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 SEPTEMBER 30, 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 $2.50 per share, of the registrant, all of which were owned by The
Travelers Insurance Group Inc., an indirect wholly owned subsidiary of Citigroup
Inc.
REDUCED DISCLOSURE FORMAT
The registrant meets the conditions set forth in General Instruction H(1)(a) and
(b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced
disclosure format.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Statements of Income and Retained Earnings for the
Three and Nine Months Ended September 30, 1998 and 1997 (unaudited)..............3
Condensed Consolidated Balance Sheets as of September 30, 1998 (unaudited) and
December 31, 1997................................................................4
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1998 and 1997 (unaudited)........................5
Notes to Condensed Consolidated Financial Statements (unaudited).................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS....................................9
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.......................................14
SIGNATURES......................................................................15
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(UNAUDITED)
($ IN MILLIONS)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
- -----------------------------------------------------------------------------------------------
1998 1997 1998 1997
---- ---- ---- ----
REVENUES
Premiums $ 395 $ 374 $1,228 $1,114
Net investment income 528 515 1,616 1,513
Realized investment gains 9 60 121 82
Other revenues 124 85 341 258
- -----------------------------------------------------------------------------------------------
Total Revenues 1,056 1,034 3,306 2,967
- -----------------------------------------------------------------------------------------------
BENEFITS AND EXPENSES
Current and future insurance benefits 330 310 1,027 944
Interest credited to contractholders 221 210 646 612
Amortization of deferred acquisition
costs and value of insurance in force 81 74 234 220
General and administrative expenses 105 109 337 311
- -----------------------------------------------------------------------------------------------
Total Benefits and Expenses 737 703 2,244 2,087
- -----------------------------------------------------------------------------------------------
Income from operations before federal
income taxes 319 331 1,062 880
Federal income taxes 113 115 372 305
- -----------------------------------------------------------------------------------------------
Net income 206 216 690 575
Dividends to parent -- (100) (110) (300)
Retained earnings at beginning of period 3,184 2,630 2,810 2,471
- -----------------------------------------------------------------------------------------------
Retained earnings at end of period $3,390 $2,746 $3,390 $2,746
===============================================================================================
See Notes to Condensed Consolidated Financial Statements.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
($ IN MILLIONS)
SEPTEMBER 30, 1998 DECEMBER 31, 1997
- ---------------------------------------------------------------------------------------
ASSETS (UNAUDITED)
Investments $33,603 $30,502
Separate and variable accounts 13,149 11,319
Reinsurance recoverable 3,667 3,753
Deferred acquisition costs and value of
insurance in force 2,480 2,312
Other assets 2,104 1,554
- ---------------------------------------------------------------------------------------
Total Assets $55,003 $49,440
- ---------------------------------------------------------------------------------------
LIABILITIES
Contractholder funds $16,335 $14,913
Benefit and other insurance reserves 12,439 12,361
Separate and variable accounts 13,138 11,309
Other liabilities 5,104 3,532
- ---------------------------------------------------------------------------------------
Total Liabilities 47,016 42,115
- ---------------------------------------------------------------------------------------
SHAREHOLDER'S EQUITY
Capital stock, par value $2.50; 40 million
shares authorized, issued and outstanding 100 100
Additional paid-in capital 3,215 3,187
Retained earnings 3,390 2,810
Accumulated other changes in equity from
nonowner sources 810 535
Unrealized gain on Citigroup Inc. stock, net of
tax 472 693
- ---------------------------------------------------------------------------------------
Total Shareholder's Equity 7,987 7,325
- ---------------------------------------------------------------------------------------
Total Liabilities and Shareholder's Equity $55,003 $49,440
=======================================================================================
See Notes to Condensed Consolidated Financial Statements.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
INCREASE (DECREASE) IN CASH
($ IN MILLIONS)
NINE MONTHS ENDED SEPTEMBER 30, 1998 1997
- -------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 325 $ 529
- -------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investments
Fixed maturities 1,985 1,468
Mortgage loans 623 369
Proceeds from sales of investments
Fixed maturities 8,900 5,821
Equity securities 87 272
Mortgage loans 6 158
Real estate held for sale 51 56
Purchases of investments
Fixed maturities (12,629) (8,167)
Equity securities (184) (390)
Mortgage loans (319) (463)
Real Estate -- (33)
Policy loans, net 10 36
Short-term securities proceeds (purchases), net (1,110) 123
Other investments purchases, net (86) (117)
Securities transactions in course of
settlement, net 1,063 205
- -------------------------------------------------------------------------------
Net cash used in investing activities (1,603) (662)
- -------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Redemption of short-term debt, net -- (50)
Contractholder fund deposits 3,206 2,450
Contractholder fund withdrawals (1,804) (1,991)
Dividends to parent company (110) (300)
- -------------------------------------------------------------------------------
Net cash provided by financing activities 1,292 109
- -------------------------------------------------------------------------------
Net increase (decrease) in cash 14 (24)
Cash at beginning of period 58 74
- -------------------------------------------------------------------------------
Cash at end of period $ 72 $ 50
===============================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid -- 1
Income taxes paid $ 297 $ 247
===============================================================================
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 (TIC) and, collectively with its subsidiaries (the Company), an
indirect, wholly owned subsidiary of Citigroup Inc. (Citigroup), 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.
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.
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
September 30, 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. FAS 130 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 accordingly 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 condensed consolidated balance sheet. The adoption of FAS 130 resulted
primarily in the Company reporting unrealized gains and losses on investments
in debt and equity securities (other than those unrealized gains or losses
related to Citigroup stock) in changes in equity from nonowner sources. The
Company's total changes in equity from nonowner sources are as follows:
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
($ in millions) 1998 1997 1998 1997
---- ---- ---- ----
Net income $206 $216 $690 $575
Other changes in equity from nonowner sources 206 238 275 208
--- --- --- ---
Total Changes in Equity from Nonowner Sources $412 $454 $965 $783
==== ==== ==== ====
ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR
INTERNAL USE
On July 1, 1998, the Company adopted (effective January 1, 1998) the
Accounting Standards Executive Committee of the American Institute of
Certified Public Accountants' 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. The adoption of SOP 98-1
did not have a material impact on the Company's financial condition,
statement of operations or liquidity.
FUTURE APPLICATION OF ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (FAS 133). This statement establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments imbedded 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 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. FAS 133
is effective for all fiscal quarters of fiscal years beginning after June 15,
1999. Upon initial application of FAS 133, hedging relationships must be
designated anew and documented pursuant to the provisions of this statement.
The Company has not yet determined the impact that FAS 133 will have on its
consolidated financial statements.
2. MERGER
On October 8, 1998, Citicorp merged with and into a newly formed, wholly
owned subsidiary of Travelers Group Inc. (Travelers Group) (the Merger) and
subsequently, Travelers Group changed its name to Citigroup Inc.
Upon consummation of the Merger, Citigroup became a bank holding company
subject to the provisions of the Bank Holding Company Act of 1956 (the BHCA)
and the terms of an Order of the Federal Reserve Board effective September
23, 1998 (the Order).
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
The BHCA precludes a bank holding company and its affiliates from engaging in
certain activities, generally including insurance underwriting. Under the BHCA
in its current form, Citigroup has two years from October 8, 1998 to comply with
all applicable provisions of the BHCA. Such period may be extended, at the
discretion of the Federal Reserve Board, for three additional one-year periods
so long as the extension is not deemed to be detrimental to the public interest
(the BHCA Compliance Period).
It is not expected that the restrictions of the BHCA or the Order will impede
the Company's existing businesses in any material respect, although the Company
may be limited in its ability to make certain acquisitions. At this time, the
Company believes that its compliance with applicable law and the Order will not
have a material adverse effect on the Company's financial condition or results
of operations.
Before the expiration of the BHCA Compliance Period, each of the Company and
Citigroup will evaluate its alternatives in order to comply with the laws
applicable at the expiration of the BHCA Compliance Period.
3. COMMERCIAL PAPER AND LINES OF CREDIT
TIC issues commercial paper directly to investors. No commercial paper was
outstanding at September 30, 1998 or December 31, 1997. TIC maintains unused
credit available under bank lines of credit at least equal to the amount of
the outstanding commercial paper. No interest was paid in 1998 and interest
expense was not significant in the first nine months of 1997.
Citigroup, Commercial Credit Company (CCC) (an indirect, wholly owned
subsidiary of Travelers Group) and TIC have an agreement with a syndicate of
banks to provide $1.0 billion of revolving credit, to be allocated to any of
Citigroup, CCC or TIC. TIC's participation in this agreement is limited to
$250 million. The agreement consists of a five-year revolving credit facility
that expires in 2001. At August 6, 1998, $700 million was allocated to
Citigroup, $300 million was allocated to CCC and $0 was allocated to TIC.
Under this facility TIC is required to maintain certain minimum equity and
risk-based capital levels. At September 30, 1998, TIC was in compliance with
these provisions. There were no amounts outstanding under this agreement at
September 30, 1998 or December 31, 1997. If TIC had borrowings outstanding
under this facility, the interest rate would be based upon LIBOR plus a
negotiated margin.
4. SHAREHOLDER'S EQUITY
Statutory capital and surplus of the Company was $4.1 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 nine months
ended September 30, 1998.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
5. COMMITMENTS AND CONTINGENCIES
Litigation
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
September 30, 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.
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.
6. RELATED PARTY TRANSACTION
Included in short-term investments is a 90 day variable rate note receivable
from Citigroup issued on August 28, 1998. The rate is based upon the AA
Financial commercial paper rate plus 14 basis points. The current rate is
5.47%. The balance at September 30, 1998 is $500 million. Citigroup may
prepay this note at anytime without any prepayment penalties.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's narrative analysis of the results of operations is presented in
lieu of Management's Discussion and Analysis of Financial Condition and Results
of Operations, pursuant to General Instruction H(2)(a) of Form 10-Q.
CONSOLIDATED OVERVIEW ($ in millions)
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1998 1997 1998 1997
---- ---- ---- ----
Revenues $1,056 $1,034 $3,306 $2,967
========= ======== ========= ========
Net income $206 $216 $690 $575
========= ======== ========= ========
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
Inc., 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.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
RESULTS OF OPERATIONS
Income from operations for the three months ended September 30, 1998 and 1997
was $206 million and $216 million, respectively. Included in income from
operations are net after-tax investment portfolio gains of $6 million in the
third quarter of 1998 and $39 million in the third quarter of 1997. Excluding
these items, income from operations for the three months ended September 30,
1998 increased 13% to $200 million, reflecting improved performance at both
business units.
The following discussion presents in more detail each unit's performance.
TRAVELERS LIFE & ANNUITY
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 1997
- ---------------------------------------- ---- ----
($ in millions)
Revenues $722 $707
==== ====
Net income (1) $129 $144
==== ====
- ---------------
(1)Net income includes $5 million and $37 million of reported net after-tax
investment portfolio gains in 1998 and 1997, respectively.
Earnings before investment portfolio gains increased 16% to $124 million in the
third quarter of 1998 from $107 million in the third quarter of 1997. Improved
earnings were largely driven by double-digit business volume growth in annuity
account balances and life and long-term care premiums. A decline in investment
income yields for the quarter, which vary by product line, resulted primarily
from participation in partnership investment interests being negatively impacted
by the downturn in the marketplace conditions. This decline was substantially
offset by a favorable reserve settlement in the runoff group life and health
business. 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 reported as liabilities and not included in
revenues.
In deferred annuities, significant sales through established Citigroup
distribution channels, Salomon Smith Barney Financial Consultants and The
Copeland Companies, were complemented by the successful third quarter launches
of the Primerica Financial Services and Citibank network cross-selling
initiatives. Total premium deposits for the quarter increased 52% to $872.9
million. Account balances aggregated $17.5 billion at September 30, 1998, up 12%
from a year ago, but down 3% since June 30, reflecting the downturn in the
market value of the variable annuity account balances.
Payout and group annuity reserves and policyholder account balances were $13.3
billion at September 30, 1998, up by $1.6 billion from the prior year. The
revitalization of this business line is evidenced by the 208% increase in net
premiums and deposits to $1.1 billion in the third quarter of 1998 from $351
million in the prior year period, reflecting significantly higher sales of
guaranteed investment contracts.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
For individual life insurance, net premiums and deposits were $78.5 million in
the third quarter of 1998, up 13% from $69.5 million in the third quarter of
1997. Single deposits increased by 26% to $17.1 million, and new periodic
premium sales increased 73%, reflecting a 30% increase in sales by the Salomon
Smith Barney Financial Consultants. During the third quarter, life sales by the
Salomon Smith Barney Financial Consultants increased to over 33% of new periodic
premium and single deposits. Face amount of individual life insurance issued
during the third quarter of 1998 was $2.2 billion, up 47% from $1.5 billion in
the third quarter of 1997, bringing total life insurance in force to $54.2
billion at September 30, 1998, compared to $50.9 billion a year ago.
Earned premiums for the growing long-term care insurance line reached $51.8
million in the third quarter of 1998, up 26% from $41.2 million in the
comparable period of 1997.
Strong sustained operating performance over the past several quarters was
recognized by Standard & Poor's in their September 1998 upgrade of TIC's claims
paying rating to AA (Excellent).
PRIMERICA LIFE INSURANCE
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 1997
- ---------------------------------------- ---- ----
($ in millions)
Revenues $334 $327
==== ====
Net income (1) $77 $ 72
=== ====
- --------------
(1) Net income includes $1 million and $2 million of reported net after-tax
investment portfolio gains in 1998 and 1997, respectively.
Earnings before portfolio gains increased 9% to $76 million in the third quarter
of 1998 from $70 million in the third quarter of 1997. An increase in investment
income of 11% and a 2% increase in premium income contributed to the growth in
earnings.
Life insurance in force reached a record high of $380.6 billion, up from $368.1
billion at September 30, 1997, and continued to reflect good policy persistency
and stable sales growth. New term life insurance sales were $14.2 billion for
the three month period ended September 30, 1998, up from $13.1 billion for the
prior year period.
TRAVELERS LIFE AND ANNUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 1997
- ------------------------------------ ---- ----
($ in millions)
Revenues $2,294 $1,991
=========== ===========
Net income (1) $450 $364
=========== ===========
- --------------
(1) Net income includes $77 million and $51 million of reported net after-tax
investment portfolio gains in 1998 and 1997, respectively.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
Earnings before portfolio gains increased 19% to $373 million in the nine
months ended September 30, 1998, from $313 million in the nine months ended
September 30, 1997. Earnings growth was driven by increased volume in all
lines.
For deferred annuities, net written premiums and deposits were $2.5 billion in
the first nine months of 1998, up 39% from $1.8 billion in the comparable
period of 1997, reflecting increased growth in the sales of variable annuities.
Payout and group annuity net premiums and deposits grew 87% to $3.0 billion in
the first nine months of 1998, from $1.6 billion in the prior year period.
For individual life insurance, net premiums and deposits were $246 million for
the first nine months of 1998, up 19% from $207 million in the prior year
period. Face amount of individual life insurance issued during the first nine
months of 1998 was $6.3 billion, up from $4.5 billion in the prior period of
1997.
Earned premiums for the growing long-term care insurance line reached $146
million in the first nine months of 1998, up 27% from $115 million in the
comparable period of 1997.
PRIMERICA LIFE INSURANCE
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 1997
- --------------------------------------- ---- ----
($ in millions)
Revenues $1,012 $976
======== =========
Net income (1) $240 $211
======== =========
- ---------------------------------
(1) Net income includes $1 million and $2 million of reported net after-tax
investment portfolio gains in 1998 and 1997, respectively.
Earnings before portfolio gains for the first nine months of 1998 increased 14%
to $239 million, compared to $209 million in the first nine months of 1997. Face
amount of new term life insurance sales was $43.0 billion in the first nine
months of 1998, compared to $39.2 billion in the prior year period.
MERGER
On October 8, 1998, Citicorp merged with and into a newly formed, wholly owned
subsidiary of Travelers Group Inc. (Travelers Group) (The Merger) and
subsequently Travelers Group changed its name to Citigroup Inc.
See Note 2 of Notes to Condensed Consolidated Financial statements for a
discussion of the Merger.
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 September 30, 1998, the Company had adjusted
capital in excess of amounts requiring any regulatory action.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
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 nine months
ended September 30, 1998.
YEAR 2000
The Company is highly dependent on computer systems and systems applications for
conducting its ongoing business functions. In 1996, the Company began the
process of identifying, assessing and implementing changes to computer programs
and systems to address the year 2000 issue and developed a comprehensive plan to
address the issue. The issue involves the ability of computer systems that have
time sensitive programs to recognize properly the year 2000. The inability to do
so could result in major failures or miscalculations that would disrupt the
Company's ability to meet its customer and other obligations on a timely basis.
The Company is in the process of implementing necessary changes, in accordance
with its Year 2000 plan, to bring all its critical business systems into year
2000 compliance by early 1999. As part of, and following, achievement of year
2000 compliance, systems have been, and will continue to be, subjected to a
certification process which validates the renovated code before it is certified
for use in production. In addition, the Company is developing contingency plans
to be used in the event of an unexpected failure, which may result from the
complex interrelationships among our clients, business partners, and other
parties upon whom it relies. These plans are expected to be in place by December
31, 1998.
The total pre-tax cost associated with the required modifications and
conversions is expected to be $25 million - $35 million and is being expensed
as incurred in the period 1996 through 1999, and is not expected to have a
material effect on its 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 communicated with them on their
plans to address and resolve year 2000 issues on a timely basis. While it is
likely that these efforts by third party vendors will be successful, 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 years.
FUTURE APPLICATIONS OF ACCOUNTING STANDARDS
See Note 1 of Notes to Condensed Consolidated Financial Statements for a
discussion of recently issued accounting pronouncements.
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," and similar expressions. These forward-looking statements involve
risks and uncertainties including, but not limited to, the resolution of legal
proceedings, the conduct of the Company's business following the Merger and the
ability of the Company and third party vendors to modify computer systems for
the year 2000 data conversion in a timely manner.
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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.
27.01+ Financial Data Schedule
- ---------------------
+ Filed herewith.
(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 November 13, 1998 /s/ Ian R. Stuart
---------------------- -----------------------
Ian R. Stuart
Chief Financial Officer and
Chief Accounting Officer
(Principal Financial Officer)
15