedged, the derivative that is being used, as well as how effectiveness is
being
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
assessed. A derivative has to be highly effective in accomplishing the
objective of offsetting either changes in fair value or cash flows for the
risk being hedged.
For fair value hedges, changes in the fair value of derivatives are
reflected in realized investment gains (losses), together with changes in
the fair value of the related hedged item. The net amount is reflected in
current earnings under the new rules and is substantially similar to the
amounts under the previous accounting practice. The Company's fair value
hedges primarily include hedges of fixed rate debt securities classified as
available-for-sale.
For cash flow hedges, the accounting treatment depends on the effectiveness
of the hedge. To the extent these derivatives are effective in offsetting
the variability of the hedged cash flows, changes in the derivatives' fair
value will not be included in current earnings but are reported in the
accumulated other changes in equity from nonowner sources. These changes in
fair value will be included in earnings of future periods when earnings are
also affected by the variability of the hedged cash flows. To the extent
these derivatives are not effective, changes in their fair values are
immediately included in realized investment gains (losses). The Company's
cash flow hedges primarily include hedges of foreign denominated funding
agreements and floating rate available-for-sale securities. While the
earnings impact of cash flow hedges are similar to the previous accounting
practice, the amounts included in the accumulated other changes in equity
from nonowner sources will vary depending on market conditions.
For net investment hedges, in which derivatives hedge the foreign currency
exposure of a net investment in a foreign operation, the accounting
treatment will similarly depend on the effectiveness of the hedge. The
effective portion of the change in fair value of the derivative, including
any forward premium or discount, is reflected in the accumulated other
changes in equity from nonowner sources as part of the foreign currency
translation adjustment. At March 31, 2001 the amount included in the
accumulated other changes in equity from nonowner sources was $1.1 million.
The ineffective portion is reflected in realized investment gains (losses).
Derivatives that are hedging instruments that are not designated or that
do not qualify as hedges under the new rules are also carried at fair value
with changes in value reflected in realized investment gains (losses).
The effectiveness of these hedging relationships is evaluated on a
retrospective and prospective basis using quantitative measures of
correlation. If a hedge relationship is found to be ineffective, it no
longer qualifies as hedge and any excess gains or losses attributable to
such ineffectiveness as well as subsequent changes in fair value are
recognized in realized investment gains (losses). During the first quarter
of 2001 the amount of hedge ineffectiveness that was recognized in realized
investment gains (losses) was $(12) million, $(5) million for fair value
hedges and $(7) million for cash flow hedges.
For those hedge relationships that are terminated, or removed, or
forecasted transactions that are no longer expected to occur,the hedge
accounting treatment described in the paragraphs above will no longer
apply. For fair value hedges, any changes to the hedged item remain
as part of the basis of the asset or liability and are ultimately reflected
as an element of the yield. For cash flow hedges, any changes in fair value
of the end-user derivative remain in the accumulated other changes in
equity from nonowner sources
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
and are included in earnings of future periods when earnings are also
affected by the variability of the hedged cash flow. If the hedged
relationship was discontinued or a forecasted transaction is not expected
to occur when scheduled, any changes in fair value of the end-user
derivative are immediately reflected in realized investment gains (losses).
During the first quarter of 2001 there were no such discontinued forecasted
transactions.
As a result of adopting FAS 133, the Company recorded a charge of $6
million after tax, reflected as a cumulative catch-up adjustment in the
condensed consolidated statement of income and a charge of $29 million
after tax, reflected as cumulative catch-up adjustment in the accumulated
other changes in equity from nonowner sources section of stockholder's
equity. The Company expects to include approximately $95 million of losses
in earnings during 2001, for derivatives designated as cash flow hedges at
transition.
RECOGNITION OF INTEREST INCOME AND IMPAIRMENT ON PURCHASED AND RETAINED
INTERESTS IN SECURITIZED FINANCIAL ASSETS
In January 2001, the FASB Emerging Issues Task force (EITF) finalized
guidance on EITF 99-20, "Recognition of Interest Income and Impairment on
Purchased and Retained Interests in Securitized Financial Assets" (EITF
99-20). EITF 99-20 provides new guidance on the recognition and measurement
of interest income and impairment on certain investments, e.g., certain
asset-backed securities. It is effective for all fiscal quarters beginning
after March 15, 2001. The recognition of impairment resulting from adoption
of EITF 99-20 is to be recorded as a cumulative catch-up adjustment as of
the beginning of the fiscal quarter in which it is adopted. Interest income
on beneficial interest falling within the scope of EITF 99-20 is to be
recognized prospectively. The Company does not expect the EITF to have a
significant effect on its results of operations, financial condition or
liquidity.
3. COMMERCIAL PAPER AND LINES OF CREDIT
TIC has issued commercial paper directly to investors in prior years. No
commercial paper was outstanding at March 31, 2001 or December 31, 2000.
TIC must maintain bank lines of credit at least equal to the amount of the
outstanding commercial paper. Citigroup and TIC have an agreement with a
syndicate of banks to provide $1.0 billion of revolving credit, to be
allocated to Citigroup or TIC. TIC's participation in this agreement is
limited to $250 million. The agreement consists of a five-year revolving
credit facility that expires in June 2001. At March 31, 2001 and December
31, 2000, no credit under this agreement was allocated to TIC. Under this
facility TIC is required to maintain certain minimum equity and risk-based
capital levels. At March 31, 2001, the Company was in compliance with these
provisions. If TIC had borrowings outstanding on this facility, the
interest rate would be based upon LIBOR plus a contractually negotiated
margin.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
4. SHAREHOLDER'S EQUITY
Statutory capital and surplus of the Company was $5.16 billion at December
31, 2000. 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. A maximum of $984 million is available by the end of the year
2001 for such dividends without prior approval of the Connecticut Insurance
Department. In addition, under a revolving credit facility, the Company is
required to maintain certain minimum equity and risk-based capital levels.
The Company was in compliance with these covenants at March 31, 2001 and
December 31, 2000. The Company paid $157 million and $170 million in
dividends to its parent during the three months ended March 31, 2001 and
2000, respectively.
5. COMMITMENTS AND CONTINGENCIES
The Company is a defendant or co-defendant in various litigation matters in
the normal course of business. Although there can be no assurances, as of
March 31, 2001, 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.
6. OPERATING SEGMENTS
The Company has two reportable business segments that are separately
managed due to differences in products, services, marketing strategy and
resource management. The business of each segment is maintained and
reported through separate legal entities within the Company. The management
groups of each segment report separately to the common ultimate parent,
Citigroup.
TRAVELERS LIFE & ANNUITY (TLA) core offerings include individual annuity,
individual life, corporate owned life insurance (COLI) and group annuity
insurance products distributed by TIC and The Travelers Life and Annuity
Company (TLAC) under the Travelers name. Among the range of individual
products offered are fixed and variable deferred annuities, payout
annuities and term, universal and variable life insurance. The COLI product
is a variable universal life product distributed through independent
specialty brokers. The group products include institutional pensions,
including guaranteed investment contracts (GICs), payout annuities, group
annuities sold to employer-sponsored retirement and savings plans and
structured finance transactions. The majority of the annuity business and a
substantial portion of the life business written by TLA are accounted for
as investment contracts, with the result that deposits collected are
reported as liabilities and are not included in revenues.
The PRIMERICA LIFE INSURANCE business segment consolidates primarily the
business of Primerica Life, Primerica Life Insurance Company of Canada,
CitiLife and National Benefit Life Insurance Company. The Primerica Life
Insurance business segment offers individual life products, primarily term
insurance, to customers through a nationwide sales force of approximately
89,000 full and part-time licensed Personal Financial Analysts.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
BUSINESS SEGMENT INFORMATION:
- --------------------------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED TRAVELERS LIFE PRIMERICA LIFE
MARCH 31, 2001 ($ in millions) & ANNUITY INSURANCE TOTAL
- --------------------------------------------------------------------------------------------------
BUSINESS VOLUME:
Premiums $ 337 $ 284 $ 621
Deposits 3,920 -- 3,920
------- ------ -------
Total business volume 4,257 284 4,541
Net investment income 646 78 724
Interest credited to contractholders 286 -- 286
Amortization of deferred acquisition costs 42 50 92
Total expenditures for deferred acquisition costs 135 66 201
Federal income taxes on Operating Income 101 50 151
Operating Income(1) $ 205 $ 97 $ 302
Segment Assets $64,279 $7,633 $71,912
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED TRAVELERS LIFE PRIMERICA LIFE
MARCH 31, 2000 ($ in millions) & ANNUITY INSURANCE TOTAL
- --------------------------------------------------------------------------------------------------
BUSINESS VOLUME:
Premiums $ 281 $ 270 $ 551
Deposits 2,852 -- 2,852
------- ------ -------
Total business volume 3,133 270 3,403
Net investment income 586 69 655
Interest credited to contractholders 245 -- 245
Amortization of deferred acquisition costs 40 45 85
Total expenditures for deferred acquisition costs 121 61 182
Federal income taxes on Operating Income 92 47 139
Operating Income(1) $ 187 $ 90 $ 277
Segment Assets $60,733 $7,181 $67,914
- --------------------------------------------------------------------------------------------------
(1) Excludes realized gains or losses, net of tax and the cumulative effect of
the change in accounting principle, net of tax.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
BUSINESS SEGMENT RECONCILIATION:
- --------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED
MARCH 31 ($ in millions) 2001 2000
- --------------------------------------------------------------------------------
INCOME:
Total operating income of segments $ 302 $ 277
Realized investment gains (losses) net of tax 60 (101)
Cumulative effect of changes in accounting for
derivative instruments and hedging activity, net of tax (6) --
- --------------------------------------------------------------------------------
Net Income $ 356 $ 176
================================================================================
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's narrative analysis of the results of operations is presented in
lieu of Management's Discussion and Analysis of Financial Condition and Results
of Operations, pursuant to General Instruction H(2)(a) of Form 10-Q.
CONSOLIDATED OVERVIEW ($ in millions)
FOR THE THREE MONTHS
ENDED MARCH 31,
2001 2000
------ ------
Revenues $1,597 $1,209
====== ======
Net income(1) $ 356 $ 176
====== ======
(1) Includes net realized investment gains of $60 million and a ($6) million
charge from the cumulative effect of change in accounting principle in 2001, and
net realized investment losses of $101 million in 2000.
The Travelers Insurance Company (TIC, together with its subsidiaries, the
Company), is comprised of two business segments, Travelers Life & Annuity and
Primerica Life Insurance. Operating income, defined as income before net
realized investment gains or losses and cumulative effect of change in
accounting principle, for the three months ended March 31, 2001 increased 9% to
$302 million from $277 million in the prior year quarter. Revenues increased 32%
to $1,597 million driven by strong business volume reflected in a 13% increase
in premiums and an 11% increase in net investment income. The business volume
increases also drove the 11% increase in benefits and expenses.
The following discussion presents in more detail each business segment's
performance.
TRAVELERS LIFE & ANNUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2001 2000
($ in millions) ------ ------
Revenues $1,164 $ 891
====== ======
Net income(1) $ 230 $ 118
====== ======
(1) Includes net realized investment gains of $30 million and a ($5) million
charge from the cumulative effect of change in accounting principle in 2001, and
net realized investment losses of $69 million in 2000.
Travelers Life & Annuity (TLA) core offerings include individual annuity,
individual life, corporate owned life insurance (COLI) and group annuity
insurance products distributed by TIC and The Travelers Life and Annuity Company
(TLAC) under the Travelers name. Among the range of individual products offered
are fixed and variable deferred annuities, payout annuities and term, universal
and variable life insurance. The COLI product is a variable universal life
product distributed through independent specialty brokers. The group products
include institutional pensions, including guaranteed investment contracts
(GICs), payout annuities, group annuities sold to employer-sponsored retirement
and savings plans and structured finance transactions. The majority of the
annuity business and a substantial portion of the life business written by TLA
are accounted for as investment contracts, with the result that the deposits
collected are reported as liabilities and are not included in revenues.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
Operating income was $205 million in the first quarter of 2001 compared to $187
million in the first quarter of 2000. The 10% improvement in 2001 reflects
higher net investment income principally driven by increased business volumes
together with favorable mortality and expenses. During the first quarter of
2001, this business achieved double-digit business volume growth in group
annuity account balances and direct periodic life premiums versus the prior year
quarter, reflecting growth in retirement savings and estate planning products
and strong momentum from cross-selling initiatives through Citigroup
distribution channels. Total operating expenses decreased in the first quarter
of 2001 compared to 2000 due to the contribution of The Copeland Companies to
CitiStreet Retirement Services, a joint venture, and the absence of expenses
related to the long-term care insurance business, of which 90% was sold during
the third quarter of 2000. The increase in revenues was also mitigated by these
two transactions.
The cross-selling of TLA products through CitiStreet Retirement Services,
Primerica Financial Services (Primerica), Citibank and Salomon Smith
Barney (SSB) distribution channels, along with improved sales through a
nationwide network of independent financial professionals and strong group sales
through various intermediaries reflect ongoing efforts to build market share by
strengthening relationships in key distribution channels.
Individual annuity account balances were $26.6 billion at March 31, 2001, down
from $28.0 billion at March 31, 2000, reflecting the decrease in asset value in
the variable annuity product related to recent market declines. Net premiums and
deposits of $1.5 billion in the first quarter of 2001 remained level with the
first quarter of 2000. Sales continue to reflect the cross-selling initiatives
at all of the Citigroup affiliates, and also reflect strong penetration into
outside broker dealer channels.
Group annuity account balances and benefit reserves reached $18.9 billion at
March 31, 2001, up 21% from $15.6 billion at March 31, 2000. The group annuity
businesses experienced continued strong sales momentum in all products,
particularly variable rate GICs and structured finance transactions. Net
premiums and deposits (excluding Citigroup's employee pension plan deposits)
increased 72% to $2.50 billion in the first quarter of 2001, from $1.46 billion
in the comparable period of 2000.
Direct periodic premiums for individual life insurance of $187.0 million in the
first quarter of 2001 were up 60% from $116.7 million in the comparable period
of 2000, reflecting strong core agency results and significant growth in the
corporate owned life insurance product. Life insurance in force was $70.3
billion at March 31, 2001, up from $68.3 billion at year end 2000 and $63.4
billion at March 31, 2000.
PRIMERICA LIFE INSURANCE
FOR THE THREE MONTHS ENDED MARCH 31, 2001 2000
($ in millions) ---- ----
Revenues $433 $318
==== ====
Net income(1) $126 $ 58
==== ====
(1) Includes realized investment gains of $30 million and a ($1) million charge
from the cumulative effect of change in accounting principle in 2001, and
net realized investment losses of $32 million in 2000.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
The Primerica Life business segment offers individual life products, primarily
term insurance, to customers through a nationwide sales force of approximately
89,000 full and part-time licensed Personal Financial Analysts.
Operating income was $97 million in the first quarter of 2001 compared to $90
million in the first quarter of 2000. The 8% improvement in 2001 reflects growth
in life insurance in force and strong net investment income, partially offset by
increased infrastructure investment, including international expansion.
Earned premiums net of reinsurance were $284 million in the first quarter of
2001 compared to $270 million in the prior year period, including $268 million
and $255 million, respectively, for Primerica individual term life policies.
Total life insurance in force reached $415.4 billion at March 31, 2001, up from
$412.7 billion at year end 2000 and $397.8 billion at March 31, 2000, reflecting
good policy persistency and stable sales. The face amount of new term life
insurance sales was $16.3 billion for the three-month period ended March 31,
2001, compared to $15.0 billion for the prior year period.
INSURANCE REGULATIONS
Risk-based capital requirements are used as minimum capital requirements by the
National Association of Insurance Commissioners and the states to identify
companies that merit further regulatory action. At December 31, 2000, the
Company had adjusted capital in excess of amounts requiring any regulatory
action.
The Company is subject to various regulatory restrictions that limit the maximum
amount of dividends available to be paid to its parent without prior approval of
insurance regulatory authorities in the state of domicile. A maximum of $984
million is available by the end of 2001 for such dividends without prior
approval of the Connecticut Insurance Department. The Company paid $157 million
and $170 million in dividends to its parent during the three months ended March
31, 2001 and 2000, respectively.
FUTURE APPLICATIONS OF ACCOUNTING STANDARDS
See Note 2 of Notes to Condensed Consolidated Financial Statements for Future
Application of Accounting Standards.
FORWARD-LOOKING STATEMENTS
Certain of the statements contained herein that are not historical facts are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act. The Company's actual results may differ materially from
those included in the forward-looking statements. Forward-looking statements are
typically identified by the words "believe," "expect," "anticipate," "intend,"
"estimate," "may increase," "may fluctuate," and similar expressions, or future
or conditional verbs such as "will," "should," "would," and "could." These
forward-looking statements involve risks and uncertainties including, but not
limited to, regulatory matters, proposed legislation and the resolution of legal
proceedings.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
EXHIBIT NO. DESCRIPTION
----------- -----------
3.01 Charter of The Travelers Insurance Company (the "Company"),
as effective October 19, 1994, incorporated by reference to
Exhibit 3.01 to the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended September 30, 1994 (File No.
33-33691) (the "Company's September 30, 1994 10-Q").
3.02 By-laws of the Company, as effective October 20, 1994,
incorporated by reference to Exhibit 3.02 to the Company's
September 30, 1994 10-Q.
(b) REPORTS ON FORM 8-K
None
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE TRAVELERS INSURANCE COMPANY
-------------------------------
(Registrant)
Date May 14, 2001 /s/ Glenn D. Lammey
---------------- ---------------------------------------------
Glenn D. Lammey
Executive Vice President,
Chief Financial Officer and Chief Accounting
Officer (Principal Financial Officer and
Principal Accounting Officer)
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