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 JUNE 30, 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
PART I - FINANCIAL INFORMATION Page
----
ITEM 1. FINANCIAL STATEMENTS
- -----------------------------
Condensed Consolidated Statement of Income for the
Three and Six Months Ended June 30, 2001 and 2000 (unaudited)..........................................................3
Condensed Consolidated Balance Sheet as of June 30, 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 and Six Months Ended June 30, 2001 and 2000 (unaudited)..................................................5
Condensed Consolidated Statement of Cash Flows for the
Six Months Ended June 30, 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.........................................................................16
- ---------------------------------------------
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.............................................................................20
- -----------------------------------------
SIGNATURES............................................................................................................21
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENT OF INCOME
(UNAUDITED)
($ in millions)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
- ------------------------------------------------------------------------------------------------------------------------------
2001 2000 2001 2000
REVENUES
Premiums $435 $496 $1,056 $1,047
Net investment income 737 703 1,461 1,358
Realized investment gains (losses) 8 22 101 (133)
Fee income 124 120 250 256
Other revenues 48 24 81 46
- ------------------------------------------------------------------------------------------------------------------------------
Total Revenues 1,352 1,365 2,949 2,574
- ------------------------------------------------------------------------------------------------------------------------------
BENEFITS AND EXPENSES
Current and future insurance benefits 368 453 933 929
Interest credited to contractholders 300 248 586 493
Amortization of deferred acquisition costs 94 88 186 173
General and administrative expenses 97 103 205 245
- ------------------------------------------------------------------------------------------------------------------------------
Total Benefits and Expenses 859 892 1,910 1,840
- ------------------------------------------------------------------------------------------------------------------------------
Income from operations before federal income taxes and cumulative effects of
changes in accounting principles 493 473 1,039 734
Federal income taxes 163 158 347 243
- ------------------------------------------------------------------------------------------------------------------------------
Income before cumulative effects of changes in
accounting principles 330 315 692 491
Cumulative effect of change in accounting for
derivative instruments and hedging activities, net of
tax - - (6) -
Cumulative effect of change in accounting for
securitized financial assets, net of tax (3) - (3) -
- ------------------------------------------------------------------------------------------------------------------------------
Net income $327 $315 $683 $491
==============================================================================================================================
See Notes to Condensed Consolidated Financial Statements
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
($ in millions)
JUNE 30 2001 DECEMBER 31, 2000
(UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------------
ASSETS
Investments (including $1,545 and $1,494 subject to securities
lending agreements) $40,175 $37,233
Separate and variable accounts 24,271 24,006
Reinsurance recoverable 4,075 3,977
Deferred acquisition costs 3,229 2,989
Other assets 2,032 2,088
- --------------------------------------------------------------------------------------------------------------------
Total Assets $73,782 $70,293
- --------------------------------------------------------------------------------------------------------------------
LIABILITIES
Contractholder funds $21,196 $19,394
Future policy benefits and claims 13,799 13,300
Separate and variable accounts 24,270 23,994
Other liabilities 5,744 5,211
- --------------------------------------------------------------------------------------------------------------------
Total Liabilities 65,009 61,899
- --------------------------------------------------------------------------------------------------------------------
SHAREHOLDER'S EQUITY
Common stock, par value $2.50; 40 million shares authorized,
issued and outstanding 100 100
Additional paid-in capital 3,858 3,848
Retained earnings 4,710 4,342
Accumulated other changes in equity from nonowner sources 105 104
- --------------------------------------------------------------------------------------------------------------------
Total Shareholder's Equity 8,773 8,394
- --------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholder's Equity $73,782 $70,293
====================================================================================================================
See Notes to Condensed Consolidated Financial Statements.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN RETAINED EARNINGS
AND ACCUMULATED OTHER CHANGES IN EQUITY FROM NONOWNER SOURCES
(UNAUDITED)
($ in millions)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
- ----------------------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN RETAINED EARNINGS 2001 2000 2001 2000
- ----------------------------------------------------------------------------------------------------------------
Balance, beginning of period $4,541 $4,105 $4,342 $4,099
Net income 327 315 683 491
Dividends to parent (158) (170) (315) (340)
- ----------------------------------------------------------------------------------------------------------------
Balance, end of period $4,710 $4,250 $4,710 $4,250
================================================================================================================
- ----------------------------------------------------------------------------------------------------------------
STATEMENT OF ACCUMULATED OTHER CHANGES
IN EQUITY FROM NONOWNER SOURCES
- ----------------------------------------------------------------------------------------------------------------
Balance, beginning of period $ 245 $ (184) $ 104 $ (398)
Cumulative effect of accounting for derivative
instruments and hedging activities, net of tax - - (29) -
Unrealized gains (losses), net of tax (155) (111) 32 103
Derivative instrument hedging activity gains (losses),
net of tax 15 - (2) -
- ----------------------------------------------------------------------------------------------------------------
Balance, end of period $ 105 $ (295) $ 105 $ (295)
================================================================================================================
- ----------------------------------------------------------------------------------------------------------------
SUMMARY OF CHANGES IN EQUITY
FROM NONOWNER SOURCES
- ----------------------------------------------------------------------------------------------------------------
Net income $ 327 $ 315 $ 683 $ 491
Other changes in equity from nonowner sources (140) (111) 1 103
- ----------------------------------------------------------------------------------------------------------------
Total changes in equity from nonowner sources $ 187 $ 204 $ 684 $ 594
================================================================================================================
See Notes to Condensed Consolidated Financial Statements.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH
(UNAUDITED)
($ in millions)
SIX MONTHS ENDED
JUNE 30,
2001 2000
- ---------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 392 $ 815
- ---------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investments
Fixed maturities 1,557 1,782
Mortgage loans 161 201
Proceeds from sales of investments
Fixed maturities 6,626 6,606
Equity securities 64 242
Real estate held for sale 2 205
Purchases of investments
Fixed maturities (11,058) (9,822)
Equity securities (15) (208)
Mortgage loans (45) (170)
Policy loans, net 18 9
Short-term securities (purchases) sales, net 456 (212)
Other investment (purchases) sales, net 21 (156)
Securities transactions in course of settlement, net 368 886
- ---------------------------------------------------------------------------------------------------------
Net cash used in investing activities (1,845) (637)
- ---------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Contractholder fund deposits 4,429 3,007
Contractholder fund withdrawals (2,650) (2,777)
Dividends to parent company (315) (340)
- ---------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 1,464 (110)
- ---------------------------------------------------------------------------------------------------------
Net increase in cash 11 68
Cash at beginning of period 150 85
- ---------------------------------------------------------------------------------------------------------
Cash at end of period $ 161 $ 153
- ---------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Income taxes paid $ 269 $ 210
- ---------------------------------------------------------------------------------------------------------
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 condensed
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 AND ACCOUNTING STANDARDS
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 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.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
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.
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. At June 30, 2001, the amount that
is expected to be reclassified into pretax earnings over the next
twelve months to adjust these variable cash flows is approximately $150
million loss. 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 derivative instrument hedging activity gains (losses). For the
quarter ended June 30, 2001 the amount included in derivative
instrument hedging activity gains (losses) was $(.7) million. The
ineffective portion is reflected in realized investment gains (losses).
Derivatives that are either hedging instruments that are not designated
or 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 a 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 second
quarter of 2001 the amount of hedge ineffectiveness that was recognized
in realized investment gains was $6 million, $4 million for fair value
hedges and $2 million for cash flow hedges.
For those hedge relationships that are terminated, hedge designations
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 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 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 because a forecasted transaction will not
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
occur when scheduled, any changes in fair value of the end-user
derivative are immediately reflected in realized investment gains
(losses). During the second 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 a cumulative catch-up adjustment in the
accumulated other changes in equity from nonowner sources section of
shareholder's equity. The Company expects to include an approximately
$95 million loss into earnings over the twelve months ending December
31, 2001, for derivatives designated as cash flow hedges at transition.
RECOGNITION OF INTEREST INCOME AND IMPAIRMENT ON PURCHASED AND RETAINED
BENEFICIAL INTERESTS IN SECURITIZED FINANCIAL ASSETS
In April 2001, the Company adopted the FASB Emerging Issues Task Force
(EITF) EITF 99-20, "Recognition of Interest Income and Impairment on
Purchased and Retained Beneficial Interests in Securitized Financial
Assets" (EITF 99-20). EITF 99-20 establishes guidance on the
recognition and measurement of interest income and impairment on
certain investments, e.g., certain asset-backed securities. The
recognition of impairment resulting from the adoption of EITF 99-20 was
recorded as a cumulative catch-up adjustment. Interest income on
beneficial interest falling within the scope of EITF 99-20 is to be
recognized prospectively. As a result of adopting EITF 99-20, the
Company recorded a charge of $3 million after tax, reflected as a
cumulative catch-up adjustment in the condensed consolidated statement
of income. The implementation of this EITF did not have a significant
impact on results of operations, financial condition or liquidity.
BUSINESS COMBINATIONS
In July 2001, the FASB issued Statement of Financial Accounting
Standards No. 141, "Business Combinations" (FAS 141). FAS 141 prohibits
the use of the pooling-of-interests method and requires that a single
method, the purchase method of accounting, be used for all business
combinations initiated after June 30, 2001. FAS 141 also addressed the
initial recognition and measurement of goodwill and other intangible
assets acquired in business combinations and requires intangible assets
to be recognized apart from goodwill if certain tests are met. FAS 141
applies to all business combinations initiated after June 30, 2001 and
to all business combinations accounted for using the purchase method
for which the date of acquisition is July 1, 2001, or later. The
Company has not yet determined the impact that FAS 141 will have on its
consolidated financial statements.
GOODWILL AND OTHER INTANGIBLE ASSETS
In July 2001, the FASB issued Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets" (FAS 142).
FAS 142 addresses the initial recognition and measurement of intangible
assets acquired either singly or with a group of other assets, as well
as the measurement of goodwill and other intangible assets subsequent
to their initial acquisition. FAS 142 changes the accounting for
goodwill and intangible assets that have indefinite useful lives from
an amortization approach to an impairment-only approach that requires
that those assets be tested at least annually for impairment.
Intangible assets that have
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
finite useful lives will continue to be amortized over their useful
lives, but without an arbitrary ceiling on their useful lives. FAS 142
is required to be applied starting with fiscal years beginning after
December 15, 2001 and is required to be applied at the beginning of an
entity's fiscal year. The statement is to be applied to all goodwill
and other intangible assets recognized in an entity's financial
statements at that date. Impairment losses for goodwill and indefinite
lived intangible assets that arise due to the initial application of
FAS 142 (resulting from an impairment test) are to be reported as a
change in accounting principle. Retroactive application is not
permitted. The Company has not yet determined the impact that FAS 142
will have on its consolidated financial statements.
3. COMMERCIAL PAPER AND LINES OF CREDIT
TIC has issued commercial paper directly to investors in prior years.
No commercial paper was outstanding at June 30, 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 had 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 was limited to $250 million. The
agreement consisted of a five-year revolving credit facility that
expired in June 2001. At June 30, 2001 and December 31, 2000, no credit
under this agreement was allocated to TIC.
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. The Company paid $315 million and
$340 million in dividends to its parent during the six months ended
June 30, 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 June 30, 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.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
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 the 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 94,000 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
JUNE 30, 2001 ($ in millions) ANNUITY INSURANCE TOTAL
- --------------------------------------------------------------------------------------------------------------------
BUSINESS VOLUME:
- ----------------
Premiums $ 150 $285 $435
Deposits 3,075 - 3,075
----- -------- -----
Total business volume 3,225 285 3,510
Net investment income 663 74 737
Interest credited to contractholders 300 - 300
Amortization of deferred acquisition costs 43 51 94
Total expenditures for deferred acquisition costs 143 82 225
Federal income taxes on Operating Income 109 52 161
Operating Income(1) $226 $98 $324
Segment Assets $66,321 $7,461 $73,782
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED TRAVELERS LIFE & PRIMERICA LIFE
JUNE 30, 2000 ($ in millions) ANNUITY INSURANCE TOTAL
- --------------------------------------------------------------------------------------------------------------------
BUSINESS VOLUME:
- ----------------
Premiums $219 $277 $496
Deposits 2,930 - 2,930
----- -------- -----
Total business volume 3,149 277 3,426
Net investment income 632 71 703
Interest credited to contractholders 248 - 248
Amortization of deferred acquisition costs 41 47 88
Total expenditures for deferred acquisition costs 131 69 200
Federal income taxes on Operating Income 100 51 151
Operating Income(1) $205 $96 $301
Segment Assets $60,918 $7,220 $68,138
- --------------------------------------------------------------------------------------------------------------------
(1) Excludes realized gains or losses, net of tax and the cumulative effect of
the changes in accounting principles, net of tax.
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13
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
BUSINESS SEGMENT RECONCILIATION:
- ------------------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED
JUNE 30 ($ in millions) 2001 2000
- ------------------------------------------------------------------------------------------
INCOME:
Total operating income of segments $324 $301
Realized investment gains, net of tax 6 14
Cumulative effect of change in accounting for
derivative instruments and hedging activity, net
of tax - -
Cumulative effect of change in accounting for
securitized financial assets, net of tax (3) -
- ------------------------------------------------------------------------------------------
Net Income $327 $315
==========================================================================================
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
BUSINESS SEGMENT INFORMATION:
- --------------------------------------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED TRAVELERS LIFE & PRIMERICA LIFE
JUNE 30, 2001 ($ in millions) ANNUITY INSURANCE TOTAL
- --------------------------------------------------------------------------------------------------------------------
BUSINESS VOLUME:
- ----------------
Premiums $ 487 $ 569 $ 1,056
Deposits 6,995 - 6,995
----- ---- -----
Total business volume 7,482 569 8,051
Net investment income 1,309 152 1,461
Interest credited to contractholders 586 - 586
Amortization of deferred acquisition costs 85 101 186
Total expenditures for deferred acquisition costs 277 149 426
Federal income taxes on Operating Income 210 102 312
Operating Income(1) $ 431 $ 195 $ 626
Segment Assets $66,321 $7,461 $73,782
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED TRAVELERS LIFE & PRIMERICA LIFE
JUNE 30, 2000 ($ in millions) ANNUITY INSURANCE TOTAL
- --------------------------------------------------------------------------------------------------------------------
BUSINESS VOLUME:
- ----------------
Premiums $499 $548 $1,047
Deposits 5,782 - 5,782
----- -------- -----
Total business volume 6,281 548 6,829
Net investment income 1,219 139 1,358
Interest credited to contractholders 493 - 493
Amortization of deferred acquisition costs 82 91 173
Total expenditures for deferred acquisition costs 252 130 382
Federal income taxes on Operating Income 192 98 290
Operating Income(1) $392 $186 $578
Segment Assets $60,918 $7,220 $68,138
- --------------------------------------------------------------------------------------------------------------------
(1) Excludes realized gains or losses, net of tax and the cumulative effect of
the changes in accounting principles, net of tax.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
BUSINESS SEGMENT RECONCILIATION:
- ---------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED
JUNE 30 ($ in millions) 2001 2000
- ---------------------------------------------------------------------------------------
INCOME:
- -------
Total operating income of segments $626 $578
Realized investment gains (losses), net of tax 66 (87)
Cumulative effect of change in accounting for
derivative instruments and hedging activity, net
of tax (6) -
Cumulative effect of change in accounting for
securitized financial assets, net of tax (3) -
- ---------------------------------------------------------------------------------------
Net Income $683 $491
=======================================================================================
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
- --------------------------------------------------------------------------------
Management's narrative analysis of the results of operations is presented in
lieu of Management's Discussion and Analysis of Financial Condition and Results
of Operations, pursuant to General Instruction H(2)(a) of Form 10-Q.
CONSOLIDATED OVERVIEW ($ in millions)
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
2001 2000 2001 2000
---- ---- ---- ----
Revenues $1,352 $1,365 $2,949 $2,574
====== ====== ====== ======
Net income $ 327 $ 315 $ 683 $ 491
====== ====== ====== ======
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 changes in
accounting principles, was $324 million and $626 million for the quarter and six
months ended June 30, 2001, respectively, up from $301 million and $578 million
for the 2000 comparable periods. Revenues increased 15% between the six month
periods, driven by strong business volume, and remained level between the 2001
and 2000 quarters. The increased business volume also drove the 4% increase in
benefits and expenses for the six months ended June 30, 2001, respectively.
The following discussion presents in more detail each business segment's
performance.
TRAVELERS LIFE & ANNUITY
- ------------------------
FOR THE THREE MONTHS ENDED JUNE 30, 2001 2000
($ in millions) ---- ----
Revenues $963 $999
==== ====
Net income(1) $225 $220
==== ====
(1) Includes net realized investment gains of $2 million and a $(3) million
charge from the cumulative effect of change in accounting principle in 2001, and
net realized investment gains of $15 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 $226 million in the second quarter of 2001 compared to $205
million in the second quarter of 2000. The 10% improvement in 2001 reflects
higher net investment income principally driven by increased business volumes
and one-time investment transactions. During the second quarter of 2001, TLA
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. Total operating
expenses decreased in the second quarter of 2001 compared to 2000 due to the
absence of expenses related to the long-term care insurance business, of which
90% was sold during the third quarter of 2000. The long-term care transaction
also reduced the amount of premium revenue reported in the second quarter of
2001.
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.
Increased gross individual annuities sales and strong net retention margins,
kept account balances level at $28.4 billion at June 30, 2001, compared to $28.0
billion at December 31, 2000 despite declining market conditions. Net premiums
and deposits increased 13% in the second quarter of 2001 to $1.7 billion from
$1.5 billion in the second 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 $19.4 billion at
June 30, 2001, up 22% from $15.8 billion at June 30, 2000. The group annuity
businesses experienced continued strong sales momentum in all products,
particularly fixed rate GICs. Net premiums and deposits (excluding Citigroup's
employee pension plan deposits) of $1.4 billion in the second quarter of 2001
remained level with the comparable period of 2000.
Direct periodic premiums for individual life insurance of $142.1 million in the
second quarter of 2001 were up 25% from $113.4 million in the comparable period
of 2000, reflecting strong core agency results. Life insurance in force was
$71.7 billion at June 30, 2001, up from $68.3 billion at December 31, 2000.
PRIMERICA LIFE INSURANCE
- ------------------------
FOR THE THREE MONTHS ENDED JUNE 30, 2001 2000
($ in millions) ---- ----
Revenues $389 $366
==== ====
Net income(1) $102 $ 95
==== ====
(1) Includes realized investment gains of $4 million in 2001, and net realized
investment losses of $1 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
94,000 full and part-time licensed Personal Financial Analysts.
Operating income was $98 million in the second quarter of 2001 compared to $96
million in the second quarter of 2000. The 2% 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 $285 million in the second quarter of
2001 compared to $277 million in the prior year period, including $268 million
and $260 million, respectively, for Primerica individual term life policies.
Total life insurance in force reached $422.9 billion at June 30, 2001, up from
$412.7 billion at December 31, 2000, reflecting good policy persistency and
stable sales. The face amount of new term life insurance sales was $18.6 billion
for the three-month period ended June 30, 2001, compared to $18.5 billion for
the prior year period.
TRAVELERS LIFE & ANNUITY
- ------------------------
FOR THE SIX MONTHS ENDED JUNE 30, 2001 2000
($ in millions) ---- ----
Revenues $2,127 $1,890
====== ======
Net income(1) $ 455 $ 338
====== ======
(1) Includes realized investment gains of $32 million and a $(8) million charge
from the cumulative effects of changes in accounting principles in 2001, and
net realized investment losses of $54 million in 2000.
Operating income increased 10% to $431 million in the six months ended June 30,
2001, compared to $392 million in the six months ended June 30, 2000. Earnings
growth was driven by business volume, investment performance, including one time
transactions, and a higher capital base.
For individual annuities, net sales were $1.7 billion in 2001 versus $1.5
billion in 2000. Net written premiums and deposits were $3.2 billion in the
first six months of 2001, up 7% from $3.0 billion in the comparable period of
2000.
Group annuity net premiums and deposits were $3.9 billion in the first six
months of 2001, up 35% from $2.9 billion in the prior year period.
For individual life insurance, direct periodic premiums were $378 million for
the first half of 2001, up 64% from $230 million in the prior year period. The
face amount of individual life insurance issued during the first half of 2001
was $6.7 billion, up from $5.7 billion in the prior period of 2000.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
PRIMERICA LIFE INSURANCE
- ------------------------
FOR THE SIX MONTHS ENDED JUNE 30, 2001 2000
($ in millions) ---- ----
Revenues $822 $684
==== ====
Net income(1) $228 $153
==== ====
(1) Includes realized investment gains of $34 million and a $(1) million charge
from the cumulative effect of change in accounting principle in 2001, and
net realized investment losses of $33 million in 2000.
Earnings before gains on investments for the first six months of 2001 increased
5% to $195 million, compared to $186 million in the first six months of 2000.
The face amount of new term life insurance sales was $34.9 billion in the first
six months of 2000, up from $33.5 billion in the prior year period.
INSURANCE REGULATIONS
Risk-based capital requirements are used as minimum capital requirements by the
National Association of Insurance Commissioners and the states to identify
companies that merit further regulatory action. At 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 $315 million
and $340 million in dividends to its parent during the six months ended June 30,
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 August 13, 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)
21