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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
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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 33-58677
THE TRAVELERS LIFE AND ANNUITY COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CONNECTICUT 06-0904249
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE TOWER SQUARE, HARTFORD, CONNECTICUT 06183
(Address of principal executive offices) (Zip Code)
(860) 277-0111
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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As of the date hereof, there were outstanding 30,000 shares of common stock, par
value $100 per share, of the registrant, all of which were owned by The
Travelers Insurance Company, an indirect wholly owned subsidiary of Citigroup
Inc.
REDUCED DISCLOSURE FORMAT
The registrant meets the condition set forth in General Instruction H(1)(a) and
(b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced
disclosure format.
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THE TRAVELERS LIFE AND ANNUITY COMPANY
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page
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ITEM 1. FINANCIAL STATEMENTS
Condensed Statements of Income for the
Three Months Ended March 31, 2001 and 2000 (unaudited)....................3
Condensed Balance Sheets as of March 31, 2001 (unaudited) and
December 31, 2000.........................................................4
Condensed Statements of Changes in Retained Earnings and
Accumulated Other Changes in Equity from Nonowner Sources
for the Three Months Ended March 31, 2001 and 2000 (unaudited)............5
Condensed Statements of Cash Flows for the
Three Months Ended March 31, 2001 and 2000 (unaudited)....................6
Notes to Condensed Financial Statements (unaudited).......................7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.............................9
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................11
SIGNATURES...............................................................12
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THE TRAVELERS LIFE AND ANNUITY COMPANY
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
($ in thousands)
THREE MONTHS ENDED
MARCH 31,
2001 2000
- ----------------------------------------------------------------------------------------
REVENUES
Premiums $ 8,953 $6,769
Net investment income 56,144 49,163
Realized investment gains (losses) 20,805 (9,249)
Fee income 37,357 28,843
Other revenues 4,614 2,075
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Total Revenues 127,873 77,601
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BENEFITS AND EXPENSES
Current and future insurance benefits 23,774 17,911
Interest credited to contractholders 25,719 16,205
Amortization of deferred acquisition costs 19,865 14,498
Operating expenses 5,780 3,583
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Total Benefits and Expenses 75,138 52,197
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Income before federal income taxes and cumulative effect of
change in accounting principle 52,735 25,404
Federal income taxes 18,383 8,878
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Income before cumulative effect of change in accounting
principle 34,352 16,526
Cumulative effect of change in accounting for derivative
instruments and hedging activities, net of tax (62) --
- ----------------------------------------------------------------------------------------
Net income $34,290 $16,526
========================================================================================
See Notes to Condensed Financial Statements.
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THE TRAVELERS LIFE AND ANNUITY COMPANY
CONDENSED BALANCE SHEETS
($ in thousands)
MARCH 31, 2001 DECEMBER 31, 2000
(UNAUDITED)
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ASSETS
Investments (including $56,466 and $49,465 subject to
securities lending agreements) $3,147,230 $2,922,162
Separate accounts 6,505,680 6,802,985
Deferred acquisition costs 633,793 579,567
Other assets 202,795 190,903
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Total Assets $10,489,498 $10,495,617
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LIABILITIES
Future policy benefits $1,041,824 $989,576
Contractholder funds 1,809,516 1,631,611
Separate accounts 6,505,680 6,802,985
Other liabilities 221,114 211,441
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Total Liabilities 9,578,134 9,635,613
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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 417,316 417,316
Retained earnings 460,356 426,066
Accumulated other changes in equity from nonowner sources 30,692 13,622
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Total Shareholder's Equity 911,364 860,004
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Total Liabilities and Shareholder's Equity $10,489,498 $10,495,617
========================================================================================================
See Notes to Condensed Financial Statements.
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THE TRAVELERS LIFE AND ANNUITY COMPANY
CONDENSED STATEMENTS OF CHANGES IN RETAINED EARNINGS AND
ACCUMULATED OTHER CHANGES IN EQUITY FROM NONOWNER SOURCES
(UNAUDITED)
($ in thousands)
THREE MONTHS ENDED
MARCH 31,
- ---------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN RETAINED EARNINGS 2001 2000
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Balance, beginning of period $426,066 $335,161
Net income 34,290 16,526
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Balance, end of period $460,356 $351,687
=============================================================================================
STATEMENTS OF ACCUMULATED OTHER CHANGES
IN EQUITY FROM NONOWNER SOURCES
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Balance, beginning of period $13,622 $(39,312)
Cumulative effect of change in accounting for derivative
instruments and hedging activities, net of tax 62 --
Unrealized gains, net of tax 15,131 13,587
Hedging activities, net of tax 1,877 --
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Balance, end of period $30,692 $(25,725)
=============================================================================================
SUMMARY OF CHANGES IN EQUITY
FROM NONOWNER SOURCES
- ---------------------------------------------------------------------------------------------
Net income $34,290 $16,526
Other changes in equity from nonowner sources 17,070 13,587
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Total changes in equity from nonowner sources $51,360 $30,113
=============================================================================================
See Notes to Condensed Financial Statements.
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THE TRAVELERS LIFE AND ANNUITY COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
(UNAUDITED)
($ in thousands)
THREE MONTHS ENDED
MARCH 31,
2001 2000
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NET CASH USED IN OPERATING ACTIVITIES $(48,050) $(13,515)
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CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investments
Fixed maturities 11,989 61,826
Mortgage loans 4,618 3,602
Proceeds from sales of investments
Fixed maturities 374,444 264,914
Equity securities 3,469 6,123
Purchases of investments
Fixed maturities (556,082) (412,148)
Equity securities (969) (7,544)
Mortgage loans (368) (6,113)
Policy loans, net (1,784) (356)
Short-term securities (purchases) sales, net 9,191 (41,829)
Other investment (purchases) sales, net (1,803) 12,880
Securities transactions in course of settlement, net 26,866 28,763
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Net cash used in investing activities (130,429) (89,882)
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CASH FLOWS FROM FINANCING ACTIVITIES
Contractholder fund deposits 219,114 137,116
Contractholder fund withdrawals (41,209) (24,957)
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Net cash provided by financing activities 177,905 112,159
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Net increase (decrease) in cash (574) 8,762
Cash at beginning of period $14,938 $ 21
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Cash at end of period $14,364 $8,783
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Income taxes paid (received) $(25,256) $1,748
=============================================================================================
See Notes to Condensed Financial Statements.
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THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The 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). 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 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. In the opinion of
management, the interim financial statements reflect all adjustments
necessary (all of which were normal recurring adjustments) for a fair
presentation of results for the periods reported. The accompanying
condensed financial statements should be read in conjunction with the
financial statements and related notes included in the Company's Annual
Report on Form 10-K for the year ended December 31, 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. Upon initial application of FAS 133, hedging relationships
must be designated anew and documented pursuant to the provisions of this
statement. As a result of adopting FAS 133, the Company recorded a charge
of $62 thousand after tax, reflected as a cumulative catch-up adjustment in
the condensed statement of income and a benefit of $62 thousand after tax,
reflected as cumulative catch-up adjustment in the accumulated other
changes in equity from nonowner sources section of stockholder's equity.
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THE TRAVELERS LIFE AND ANNUITY COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
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
material effect on its results of operations, financial condition or
liquidity.
3. SHAREHOLDER'S EQUITY
Statutory capital and surplus of the Company was $476 million at December
31, 2000. The Company is currently subject to various regulatory
restrictions that limit the maximum amount of dividends available to be
paid to its parent without prior approval of insurance regulatory
authorities. The Company does not have surplus available to pay dividends
to TIC in 2001 without prior approval of the Connecticut Insurance
Department.
4. COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Company is a defendant or
co-defendant in various litigation matters incidental to and typical of the
businesses in which it is engaged. In the opinion of the Company's
management, the ultimate resolution of these legal proceedings would not be
likely to have a material adverse effect on its results of operations,
financial condition or liquidity.
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THE TRAVELERS LIFE AND ANNUITY COMPANY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's narrative analysis of the results of operations is presented in
lieu of Management's Discussion and Analysis of Financial Condition and Results
of Operations, pursuant to General Instruction H(2)(a) of Form 10-Q.
RESULTS OF OPERATIONS ($ in millions)
FOR THE THREE MONTHS ENDED MARCH 31,
2001 2000
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Revenues $127.9 $77.6
Net income (1) $34.3 $16.5
(1) Includes net realized investment gains/(losses) of $13.5 million and $(6.0)
million in 2001 and 2000, respectively.
The Travelers Life and Annuity Company (the Company) offers fixed and variable
deferred annuities and individual life insurance to individuals and small
businesses. These products are distributed primarily through Salomon Smith
Barney (SSB), Primerica Financial Services (Primerica), affiliates of the
Company, and a nationwide network of independent financial professionals. In
addition, the Company distributes these products through CitiStreet Retirement
Services and Citibank, N.A. (Citibank), affiliates of the Company. 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.
Net income for the three months ended March 31, 2001 was $34.3 million, compared
to $16.5 million for the three months ended March 31, 2000. Operating income,
defined as income before net realized gains or losses on investments, decreased
8% to $20.8 million for the first quarter of 2001 from $22.5 million for the
prior year quarter. This decrease in operating income resulted from favorable
mortality in first quarter 2000, which is almost entirely offset by higher net
investment income driven by business volumes. This business volume growth is
reflected in the 30% growth in fee income from $28.8 million in 2000 to $37.4
million in 2001. This business volume growth also contributed to the 44%
increase in benefits and expenses, and in particular interest credited to
contractholders and amortization of deferred acquisition costs.
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THE TRAVELERS LIFE AND ANNUITY COMPANY
PREMIUMS AND DEPOSITS ($ in millions)
FOR THE THREE MONTHS ENDED MARCH 31,
2001 2000
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Individual Annuity $740 $752
Individual Life 71 42
Other Annuity 2 1
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Total $813 $795
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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.
Individual annuity premiums and deposits continue to reflect the cross-selling
initiatives at Citigroup affiliates and growth in non-proprietary distribution
channels.
The individual life premiums grew 69% to $71 million in 2001 versus $42 million
reflecting strong traditional agency universal life production.
Policyholder benefit reserves, contractholder funds and separate account
reserves totaled $9.4 billion at March 31, 2001, up from $7.8 billion at March
31, 2000 primarily as a result of growth in the variable annuity separate
account business included in individual annuities.
INSURANCE REGULATIONS
Risk-based capital requirements are used as minimum capital requirements by the
National Association of Insurance Commissioners and the states to identify
companies that merit further regulatory action. At December 31, 2000, the
Company had adjusted capital in excess of amounts requiring any regulatory
action.
The Company is subject to various regulatory restrictions that limit the maximum
amount of dividends available to be paid to its parent without prior approval of
insurance regulatory authorities in the state of domicile. The Company does not
have surplus available to pay dividends to its parent in 2001 without prior
approval of the Connecticut Insurance Department. The Company did not pay any
dividends to its parent during the three months ended March 31, 2001 and 2000.
FUTURE APPLICATION OF ACCOUNTING STANDARDS
See Note 2 of Notes to Condensed Financial Statements for Future Application of
Accounting Standards.
FORWARD-LOOKING STATEMENTS
Certain of the statements contained herein that are not historical facts are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act. The Company's actual results may differ materially from
those included in the forward-looking statements. Forward-looking statements are
typically identified by the words "believe," "expect," "anticipate," "intend,"
"estimate," "may increase," "may fluctuate," and similar expressions or future
or conditional verbs such as "will," "should," "would," and "could." These
forward-looking statements involve risks and uncertainties including, but not
limited to, the resolution of legal proceedings.
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THE TRAVELERS LIFE AND ANNUITY COMPANY
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
EXHIBIT NO. DESCRIPTION
3.01 Charter of The Travelers Life and Annuity Company (the
"Company"), as amended on April 10, 1990, incorporated
herein by reference to Exhibit 6(a) to the Registration
Statement on Form N-4, File No. 33-58131, filed on March
17, 1995.
3.02 By-laws of the Company, as amended on October 20, 1994,
incorporated herein by reference to Exhibit 6(b) to the
Registration Statement on Form N-4, File No. 33-58131,
filed on March 17, 1995.
(b) REPORTS ON FORM 8-K.
None.
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THE TRAVELERS LIFE AND ANNUITY COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE TRAVELERS LIFE AND ANNUITY COMPANY
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(Registrant)
Date May 14, 2001 /s/ Glenn D. Lammey
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Glenn D. Lammey
Executive Vice President,
Chief Financial Officer and Chief
Accounting Officer
(Principal Financial Officer and
Principal Accounting Officer)
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