1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
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 $2.50 per share, of the registrant, all of which were owned by The
Travelers Insurance Group Inc., an indirect wholly owned subsidiary of Citigroup
Inc.
REDUCED DISCLOSURE FORMAT
The registrant meets the conditions set forth in General Instruction H(1)(a) and
(b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced
disclosure format.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page
- ------------------------------ ----
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Statements of Income for the
Three and Six Months Ended June 30, 1999 and 1998 (unaudited) ........... 3
Condensed Consolidated Balance Sheets as of June 30, 1999 (unaudited) and
December 31, 1998 ....................................................... 4
Condensed Consolidated Statements of Changes in Retained Earnings and
Accumulated Other Changes in Equity from Non-Owner Sources
For the Three and Six Months Ended June 30, 1999 and 1998 (unaudited) ... 5
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1999 and 1998 (unaudited) ..................... 6
Notes to Condensed Consolidated Financial Statements (unaudited) ........ 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS ........................... 12
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS .............................................. 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ............................... 18
SIGNATURES .............................................................. 19
Exhibit 99.01 ........................................................... 20
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
($ IN MILLIONS)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
- ----------------------------------------------------------------------------------------------------
1999 1998 1999 1998
------ ------ ------ ------
REVENUES
Premiums $ 435 $ 441 $ 843 $ 833
Net investment income 636 553 1,221 1,088
Realized investment gains 6 35 20 112
Other revenues 137 112 261 217
- ----------------------------------------------------------------------------------------------------
Total Revenues 1,214 1,141 2,345 2,250
- ----------------------------------------------------------------------------------------------------
BENEFITS AND EXPENSES
Current and future insurance benefits 374 376 708 697
Interest credited to contractholders 231 210 457 425
Amortization of deferred acquisition costs
and value of insurance in force 86 76 173 153
General and administrative expenses 117 116 234 232
- ----------------------------------------------------------------------------------------------------
Total Benefits and Expenses 808 778 1,572 1,507
- ----------------------------------------------------------------------------------------------------
Income from operations before federal income 406 363 773 743
taxes
Federal income taxes 138 126 262 259
- ----------------------------------------------------------------------------------------------------
Net Income $ 268 $ 237 $ 511 $ 484
====================================================================================================
See Notes to Condensed Consolidated Financial Statements
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
($ IN MILLIONS)
JUNE 30, 1999 DECEMBER 31, 1998
- -----------------------------------------------------------------------------------------------
ASSETS (UNAUDITED)
Investments $ 34,093 $ 33,552
Separate and variable accounts 18,698 15,313
Reinsurance recoverable 3,307 3,387
Deferred acquisition costs and value of
insurance in force 2,715 2,567
Other assets 2,014 1,729
- -----------------------------------------------------------------------------------------
Total Assets $ 60,827 $ 56,548
- -----------------------------------------------------------------------------------------
LIABILITIES
Contractholder funds $ 17,783 $ 16,739
Future policy benefits and claims 12,388 12,326
Separate and variable accounts 18,689 15,305
Other liabilities 4,281 4,078
- -----------------------------------------------------------------------------------------
Total Liabilities 53,141 48,448
- -----------------------------------------------------------------------------------------
SHAREHOLDER'S EQUITY
Common stock, par value $2.50; 40 million shares
authorized, issued and outstanding 100 100
Additional paid-in capital 3,809 3,800
Retained earnings 3,838 3,602
Accumulated other changes in equity from
non-owner sources (61) 598
- -----------------------------------------------------------------------------------------
Total Shareholder's Equity 7,686 8,100
- -----------------------------------------------------------------------------------------
Total Liabilities and Shareholder's Equity $ 60,827 $ 56,548
=========================================================================================
See Notes to Condensed Consolidated Financial Statements.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN RETAINED EARNINGS AND
ACCUMULATED OTHER CHANGES IN EQUITY FROM NON-OWNER SOURCES
(UNAUDITED)
($ IN MILLIONS)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
- ------------------------------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN RETAINED EARNINGS 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------
Balance, beginning of period $ 3,735 $ 2,947 $ 3,602 $ 2,810
Net income 268 237 511 484
Dividends to parent (165) -- (275) (110)
- ------------------------------------------------------------------------------------------------------------
Balance, end of period $ 3,838 $ 3,184 $ 3,838 $ 3,184
============================================================================================================
STATEMENTS OF ACCUMULATED OTHER CHANGES
IN EQUITY FROM NON-OWNER SOURCES
- ------------------------------------------------------------------------------------------------------------
Balance, beginning of period $ 341 $ 521 $ 598 $ 535
Unrealized gains (losses), net of tax (402) 83 (659) 69
- ------------------------------------------------------------------------------------------------------------
Balance, end of period $ (61) $ 604 $ (61) $ 604
============================================================================================================
SUMMARY OF CHANGES IN EQUITY
FROM NON-OWNER SOURCES
- ------------------------------------------------------------------------------------------------------------
Net Income $ 268 $ 237 $ 511 $ 484
Other changes in equity from non-owner sources (402) 83 (659) 69
- ------------------------------------------------------------------------------------------------------------
Total changes in equity from non-owner sources $ (134) $ 320 ($ 148) $ 553
============================================================================================================
See Notes to Condensed Consolidated Financial Statements.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
(UNAUDITED)
($ IN MILLIONS)
SIX MONTHS ENDED
JUNE 30,
- -----------------------------------------------------------------------------------------
1999 1998
- -----------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 459 $ 320
- -----------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investments
Fixed maturities 1,490 1,218
Mortgage loans 305 509
Proceeds from sales of investments
Fixed maturities 7,691 5,005
Equity securities 34 167
Real estate held for sale 26 45
Purchases of investments
Fixed maturities (11,281) (7,362)
Equity securities (130) (126)
Mortgage loans (109) (295)
Policy loans, net 599 7
Short-term securities purchases, net 281 (230)
Other investments, net (242) (121)
Securities transactions in course of settlement, net 181 289
- -----------------------------------------------------------------------------------------
Net cash used in investing activities (1,155) (894)
- -----------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Contractholder fund deposits 3,689 2,480
Contractholder fund withdrawals (2,658) (1,788)
Dividends to parent company (275) (110)
- -----------------------------------------------------------------------------------------
Net cash provided by financing activities 756 582
- -----------------------------------------------------------------------------------------
Net increase in cash 60 8
Cash at beginning of period 65 58
- -----------------------------------------------------------------------------------------
Cash at end of period $ 125 $ 66
=========================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Income taxes paid $ 194 $ 331
=========================================================================================
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. The consolidated financial statements include the accounts
of TIC and its insurance and non-insurance subsidiaries on a fully
consolidated basis. In the opinion of management, the interim financial
statements reflect all adjustments necessary (all of which were normal
recurring adjustments) for a fair presentation for the periods reported. The
accompanying condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and related notes
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998.
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 prior year amounts have been reclassified to conform with the current
year's presentation.
ACCOUNTING CHANGES
In January 1999, the Company adopted 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. The adoption of this SOP had no impact on the Company's
financial condition, results 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 embedded in other contracts (collectively
referred to as derivatives) and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
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. Upon
initial application of FAS 133, hedging relationships must be designated anew
and documented pursuant to the provisions of this statement. FAS 133 was to
be effective for all fiscal quarters of fiscal years beginning after June 15,
1999. However, in June 1999 the FASB issued Statement of Financial Standards
No. 137 "Deferral of the Effective Date of FASB Statement No. 133" (FAS 137),
which allows entities which have not adopted FAS 133 to defer its effective
date to all fiscal quarters of all fiscal years beginning after June 15,
2000. The Company expects to adopt the deferral provisions of FAS 137 and has
not yet determined the impact that FAS 133 will have on its consolidated
financial statements.
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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
TIC issues commercial paper directly to investors. No commercial paper was
outstanding at June 30, 1999 or December 31, 1998. 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 1999 or 1998.
Citigroup and TIC have an agreement with a syndicate of banks to provide $1.0
billion of revolving credit, to be allocated to Citigroup or TIC. TIC's
participation in this agreement is limited to $250 million. The agreement
consists of a five-year revolving credit facility that expires in 2001. At
June 30, 1999, nothing was allocated to TIC. Under this facility the Company
is required to maintain certain minimum equity and risk-based capital levels.
At June 30, 1999, the Company was in compliance with these provisions. There
were no amounts outstanding under this agreement at June 30, 1999 or December
31, 1998. If the Company had borrowings outstanding on 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 $4.95 billion at December
31, 1998. 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. Statutory surplus
of $504 million is available in 1999 for dividend payments by the Company
without prior approval of the Connecticut Insurance Department. The Company
paid $275 million and $110 million in dividends to its parent during the six
months ended June 30, 1999 and June 30, 1998, respectively.
4. COMMITMENTS AND CONTINGENCIES
Litigation
In March 1997, a purported class action entitled Patterman v. The Travelers,
Inc., et al. 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. In October 1997,
defendants answered the complaint, denied liability and asserted numerous
affirmative defenses. In February 1998, the Superior Court of Richmond County
transferred the lawsuit to the Superior Court of Gwinnett County, Georgia.
The plaintiffs appealed the transfer order, and in December 1998 the Court of
Appeals of the State of Georgia reversed the lower court's decision. Later in
December 1998, defendants petitioned the Georgia Supreme Court to hear the
appeal from the decision of the Court of Appeals. Pending appeal, proceedings
in the trial court have been stayed. In May 1999, the Georgia Supreme Court
granted defendants' petition to hear the appeal from the decision of the
Court of Appeals. Defendants intend to vigorously contest the litigation.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
The Company is a defendant or co-defendant in various litigation matters in
the normal course of business. Although there can be no assurances, as of
June 30, 1999, 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. This statement is a forward-looking
statement within the meaning of the Private Securities Litigation Reform Act.
See "Forward-Looking Statements" on page 17.
5. RELATED PARTY TRANSACTION
Included in investments at December 31, 1998 was a 90 day variable rate note
receivable from Citigroup. The balance, which was $500 million at December
31, 1998 was paid in full on February 25, 1999. Interest earned in 1999 was
$4 million.
6. OPERATING SEGMENTS
The Company has two reportable business segments that are separately managed
due to differences in products, services, marketing strategy and resource
management. The business of each segment is maintained and reported through
separate legal entities within the Company. The management groups of each
segment report separately to the common ultimate parent, Citigroup Inc.
The TRAVELERS LIFE AND ANNUITY business segment consolidates primarily the
business of The Travelers Insurance Company and The Travelers Life and
Annuity Company. The Travelers Life and Annuity business segment offers fixed
and variable deferred annuities, payout annuities and term, universal and
variable life and long-term care insurance to individuals and small
businesses. It also provides group annuity products including guaranteed
investment contracts, funding agreements, structured settlements and group
annuities for employer-sponsored retirement and savings plans.
The PRIMERICA LIFE business segment consolidates primarily the business of
Primerica Life Insurance Company and National Benefit Life Insurance Company.
The Primerica Life business segment offers individual life products,
primarily term insurance, to customers through a nationwide sales force of
approximately 80,000 full and part-time licensed Personal Financial Analysts.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
BUSINESS SEGMENT INFORMATION:
- -----------------------------------------------------------------------------------------------------
TRAVELERS PRIMERICA
FOR THE THREE MONTHS ENDED LIFE AND LIFE
JUNE 30, 1999 ($ IN MILLIONS) ANNUITY INSURANCE TOTAL
- -----------------------------------------------------------------------------------------------------
BUSINESS VOLUME:
Premiums $ 167 $ 268 $ 435
Deposits 3,326 -- 3,326
------- ------- -------
Total business volume 3,493 268 3,761
Net investment income 572 64 636
Net realized investment gains 1 5 6
Other revenues 117 20 137
Less: Deposits (3,326) -- (3,326)
------- ------- -------
Total revenues $ 857 $ 357 $ 1,214
Business Income (excludes realized gains or
losses and the related FIT) $ 175 $ 90 $ 265
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
TRAVELERS PRIMERICA
FOR THE THREE MONTHS ENDED LIFE AND LIFE
JUNE 30, 1998 ($ IN MILLIONS) ANNUITY INSURANCE TOTAL
- -----------------------------------------------------------------------------------------------------
BUSINESS VOLUME:
Premiums $ 175 $ 266 $ 441
Deposits 2,086 -- 2,086
------- ------- -------
Total business volume 2,261 266 2,527
Net investment income 496 57 553
Net realized investment gains 34 1 35
Other revenues 94 18 112
Less: Deposits (2,086) -- (2,086)
------- ------- -------
Total revenues $ 799 $ 342 $ 1,141
Business Income (excludes realized gains or
losses and the related FIT) $ 131 $ 84 $ 215
- -----------------------------------------------------------------------------------------------------
BUSINESS SEGMENT RECONCILIATION:
- --------------------------------------------------------------------
FOR THE THREE MONTHS ENDED
JUNE 30 ($ IN MILLIONS)
- --------------------------------------------------------------------
INCOME: 1999 1998
- --------------------------------------------------------------------
Total business income of segments $265 $215
Realized investment gains net of tax 3 22
- --------------------------------------------------------------------
Net Income $268 $237
====================================================================
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
BUSINESS SEGMENT INFORMATION:
- -------------------------------------------------------------------------------------------------
TRAVELERS PRIMERICA
FOR THE SIX MONTHS ENDED LIFE AND LIFE
JUNE 30, 1999 ($ IN MILLIONS) ANNUITY INSURANCE TOTAL
- -------------------------------------------------------------------------------------------------
BUSINESS VOLUME:
Premiums $ 308 $ 535 $ 843
Deposits 6,401 -- 6,401
------- ------- -------
Total business volume 6,709 535 7,244
Net investment income 1,095 126 1,221
Net realized investment gains 14 6 20
Other revenues 219 42 261
Less: Deposits (6,401) -- (6,401)
------- ------- -------
Total revenues $ 1,636 $ 709 $ 2,345
Business Income (excludes realized
gains or losses and the related FIT) $ 320 $ 178 $ 498
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
TRAVELERS PRIMERICA
FOR THE SIX MONTHS ENDED LIFE AND LIFE
JUNE 30, 1998 ($ IN MILLIONS) ANNUITY INSURANCE TOTAL
- -------------------------------------------------------------------------------------------------
BUSINESS VOLUME:
Premiums $ 306 $ 527 $ 833
Deposits 3,878 -- 3,878
------- ------- -------
Total business volume 4,184 527 4,711
Net investment income 977 111 1,088
Net realized investment gains 111 1 112
Other revenues 178 39 217
Less: Deposits (3,878) -- (3,878)
------- ------- -------
Total revenues $ 1,572 $ 678 $ 2,250
Business Income (excludes realized
gains or losses and the related FIT) $ 249 $ 163 $ 412
- -------------------------------------------------------------------------------------------------
BUSINESS SEGMENT RECONCILIATION:
- --------------------------------------------------------------------
FOR THE SIX MONTHS ENDED
JUNE 30 ($ IN MILLIONS)
- --------------------------------------------------------------------
INCOME: 1999 1998
- --------------------------------------------------------------------
Total business income of segments $498 $412
Realized investment gains net of tax 13 72
- --------------------------------------------------------------------
Net Income $511 $484
====================================================================
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's narrative analysis of the results of operations is presented in
lieu of Management's Discussion and Analysis of Financial Condition and Results
of Operations, pursuant to General Instruction H(2)(a) of Form 10-Q.
CONSOLIDATED OVERVIEW ($ in millions)
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1999 1998 1999 1998
------ ------ ------ ------
Revenues $1,214 $1,141 $2,345 $2,250
====== ====== ====== ======
Net income $ 268 $ 237 $ 511 $ 484
====== ====== ====== ======
Net income for the three months ended June 30, 1999 and 1998 was $268 million
and $237 million, respectively. Included in income from operations are net
after-tax investment portfolio gains of $3 million in the second quarter of 1999
and $22 million in the second quarter of 1998. Excluding these items, business
income for the three months ended June 30, 1999 increased 23% to $265 million,
reflecting improved performance in both segments. Business income for the six
months ended June 30, 1999 was $498 million, an increase of 21% versus the prior
period.
The following discussion presents in more detail each business segment's
performance.
TRAVELERS LIFE & ANNUITY
FOR THE THREE MONTHS ENDED JUNE 30, 1999 1998
---- ----
($ in millions)
Revenues $857 $799
==== ====
Net income (1) $175 $153
==== ====
(1) Net income includes $22 million of after-tax investment portfolio gains in
1998. There were no portfolio gains or losses in 1999.
Travelers Life and Annuity consists of annuity, life and long-term care products
marketed by The Travelers Insurance Company (TIC) and its wholly owned
subsidiary The Travelers Life and Annuity Company (TLAC). Among the range of
products offered are fixed and variable deferred annuities, payout annuities and
term, universal and variable life and long-term care insurance to individuals
and small businesses. These products are primarily marketed through The Copeland
Companies (Copeland), an indirect wholly owned subsidiary of TIC, Salomon Smith
Barney Financial Consultants and a nationwide network of independent agents. In
1998, Travelers Life and Annuity products were also introduced into the
Primerica and Citibank distribution networks.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
Travelers Life and Annuity also provides group annuity products including
guaranteed investment contracts, funding agreements, structured settlements and
group annuities to employer-sponsored retirement and savings plans. The majority
of the annuity business and a substantial portion of the life business written
by Travelers Life and Annuity is accounted for as investment contracts, with the
result that the premiums and deposits collected are reported as liabilities and
are not included in revenues.
Business income was $175 million in the second quarter of 1999 compared to $131
million in the second quarter of 1998. The 34% improvement in 1999 reflects
increased business volume and investment income versus the prior year period.
Strong double-digit business volume growth in annuity account balances and
direct periodic life and long-term care premiums reflected strong momentum from
cross-selling initiatives.
The successful cross-selling of Travelers Life and Annuity products through the
Primerica, Citibank, Copeland, and Salomon Smith Barney distribution channels,
along with improved sales through a nationwide network of independent agents,
reflect ongoing efforts to build market share by strengthening relationships in
key distribution channels.
Increased deferred annuities sales, combined with favorable market appreciation
from variable annuities, drove account balances to $22.4 billion at June 30,
1999, up 23% from $18.2 billion at June 30, 1998. Net written premiums and
deposits increased 51% in the second quarter of 1999 to $1.2 billion, from $774
million in the second quarter of 1998. The strong sales reflect successful
cross-selling initiatives by Salomon Smith Barney, Copeland, Primerica and the
Citibank branch network, as well as strong core agent production.
Payout and group annuity account balances and benefit reserves reached $15.8
billion at June 30, 1999, up 24% from $12.7 billion at June 30, 1998. This
business has achieved strong sales growth due to ratings upgrades in recent
years. Net written premiums and deposits (excluding those received from
affiliates) rose to $1.6 billion in the second quarter of 1999 from $1.0 billion
in the prior year period.
Direct periodic premiums for individual life insurance of $86.7 million in the
second quarter of 1999 were up 11% from $78.2 million in the comparable period
of 1998, reflecting strong agency results. Life insurance in force was $57.7
billion at June 30, 1999, up from $53.2 billion at June 30, 1998.
Net written premiums for the long-term care insurance line reached $59.8 million
in the second quarter of 1999 compared to $53.7 million in the comparable period
of 1998.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
PRIMERICA LIFE INSURANCE
FOR THE THREE MONTHS ENDED JUNE 30, 1999 1998
---- ----
($ in millions)
Revenues $357 $342
==== ====
Net income (1) $ 93 $ 84
==== ====
(1) Net income includes $3 million of reported after-tax investment portfolio
gains in 1999. There were no portfolio gains or losses in 1998.
The Primerica Life business segment offers individual life products, primarily
term insurance, to customers through a nationwide sales force of approximately
80,000 full and part-time licensed Personal Financial Analysts.
Business income was $90 million in the second quarter of 1999 compared to $84
million in the second quarter of 1998. An increase in investment income
contributed to the growth in earnings.
Earned premiums net of reinsurance were $268 million in the second quarter of
1999 compared to $266 million in the prior year period, including $252 million
and $249 million, respectively, for Primerica individual term life policies.
Life insurance in force reached a record $391.7 billion, up from $377.5 billion
at June 30, 1998, reflecting good policy persistency and stable sales. The face
amount of new term life insurance sales was $15.5 billion for the three month
period ended June 30, 1999, compared to $15.8 billion for the prior year period.
TRAVELERS LIFE AND ANNUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1999 1998
------ ------
($ in millions)
Revenues $1,636 $1,572
====== ======
Net income (1) $ 329 $ 321
====== ======
(1) Net income includes $9 million and $72 million of reported net after-tax
investment portfolio gains in 1999 and 1998, respectively.
Business income increased 29% to $320 million in the six months ended June 30,
1999, compared to $249 million in the six months ended June 30, 1998. Earnings
growth was driven by business volume, investment performance and a higher
capital base.
For deferred annuities, net written premiums and deposits were $2.2 billion in
the first six months of 1999, up 40% from $1.6 billion in the comparable period
of 1998, reflecting increased growth in the sales of variable annuities.
Payout and group annuity net premiums and deposits grew 86% to $3.5 billion in
the first six months of 1999, from $1.9 billion in the prior year period.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
For individual life insurance, direct periodic premiums were $171 million for
the first half of 1999, up 11% from $154 million in the prior year period. Face
amount of individual life insurance issued during the first half of 1999 was
$4.9 billion, up from $4.1 billion in the prior period of 1998.
Net written premiums for the long-term care insurance line reached $112
million in the first six months of 1999, up 14% from $98 million in the
comparable period of 1998.
PRIMERICA LIFE INSURANCE
FOR THE SIX MONTHS ENDED JUNE 30, 1999 1998
---- ----
($ in millions)
Revenues $709 $678
==== ====
Net income (1) $182 $163
==== ====
(1) Net income includes $4 million of after-tax investment portfolio gains in
1999. There were no portfolio gains or losses in 1998.
Earnings before portfolio gains for the first six months of 1999 increased 9% to
$178 million, compared to $163 million in the first six months of 1998. Face
amount of new term life insurance sales was $29.1 billion in the first six
months of 1999, up from $28.8 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.
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). The BHCA
precludes a bank holding company and its affiliates from engaging in certain
activities, including insurance underwriting. Under the BHCA in its current
form, Citigroup has two years from the date it became a bank holding company to
comply with all applicable provisions (the BHCA Compliance Period). The BHCA
Compliance 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. At this time, the Company
believes that its compliance with BHCA and other applicable laws will not
have a material adverse effect on the Company's financial condition or results
of operations. This statement is a forward-looking statement within the meaning
of the Private Securities Litigation Reform Act. See "Forward-Looking
Statements" on page 17.
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 legislation will be enacted. Before the expiration of the
BHCA Compliance Period, each of the Company and Citigroup will evaluate its
alternatives in order to comply with whatever laws are then applicable.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
INSURANCE REGULATIONS
Risk-based capital requirements are used as minimum capital requirements by the
National Association of Insurance Commissioners and the states to identify
companies that merit further regulatory action. At June 30, 1999, 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 1999 without
prior approval of the Connecticut Insurance Department is $504 million. The
Company paid $275 million and $110 million in dividends to its parent during the
six months ended June 30, 1999 and 1998, respectively.
YEAR 2000
The Company is highly dependent on computer systems and system applications for
conducting its ongoing business functions. In 1996, the Company began the
process of identifying, assessing and implementing changes to computer programs
necessary to address the Year 2000 issue and developed a comprehensive plan to
address the issue. This 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 has achieved compliance with respect to its business critical
systems in accordance with its Year 2000 plan and has completed the process of
certification to validate compliance. An ongoing recertification process will be
put in place for third and fourth quarters 1999 to ensure all business critical
systems and products remain compliant.
The total pre-tax cost associated with the required modifications and
conversions is expected to be between $25 million and $35 million and is being
expensed as incurred in the period 1996 through 1999. The Company has incurred
approximately $28 million to date on these efforts. The Company also has third
party customers, financial institutions, vendors and others with which it
conducts business and has confirmed their plans to address and resolve Year 2000
issues on a timely basis. While it is likely that these efforts by third party
vendors and customers 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 periods.
In addition, the Company has developed business resumption contingency plans to
address perceived risks associated with the Year 2000 effort. These plans
address the possibility of internal systems failures and the possibility of
failure of systems or processes outside the Company's control. These business
resumption contingency plans would enable business critical units to function
January 1, 2000 in the event of an unexpected failure. Preparations for the
management of the date change will continue through 1999.
Certain information contained in the foregoing paragraphs constitutes
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act. See "Forward-Looking Statements" on page 17.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
FUTURE APPLICATIONS OF ACCOUNTING STANDARDS
See Note 1 of Notes to Condensed Consolidated Financial Statements for Future
Application of Accounting Standards.
FORWARD-LOOKING STATEMENTS
Certain of the statements contained herein that are not historical facts are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act. The Company's actual results may differ materially from
those included in the forward-looking statements. Forward-looking statements are
typically identified by the words "believe," "expect," "anticipate," "intend,"
"estimate," "may increase," "may fluctuate," and similar expressions or future
or conditional verbs such as "will," "should," "would," and "could." These
forward-looking statements involve risks and uncertainties including, but not
limited to, the resolution of legal proceedings and 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 date conversion in a timely
manner.
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18
THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For information concerning a purported class action entitled Patterman v. The
Travelers Inc., et al., see the description that appears in the second paragraph
under the caption "Legal Proceedings" beginning on page 6 of the Annual Report
on Form 10-K of the Company for the year ended December 31, 1998 (File No.
33-33691), which description is included as Exhibit 99.01 to this Form 10-Q and
incorporated by reference herein. In May 1999, the Georgia Supreme Court granted
defendants' petition to hear the appeal from the decision of the Court of
Appeals.
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
99.01 + Second paragraph under the caption "Legal Proceedings" beginning
on page 6 of the Annual Report on Form 10-K of the Company for
the year ended December 31, 1998 (File No. 33-33691).
- ----------------------
+ 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 August 12, 1999 /s/ Jay S. Benet
------------------ ----------------------------------------------------
Jay S. Benet
Senior Vice President,
Chief Financial Officer and Chief Accounting Officer
(Principal Financial Officer)
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