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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, 1995
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)
(203) 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 May 11, 1995, there were outstanding 40,000,000 shares of common stock,
par value $2.50, of the Registrant, all of which were owned by The Travelers
Insurance Group Inc., a subsidiary of Travelers Group 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
FORM 10-Q
For the Quarter Ended March 31, 1995
Table of Contents
PAGE
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statement of Operations and Retained Earnings for the
Three Months Ended March 31, 1995 and 1994 (unaudited) .......................................................... 3
Condensed Consolidated Balance Sheet as of March 31, 1995 (unaudited) and
December 31, 1994................................................................................................ 4
Condensed Consolidated Statement of Cash Flows for the
Three Months Ended March 31, 1995 and 1994 (unaudited)........................................................... 5
Notes to Condensed Consolidated Financial Statements (unaudited)................................................. 6
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 ....................................................................... 13
SIGNATURES ...................................................................................................... 14
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS (Unaudited)
(in millions)
Three Months Ended
March 31,
1995 1994
---- ----
REVENUES
Premiums $ 693 $ 980
Net investment income 464 451
Realized investment gains/(losses) (23) 5
Other revenues, including gain on disposition in 1995 128 266
--------- ---------
1,262 1,702
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BENEFITS AND EXPENSES
Current and future insurance benefits 586 892
Interest credited to contractholders 260 253
Claim settlement expenses 13 54
Amortization of deferred acquisition costs and
value of insurance in force 72 64
General and administrative expenses 119 265
--------- ---------
1,050 1,528
--------- ---------
Income before federal income taxes 212 174
Federal income taxes 73 61
--------- ---------
Net income 139 113
Retained earnings beginning of period 1,562 1,017
--------- ---------
Retained earnings end of period $ 1,701 $ 1,130
========= =========
See notes to condensed consolidated financial statements.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(in millions)
March 31, December 31,
1995 1994
--------- ------------
(Unaudited)
ASSETS
Investments, including real estate held for sale $ 26,620 $ 27,495
Separate and variable accounts 5,573 5,160
Reinsurance recoverable 4,425 2,915
Other assets 4,944 4,965
----------- -----------
Total assets $ 41,562 $ 40,535
=========== ===========
LIABILITIES
Contractholder funds $ 15,511 $ 16,354
Benefit and other insurance reserves 13,189 12,702
Separate and variable accounts 5,545 5,128
Other liabilities 2,312 1,997
----------- -----------
Total liabilities 36,557 36,181
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SHAREHOLDER'S EQUITY
Common stock, par value $2.50; 40 million
shares authorized, issued and outstanding 100 100
Additional paid-in capital 3,452 3,452
Unrealized investment losses, net of taxes (248) (760)
Retained earnings 1,701 1,562
----------- -----------
Total shareholder's equity 5,005 4,354
----------- -----------
Total liabilities and shareholder's equity $ 41,562 $ 40,535
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See notes to condensed consolidated financial statements.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
INCREASE (DECREASE) IN CASH
(in millions)
Three Months Ended
March 31,
1995 1994
--------- --------
Net cash used in operating activities $ (202) $ (70)
--------- --------
Cash flows from investing activities
Investment repayments
Fixed maturities 604 1,067
Mortgage loans 86 412
Proceeds from investments, including real estate held for sale
Fixed maturities 952 395
Equity securities 93 96
Mortgage loans 165 106
Real estate held for sale 92 182
Investments in
Fixed maturities (1,525) (1,474)
Equity securities (100) (117)
Mortgage loans (47) (43)
Policy loans, net (15) (2)
Short-term securities, (purchases) sales, net 55 (512)
Other investments, net (192) (10)
Securities transactions in course of settlement 31 382
Business divestments 350 --
--------- --------
Net cash provided by investing activities 549 482
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Cash flows from financing activities
Issuance (redemption) of short-term debt, net (4) 50
Contractholder fund deposits 875 751
Contractholder fund withdrawals (1,283) (1,208)
Other -- 15
--------- --------
Net cash used in financing activities (412) (392)
--------- --------
Net increase (decrease) in cash (65) 20
Cash at beginning of period 102 50
--------- --------
Cash at end of period $ 37 $ 70
========= ========
Supplemental disclosure of cash flow information
Interest paid $ 1 $ --
========= ========
Income taxes paid (refunded) $ 29 $ (5)
========= ========
See notes to condensed consolidated financial statements.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 1995
1. General
The interim financial statements of The Travelers Insurance Company (an
indirect, wholly owned subsidiary of Travelers Group Inc.) and Subsidiaries
(the Company) have been prepared in conformity with generally accepted
accounting principles (GAAP) and are unaudited. They reflect all adjustments
(none of which were other than normal recurring adjustments) necessary, in
the opinion of management, for a fair statement of results for the periods
reported.
Certain financial information that is normally included in financial
statements prepared in accordance with GAAP but is not required for interim
reporting purposes has been condensed or omitted.
2. Changes in Accounting Principles
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a
Loan", and Statement of Financial Accounting Standards No. 118, "Accounting
by Creditors for Impairment of a Loan - Income Recognition and Disclosures",
which describe how impaired loans should be measured when determining the
amount of a loan loss accrual. These statements amended existing guidance on
the measurement of restructured loans in a troubled debt restructuring
involving a modification of terms. Their adoption did not have a material
impact on the Company's financial condition, results of operations or
liquidity.
3. Dispositions
In December 1994, the Company and its affiliates sold its group dental
insurance business, and on January 3, 1995, the Company and its affiliates
completed the sale of its group life and related businesses to Metropolitan
Life Insurance Company (MetLife), and completed the formation of The
MetraHealth Companies, Inc. (MetraHealth), a joint venture of the medical
businesses of the Company and its affiliates and MetLife.
The Company and its affiliates sold its group life business as well as
related non-medical group insurance businesses to MetLife for $350 million
and the Company recognized in the first quarter of 1995 an after-tax gain of
$20 million ($31 million pretax). The assets transferred included customer
lists, books and records, and furniture and equipment. In connection with
the sale, the Company and its affiliates ceded 100% of its risks in the
group life and related businesses to MetLife on an indemnity reinsurance
basis, effective January 1, 1995. In connection with the reinsurance
transaction, the Company and its affiliates transferred assets with a fair
market value of approximately $1.5 billion to MetLife, equal to the
statutory reserves and other liabilities transferred. This $1.5 billion
asset is included in reinsurance recoverable in the condensed consolidated
balance sheet.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, Continued
3. Dispositions, Continued
On January 3, 1995, the Company and MetLife, and certain of their affiliates
formed the MetraHealth joint venture by contributing their medical
businesses to MetraHealth, in exchange for shares of common stock of
MetraHealth. The assets transferred included cash, fixed assets, customer
lists, books and records, certain trademarks and other assets used
exclusively or primarily in the medical businesses. The Company also
contributed all of the capital stock of its wholly owned subsidiary, The
Travelers Employee Benefits Company, to MetraHealth. The Company's total
contribution amounted to approximately $340 million at carrying value on the
date of contribution. No gain was recognized upon the formation of the joint
venture. Upon formation of the joint venture the Company owned 42.6% of the
outstanding capital stock of MetraHealth, its parent, the Travelers
Insurance Group Inc. (TIG), owned 7.4%, and the other 50% was owned by
MetLife and its affiliates. In March 1995, MetraHealth acquired
HealthSpring, Inc., for common stock of MetraHealth. HealthSpring builds and
manages primary care physician practices and serves approximately 32,000
patients through seven sites in Pennsylvania, Ohio and Illinois. The
acquisition resulted in a reduction in the ownership interest of the Company
to 41.10%, TIG to 7.15%, and MetLife to 48.25%.
In connection with the formation of the joint venture, the transfer of the
fee-based medical business (Administrative Services Only) and other
noninsurance business to MetraHealth was completed on January 3, 1995. As
the medical insurance business of the Company comes due for renewal, and
after obtaining regulatory approvals, the risks will be transferred to
MetraHealth. In the interim the related operating results for this medical
insurance business are being reported by the Company.
All of the businesses sold to MetLife or contributed to MetraHealth were
included in the Company's Managed Care and Employee Benefits Operations
(MCEBO) segment in 1994. Revenues and net income from MCEBO for the quarter
ended March 31, 1994 amounted to $890 million and $30 million, respectively.
Beginning in 1995, the results of the Company's Corporate and Other segment
reflect the medical insurance business not yet transferred, plus the
Company's equity interest in the earnings of MetraHealth.
4. Debt
The Company issues commercial paper directly to investors and had $70
million outstanding at March 31, 1995. The Company maintains unused credit
availability under bank lines of credit at least equal to the amount of the
outstanding commercial paper.
Travelers Group Inc., Commercial Credit Company (CCC) (an indirect wholly
owned subsidiary of Travelers Group Inc.) and the Company have an agreement
with a syndicate of banks to provide $1.5 billion of revolving credit, to be
allocated to any of Travelers Group Inc., CCC or the Company. The Company's
participation in this agreement is limited to $300 million. The revolving
credit facility consists of a 364-day revolving credit facility in the
amount of $300 million and a five-year revolving credit facility in the
amount of $1.2 billion. At March 31, 1995, $200 million was allocated to the
Company. Under this facility the Company is required to maintain certain
minimum equity and risk based capital levels. At March 31, 1995, the Company
was in compliance with these provisions.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, Continued
5. Commitments and Contingencies
The Company is a defendant or co-defendant in various litigation matters.
Although there can be no assurances, as of March 31, 1995, 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
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:
For the quarter ended March 31, 1995 1994
- ------------------------------- --------- ---------
(in millions)
- -------------
Revenues $ 1,262 $ 1,702
========= =========
Net income $ 139 $ 113
========= =========
The Travelers Insurance Company and its subsidiaries (the Company) write
principally individual life insurance, annuities, accident and health insurance,
and pension programs. The Company principally operates through one major
business segment, Life and Annuities, which offers individual life, long-term
care, annuities and investment products to individuals and small businesses, and
investment products to employer-sponsored retirement and savings plans. The
Company's Corporate and Other Operations segment manages the investment
portfolio of the Company and, in 1995, also includes the profit contribution
from The MetraHealth Companies, Inc. ("MetraHealth").
On January 3, 1995, the Company and its affiliates completed the sale of its
group life and related businesses to Metropolitan Life Insurance Company
("MetLife"). The Company agreed to cede to MetLife 100% of its risks in the
businesses sold on an indemnity reinsurance basis, effective January 1, 1995.
Also on January 3, 1995, the Company and MetLife, including certain of their
affiliates, each contributed its medical businesses to MetraHealth, a newly
formed joint venture, in exchange for common stock of MetraHealth. The Company's
total contribution to MetraHealth amounted to approximately $340 million, at
carrying value. Upon formation of MetraHealth, the Company owned 42.6% of
MetraHealth's common stock. The Company now owns 41.1% of MetraHealth's capital
stock. The Company and its affiliates and MetLife and its affiliates are equal
partners in the joint venture. The Company's interest in MetraHealth is
accounted for on the equity method. See Note 3 of Notes to Condensed
Consolidated Financial Statements.
Substantially all of the businesses sold to MetLife or contributed to
MetraHealth were included in the Company's Managed Care and Employee Benefits
Operations (MCEBO) segment in 1994. MCEBO marketed group life and health
insurance, managed health care programs and administrative services associated
with employee benefit plans.
Net income for the first quarter of 1995 increased $26 million when compared to
the first quarter of 1994. This increase includes an after-tax gain of $20
million from the sale of the group life and related businesses to MetLife, and
also reflects reduced operating expenses, which have been partially offset by
lower realized investment gains.
Premiums of $693 million for the quarter ended March 31, 1995 decreased $287
million as compared to premiums of $980 million for the quarter ended March 31,
1994. The 1995 decrease is primarily attributable to the sale of group life and
related businesses to MetLife and the formation of MetraHealth discussed above.
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Pretax realized investment losses were $23 million for the first quarter of 1995
as compared to pretax realized investment gains of $5 million for the comparable
period in 1994.
At March 31, 1995, the Company had mortgage loans and real estate investments
(including joint ventures) totaling $5.1 billion compared to $7.1 billion at
March 31, 1994. The Company adopted a strategy to accelerate the disposition of
its mortgage loans and real estate assets in 1993. The sale of mortgage loans
and real estate has enabled the Company to reinvest and obtain current market
yields. Underperforming assets include delinquent mortgage loans, loans in the
process of foreclosure, foreclosed loans, loans modified at interest rates below
market and all real estate held for sale.
In 1995, other revenues include mortality, surrender and administrative charges
on universal life and investment contracts. In 1994, other revenues also
included administrative fees on employee benefit and other contracts related to
the MCEBO business.
The effective tax rate in the first quarter of 1995 was 34% compared to 35%
effective tax rate in the first quarter of 1994.
LIFE AND ANNUITIES
For the quarter ended March 31, 1995 1994
- ------------------------------- --------- ---------
(in millions)
Revenues $ 872 $ 810
========= =========
Net income $ 102 $ 83
========= =========
Life and Annuities net income increased 23% to $102 million for the three months
ended March 31, 1995 from $83 million in the 1994 period. Higher retained
investment margins and lower administrative expenses propelled the quarter's
earnings growth. Investment margins continue to be helped by the reinvestment of
proceeds from real estate sales and the generally higher level of interest
rates. Primerica Financial Services (PFS) earnings increased over the comparable
1994 period reflecting continued growth in life insurance in force as well as
improved mortality results compared to the first quarter of 1994.
During the first quarter of 1995, the Life and Annuities operations (excluding
PFS discussed below) issued $1.5 billion of face amount of individual life
insurance, down from $2.4 billion during the first quarter of 1994, bringing
total life insurance in force to $49.0 billion. The reduction in face amount
issued reflects intense competition in the independent agent segment of the term
insurance market. Individual life insurance net written premiums and deposits
totaled $62 million during the first quarter of 1995 compared to $66 million in
the first quarter of 1994.
Individual annuity production was strong during the first quarter of 1995,
compared to the prior period levels, primarily reflecting increased sales of
variable annuities. Sales continue to be aided by the success of the Vintage
annuity product distributed by Smith Barney Financial Consultants, which was
launched in June 1994. Net written premiums and deposits for individual
annuities during the first quarter of 1995 totaled $367 million compared to $317
million in the comparable 1994 period, bringing total policyholder account
balances and benefit reserves to $11.2 billion at March 31, 1995 versus $10.2
billion at March 31, 1994. Annuity sales activity has been helped by the ratings
upgrades that accompanied the merger of Primerica and old Travelers.
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The most recent upgrade in April 1995 by A.M. Best, which upgraded
the Travelers Insurance Company to an "A" rating, is expected to have
a positive impact on Life and Annuities production.
In the group annuity business, net written premiums and deposits for the first
quarter of 1995 were $334 million (excluding intercompany items) compared to
$422 million in last year's period. The decrease in group annuity net written
premiums and deposits from the comparable period in 1994 reflects the Company's
more selective approach to issuance of guaranteed investment contracts.
Policyholder account balances and benefit reserves totaled $11.6 billion at
March 31, 1995, down from $13.1 billion at March 31, 1994.
Net written premiums for individual accident and health products increased to
$83 million for the quarter ended March 31, 1995, from $82 million for the
quarter ended March 31, 1994.
Sales of individual term life insurance by PFS during the first quarter of 1995
were level with sales during the first quarter of 1994. PFS issued 67,800
policies totaling $13.4 billion in face amount during the first quarter of 1995,
compared with 69,300 policies totaling $13.4 billion in face amount during the
first quarter of 1994. Life insurance in force has increased to a record $337.9
billion at March 31, 1995 up from $320.3 billion at March 31, 1994, and
continued to reflect good policy persistency.
CORPORATE AND OTHER OPERATIONS
For the quarter ended March 31, 1995 1994
- ------------------------------- --------- ---------
(in millions)
Revenues $ 390 $ 2
========= =========
Net income $ 37 $ -
========= =========
In 1995, the Company's Corporate and Other Operations segment includes the
medical insurance business not yet transferred to MetraHealth and the equity in
earnings of MetraHealth. MetraHealth began operations on January 3, 1995 as an
independent company, comprised principally of the former health care businesses
of the Company and MetLife. As the medical insurance business comes due for
renewal, and after obtaining regulatory approvals, the risks will be
transferred to MetraHealth. In the interim the related operating results for
this medical insurance business are reported by the Company.
All of the businesses sold to MetLife or contributed to MetraHealth were
included in the Company's Managed Care and Employee Benefits Operations (MCEBO)
segment in 1994. Revenues and net income from MCEBO for the quarter ended March
31, 1994 amounted to $890 million and $30 million, respectively. In 1995, the
Corporate and Other Operations segment includes net income of $13 million
reflecting the results of the medical insurance business not yet transferred,
plus the Company's equity interest in the earnings of MetraHealth. Net income
for the quarter ended March 31, 1995 also includes an after-tax gain of $20
million from the sale of the group life and related businesses to MetLife.
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INSURANCE REGULATIONS
Risk-based capital requirements are used as early warning tools by the National
Association of Insurance Commissioners and the states to identify companies that
merit further regulatory action. At March 31, 1995, the Company and its
insurance subsidiaries 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 its parent without prior approval of insurance
regulatory authorities in the state of domicile. No statutory surplus is
available in 1995 for dividends to the Company's shareholder without prior
approval of the Connecticut Insurance Department.
Dividend payments to the Company from its insurance subsidiaries are subject to
similar restrictions and statutory surplus of the subsidiaries is not available
in 1995 for dividends to the Company without prior approval of insurance
regulatory authorities.
ACCOUNTING STANDARDS NOT YET ADOPTED
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, Accounting for Long-Lived Assets and for
Long-Lived Assets to be Disposed Of ("FAS 121"). This statement requires write
down to fair value when long-lived assets to be held and used are impaired. The
statement also requires long-lived assets to be disposed of (e.g. real estate
held for sale) to be carried at the lower of cost or fair value less cost to
sell and does not allow such assets to be depreciated. This statement will be
effective for 1996 financial statements, although earlier adoption is
permissible. The Company has not yet determined when it will adopt FAS 121,
however the impact is not expected to be material to its results of operations,
financial condition or liquidity.
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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit
No. Description Filing Method
- --- ----------- -------------
3. Articles of Incorporation and By-laws
a. 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 quarter ended September 30, 1994 (File No.
33-33691) (the "Company's September 30, 1994 10-Q").
b. By-laws of the Company as effective October 20, 1994,
incorporated by reference to Exhibit 3.02 to the Company's
September 30, 1994 10-Q.
27. Financial Data Schedule Electronic
(b) Reports on Form 8-K.
On January 18, 1995, the Company filed a Current Report on Form 8-K, dated
January 3, 1995, reporting under Item 2 thereof the consummation of the sale of
its group life and related group insurance businesses to Metropolitan Life
Insurance Company (MetLife) and the formation of The MetraHealth Companies,
Inc., a joint venture of the medical businesses of the Company and MetLife, and
filing under Item 7 thereof certain pro forma financial information related to
those dispositions.
No other reports on Form 8-K were filed by the Company during the first quarter
ended March 31, 1995; however on April 21, 1995, the Company filed a Current
Report on Form 8-K, dated April 21, 1995, reporting under Item 5 thereof certain
pro forma financial information related to the previously reported sale of its
group life and related businesses to MetLife and the formation of The
MetraHealth Companies, Inc.
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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 12, 1995 /s/ Jay S. Fishman
------------ -------------------------------
Jay S. Fishman
Chief Financial Officer
Date: May 12, 1995 /s/ James L. Morgan
------------ ------------------------------
James L. Morgan
Senior Vice President - Finance
and Chief Accounting Officer
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