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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
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
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 $2.50 per share, of the registrant, all of which were owned by The
Travelers Insurance Group Inc., an indirect wholly owned subsidiary of Travelers
Group Inc.
REDUCED DISCLOSURE FORMAT
The registrant meets the conditions set forth in General Instruction H(1)(a) and
(b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced
disclosure format.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Statements of Income and Retained Earnings for the
Three Months Ended March 31, 1998 and 1997 (unaudited).................................................................3
Condensed Consolidated Balance Sheets as of March 31, 1998 (unaudited) and
December 31, 1997......................................................................................................4
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1998 and 1997 (unaudited).................................................................5
Notes to Condensed Consolidated Financial Statements (unaudited).......................................................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.........................................................................10
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.............................................................................14
SIGNATURES............................................................................................................15
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(UNAUDITED)
($ IN MILLIONS)
THREE MONTHS ENDED MARCH 31,
- ------------------------------------------------------------------------------------------------------------------------------
1998 1997
---- ----
REVENUES
Premiums $ 392 $363
Net investment income 535 488
Realized investment gains 77 8
Other revenues 105 86
- ------------------------------------------------------------------------------------------------------------------------------
Total Revenues $1,109 $945
- ------------------------------------------------------------------------------------------------------------------------------
BENEFITS AND EXPENSES
Current and future insurance benefits 322 311
Interest credited to contractholders 215 197
Amortization of deferred acquisition costs and value of insurance in force 77 71
General and administrative expenses 115 102
- ------------------------------------------------------------------------------------------------------------------------------
Total Benefits and Expenses $729 $681
- ------------------------------------------------------------------------------------------------------------------------------
Income from operations before federal income taxes 380 264
Federal income taxes 133 91
- ------------------------------------------------------------------------------------------------------------------------------
Net income 247 173
Dividends to parent (110) (100)
Retained earnings beginning of period 2,810 2,471
- ------------------------------------------------------------------------------------------------------------------------------
Retained earnings end of period $2,947 $2,544
==============================================================================================================================
See Notes to Condensed Consolidated Financial Statements.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
($ IN MILLIONS)
MARCH 31, 1998 DECEMBER 31, 1997
- -----------------------------------------------------------------------------------------------------------------------------
ASSETS (UNAUDITED)
Investments $31,701 $30,502
Separate and variable accounts 12,943 11,319
Reinsurance recoverable 3,713 3,753
Other assets 4,279 3,866
- -----------------------------------------------------------------------------------------------------------------------------
Total Assets $52,636 $49,440
- -----------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Contractholder funds 15,261 14,913
Benefit and other insurance reserves 12,250 12,361
Separate and variable accounts 12,932 11,309
Other liabilities 4,655 3,532
- -----------------------------------------------------------------------------------------------------------------------------
Total Liabilities $45,098 $42,115
- -----------------------------------------------------------------------------------------------------------------------------
SHAREHOLDER'S EQUITY
Capital stock, par value $2.50; 40 million shares authorized,
issued and outstanding 100 100
Additional paid-in capital 3,192 3,187
Retained earnings 2,947 2,810
Accumulated other changes in equity from nonowner sources 521 535
Unrealized gain on Travelers Group stock, net of tax 778 693
- -----------------------------------------------------------------------------------------------------------------------------
Total Shareholder's Equity $7,538 $7,325
- -----------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholder's Equity $52,636 $49,440
=============================================================================================================================
See Notes to Condensed Consolidated Financial Statements.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
INCREASE (DECREASE) IN CASH
($ IN MILLIONS)
THREE MONTHS ENDED MARCH 31, 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $230 $249
- -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investments
Fixed maturities 462 452
Mortgage loans 305 97
Proceeds from sales of investments
Fixed maturities 2,598 2,389
Equity securities 136 106
Real estate held for sale 26 9
Purchases of investments
Fixed maturities (3,765) (2,878)
Equity securities (97) (78)
Mortgage loans (82) (115)
Policy loans, net 3 8
Short-term securities purchases, net (117) (418)
Other investments, net (68) 45
Securities transactions in course of settlement 131 201
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (468) (182)
- -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Redemption of short-term debt, net - (50)
Contractholder fund deposits 1,213 798
Contractholder fund withdrawals (879) (727)
Dividends to parent company (110) (100)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 224 (79)
- -----------------------------------------------------------------------------------------------------------------------------------
Net decrease in cash (14) (12)
Cash at beginning of period 58 74
- -----------------------------------------------------------------------------------------------------------------------------------
Cash at end of period $44 $62
===================================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ - $ 1
Income taxes paid 73 10
===================================================================================================================================
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 interim consolidated financial statements of The Travelers Insurance
Company and its subsidiaries (the Company), an indirect, wholly owned
subsidiary of Travelers Group Inc. (Travelers Group), have been prepared in
conformity with generally accepted accounting principles (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 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, 1997.
ACCOUNTING CHANGES
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 127, "Deferral of the Effective Date of Certain
Provisions of SFAS 125" (FAS 127), which was effective for transfers and
pledges of certain financial assets and collateral made after December 31,
1997. The adoption of FAS 127 created additional assets and liabilities on
the Company's condensed consolidated statement of financial position
related to the recognition of securities provided and received as
collateral. At March 31, 1998, the impact of FAS 127 on the Company's
condensed consolidated statement of financial position was not significant.
Reporting Comprehensive Income
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" (FAS 130).
FAS 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. All items that are required to be recognized under
accounting standards as components of comprehensive income are required to
be reported in an annual financial statement that is displayed with the
same prominence as other financial statements. This statement stipulates
that comprehensive income reflect the change in equity of an enterprise
during a period from transactions and other events and circumstances from
nonowner sources. Comprehensive income will thus represent the sum of net
income and other changes in stockholder's equity from nonowner sources. The
accumulated balance of changes in equity from nonowner sources is required
to be displayed separately from retained earnings and additional paid-in
capital in the consolidated balance sheet. The adoption of FAS 130 resulted
primarily in the reporting of unrealized gains and losses on investments in
debt and equity securities (other than those unrealized gains or losses
related to Travelers Group stock) in changes in equity from nonowner
sources. The Company's total changes in equity from nonowner sources are
as follows:
FOR THE THREE MONTHS ENDED MARCH 31,
($ in millions) 1998 1997
---- ----
Net income $247 $ 173
Other changes in equity from nonowner sources (14) (292)
---- -----
Total Changes in Equity from Nonowner Sources $233 $(119)
==== =====
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
FUTURE APPLICATION OF ACCOUNTING STANDARDS
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants (AcSEC of the AICPA) issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" (SOP 98-1). SOP 98-1 provides
guidance on accounting for the costs of computer software developed or
obtained for internal use and for determining when specific costs should be
capitalized or expensed. SOP 98-1 is effective for financial statements for
fiscal years beginning after December 15, 1998 and the effect of the
initial adoption is to be reported as a cumulative catch-up adjustment.
Restatement of previously issued financial statements is not allowed. The
Company is currently determining what impact, if any, that SOP 98-1 will
have on its consolidated financial statements or when it will be
implemented, but does not believe the impact, if any, will have a material
effect on the results of operations, financial condition or liquidity of
the Company.
In December 1997, the AcSEC of the AICPA issued Statement of
Position 97-3, "Accounting by Insurance and Other Enterprises for
Insurance-Related Assessments" (SOP 97-3). SOP 97-3 provides guidance for
determining when an entity should recognize a liability for guaranty-fund
and other insurance-related assessments, how to measure that liability, and
when an asset may be recognized for the recovery of such assessments
through premium tax offsets or policy surcharges. SOP 97-3 is effective for
financial statements for fiscal years beginning after December 15, 1998,
and the effect of initial adoption is to be reported as a cumulative
catch-up adjustment. Restatement of previously issued financial statements
is not allowed. The Company has not yet determined when it will implement
SOP 97-3 and does not anticipate any material impact on the Company's
financial condition, results of operations or liquidity.
In June 1997, the Financial Accounting Standards Board also issued
Statement of Financial Accounting Standards No. 131, "Disclosures About
Segments of an Enterprise and Related Information" (FAS 131). FAS 131
establishes standards for the way that public enterprises report
information about operating segments in annual financial statements and
requires that selected information about those operating segments be
reported in interim financial statements. FAS 131 supersedes Statement of
Financial Accounting Standards No. 14, "Financial Reporting for Segments of
a Business Enterprise" (FAS 14). FAS 131 requires that all public
enterprises report financial and descriptive information about its
reportable operating segments. Operating segments are defined as components
of an enterprise about which separate financial information is available
that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. FAS 131 is
effective for fiscal years beginning after December 15, 1997 and need not
be applied to interim financial statements in the initial year of
application. The Company is currently determining the impact of the
adoption of FAS 131.
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.
Certain reclassifications have been made to the prior year's financial
statements to conform to the current year's presentation.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
2. COMMERCIAL PAPER AND LINES OF CREDIT
The Company issues commercial paper directly to investors. No commercial
paper was outstanding at March 31, 1998 and December 31, 1997. The Company
maintains unused credit available under bank lines of credit at least equal
to the amount of the outstanding commercial paper. Interest expense was not
significant in the first quarter of 1997.
Travelers Group, Commercial Credit Company (CCC) (an indirect, wholly owned
subsidiary of Travelers Group) and the Company have an agreement with a
syndicate of banks to provide $1.0 billion of revolving credit, to be
allocated to any of Travelers Group, CCC or the Company. The Company's
participation in this agreement is limited to $250 million. The agreement
consists of a five-year revolving credit facility that expires in 2001. At
March 31, 1998, $50 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, 1998, the Company was in compliance
with these provisions. There were no amounts outstanding under this
agreement at March 31, 1998 or December 31, 1997. If the Company had
borrowings outstanding under this facility, the interest rate would be
based upon LIBOR plus a negotiated margin.
3. SHAREHOLDER'S EQUITY
Statutory capital and surplus of the Company was $4.12 billion at December
31, 1997. 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. The maximum
amount of dividends available to be paid to the Company's shareholder in
1998 without prior approval of the Connecticut Insurance Department is $551
million. The Company paid $110 million in dividends to its parent during
the three months ended March 31, 1998.
4. COMMITMENTS AND CONTINGENCIES
Litigation
In March 1997, a purported class action entitled Patterman v. The
Travelers, Inc. was commenced in the Superior Court of Richmond County,
Georgia, alleging, among other things, violations of the Georgia RICO
statute and other state laws by an affiliate of the Company, Primerica
Financial Services, Inc. and certain of its affiliates. Plaintiffs seek
unspecified compensatory and punitive damages and other relief. The Company
intends to vigorously contest the litigation.
The Company is also a defendant or co-defendant in various litigation
matters in the normal course of business. Although there can be no
assurances, as of March 31, 1998, 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)
5. SUBSEQUENT EVENT
On April 6, 1998, Travelers Group announced that it had entered into a
Merger Agreement with Citicorp, pursuant to which Citicorp will be merged
with and into a newly formed, wholly owned subsidiary of Travelers Group
(the Merger).
In order to consummate the Merger, Travelers Group will apply to the Board
of Governors of the Federal Reserve System (the Federal Reserve Board) to
become a bank holding company under the provisions of the Bank Holding
Company Act of 1956 (the BHCA). A bank holding company and its affiliates
may not engage in activities that are not permissible under the BHCA,
including, generally, insurance underwriting. However, under present rules,
the Company's existing businesses can be retained and operated by Travelers
Group for at least a two-year period after the Merger (the BHCA Compliance
Period), which may be extended for three additional one-year periods by the
Federal Reserve Board, if, in its judgment, an extension would not be
detrimental to the public interest.
Upon consummation of the Merger, and as a direct result of Travelers Group
becoming a bank holding company, the BHCA will impose certain restrictions
on Travelers Group's operations going forward, including the ability to
make acquisitions of certain insurance underwriters. It is not expected
that such restrictions will impede the Company's existing businesses in any
material respect or preclude Travelers Group from expanding its existing
insurance underwriting activities (other than by acquisition of certain
insurance underwriters). At this time, the Company believes that its
compliance with applicable law following the Merger will not have a
material adverse effect on the Company's financial condition or results of
operations.
There is pending federal legislation that would, if enacted, amend the BHCA
to authorize a bank holding company to own certain insurance underwriters.
There is no assurance that such legislations will be enacted. At the
expiration of the BHCA Compliance Period, Travelers Group will evaluate its
alternatives in order to comply with whatever laws are then applicable.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's narrative analysis of the results of operations is presented in
lieu of Management's Discussion and Analysis of Financial Condition and Results
of Operations, pursuant to General Instruction H(2)(a) of Form 10-Q.
CONSOLIDATED OVERVIEW ($ in millions)
FOR THE THREE MONTHS ENDED MARCH 31, 1998 1997
---- ----
Revenues $1,109 $945
====== ====
Net income $ 247 $173
====== ====
OVERVIEW
The Travelers Insurance Company and its subsidiaries (the Company) operate
through two major business units:
- - TRAVELERS LIFE & ANNUITY offers fixed and variable deferred annuities,
payout annuities and term, universal and variable life and long-term
care insurance to individuals and small businesses. It also provides
group pension products, including guaranteed investment contracts and
group annuities for employer-sponsored retirement and savings plans.
These products are primarily marketed through The Copeland Companies
(Copeland), an indirect wholly owned subsidiary of the Company, the
Financial Consultants of Salomon Smith Barney, an affiliate of the
Company, and a nationwide network of independent agents.
- - PRIMERICA LIFE INSURANCE offers individual life products, primarily
term insurance, to consumers through a nationwide sales force of more
than 80,000 full and part-time independent agents.
RESULTS OF OPERATIONS
Income from operations for the three months ended March 31, 1998 and 1997
was $247 million and $173 million, respectively. Included in income from
operations are net after-tax investment portfolio gains of $50 million in
the first quarter of 1998 and $5 million in the first quarter of 1997.
Excluding these items, income from operations for the three months ended
March 31, 1998 increased 17% to $197 million, reflecting improved
performance at both business units.
The following discussion presents in more detail each unit's performance.
TRAVELERS LIFE & ANNUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1998 1997
($ in millions) ---- ----
Revenues $772 $618
==== ====
Net income (1) $168 $104
==== ====
(1) Net income includes $50 million and $3 million of reported investment
portfolio gains in 1998 and 1997, respectively.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
Earnings before investment portfolio gains increased 17% to $118 million in the
first quarter of 1998 from $101 million in the first quarter of 1997. Improved
earnings were largely driven by strong investment income, as well as by
double-digit growth in individual and group annuity account balances and long-
term care insurance premiums. Earnings growth attributable to strong sales of
less capital-intensive variable life insurance and annuities continues to be
partially offset by the gradual decline in the amount of higher margin business
written in prior years. The majority of the annuity business and a substantial
portion of the life business written is accounted for as investment contracts,
with the result that the deposits collected are not included in revenues.
Significant sales through the Financial Consultants of Salomon Smith Barney and
Copeland reflect the Company's ongoing effort to build market share by
strengthening relationships in key distribution channels. These sales combined
with favorable market returns from variable annuities drove deferred annuity
policyholder account balances and benefit reserves at March 31, 1998 to $17.5
billion, compared to $13.5 billion at March 31, 1997. Net written premiums and
deposits were $820 million in the first quarter of 1998, up 43% from $574
million in the first quarter of 1997. More than 80% of the premiums and deposits
were generated by cross-selling through the Financial Consultants of Salomon
Smith Barney and Copeland.
Payout and group annuity reserves and policyholder account balances were $12.2
billion at March 31, 1998, up by $1.1 billion from the prior year. The
revitalization of this business line is evidenced by the 33% increase in net
premiums and deposits to $860 million in the first quarter of 1998 from $647
million in the prior year period, reflecting significantly higher sales of
guaranteed investment contracts, which resulted from the favorable upgrades from
major rating agencies in the past year. Such ratings are neither a rating of
securities, nor a recommendation to buy, hold or sell any security and may be
revised or withdrawn at any time.
For individual life insurance, net premiums and deposits were $85.2 million in
the first quarter of 1998, up 22% from the $69.8 million in the first quarter of
1997. Single deposits doubled to $23.8 million, and new periodic premium sales
increased 22%, reflecting a doubling of sales through Salomon Smith Barney
Financial Consultants. For the quarter, Salomon Smith Barney life sales
increased to over 40% of new periodic premium and single deposits. Face amount
of individual life insurance issued during the first quarter of 1998 was $2.0
billion, up 33% from the $1.5 billion in the first quarter of 1997, bringing
total life insurance in force to $52.4 billion at March 31, 1998, compared to
$50.5 billion a year ago.
Earned premiums for the growing long-term care insurance line reached $45.6
million in the first quarter of 1998, up 31% from $34.9 million in the
comparable period of 1997.
PRIMERICA LIFE INSURANCE
FOR THE THREE MONTHS ENDED MARCH 31, 1998 1997
($ in millions) ---- ----
Revenues $337 $327
==== ====
Net income (1) $ 79 $ 69
==== ====
(1) 1997 net income includes $2 million of reported investment
portfolio gains.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
Earnings before portfolio gains increased 18% to $79 million in the first
quarter of 1998 from $67 million in the first quarter of 1997. An increase in
investment income of 15% and a 7% decrease in claims contributed to the growth
in earnings.
Life insurance in force reached a record $372.5 billion, up from $361.5 billion
at March 31, 1997, and continued to reflect good policy persistency and stable
sales growth. New term life insurance sales were $13.0 billion, up from $12.0
billion for the prior year period.
PENDING MERGER
On April 6, 1998, Travelers Group announced that it had entered into a Merger
Agreement with Citicorp, pursuant to which Citicorp will be merged with and into
a newly formed, wholly owned subsidiary of Travelers Group (the Merger).
In order to consummate the Merger, Travelers Group will apply to the Board of
Governors of the Federal Reserve System (the Federal Reserve Board) to become a
bank holding company under the provisions of the Bank Holding Company Act of
1956 (the BHCA). A bank holding company and its affiliates may not engage in
activities that are not permissible under the BHCA, including, generally,
insurance underwriting. However, under present rules, the Company's existing
businesses can be retained and operated by Travelers Group for at least a
two-year period after the Merger (the BHCA Compliance Period), which may be
extended for three additional one-year periods by the Federal Reserve Board, if,
in its judgment, an extension would not be detrimental to the public interest.
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, 1998, 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 maximum amount of
dividends available to be paid to the Company's shareholder in 1998 without
prior approval of the Connecticut Insurance Department is $551 million. The
Company has paid $110 million in dividends to its parent during the three months
ended March 31, 1998.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
YEAR 2000
In 1996, the Company began the process of identifying, evaluating and
implementing changes to computer programs necessary to address the year 2000
issue. This issue involves the ability of computer systems that have
time-sensitive programs to properly recognize the year 2000. The inability to do
so could result in major failures or miscalculations. The Company has a
comprehensive plan in progress to address its internal year 2000 issue with
modifications to existing programs and conversions to new programs to bring all
of its critical business systems into year 2000 compliance by year-end 1998. The
total cost associated with the required modifications and conversions, which are
expensed as incurred, is not expected to have a material effect on the Company's
financial position, results of operations or liquidity. The Company also has
third party customers, financial institutions, vendors and others with which it
conducts business and has confirmed their plans to address year 2000 issues.
While the Company has been advised that these efforts by third party vendors and
customers will be successfully completed in a timely manner, it is possible that
a series of failures by third parties could have a material adverse effect on
the Company's results of operations in future periods.
FUTURE APPLICATIONS OF ACCOUNTING STANDARDS
See Note 1 of Notes to Condensed Consolidated Financial Statements for a
discussion of recently issued accounting pronouncements.
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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 FILING METHOD
----------- ----------- -------------
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.
27.01 Financial Data Schedule Electronic
(B) REPORTS ON FORM 8-K.
On April 22, 1998, the Company filed a current report on Form 8-K dated April 5,
1998, reporting under Item 5 thereof, that Travelers Group Inc., the Company's
ultimate parent, had entered into a Merger Agreement with Citicorp, pursuant to
which Citicorp will be merged with and into Travelers Group Inc.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE TRAVELERS INSURANCE COMPANY
(Registrant)
Date May 13, 1998 /s/ Ian R. Stuart
-------------------- ----------------------------------------
Ian R. Stuart
Chief Financial Officer and Chief
Accounting Officer
(Principal Financial Officer)
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