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, 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 Nine Months Ended September 30, 1999 and 1998 (unaudited)................................................... 3
Condensed Consolidated Balance Sheets as of September 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 Nine Months Ended September 30, 1999 and 1998 (unaudited)........................................... 5
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 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
Exhibit 99.02......................................................................................................... 21
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
($ IN MILLIONS)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1999 1998 1999 1998
------ ------ ------ ------
REVENUES
Premiums $ 432 $ 395 $1,275 $1,228
Net investment income 650 528 1,871 1,616
Realized investment gains 24 9 44 121
Other revenues 126 124 387 341
------ ------ ------ ------
Total Revenues 1,232 1,056 3,577 3,306
------ ------ ------ ------
BENEFITS AND EXPENSES
Current and future insurance benefits 383 330 1,091 1,027
Interest credited to contractholders 239 221 696 646
Amortization of deferred acquisition costs and value of
insurance in force 86 81 259 234
General and administrative expenses 113 105 347 337
------ ------ ------ ------
Total Benefits and Expenses 821 737 2,393 2,244
------ ------ ------ ------
Income from operations before federal income taxes 411 319 1,184 1,062
Federal income taxes 140 113 402 372
====== ====== ====== ======
Net Income $ 271 $ 206 $ 782 $ 690
====== ====== ====== ======
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, 1999 DECEMBER 31, 1998
(UNAUDITED)
------------------ -----------------
ASSETS
Investments $ 33,823 $33,552
Separate and variable accounts 18,903 15,313
Reinsurance recoverable 3,310 3,387
Deferred acquisition costs and value of insurance in force 2,796 2,567
Other assets 2,237 1,729
-------- -------
Total Assets $ 61,069 $56,548
-------- -------
LIABILITIES
Contractholder funds $ 17,669 $16,739
Future policy benefits and claims 12,495 12,326
Separate and variable accounts 18,896 15,305
Other liabilities 4,356 4,078
-------- -------
Total Liabilities 53,416 48,448
-------- -------
SHAREHOLDER'S EQUITY
Common stock, par value $2.50; 40 million shares authorized,
issued and outstanding 100 100
Additional paid-in capital 3,813 3,800
Retained earnings 3,971 3,602
Accumulated other changes in equity from non-owner sources (231) 598
-------- -------
Total Shareholder's Equity 7,653 8,100
-------- -------
Total Liabilities and Shareholder's Equity $ 61,069 $56,548
======== =======
See Notes to Condensed Consolidated Financial Statements.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN RETAINED EARNINGS
AND ACCUMULATED OTHER CHANGES IN EQUITY FROM NON-OWNER SOURCES
(UNAUDITED)
($ IN MILLIONS)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ----------------------
STATEMENTS OF CHANGES IN RETAINED EARNINGS 1999 1998 1999 1998
------- ------ ------- -------
Balance, beginning of period $ 3,838 $3,184 $ 3,602 $ 2,810
Net income 271 206 782 690
Dividends to parent (138) -- (413) (110)
======= ====== ======= =======
Balance, end of period $ 3,971 $3,390 $ 3,971 $ 3,390
======= ====== ======= =======
STATEMENTS OF ACCUMULATED OTHER CHANGES
IN EQUITY FROM NON-OWNER SOURCES
Balance, beginning of period $ (61) $ 604 $ 598 $ 535
Unrealized gains (losses), net of tax (170) 206 (829) 275
======= ====== ======= =======
Balance, end of period $ (231) $ 810 $ (231) $ 810
======= ====== ======= =======
SUMMARY OF CHANGES IN EQUITY
FROM NON-OWNER SOURCES
Net Income $ 271 $ 206 $ 782 $ 690
Other changes in equity from non-owner sources (170) 206 (829) 275
======= ====== ======= =======
Total changes in equity from non-owner sources $ 101 $ 412 $ (47) $ 965
======= ====== ======= =======
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)
NINE MONTHS ENDED
SEPTEMBER 30,
1999 1998
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 811 $ 325
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investments
Fixed maturities 2,662 1,985
Mortgage loans 475 623
Proceeds from sales of investments
Fixed maturities 10,125 8,900
Equity securities 48 87
Mortgage loans -- 6
Real estate held for sale 72 51
Purchases of investments
Fixed maturities (15,033) (12,629)
Equity securities (164) (184)
Mortgage loans (340) (319)
Policy loans, net 644 10
Short-term securities (purchases) sales, net 666 (1,110)
Other investments purchases, net (282) (86)
Securities transactions in course of settlement, net (113) 1,063
-------- --------
Net cash used in investing activities (1,240) (1,603)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Contractholder fund deposits 4,773 3,206
Contractholder fund withdrawals (3,830) (1,804)
Dividends to parent company (413) (110)
-------- --------
Net cash provided by financing activities 530 1,292
-------- --------
Net increase in cash 101 14
Cash at beginning of period 65 58
======== ========
Cash at end of period $ 166 $ 72
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Income taxes paid $ 303 $ 297
======== ========
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 (FASB) 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 that 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 has issued commercial paper directly to investors in prior years. No
commercial paper was outstanding at September 30, 1999 or December 31,
1998. TIC must maintain bank lines of credit at least equal to the
amount of the outstanding commercial paper. 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 September 30, 1999, no credit under this agreement was allocated
to TIC. Under this facility the Company is required to maintain certain
minimum equity and risk-based capital levels. At September 30, 1999, the
Company was in compliance with these provisions. There were no amounts
outstanding under this agreement at September 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 contractually 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 $413 million and $110 million in dividends to its parent
during the nine months ended September 30, 1999 and September 30, 1998,
respectively.
4. COMMITMENTS AND CONTINGENCIES
Litigation
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) and the last sentence under the caption "Legal
Proceedings" appearing on page 18 of the Quarterly Report on Form 10-Q of
the Company for the fiscal quarter ended June 30, 1999 (File No. 33-33691).
Such descriptions are included as Exhibits 99.01 and 99.02 to this Form
10-Q and incorporated by reference herein. In September 1999, the Georgia
Supreme Court heard oral argument on defendants' petition for an order
reversing the Georgia Court of Appeals and transferring the lawsuit from
the Superior Court of Richmond County to the Superior Court of Gwinnett
County. The Georgia Supreme Court reserved its decision, and has not yet
released its opinion.
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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
September 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 $4 million.
6. OPERATING SEGMENTS
The Company has two reportable business segments that are separately
managed due to differences in products, services, marketing strategy and
resource management. The business of each segment is maintained and
reported through separate legal entities within the Company. The management
groups of each segment report separately to the common ultimate parent,
Citigroup Inc.
The TRAVELERS LIFE AND ANNUITY business segment consolidates primarily the
business of The Travelers Insurance Company and The Travelers Life and
Annuity Company. The Travelers Life and Annuity business segment offers
fixed and variable deferred annuities, payout annuities and term, universal
and variable life and long-term care insurance to individuals and small
businesses. It also provides group annuity products including guaranteed
investment contracts, funding agreements, structured settlements and group
annuities for employer-sponsored retirement and savings plans.
The PRIMERICA LIFE business segment consolidates primarily the business of
Primerica Life Insurance Company and National Benefit Life Insurance
Company. The Primerica Life business segment offers individual life
products, primarily term insurance, to customers through a nationwide sales
force of approximately 77,000 full and part-time licensed Personal
Financial Analysts.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
BUSINESS SEGMENT INFORMATION:
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 TRAVELERS LIFE AND PRIMERICA LIFE
($ IN MILLIONS) ANNUITY INSURANCE TOTAL
------------------ -------------- ---------
BUSINESS VOLUME:
Premiums $ 167 $265 $ 432
Deposits 2,332 -- 2,332
------- ---- -------
Total business volume 2,499 265 2,764
Net investment income 584 66 650
Net realized investment gains 23 1 24
Other revenues 106 20 126
Less: Deposits (2,332) -- (2,332)
------- ---- -------
Total revenues $ 880 $352 $ 1,232
Business Income (excludes realized gains or
losses and the related FIT) $ 165 $ 90 $ 255
------- ---- -------
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 TRAVELERS LIFE AND PRIMERICA LIFE
($ IN MILLIONS) ANNUITY INSURANCE TOTAL
------------------ --------------- -------
BUSINESS VOLUME:
Premiums $ 133 $262 $ 395
Deposits 1,757 -- 1,757
------- ---- -------
Total business volume 1,890 262 2,152
Net investment income 475 53 528
Net realized investment gains 8 1 9
Other revenues 106 18 124
Less: Deposits (1,757) -- (1,757)
------- ---- -------
Total revenues $ 722 $334 $ 1,056
Business Income (excludes realized gains or
losses and the related FIT) $ 124 $ 76 $ 200
------- ---- -------
BUSINESS SEGMENT RECONCILIATION:
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 1998
($ IN MILLIONS) ---- ----
INCOME:
Total business income of segments $255 $200
Realized investment gains net of tax 16 6
---- ----
Net Income $271 $206
==== ====
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
BUSINESS SEGMENT INFORMATION:
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 TRAVELERS LIFE AND PRIMERICA LIFE
($ IN MILLIONS) ANNUITY INSURANCE TOTAL
------------------ -------------- --------
BUSINESS VOLUME:
Premiums $ 475 $ 800 $ 1,275
Deposits 8,733 -- 8,733
------- ------ --------
Total business volume 9,208 800 10,008
Net investment income 1,679 192 1,871
Net realized investment gains 37 7 44
Other revenues 325 62 387
Less: Deposits (8,733) -- (8,733)
------- ------ --------
Total revenues $ 2,516 $1,061 $ 3,577
Business Income (excludes realized gains or losses and
the related FIT) $ 485 $ 268 $ 753
------- ------ --------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 TRAVELERS LIFE AND PRIMERICA LIFE
($ IN MILLIONS) ANNUITY INSURANCE TOTAL
------------------ -------------- --------
BUSINESS VOLUME:
Premiums $ 439 $ 789 $ 1,228
Deposits 5,635 -- 5,635
------- ------ -------
Total business volume 6,074 789 6,863
Net investment income 1,452 164 1,616
Net realized investment gains 119 2 121
Other revenues 284 57 341
Less: Deposits (5,635) -- (5,635)
------- ------ -------
Total revenues $ 2,294 $1,012 $ 3,306
Business Income (excludes realized gains or losses and
the related FIT) $ 372 $ 239 $ 611
------- ------ -------
BUSINESS SEGMENT RECONCILIATION:
INCOME:
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 1998
($ IN MILLIONS) ---- ----
$753 $611
29 79
---- ----
Total business income of segments $782 $690
Realized investment gains net of tax ==== ====
Net Income
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's narrative analysis of the results of operations is presented in
lieu of Management's Discussion and Analysis of Financial Condition and Results
of Operations, pursuant to General Instruction H(2)(a) of Form 10-Q.
CONSOLIDATED OVERVIEW ($ in millions)
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS
SEPTEMBER 30, ENDED SEPTEMBER 30,
1999 1998 1999 1998
------ ------ ------ ------
Revenues $1,232 $1,056 $3,577 $3,306
====== ====== ====== ======
Net income $ 271 $ 206 $ 782 $ 690
======= ======= ======= =======
Net income for the three months ended September 30, 1999 and 1998 was $271
million and $206 million, respectively. Included in income from operations are
after-tax investment portfolio gains of $16 million in the third quarter of 1999
and $6 million in the third quarter of 1998. Excluding these items, business
income for the three months ended September 30, 1999 increased 28% from the
prior year quarter to $255 million, reflecting improved performance in both
segments. Business income for the nine months ended September 30, 1999 was $753
million, an increase of 23% versus the prior year period.
The following discussion presents in more detail each business segment's
performance.
TRAVELERS LIFE & ANNUITY
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 1998
---- ----
($ in millions)
Revenues $880 $722
==== ====
Net income (1) $181 $129
==== ====
(1) Net income includes $16 million and $5 million of after-tax investment
portfolio gains in 1999 and 1998, respectively.
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.
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 deposits collected are reported as liabilities and are not
included in revenues.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
Business income was $165 million in the third quarter of 1999 compared to $124
million in the third quarter of 1998, an increase of 33%. This improvement in
1999 reflects continued business volume growth and strong investment income,
including participation in partnership investment interests and real estate
joint ventures, versus the prior year period.
The 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, reflects
ongoing efforts to build market share by strengthening relationships in key
distribution channels. Through these efforts, Travelers Life and Annuity
attained double-digit business volume growth in annuity account balances and
direct periodic life and long-term care premiums.
Increased deferred annuities sales, combined with an increased market value of
variable annuities, drove account balances to $22.5 billion at September 30,
1999, up 29% from $17.5 billion at September 30, 1998. Net written premiums and
deposits increased in the third quarter of 1999 to $1.3 billion, up 45% from
$872.9 million in the third 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 September 30, 1999, up 19% from $13.3 billion at September 30, 1998.
The payout and group annuity businesses reflect momentum from rating upgrades,
guaranteed investment contracts, structured finance transactions and
cross-selling structured settlement annuities through the insurance subsidiaries
of Travelers Property Casualty Corp., an affiliate. Net written premiums and
deposits (excluding those received from affiliates) rose to $1.2 billion in the
third quarter of 1999 from $1.1 billion in the prior year period.
Direct periodic premiums for individual life insurance of $88.3 million in the
third quarter of 1999 were up 13% from $77.9 million in the comparable period of
1998, reflecting strong agency results. Life insurance in force was $58.4
billion at September 30, 1999, up from $54.2 billion at September 30, 1998.
Net written premiums for the long-term care insurance line reached $59.5 million
in the third quarter of 1999 compared to $53.3 million in the comparable period
of 1998.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
PRIMERICA LIFE INSURANCE
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 1998
---- ----
($ in millions)
Revenues $352 $334
==== ====
Net income (1) $ 90 $ 77
==== ====
- -----------------
(1) Net income includes $1 million of reported after-tax investment portfolio
gains in 1998 and none in 1999.
The Primerica Life business segment offers individual life products, primarily
term insurance, to customers through a nationwide sales force of approximately
77,000 full and part-time licensed Personal Financial Analysts.
Business income was $90 million in the third quarter of 1999 compared to $76
million in the third quarter of 1998. An increase in investment income
contributed to the growth in earnings.
Earned premiums net of reinsurance were $265 million in the third quarter of
1999 compared to $261 million in the prior year period, including $251 million
and $246 million, respectively, for Primerica individual term life policies.
Total life insurance in force reached a record $392.8 billion, up from $380.6
billion at September 30, 1998, reflecting good policy persistency and stable
sales. The face amount of new term life insurance sales was $12.4 billion for
the three month period ended September 30, 1999, compared to $14.2 billion for
the prior year period.
TRAVELERS LIFE AND ANNUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 1998
---- ----
($ in millions)
Revenues $2,516 $2,294
====== ======
Net income (1) $ 509 $ 450
===== =====
- ---------------
(1) Net income includes $24 million and $77 million of reported after-tax
investment portfolio gains in 1999 and 1998, respectively.
Business income increased 30% to $485 million in the nine months ended September
30, 1999, compared to $373 million in the nine months ended September 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 $3.5 billion in
the first nine months of 1999, up 40% from $2.5 billion in the comparable period
of 1998, reflecting increased growth in the sales and variable market conditions
of variable annuities.
Payout and group annuity net premiums and deposits grew 57% to $4.7 billion in
the first nine months of 1999, from $3.0 billion in the prior year period.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
For individual life insurance, direct periodic premiums were $260 million for
the first nine months of 1999, up 12% from $232 million in the prior year
period. Face amount of individual life insurance issued during the first nine
months of 1999 was $6.9 billion, up from $6.3 billion in the 1998 period.
Net written premiums for the long-term care insurance line reached $172 million
in the first nine months of 1999, up 13% from $152 million in the comparable
period of 1998.
PRIMERICA LIFE INSURANCE
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 1998
---- ----
($ in millions)
Revenues $1,061 $1,012
====== ======
Net income (1) $ 273 $ 240
====== ======
- ------------
(1) Net income includes $5 million and $1 million of after-tax investment
portfolio gains in 1999 and 1998, respectively.
Earnings before portfolio gains for the first nine months of 1999 increased 12%
to $268 million, compared to $239 million in the first nine months of 1998. Face
amount of new term life insurance sales was $41.5 billion in the first nine
months of 1999, down from $43.0 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.
On November 12, 1999, President Clinton signed into law the Gramm-Leach-Bliley
Act (the "Act"), which will become effective in most significant respects 120
days after enactment. Under the Act, bank holding companies, such as Citigroup,
all of whose depository institutions are "well capitalized" and "well managed"
(as defined in the BHCA) and which obtain satisfactory Community Reinvestment
Act ratings, and their affiliates will have the ability to engage in a broader
spectrum of activities than those currently permitted, including insurance
underwriting and brokerage. Citigroup and its affiliates (including the Company)
will be permitted to continue to operate their insurance businesses as currently
structured and, if they so determined, to expand those businesses through
acquisition or otherwise. Citigroup and its affiliates (including the Company)
will also have increased ability to make investments in companies engaged in
non-financial activities.
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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 September 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 $413 million and $110 million in dividends to its parent during the
nine months ended September 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. 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 re-certification process will
continue through fourth quarter 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 approximately $35 million and is being expensed as
incurred in the period 1996 through 1999. As of September 30, 1999, the Company
has incurred approximately $30.1 million on these efforts. The Company also has
third party customers, financial institutions, vendors and others with whom 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 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) and the last sentence under the caption "Legal Proceedings" appearing
on page 18 of the Quarterly Report on Form 10-Q of the Company for the fiscal
quarter ended June 30, 1999 (File No. 33-33691). Such descriptions are included
as Exhibits 99.01 and 99.02 to this Form 10-Q and incorporated by reference
herein. In September 1999, the Georgia Supreme Court heard oral argument on
defendants' petition for an order reversing the Georgia Court of Appeals and
transferring the lawsuit from the Superior Court of Richmond County to the
Superior Court of Gwinnett County. The Georgia Supreme Court reserved its
decision, and has not yet released its opinion.
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).
99.02 + Last sentence under the caption "Legal Proceedings"
appearing on page 18 of the Quarterly Report on
Form 10-Q of the Company for the fiscal quarter ended
June 30, 1999 (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 November 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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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
EXHIBIT 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).
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. Defendants intend to vigorously contest the litigation.
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THE TRAVELERS INSURANCE COMPANY AND SUBSIDIARIES
EXHIBIT 99.02: LAST SENTENCE UNDER THE CAPTION "LEGAL PROCEEDINGS" APPEARING
ON PAGE 18 OF THE QUARTERLY REPORT ON FORM 10-Q OF THE COMPANY FOR THE FISCAL
QUARTER ENDED JUNE 30, 1999 (FILE NO. 33-33691).
In May 1999, the George Supreme Court granted defendants' petition to hear the
appeal from the decision of the Court of Appeals.
21