Exhibit 99.01
THE TRAVELERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF
OPERATIONS AND RETAINED EARNINGS Pre-merger, historical accounting basis
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(For the year ended December 31, in millions) 1993 1992 1991
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Revenues
Premiums $ 6,584 $ 6,688 $ 7,302
Net investment income 2,600 2,799 3,228
Realized investment gains (losses) 209 (635) (2)
Other, including gains and losses on dispositions 891 823 849
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10,284 9,675 11,377
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Benefits and expenses
Current and future insurance benefits 5,956 6,196 6,314
Interest credited to contractholders 1,206 1,456 1,656
Loss adjustment expenses 895 951 975
Amortization of deferred acquisition costs 531 558 569
General and administrative expenses 1,464 1,868 1,540
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10,052 11,029 11,054
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Income (loss) before federal income taxes,
extraordinary credit and cumulative effects
of changes in accounting principles 232 (1,354) 323
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Federal income taxes
Current 86 (23) 48
Deferred (142) (503) (32)
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(56) (526) 16
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Income (loss) before extraordinary credit
and cumulative effects of changes in
accounting principles 288 (828) 307
Extraordinary credit - - 11
Cumulative effect of change in accounting
for postretirement benefits other than
pensions, net of tax - (258) -
Cumulative effect of change in accounting
for income taxes - 428 -
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Net income (loss) 288 (658) 318
Retained earnings beginning of year 2,865 3,724 3,583
Dividends to preference shareholders (55) (38) (18)
Dividends to common shareholders (231) (167) (165)
Tax benefit on preference dividends 4 4 6
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Retained earnings end of year $ 2,871 $ 2,865 $ 3,724
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Per common share (in dollars)
Primary
Income (loss) before extraordinary credit and
cumulative effects of changes in
accounting principles N/A $ (8.11) $ 2.87
Extraordinary credit N/A - .10
Cumulative effect of change in accounting
for postretirement benefits other than
pensions, net of tax N/A (2.43) -
Cumulative effect of change in accounting
for income taxes N/A 4.03 -
Net income (loss) N/A (6.51) 2.97
Assuming full dilution
Income (loss) before extraordinary credit and
cumulative effects of changes in
accounting principles N/A (8.11) 2.80
Extraordinary credit N/A - .09
Cumulative effect of change in accounting
for postretirement benefits other than
pensions, net of tax N/A (2.43) -
Cumulative effect of change in accounting
for income taxes N/A 4.03 -
Net income (loss) N/A (6.51) 2.89
Dividends 1.60 1.60 1.60
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See notes to financial statements.
THE TRAVELERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET Pre-merger, historical accounting basis
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(At December 31, in millions) 1993 1992
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Assets
Fixed maturities
Bonds (market, $16,832; $14,774) $ 15,887 $ 13,950
Trading portfolio securities (cost, $8,747; $8,622) 8,952 8,944
Redeemable preferred stocks (market, $39; $53) 37 52
Equity securities, at market
Common stocks (cost, $88; $114) 156 151
Nonredeemable preferred stocks (cost, $164; $137) 170 138
Mortgage loans 7,490 10,072
Investment real estate, net of accumulated depreciation
of $39; $54 593 826
Real estate held for sale, net of accumulated depreciation
of $97; $133 806 1,332
Policy loans 1,212 1,210
Short-term securities 998 1,341
Other investments 1,226 1,313
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Total investments 37,527 39,329
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Cash and cash equivalents 798 1,688
Investment income accrued 496 510
Premium balances receivable 1,771 1,855
Reinsurance recoverable 4,196 4,168
Deferred acquisition costs 827 791
Deferred federal income taxes 1,523 1,371
Separate and variable accounts 4,588 5,330
Other assets 2,884 2,987
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Total assets $ 54,610 $ 58,029
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Liabilities
Contractholder funds $ 17,729 $ 19,276
Benefit and loss reserves 20,224 20,173
Unearned premium reserves 1,782 1,790
Policy and contract claims 1,099 1,129
Short-term debt - 64
Long-term debt 752 1,124
Current federal income taxes 175 73
Separate and variable accounts 4,485 5,251
Other liabilities 3,239 4,095
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Total liabilities 49,485 52,975
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Commitments and contingencies - note 9
ESOP Preference stock series A 235 225
Guaranteed ESOP obligation (125) (149)
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110 76
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Shareholders' equity
Preference stock series B 375 375
Common stock (147 and 145 shares issued) 184 182
Additional paid-in capital 1,442 1,400
Unrealized investment gains, net of taxes 181 197
Retained earnings 2,871 2,865
Cost of common stock in treasury (38) (41)
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Total shareholders' equity 5,015 4,978
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Total $ 54,610 $ 58,029
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Shareholders' equity per common share (in dollars) N/A $ 31.96
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See notes to financial statements.
THE TRAVELERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS Pre-merger, historical accounting basis
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(For the year ended December 31, in millions) 1993 1992 1991
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Cash flows from operating activities
Premiums collected $ 6,333 $ 6,645 $ 7,464
Net investment income received 2,496 2,837 3,243
Other revenues received 582 615 682
Benefits and claims paid, net (6,481) (6,677) (6,916)
Interest credited to contractholders (1,154) (1,404) (1,618)
Operating expenses paid (2,045) (2,003) (2,289)
Income taxes refunded (paid) 33 (41) (81)
Trading account investments, (purchases) sales, net (998) (938) (1,973)
Other 306 239 174
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Net cash used in operating activities (928) (727) (1,314)
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Cash flows from investing activities
Investment repayments
Fixed maturities 3,824 3,161 2,843
Mortgage loans 1,475 1,360 994
Proceeds from investments sold
Fixed maturities 1,203 1,103 3,440
Equity securities 172 839 661
Mortgage loans 344 303 198
Real estate 1,000 270 122
Investments in
Fixed maturities (6,154) (5,143) (4,670)
Equity securities (181) (582) (670)
Mortgage loans (211) (159) (237)
Real estate (92) (61) (37)
Policy loans, net (2) (184) (184)
Short-term securities, (purchases) sales, net 342 242 (16)
Other investments, (purchases) sales, net 59 51 (47)
Securities transactions in course of settlement (44) 671 (884)
Proceeds from disposition of subsidiaries and
other operations 48 9 122
Other (9) 65 (101)
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Net cash provided by investing activities 1,774 1,945 1,534
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Cash flows from financing activities
Issuance (redemption) of short-term debt, net (9) 64 (185)
Issuance (redemption) of certificates of deposit, net 19 (136) (415)
Issuance of long-term debt - 367 95
Payments of long-term debt (319) (169) (68)
Contractholder fund deposits 3,159 3,048 4,101
Contractholder fund withdrawals (4,418) (5,003) (5,325)
Issuance of preference stock series B - 375 -
Issuance of common stock - 550 -
Dividends to shareholders (278) (196) (182)
Other 110 59 83
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Net cash used in financing activities (1,736) (1,041) (1,896)
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Net increase (decrease) in cash and cash equivalents $ (890) $ 177 $ (1,676)
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Cash and cash equivalents at December 31 $ 798 $ 1,688 $ 1,511
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Interest paid $ 96 $ 140 $ 306
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See notes to financial statements.
THE TRAVELERS CORPORATION AND SUBSIDIARIES
------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
1. Summary Of Significant Accounting Policies
Basis of presentation. The financial statements and the
accompanying notes reflect the operations of The Travelers
Corporation and its subsidiaries (the Company) for the years
ended December 31, 1993, 1992 and 1991 on a historical accounting
basis. On December 31, 1993, The Travelers Inc. (formerly
Primerica Corporation) acquired the approximately 73% of the
Company which it did not already own (the Merger). No
adjustments have been made to the financial statements and the
accompanying notes to reflect the merger of the Company into The
Travelers Inc. or to reflect any of the capital transactions
related to the Merger. For discussion of the merger see note 23.
Changes in accounting principles. In the first quarter of 1993,
the Company implemented Statement of Financial Accounting
Standards No. 113, "Accounting and Reporting for Reinsurance of
Short-Duration and Long-Duration Contracts" (FAS 113). Further
disclosures relating to FAS 113 are included in note 2.
In July 1993, the Financial Accounting Standards Board Emerging
Issues Task Force (EITF) reached a conclusion on Issue No. 93-6
"Accounting for Multiple-Year Retrospectively Rated Contracts by
Ceding and Assuming Enterprises" (EITF No. 93-6). Further
disclosures relating to EITF No. 93-6 are included in
note 2.
In the third quarter of 1992, the Company implemented Statement
of Financial Accounting Standards No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pension" (FAS 106), and
Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" (FAS 109). These accounting changes were
implemented with retroactive application to January 1, 1992.
Further disclosures relating to FAS 106 and FAS 109 are included
in note 2.
As of December 31, 1992, the Company implemented the American
Institute of Certified Public Accountants' Statement of Position
92-3, "Accounting for Foreclosed Assets" (SOP 92-3). This
accounting change was implemented with prospective application.
Further disclosures relating to SOP 92-3 are included in note 2.
Principles of consolidation. The financial statements have been
prepared in conformity with generally accepted accounting
principles and include the Company and its insurance and
significant noninsurance subsidiaries on a fully consolidated
basis. Certain prior year amounts have been reclassified to
conform with the 1993 presentation.
Investments. The aggregate carrying values of fixed maturities,
equity securities, mortgage loans and real estate are determined
after deducting appropriate investment valuation reserves.
Investment valuation reserves are discussed below and are
presented in note 16.
Fixed maturities comprise bonds and redeemable preferred stocks
and the majority are carried at amortized cost, since the Company
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has the ability and intention to hold those securities on a long-
term basis. Trading portfolio securities, consisting of fixed
maturities that are likely to be sold prior to maturity, are
carried at current market value. Transfers of securities from
the amortized cost portfolio to the trading portfolio result in
adjustments to unrealized investment gains or losses, which are
included in shareholders' equity.
Equity securities, which consist of common and nonredeemable
preferred stocks, are generally carried at market value as of the
balance sheet date.
Mortgage loans are carried at the aggregate of the unpaid
balances and include in-substance foreclosures.
Real estate is carried at cost less accumulated depreciation.
Real estate held for sale is carried at the lower of cost or fair
value less estimated costs to sell. At foreclosure, real estate
is recorded at the lower of the unpaid principal balance or fair
value. Fair value is established at time of foreclosure by
appraisers, both internal and external, using discounted cash
flow analyses and other acceptable techniques.
Effective January 1, 1994, the Company will adopt Statement of
Financial Accounting Standards No. 115, "Accounting for Certain
Debt and Equity Securities" (FAS 115). FAS 115 addresses
accounting and reporting for investments in equity securities
that have a readily determinable fair value and for all debt
securities.
Accrual of income is suspended on fixed maturities or mortgage
loans that are in default, or on which it is likely that future
interest payments will not be made as scheduled, and interest
income on investments in default is recognized only as payment is
received.
Gains or losses arising from futures contracts used to hedge
investments are treated as basis adjustments and are recognized
in income over the life of the hedged investments.
Gains and losses arising from forward contracts used to hedge
foreign investments in the Company's U.S. portfolios are a
component of realized investment gains and losses. Gains and
losses arising from forward contracts used to hedge investments
in foreign operations (primarily Canadian) are generally
reflected directly in shareholders' equity.
Rate differentials on interest rate swap agreements are accrued
and recognized as an adjustment to interest income from the
related item.
Investment gains and losses. Realized investment gains and
losses are included as a component of pretax revenues based upon
specific identification of the investments sold on the trade date
and include adjustments to investment valuation reserves. These
adjustments reflect changes considered to be other than temporary
in the net realizable value of investments. Also included are
gains and losses arising from the translation of the local
currency value of foreign investments to U.S. dollars, the
functional currency of the Company.
Unrealized investment gains and losses on equity securities,
trading portfolio fixed maturities and investments in foreign
operations (primarily Canadian), net of related taxes, are
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generally reflected directly in shareholders' equity.
Policy loans. Policy loans are carried at the amount of the
unpaid balances that are not in excess of the net cash surrender
values of the related insurance policies. The carrying value of
policy loans, which have no defined maturities, is considered to
be fair value.
Cash and cash equivalents. Cash equivalents include liquid
investments with maturities of 90 days or less when purchased.
The carrying value of these instruments approximates their fair
value.
Deferred acquisition costs. Commissions and premium taxes
incurred in connection with property-casualty insurance are
deferred and amortized pro rata over the contract periods in
which the related premiums are earned. Future investment income
attributable to related premiums is taken into account in
assessing the carrying value of this asset. All other
acquisition expenses are charged to operations as incurred.
Costs of acquiring individual life insurance, annuities and
accident and health business, principally commissions and certain
expenses related to policy issuance, underwriting and marketing,
all of which vary with and are primarily related to the
production of new business, are deferred. For traditional
insurance products, these costs are amortized, with interest, in
proportion to the ratio of estimated annual revenues to the
estimated total revenues over the contract period. For most life
insurance, a 20- to 30-year amortization period is used, and a
10- to 15-year period is used for variable annuities. A 10-year
period is used for guaranteed renewable health policies.
Deferred acquisition costs for universal life contracts and
certain annuity contracts are amortized at a constant rate based
upon the present value of estimated gross profit expected to be
realized over the life of the contracts, which is reevaluated
annually.
Separate and variable accounts. Separate and variable accounts
primarily represent funds for which investment income and
investment gains and losses accrue directly to, and investment
risk is borne by, the contractholders. Each account has specific
investment objectives. The assets of each account are legally
segregated and are not subject to claims that arise out of any
other business of the Company. The assets of these accounts are
carried at market value. Certain other separate accounts provide
guaranteed levels of return or benefits. The assets of these
accounts are carried at amortized cost. Amounts assessed to the
contractholders for management services are included in revenues.
Deposits, net investment income and realized investment gains and
losses for these accounts are excluded from revenues, and related
liability increases are excluded from benefits and expenses.
Other assets. Goodwill is being amortized over periods generally
not exceeding 25 years and other intangibles over their estimated
useful lives. Goodwill is included in other assets in the
consolidated balance sheet and amounted to $91 million and $97
million at December 31, 1993 and 1992, respectively.
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Receivables related to retrospectively rated policies on
property-casualty business, net of allowance for estimated
uncollectible amounts, are included in other assets.
Contractholder funds. Contractholder funds represent receipts
from the issuance of universal life, pension investment and
certain individual annuity contracts. Such receipts are
considered deposits on investment contracts that do not have
substantial mortality or morbidity risk.
Account balances are also increased by interest credited and reduced
by withdrawals, mortality charges and administrative expenses
charged to the contractholders. Calculations of contractholder
account balances for investment contracts reflect lapse,
withdrawal and interest rate assumptions based on contract
provisions, the Company's experience and industry standards.
Interest rates range from 2.90% to 17.42%. Contractholder funds
also include other funds that policyholders leave on deposit with
the Company.
Benefit and loss reserves. Benefit reserves for traditional
individual life insurance, annuities and accident and health
policies have been computed based upon mortality, morbidity,
lapse and interest assumptions applicable to these coverages,
including provision for adverse deviations. Interest rates
range from 2.00% to 14.00%, and mortality, morbidity and
withdrawal assumptions reflect the Company's experience and
industry standards. The assumptions vary by plan, age at issue,
year of issue and duration.
Traditional group life insurance, certain pension contracts and
accident and health benefit reserves have been computed generally
using interest rates ranging from 2.00% to 16.35%, and mortality,
morbidity and withdrawal assumptions based on the Company's
experience and industry standards. Appropriate recognition has
been given to experience rating and reinsurance.
Property-casualty reserves include (1) unearned premiums representing
the unexpired portion of policy premiums, including adjustments
for reinsurance, and (2) estimated provisions for both reported
and unreported claims incurred and related expenses. The
reserves are regularly adjusted based upon experience. Included
in the benefit and loss reserves in the consolidated balance
sheet at December 31, 1993 and 1992, are $796 million and $736
million, respectively, of property-casualty loss reserves that
have been discounted using an interest rate of 5%.
Premiums. Premiums are recognized as revenues when due.
Reserves are established for the portion of premiums that will be
earned in future periods and for deferred profits on limited-
payment policies that are being recognized in income over the
policy term.
Other revenues. Other revenues include surrender, mortality and
administrative charges and fees as earned on investment,
universal life and other insurance contracts. Other revenues
also include gains and losses on dispositions of assets other
than realized investment gains and losses and revenues of
noninsurance subsidiaries.
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Interest credited to contractholders. Interest credited to
contractholders represents amounts earned by universal life,
pension investment and certain individual annuity contracts in
accordance with contract provisions.
Federal income taxes. The provision for federal income taxes is
comprised of two components, current income taxes and deferred
income taxes. Deferred federal income taxes arise from changes
in the Company's deferred federal income tax asset during the
year. The deferred federal income tax asset is recognized to the
extent that future realization of the tax benefit is more likely
than not, with a valuation allowance for the portion that is not
likely to be recognized. The impact of the Omnibus Budget
Reconciliation Act of 1993, the Omnibus Budget Reconciliation Act
of 1990 and the Tax Reform Act of 1986 on net income is discussed
in note 14.
Accounting standards not yet adopted. In November 1992, the
Financial Accounting Standards Board (the Board) issued Statement
of Financial Accounting Standards No. 112, "Employers' Accounting
for Postemployment Benefits" (FAS 112). The Company must adopt
FAS 112 for its financial statements no later than January 1,
1994.
FAS 112 establishes accounting standards for employers who provide
benefits to former or inactive employees after employment, but
before retirement. The statement requires employers to recognize
the cost of the obligation to provide these benefits on an
accrual basis. Employers must implement this guidance by
recognizing a cumulative catch-up adjustment. The Company
estimates that the adoption of FAS 112 will have a pretax impact
of $57 million.
In May 1993, the Board issued Statement of Financial Accounting
Standards No. 114, "Accounting by Creditors for Impairment of a
Loan" (FAS 114). The Company must adopt FAS 114 for its
financial statements no later than January 1, 1995.
FAS 114 describes how impaired loans should be measured when
determining the amount of a loan loss accrual. The Statement
also amends existing guidance on the measurement of restructured
loans in a troubled debt restructuring involving a modification
of terms. The Company has not yet determined when it will adopt
FAS 114 or the impact this statement will have on its financial
statements.
On January 1, 1994, the Company will adopt Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities", (FAS 115) which addresses
accounting and reporting for investments in equity securities
that have a readily determinable fair value and for all debt
securities. Those investments are to be classified in one of
three categories. Debt securities that the Company has the
positive intent and ability to hold to maturity are to be
classified as "held to maturity" and are to be reported at
amortized cost. Securities that are bought and held principally
for the purpose of selling them in the near term are classified
as "trading securities" and are to be reported at fair value,
with unrealized gains and losses included in earnings.
Securities that are neither to be held to maturity nor to be sold
in the near term are classified as "available for sale" and are
to be reported at fair value, with unrealized gains and losses
excluded from earnings and reported as a component of
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shareholders' equity. At December 31, 1993, the market value of
fixed maturities exceeded the carrying value by $947 million.
Financial Accounting Standards Board Interpretation No. 39,
"Offsetting of Amounts Related to Certain Contracts",
(Interpretation 39) must be adopted by the Company for its first
quarter 1994 financial statements.
The general principle of Interpretation 39 states that amounts due
from and due to another party may not be offset in the balance
sheet unless a right of setoff exists. The Company currently
maintains contracts where amounts due from customers are offset
against amounts due to others. Implementation of Interpretation
39 is not expected to have a material impact on the Company's
financial position; however, assets and liabilities will be
increased by like amounts.
2. Changes in Accounting Principles
Accounting and reporting for reinsurance contracts. In the first
quarter of 1993, the Company changed its method of reporting for
reinsurance in compliance with FAS 113. FAS 113 requires the
reporting of reinsurance receivables and prepaid reinsurance
premiums as assets and precludes the immediate recognition of
gains for all reinsurance contracts unless the liability to the
policyholder has been extinguished. Implementation of FAS 113
did not have an impact on earnings, however, assets and
liabilities increased by like amounts. Assets and liabilities
within the consolidated balance sheet were increased by $4,427
million as of December 31, 1992. See note 15 for additional
disclosures.
Accounting for multiple-year retrospectively rated contracts.
EITF No. 93-6 clarifies the accounting for certain reinsurance
agreements with restrospectively rated features. The Company
changed its method of accounting for such contracts to conform
with the conclusion of the EITF. The effects of the change in
method of accounting did not materially impact the Company's
financial results.
Postretirement benefits other than pensions. In the third
quarter of 1992, the Company changed its method of accounting for
the costs of its retiree benefit plans, in compliance with FAS
106. This change was made effective as of January 1, 1992. FAS
106 requires the Company to accrue the cost of postretirement
benefits over the years of service rendered by an employee.
Previously these costs were accounted for on a
"pay-as-you-go" (cash) basis.
The implementation of FAS 106 resulted in a one time noncash
after-tax charge to net income of $258 million in the first quarter
of 1992. See note 13 for further discussion of FAS 106.
Accounting for income taxes. During the third quarter of 1992,
the Company adopted FAS 109 with retroactive application to
January 1, 1992. FAS 109 establishes new principles for
- 6 -
calculating and reporting the effects of federal income taxes in
the financial statements. FAS 109 replaces the income statement
orientation inherent in the prior income tax accounting standard
with a balance sheet approach. Under the new approach, deferred
tax assets and liabilities are generally determined based on the
difference between the financial statement and tax bases of
assets and liabilities using enacted tax rates in effect for the
year in which the differences are expected to reverse. FAS 109
allows recognition of deferred tax assets if future realization
of the tax benefit is more likely than not, with a valuation
allowance for the portion that is not likely to be recognized.
The implementation of FAS 109 resulted in a one time increase to
earnings of $428 million in the first quarter of 1992. This
increase in earnings was principally due to the accelerated
recognition of "fresh start" tax benefits, tax rate differences
and the recognition of a portion of previously unrecognized
deferred tax assets. See note 14 for further discussion of FAS
109.
Accounting for foreclosed assets. In February 1993, the Company
announced its intent to accelerate the sale of foreclosed real
estate and, effective December 31, 1992, changed its method of
accounting for foreclosed assets in compliance with SOP 92-3.
This guidance requires that in-substance foreclosures and
foreclosed assets held for sale be carried at the lower of cost
or fair value less estimated costs to sell. Previously, all
foreclosed assets were carried at cost less accumulated
depreciation. This accounting change resulted in a pretax charge
of $437 million to realized investment losses in 1992.
3. Acquisitions and Dispositions
In the third quarter of 1993, the Company sold The Massachusetts
Company (TMC), its banking subsidiary, and received cash proceeds
of $53 million. Consolidated assets and liabilities were reduced
as a result of this disposition. TMC assets, consisting
primarily of mortgage loans and fixed maturities, were $949
million at the date of sale. Liabilities, consisting primarily
of customer deposits, were $896 million at the date of sale. The
impact of this sale was insignificant to the consolidated
financial results of the Company.
In December 1992, the Company acquired a 50% interest in
Commercial Insurance Resources, Inc., and acquired Transport Life
Insurance Company's preferred provider and third party
administrator organizations from Primerica Corporation (see note
23).
In the fourth quarter of 1991, the Company sold Dillon, Read
Inc. (Dillon Read), its investment banking subsidiary. The
Company received cash proceeds of $122 million. Consolidated
assets and liabilities were reduced as a result of this
disposition. Dillon Read assets, consisting primarily of cash
and cash equivalents of $2.7 billion and investments, were $4.3
billion at the date of sale. Liabilities, consisting primarily of
securities sold under repurchase agreements, were $4.2 billion at
the date of sale. The pretax loss on the sale of $41 million is
included in other revenues.
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In the fourth quarter of 1990, the Company completed the sale
of its wholly owned subsidiary, the Travelers Mortgage Services,
Inc. (TMSI), which originates and services home mortgage loans
and operates a relocation services business. Sales proceeds of
$210 million are subject to final settlement adjustments which,
in the opinion of management, are not expected to be material.
On an after-tax basis, the gain on this transaction was
insignificant. Under the terms of the sales agreement, the
Company has indemnified the purchaser for losses from certain
preclosing activities and for excess losses that may be
experienced on a portfolio of mortgage loans generated prior to
the sale, which losses will be calculated following the third
anniversary of the sale. A reserve has been established for
these items based upon management's current estimate of the range
of potential losses. These estimates are subject to revision as
indemnifiable losses are identified and actual excess losses on
the indemnified portfolio are realized.
Revenues, income before federal income taxes and net income of
TMC and Dillon Read are as follows:
========================================================================
TMC Dillon Read
------------------- --------------
(in millions) 1993* 1992 1991 1991*
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Revenues $20 $26 $58 $135
Income before federal income taxes 10 10 33 9
Net income 7 7 22 5
========================================================================
* Through the date of sale.
In addition, the Company sold and/or purchased several other
interests, subsidiaries and operations in 1993, 1992 and 1991.
The impact of these transactions was not material to the
consolidated financial results of the Company. Net losses on
dispositions after related income taxes amounted to $2 million
and $33 million for 1993 and 1991, respectively. Net gains on
dispositions after related income taxes amounted to $3 million
for 1992.
4. Selected Consolidated Quarterly and Other Financial Data
Selected unaudited consolidated quarterly and other financial
data for 1993 and 1992 are presented on pages 35-37.
5. Debt
=============================================================
(in millions) 1993 1992
- -------------------------------------------------------------
Short-term debt
Federal Home Loan Bank advances - $ 64
- -------------------------------------------------------------
Long-term debt
9 1/2% senior notes $300 $300
8.32% debentures - 194
12% GNMA/FNMA-collateralized obligations 132 188
7 5/8% notes 185 185
ESOP note guarantee 125 149
Federal Home Loan Bank advances - 90
Other 10 18
- -------------------------------------------------------------
$752 $1,124
=============================================================
- 8 -
At December 31, 1993 and 1992, the estimated fair value of the
Company's long-term debt was $821 million and $1.2 billion,
respectively, primarily determined by quoted market prices.
Senior Notes. On March 10, 1992, the Company issued $300 million
of 9 1/2% senior notes which mature on March 1, 2002. No
principal or sinking fund payments are required prior to maturity
date. The senior notes rank equally with all other unsecured,
unsubordinated obligations of the Company. On December 31, 1993,
in conjunction with the Merger, these notes were assumed by The
Travelers Inc.
Debentures. On December 28, 1993, the Company defeased all of
its 8.32% convertible subordinated debentures due 2015. The
debentures will be redeemed on March 10, 1994 at a price of
$1,008.30 in cash per $1,000 of principal amount. As of December
27, 1993, approximately $194 million principal amount of the
debentures was outstanding.
GNMA/FNMA-collateralized obligations. The 12% obligations of
Travelers Mortgage Securities Corporation have a stated maturity
(assuming no prepayments) of March 1, 2014. Distributions on the
GNMA and FNMA certificates, together with reinvestment earnings,
are used to make principal and interest payments on the
obligations. Since the rate of payment of principal depends on
the rate of payment (including prepayments) of the underlying
GNMA and FNMA certificates, the actual annual amounts of future
principal payments cannot be reasonably estimated.
The approximate minimum principal payments to be made in each of the
next five years, assuming no further prepayments on the GNMA and
FNMA certificates, are as follows:
=======================================
(in millions)
---------------------------------------
1994 $18
1995 2
1996 2
1997 2
1998 3
=======================================
Notes. The 7 5/8% notes were issued in January 1987 and mature
on January 15, 1997. No principal payments are required prior to
the maturity date. On December 31, 1993, in conjunction with the
Merger, these notes were assumed by The Travelers Inc.
ESOP note guarantee. The Company has guaranteed the loan
obligation of its Employee Stock Ownership Plan (ESOP) (see note
13). The minimum principal payments to be made in 1994, 1995,
1996 and 1997 are $28 million, $30 million, $32 million and $35 million,
respectively. On December 31, 1993, in conjunction with the
Merger, this guarantee was assumed by The Travelers Inc.
Federal Home Loan Bank advances. In 1992, the Company's banking
subsidiary became a member of the Federal Home Loan Bank and
participated in its Advance Program. Advances outstanding at
December 31, 1992 had various maturity dates from February 1993
to April 2002 and had interest rates ranging from 3.68% to 7.91%.
At December 31, 1992, $205 million of mortgage loans were pledged
to collateralize these advances. The subsidiary was sold during
the third quarter of 1993.
Lines of credit. At December 31, 1993, the Company and its
subsidiaries had approximately $275 million of unused lines of
credit, all of which expires beyond December 31, 1994.
- 9 -
6. Capital And Preference Stock
Number of shares at December 31, 1993:
================================================================================
Issued Treasury Stock Outstanding
- --------------------------------------------------------------------------------
Common stock,
par value $1.25,
500,000,000 authorized 146,872,701 1,256,405 145,616,296
Preferred stock,
no par value,
10,000,000 authorized - - -
Preference stock,
no par value,
25,000,000 authorized
Series A,
$53.25 stated value 4,406,431 - 4,406,431
Series B,
$50 stated value 7,500,000 - 7,500,000
================================================================================
On December 31, 1993, each outstanding share of the Company's common
stock (except for shares issued and held by The Travelers Inc., shares
in treasury of the Company and dissenting shares) was converted into
.80423 of a share of The Travelers Inc. common stock.
Common Stock. Summary of activity in common stock outstanding:
==============================================================================
1993 1992 1991
- ------------------------------------------------------------------------------
Balance beginning of year 144,020,518 104,156,082 102,170,021
Shares issued 736,388 38,026,314 -
Dividend reinvestment plan 378,542 1,662,282 719,694
Accrued vacation
buy-back plan - - 874,877
Exercise of options 793,397 134,074 31,397
Restricted stock awards 240,836 134,072 335,179
Acquired for treasury (367,955) (82,217) -
Other (185,430) (10,089) 24,914
- ------------------------------------------------------------------------------
Balance end of year, prior to merger 145,616,296 144,020,518 104,156,082
==============================================================================
At December 31, 1993, prior to the Merger, unissued common shares
were reserved for the following:
=======================================================
Stock plans 8,383,316
Conversion of Series A preference shares 4,406,431
Conversion of debentures 3,776,848
Dividend reinvestment plan 744,660
Other 129,563
- -------------------------------------------------------
Total 17,440,818
=======================================================
- 10 -
Common stock purchase rights. In 1986, the Company adopted a Share
Purchase Rights Plan, and a dividend distribution of one common share
purchase right on each outstanding share of common stock was declared
and paid. The rights traded automatically with the common shares.
These rights were redeemed by the Company for $.05 per right effective
December 30, 1993 and payment was made by The Travelers Inc. As a
result of the redemption, the Rights Plan became of no further force
and effect.
Series A convertible preference stock. The Company's $4.53 Series A
ESOP Convertible Preference Stock was issued to prefund the Company's
matching obligation under one of its benefit plans (see note 13). On
December 31, 1993, in conjunction with the Merger, the $4.53 Series A
ESOP Convertible Preference Stock was converted into shares of The
Travelers Inc. Series C Preferred Stock with substantially similar
terms as the Series A shares.
Series B preference stock. In June 1992, 7,500,000 shares of the
Company's 9 1/4% Series B preference stock were issued at a stated
value of $50 per share. The Series B preference shares were held in
the form of depositary shares, with two depositary shares representing
each preference share. Annual dividends of $4.625 per share ($2.3125
per depositary share) were payable quarterly. Dividends were
cumulative from the date of issue. The Series B preference stock was
not redeemable prior to July 1, 1997. On and after July 1, 1997, the
stock was redeemable at the Company's option, in whole or in part, at
any time, at a price of $50 per share (equivalent to $25 per
depositary share), plus accrued and unpaid dividends, if any, to the
redemption date.
In the event that dividends on the Series B preference stock were in
arrears in an amount equal to at least six full quarterly dividends,
holders of the stock would have the right to elect two additional
directors to the Company's Board of Directors.
On December 31, 1993, in conjunction with the Merger, the Series B
preference stock was converted into shares of The Travelers Inc.
Series D Preferred Stock with substantially similar terms as the
Series B shares.
Accrued vacation buy-back plan. Under the Accrued Vacation Buy-Back
Plan, employees elected in 1991 either to exchange accumulated unused
vacation balances as of January 1, 1991 for shares of the Company's
common stock, or use such days before December 31, 1993. Under this
plan, 874,877 shares of the Company's common stock were issued in June
1991. These elections resulted in after-tax income of $4 million in
1991.
Additional paid-in capital. The changes in additional paid-in capital
for the three years ended December 31, 1993 are primarily attributable
to the issuance of common stock in connection with The Travelers Inc.
investment in 1992 (see note 23), the Accrued Vacation Buy-Back Plan
in 1991, and the issuance of common stock in connection with the dividend
reinvestment plan, exercise of stock options and restricted stock awards
in all three years.
Unrealized investment gains (losses). An analysis of the change in
unrealized gains and losses on investments is shown in note 16.
7. Shareholders' Equity and Dividend Availability
State insurance regulatory authorities prescribe statutory accounting
practices for calculating net income and capital and surplus that
differ in certain respects from generally accepted accounting
principles (GAAP). The significant differences relate to deferred
acquisition costs, which are charged to expenses as incurred; federal
income taxes, which reflect amounts that are currently taxable;
postretirement benefits, which are accrued for retirees and fully
eligible employees, including amortization of the transition
obligation over 20 years; and benefit reserves, which are determined
using mortality, morbidity and interest assumptions, and which, when
considered in light of the assets supporting these reserves,
adequately provide for obligations under policies and contracts. In
addition, the recording of impairments in the value of investments
generally lags recognition under GAAP. Statutory net income and
capital and surplus also include the benefit of certain actions taken
by the Company, with the approval of state insurance regulatory
authorities, to strengthen its statutory capital position.
- 11 -
The tables below reconcile consolidated statutory net income and
statutory capital and surplus computed in accordance with state
insurance regulatory practices with consolidated net income and
shareholders' equity as reported herein in conformity with GAAP.
==============================================================================
Net income (loss) for the year ended December 31
- ------------------------------------------------------------------------------
(in millions) 1993 1992 1991
- ------------------------------------------------------------------------------
Statutory net income (loss)
Life companies $(601) $ (319) $ (55)
Property-casualty companies 123 (237) 258
- ------------------------------------------------------------------------------
Total (478) (556) 203
Adjustments to life and health
reserves and contractholder funds (68) (2) (120)
Deferred acquisition costs 36 71 35
Equity in undistributed loss of
noninsurance subsidiaries (18) (19) (37)
Timing of recognition of realized
investment gains and losses 680 (539) 194
Deferred federal income taxes 142 503 32
Other, including certain
restructuring expenses (6) (286) 11
Cumulative effect of change in
accounting for postretirement
benefits other than pensions,
net of tax - (258) -
Cumulative effect of change in
accounting for income taxes - 428 -
- ------------------------------------------------------------------------------
Net income (loss) $ 288 $ (658) $ 318
- ------------------------------------------------------------------------------
Shareholders' equity at end of year
- ------------------------------------------------------------------------------
(in millions) 1993 1992 1991
- ------------------------------------------------------------------------------
Statutory capital and surplus
Life companies $ 873 $1,571 $1,932
Property-casualty companies 1,483 1,665 1,843
- ------------------------------------------------------------------------------
Total 2,356 3,236 3,775
Adjustments to life and health
reserves and contractholder funds 309 316 279
Deferred acquisition costs 827 791 720
Valuation reserves, nonadmitted
and other asset adjustments 668 (85) (245)
Deferred federal income taxes 1,523 1,371 353
Liability for postretirement benefits
other than pensions (385) (408) -
Other liability adjustments, including
restructuring reserves (283) (243) (292)
- ------------------------------------------------------------------------------
Shareholders' equity $5,015 $4,978 $4,590
- ------------------------------------------------------------------------------
Dividend availability. The Company is currently subject to various
regulatory restrictions that limit the maximum amount of dividends
available to shareholders without prior approval of insurance
regulatory authorities. Under statutory accounting practices, no
statutory surplus is available in 1994 for dividends to shareholders
without prior approval.
Dividend payments to the Company from its insurance subsidiaries are
subject to similar restrictions and, absent the Merger, would be
limited to $242 million in 1994.
- 12 -
8. Leases
The Company and its subsidiaries have entered into various operating
and capital lease agreements for office space and data processing and
certain other equipment. Rental expense under operating leases was
$192 million, $216 million and $208 million in 1993, 1992 and 1991,
respectively. Future net minimum rental and lease payments are
estimated as follows:
==============================================================
Minimum operating Minimum capital
(in millions) rental payments lease payments
- --------------------------------------------------------------
Year ending December 31,
1994 $138 $ 7
1995 116 7
1996 87 7
1997 47 4
1998 27 4
Thereafter 16 68
- --------------------------------------------------------------
$431 $ 97
==============================================================
Included in these expenses are the rentals related to the sale of
certain buildings leased back under operating and capital leases with
initial terms ranging from 5 to 25 years. Deferred gains arising from
these sales are being amortized over the primary lease terms. At
December 31, 1993 and 1992, the amount remaining to be amortized is
$53 million and $59 million, respectively.
The following is a summary of assets under capital leases:
=======================================================
(in millions) 1993 1992 1991
- -------------------------------------------------------
Buildings $31 $31 $31
Equipment 16 18 10
- -------------------------------------------------------
47 49 41
Less accumulated depreciation 15 12 13
- -------------------------------------------------------
Net $32 $37 $28
=======================================================
9. Commitments and Contingencies
Financial instruments with off-balance-sheet risk. The Company trades
and issues financial instruments with off-balance-sheet risk in the
normal course of its business. These instruments, which are used to
reduce the Company's overall exposure to market risk and to enhance
the Company's investment opportunities, include financial guarantees,
financial futures, forward contracts, fixed rate loan commitments and
variable rate loan commitments, including revolving lines of credit.
Financial instruments with off-balance-sheet risk involve, to
varying degrees, elements of credit and market risk in excess of the
amount recognized in the consolidated balance sheet. The contract or
notional amounts of these instruments reflect the extent of
involvement the Company has in a particular class of financial
instrument. However, the maximum credit loss or cash flow associated
with these instruments can be less than these amounts.
The Company also may use other kinds of financial instruments from
time to time that expose the Company to similar kinds of off-balance-
sheet risk. These instruments include unfunded commitments to
partnerships, transfers of receivables with recourse and interest
rate swaps. The off-balance-sheet risks of these financial
instruments were not considered significant at December 31, 1993 and
1992.
- 13 -
The Company's exposure to credit loss in the event of nonperformance
by the other party to the financial instrument for financial
guarantees and fixed and variable rate loan commitments is represented
by the contractual amount of these instruments. For financial futures
contracts and forward contracts, the Company's exposure to credit loss
in the event of nonperformance by the counterparty is less than the
contractual or notional amount.
The Company monitors creditworthiness of counterparties to these
financial instruments by using criteria of acceptable risk that are
consistent with on-balance-sheet financial instruments. The controls
include credit approvals, limits and other monitoring procedures.
Many transactions include the use of collateral to minimize credit
risk and lower the effective cost to the borrower.
A summary of contract or notional amounts is presented below:
=============================================================
(in millions) 1993 1992
- -------------------------------------------------------------
Financial instruments whose contract
amount represents credit exposure:
Financial guarantees $3,016 $4,039
Fixed rate loan commitments 126 160
Variable rate loan commitments 17 278
Financial instruments whose contract
amount exceeds credit exposure:
Forward contracts used as hedges 279 722
Financial futures contracts 25 418
=============================================================
Financial guarantees are written conditional commitments issued by
the Company to guarantee the performance of a customer to a third
party. At December 31, 1993 and 1992, the fair value of financial
guarantee contracts was $1 million and $7 million, respectively, which
is an estimate of current replacement cost. These obligations are
described more fully in note 10.
Fixed rate loan commitments are obligations to make investments at
fixed interest rates, including obligations to invest in fixed
maturities and fixed rate mortgage loans. Variable rate loan
commitments are obligations to make investments at variable interest
rates, including obligations to invest in variable rate mortgage
loans. At December 31, 1993 and 1992, fixed and variable rate loan
commitments have no meaningful fair value because the terms of the
commitments approximate market rates.
The Company uses a variety of financial futures contracts to manage
its sensitivity to changes in market interest rates. These contracts
generally hedge the interest rate risk of other investments.
Financial futures contracts are traded on recognized exchanges.
Cash payments are not required to enter into financial futures
contracts. Outstanding positions are marked to market and settled
daily. The notional amount of futures contracts represents the extent
of the Company's involvement, but not future cash requirements, as
open positions are typically closed out prior to the delivery date of
the contract. At December 31, 1993 and 1992, the Company's futures
contracts have no fair value because these contracts are marked to
market and settled in cash.
The Company uses a variety of forward contracts to manage its
sensitivity to changes in foreign currency exchange rates. These
contracts generally act as hedges for foreign investments held by U.S.
portfolios or for investments in foreign operations (primarily
Canadian). Forward contracts are traded over-the-counter, generally
with a financial institution.
Cash payments are not required to enter into foreign currency forward
contracts. Outstanding positions are marked to market; however, they
are not settled in cash until maturity. The market risk attributed to
either a futures contract or a forward contract is balanced by the
market risk attributed to the associated hedged asset to minimize the
Company's overall sensitivity to risk. At December 31, 1993 and 1992,
the fair value of forward contracts used as hedges was $7 million and
$9 million, respectively, which is based on quoted market prices.
- 14 -
Litigation. In response to the announcement in September 1993 of the
anticipated merger with Primerica, a number of proposed class
action lawsuits were filed in state court in Connecticut and New
York against the Company, its directors and Primerica. These
cases are now consolidated in Connecticut, and the consolidated
amended complaint generally seeks damages on behalf of
shareholders of the Company based on the alleged inadequacy of the
merger consideration offered by Primerica under the terms of the
merger. On January 27, 1994, the defendants, including the Company by its
successor, The Travelers Inc., filed a motion to dismiss the case
based on, among other things, Connecticut law limiting claims by
dissenting shareholders to statutory appraisal rights.
In December 1993, the Company and National Medical Enterprises,
Inc. (NME) executed an agreement in principal to settle lawsuits
brought by both parties arising out of alleged fraudulent practices
by NME during the years 1988 through 1992. The Company will
receive the settlement, including interest, in 1994. Most of the
proceeds will be distributed back to the Company's customers.
The Company and certain of its subsidiaries were plaintiffs in a
recently settled lawsuit in Federal Court in Connecticut relating
to Separate Account "R", a real estate separate account that is
administered and managed by The Travelers Insurance Company. The
defendant Account participants filed counterclaims alleging that
the Company breached its fiduciary obligations in the management of
Separate Account "R". In April 1993, the Company entered into a
class action settlement agreement with all defendants, which
resolved all counterclaims and, as a result, all outstanding issues
with the class of Account participants. Pursuant to the final
settlement, the Company paid approximately $87 million to all
Account participants. In 1992, the Company established a $53
million reserve for the estimated net cost of resolving this
lawsuit. The Company is pursuing a declaratory action in Federal
Court in New York against its primary errors and omissions insurer
in response to a denial of coverage for the Separate Account "R"
settlement. In January 1994, the Company settled a claim with
its excess insurer. As of December 31, 1993, the Company had a
receivable of $32 million for its insurance claims which was
reduced by $7 million in 1993.
In February 1990, the New Jersey Department of Insurance filed an
administrative action, Fortunato v. Aetna Casualty & Surety Co. et
al., seeking restitution from fifteen insurance companies, including
the Company, arising from their acting as servicing carriers for the
New Jersey Automobile Full Insurance Underwriting Association. In
June 1993, the Company resolved this action and received a Consent
Order from the New Jersey Insurance Department dismissing the action
with prejudice. Compliance with the terms of the settlement agreement
was not material to the financial statements.
In April 1989, a lawsuit was filed against the Company by the
federal government alleging the Company improperly handled health
benefit claims for individuals who are actively employed and
eligible for Medicare coverage. In November 1992, the court ruled
on cross motions for summary judgment. The court found that the
Company had no liability when acting in the capacity of an
administrator of claims. However, the court also recognized that,
while the government's right of recovery with respect to insured
claims is governed by the substantive terms of our customer's
health benefit plan, the right of recovery is independent of
procedural limitations in the Company's contracts.
The Securities and Exchange Commission is conducting a nonpublic
inquiry pursuant to an order of investigation with respect to the
Company's accounting, reporting and disclosure treatment of certain
matters in connection with its lending and loss recognition practices
pertaining to real estate investments and related matters going back
to January 1, 1988. The Company is cooperating fully with the
Commission's staff.
The Company is in litigation with certain underwriters at Lloyd's of
London in New York state court to enforce reinsurance contracts with
respect to recoveries for certain asbestos claims. In January 1994,
the court stayed litigation of this matter in favor of arbitration of
the contract issues raised by the Company under the applicable
treaties and an agreement with the Lloyd's market on coverage for
asbestos-related claims.
Certain of the Company's subsidiaries are involved in litigation
with respect to claims arising with regard to insurance, which is
taken into account in establishing benefit reserves. On insurance
contracts written many years ago, the Company continues to receive
claims asserting alleged injuries and damages from asbestos and other
hazardous and toxic substances. In relation to these claims, the
Company carries on a continuing review of its overall position, its
reserving techniques and reinsurance recoverable. In each of these
areas of exposure, the Company has endeavored to litigate individual
cases and settle claims on favorable terms. Given the vagaries of
- 15 -
court coverage decisions, plaintiffs' expanded theories of liability,
the risks inherent in major litigation and other uncertainties, it is
not presently possible to quantify the ultimate exposure represented
by these claims. As a result, the Company expects that future
earnings may be adversely affected by environmental and asbestos
claims, although the amounts cannot be reasonably estimated. However,
it is not likely these claims will have a material adverse effect on
the Company's financial condition.
The Company and/or its subsidiaries are defendants or co-defendants
in various litigation matters. Although there can be no assurances,
as of December 31, 1993, the Company believes, based on information
currently available, that the ultimate resolution of these legal
proceedings (other than environmental and asbestos claims) would not
be likely to have, but may have, a material adverse effect on the
results of operations.
The amount of related litigation costs for 1993, 1992 and 1991 was
$44 million, $48 million and $51 million, respectively.
10. Guarantees of the Securities of Other Issuers
As part of its regular insurance business in which a wide range of
risks are assumed to cover possible future economic loss by third
parties, the Company underwrites insurance guaranteeing the securities
of certain issuers. The aggregate net amount of guarantees of
principal and interest for such securities was approximately $180
million ($2.8 billion gross of reinsurance) and $2.8 billion ($3.6
billion gross of reinsurance) at December 31, 1993 and 1992,
respectively. Estimated net earned premiums amounted to
$5 million and $7 million in 1993 and 1992, respectively. Premiums
are earned pro rata over the policy term. The related unearned
premium reserve amounted to $1 million and $14 million at December 31,
1993 and 1992, respectively.
The Company's participation in the Municipal Bond Insurance
Association (MBIA) has been reinsured to Municipal Bond Investors
Assurance Corporation, effective August 31, 1993. This accounts for
the decline in aggregate net amount of guarantees of principal and
interest and the reduction in the unearned premium reserves in 1993.
11. Per Share Data
No earnings per share information is provided for 1993 because the
Company became a wholly-owned subsidiary of The Travelers Inc.
effective December 31, 1993.
Primary income per common share was computed after provision for the
dividend requirements on preference stocks. It is based upon the
weighted average number of common shares outstanding including, if
applicable, common stock equivalents. Fully diluted income per share
was based on the number of shares used in the calculation of primary
income per share plus shares issuable if Series A preference shares,
convertible debentures and preferred shares were converted for the
periods they were outstanding. In 1992 and 1990, such conversions
were not assumed as the effect was antidilutive.
The number of shares used in the calculation was:
==============================================================
Primary Fully diluted
- --------------------------------------------------------------
1992 106,149,028 106,149,028
1991 103,022,370 111,595,983
1990 101,814,180 101,814,180
1989 102,587,596 108,336,328
==============================================================
- 16 -
12. Additional Operating Information*
Results included in the table below reflect 1993 fourth quarter after-tax
charges of $111 million for an addition to reserves for foreclosed properties
held for sale and 1992 fourth quarter after-tax charges of $288 million for
implementation of SOP 92-3 and $197 million for an addition to mortgage loan
valuation reserves.
Pre-merger, historical accounting basis
- ------------------------------------------------------------------------------------------------------------------------------------
Property- Property- Managed Asset
Casualty Casualty Care and Management Corporate
Commercial Personal Financial Employee & Pension and Other
(in millions) Lines Lines Services Benefits Services Operations Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
1993
Revenues
Premiums $ 2,234 $ 1,361 $ 235 $ 2,617 $ 137 - $ 6,584
Net investment income 525 152 677 294 951 $ 1 2,600
Realized investment gains (losses) 150 46 77 32 (122) 26 209
Other, including gains and losses on dispositions (7) 32 113 742 11 - 891
- -----------------------------------------------------------------------------------------------------------------------------------
Total 2,902 1,591 1,102 3,685 977 27 10,284
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before federal income taxes 7 167 173 205 (248) (72) 232
Net income (loss) 44 125 128 148 (98) (59) 288
Assets 16,393 2,745 14,319 5,049 15,764 340 54,610
- -----------------------------------------------------------------------------------------------------------------------------------
1992
Revenues
Premiums $ 2,295 $ 1,428 $ 231 $ 2,620 $ 114 - $ 6,688
Net investment income 546 156 631 328 1,180 $ (42) 2,799
Realized investment gains (losses) 78 22 (98) (18) (626) 7 (635)
Other, including gains and losses on dispositions 10 27 120 657 23 (14) 823
- -----------------------------------------------------------------------------------------------------------------------------------
Total 2,929 1,633 884 3,587 691 (49) 9,675
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before federal
income taxes and cumulative effects
of changes in accounting principles (61) (289) (72) (70) (761) (101) (1,354)
Cumulative effect of change in
accounting for postretirement benefits
other than pensions, net of tax (88) (37) (15) (106) (10) (2) (258)
Cumulative effect of change in
accounting for income taxes 57 11 36 123 191 10 428
Net income (loss) (45) (201) (20) (23) (311) (58) (658)
Assets 15,770 2,656 13,021 5,309 19,514 1,759 58,029
- -----------------------------------------------------------------------------------------------------------------------------------
1991
Revenues
Premiums $ 2,726 $ 1,457 $ 249 $ 2,687 $ 183 - $ 7,302
Net investment income 595 162 641 356 1,510 $ (36) 3,228
Realized investment gains (losses) 4 9 6 14 (42) 7 (2)
Other, including gains and losses on dispositions (3) 31 117 616 23 65 849
- -----------------------------------------------------------------------------------------------------------------------------------
Total 3,322 1,659 1,013 3,673 1,674 36 11,377
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before federal income taxes 242 27 56 143 (35) (110) 323
Net income (loss) 219 35 40 107 (5) (78) 318
Assets 15,118 2,547 11,922 5,057 22,209 1,122 57,975
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
* Included above in Corporate and Other Operations are The Massachusetts Company
which was sold in 1993, and Dillon, Read Inc., which was sold in 1991
(see note 3).
- 17 -
13. Benefit Plans
Pension plans. The Company and its subsidiaries maintain defined
benefit pension plans for salaried employees. The primary plan is
noncontributory and was amended in 1993 to provide benefits based on
the account balances of participating employees at the time of
retirement. The account balances of employees are credited annually
with an amount based on salary and age, and accrue interest. Vesting
occurs after five years of service in compliance with the provisions
of the Tax Reform Act of 1986. The Company's funding policy for
qualified U.S. pension plans is to contribute, at a minimum, the
equivalent of the amount required under the Employee Retirement Income
Security Act of 1974 and the Internal Revenue Code. Actuarially
determined costs are provided for all other plans.
Components of pension expense are:
========================================================
(in millions) 1993 1992 1991
- --------------------------------------------------------
U.S. plans:
Service costs $30 $40 $46
Interest costs 122 128 125
Actual return on assets (201) (67) (167)
Net amortization and deferral 62 (53) 7
- --------------------------------------------------------
Net pension expense $13 $48 $11
========================================================
As a result of certain organizational restructuring initiatives (see
note 20), special termination benefits of $25 million are included in
the net amortization and deferral component of 1992 net pension expense.
Reconciliation of the funded status of the qualified plans follows:
=============================================================
(in millions) 1993 1992 1991
- -------------------------------------------------------------
Actuarial present value of vested
benefit obligations $1,534 $1,399 $1,127
Actuarial present value of
accumulated benefit obligations 1,548 1,418 1,153
- -------------------------------------------------------------
Plan assets at fair value $1,719 $1,624 $1,644
Actuarial present value of
projected benefit obligation 1,620 1,656 1,525
- -------------------------------------------------------------
Assets in excess of (less than)
projected benefit obligation 99 (32) 119
Unamortized transition asset (27) (36) (45)
Unrecognized net actuarial loss 185 268 198
Unrecognized prior service benefit (101) (40) (78)
- -------------------------------------------------------------
Prepaid pension expense $156 $160 $194
=============================================================
At December 31, 1993, the non-qualified plan had projected benefit
obligations of $60 million, which were $4 million less than the recorded
liability. At December 31, 1992, the projected benefit obligation was
$6 million less than the recorded liability. At December 31, 1991,
the projected benefit obligation exceeded the recorded liability by
$35 million.
The expected long-term rate of return on plan assets was 8.9%, 9.7%
and 10.2% for 1993, 1992 and 1991, respectively. In 1993, the
discount rate used in determining the projected benefit obligation was
- 18 -
7.5% and the assumed rate of future annual salary increases varied
between 2% and 9%, based upon employees' ages. The discount rate was
8.25% and 8.5% in 1992 and 1991, respectively, and the rate of
increase in future compensation levels used in determining the
projected benefit obligation was between 3% and 10% based on employees
ages for 1992 and 6.5% for 1991. Changes in assumptions from period
to period can result in adjustments to the accumulated and projected
benefit obligations. Such changes may also affect the expense
recognized and/or the unrecognized net actuarial gain or loss. Plan
assets are held primarily in various separate accounts and the general
account of The Travelers Insurance Company and certain investment
trusts. These accounts invest in stocks, bonds, mortgage loans and
real estate of entities unrelated to the Company.
The Company also sponsors defined contribution pension plans for
certain agents. Company contributions are primarily a function of
production. The expense for these plans was $3 million in 1993 and $2
million in both 1992 and 1991.
Other benefit plans. In addition to pension benefits, the Company
provides certain health care and life insurance benefits for retired
employees. Substantially all employees may become eligible for these
benefits if they reach retirement age while working for the Company.
Retirees may elect certain prepaid health care benefit plans. Life
insurance benefits generally are set at a fixed amount.
In the third quarter of 1992, the Company adopted FAS 106 and
elected to recognize the accumulated postretirement benefit obligation
(i.e., the transition obligation) as a change in accounting principle
retroactive to January 1, 1992.
Prior to the adoption of FAS 106, the Company accounted for these
postretirement costs on a cash basis. The cost recognized by the
Company for these and similar benefits provided to active employees
was based upon paid claims, net of employee contributions. Total
costs of the plans for retirees were $20 million in 1991.
The Company made contributions to the plans in 1993 and 1992 as
claims were incurred. These contributions totaled $25 million and $23
million for 1993 and 1992, respectively. Retirees' contributions to
these plans vary, based upon the retiree's age and election of
coverage. Generally, increases in the Company's contributions for
health care will be limited to two times the current average cost per
retiree. In addition, retirees' contributions will vary based upon
their years of service with the Company.
Components of net periodic postretirement benefit cost are:
========================================================
(in millions) 1993 1992
--------------------------------------------------------
Service costs $ 4 $ 7
Interest costs 35 33
Net amortization and deferral (1) 14
--------------------------------------------------------
Net periodic postretirement benefit cost $38 $54
========================================================
As a result of certain organizational restructuring initiatives (see
note 20), curtailment losses of $14 million in 1992 are included in
the net amortization and deferral component of net periodic
postretirement benefit cost in that year.
The following table sets forth the plans' funded status reconciled
with amounts recognized in the Company's consolidated balance sheet:
=====================================================================
(in millions) 1993 1992
---------------------------------------------------------------------
Accumulated postretirement benefit obligation for:
Retirees $387 $286
Other fully eligible plan participants 13 60
Other active plan participants 53 84
---------------------------------------------------------------------
Total accumulated postretirement benefit obligation 453 430
Plan assets at fair value - -
---------------------------------------------------------------------
Accumulated postretirement benefit obligation
in excess of plan assets 453 430
Unrecognized net loss from experience
different from that assumed (62) (7)
Unrecognized prior service benefit 45 -
---------------------------------------------------------------------
Accrued postretirement benefit cost $436 $423
=====================================================================
- 19 -
The weighted-average discount rate used in determining the
accumulated postretirement benefit obligation was 7.5% and 8.0% for
1993 and 1992, respectively, and the assumed rate of future annual
salary increases varied between 2% and 9% for 1993 and 3% and 10% for
1992 based on employees' ages.
For measurement purposes, an annual rate of increase in the per
capita cost of health care benefits (the health care cost trend rate)
of up to 16.8% was assumed through 1994; the rate is assumed to
decrease gradually to a maximum of 7.0% in 2001, and remain at that
level thereafter. The health care cost trend rate assumption has a
significant effect on the amounts reported. To illustrate, increasing
the assumed health care cost trend rates by 1% in each year would
increase the accumulated postretirement benefit obligation as of
December 31, 1993 by $30 million and the aggregate of the service and
interest cost components of net periodic postretirement benefit cost
for 1993 by $3 million.
The Merger transaction resulted in a change in control of the
Company, as defined in the applicable plans, and provisions of some
employee benefit plans secured existing compensation and benefit
entitlements earned prior to any change in control and provided a
salary and benefit continuation floor for employees whose employment
was affected.
Stock plans. Stock options, stock appreciation rights (SARs) and
shares of restricted stock have been granted pursuant to plans adopted
by the Board of Directors and approved by shareholders at the 1982 and
1988 annual meetings. The 1988 plan provided for the award of up to
10,000,000 shares of the Company's common stock in the form of options
to purchase common stock or SARs, and restricted stock. Commencing in
1988, all grants were made pursuant to the 1988 plan, although the
prior plan continued to govern awards of options and SARs made
pursuant to it.
All outstanding options and SARs were either exercisable or became
exercisable over various periods beginning one year after the date of
grant and could be exercised until 10 years from the date of grant.
A holder of an option with an SAR attached has the right to
surrender the SAR for the appreciation in the common stock between the
time of the grant and the surrender. However, the maximum value of an
SAR was limited to twice the option purchase price. The exercise of
an SAR canceled the option grant with which the SAR was associated,
and vice versa.
Shares of restricted stock were granted subject to restrictions on
their transferability. These restrictions lapsed upon the expiration
of a period of employment or the achievement of stated criteria, or
both. The restrictions lapsed over a period of between one and ten
years from the date of grant.
Effective December 30, 1993, all stock options became exercisable or
could be liquidated for a cash amount, all stock appreciation rights
were terminated, all restrictions on time-lapse restricted stock
lapsed and restrictions on 50% of the performance contingent
restricted stock lapsed. In addition, The Travelers Inc. offered an
alternative stock option election which option holders could choose in
lieu of exercising or exchanging their options.
At the time of the Merger, 7,193,486 options to purchase the
Company's common stock were outstanding. Of this amount, 2,205,204
options were forfeited or liquidated and the remaining 4,988,282
options at a weighted average price of $26.94 were converted to
options to receive 4,011,726 shares of The Travelers Inc. common stock
at a weighted average price of $33.50. The cost related to options
liquidated is approximately $8 million. In addition, the remaining
outstanding restricted stock awards of 141,759 shares were converted
into 113,977 restricted shares of The Travelers Inc. common stock.
- 20 -
Information with respect to grants follows:
================================================================================
Options outstanding
------------------------------
Shares Average
available option
for grant Shares price
- --------------------------------------------------------------------------------
Balance, January 1, 1991 2,465,712 2,823,861 $34.79
Options:
Granted (1,109,209) 1,109,209 $17.09
Exercised - (36,219) $13.91
Forfeited 64,473 (208,755)
Restricted stock:
Granted (330,568) -
Forfeited 9,579 -
- --------------------------------------------------------------------------------
Balance, December 31, 1991 1,099,987 3,688,096 $29.46
Options:
Authorized 5,000,000 -
Granted (2,056,100) 2,056,100 $22.38
Exercised - (190,001) $14.52
Forfeited 142,348 (231,007)
Restricted stock:
Granted (131,072) -
Forfeited 41,767 -
- --------------------------------------------------------------------------------
Balance, December 31, 1992 4,096,930 5,323,188 $27.28
Options:
Granted (3,144,365) 3,144,365 $27.37
Exercised - (938,758) $19.16
Forfeited 307,124 (335,309)
Restricted stock:
Awarded (231,110) -
Forfeited 161,251 -
- --------------------------------------------------------------------------------
Balance, December 31, 1993 1,189,830 7,193,486 $28.30
================================================================================
Options exercisable at December 31, 1993, 1992 and 1991 were
7,193,486, 2,782,576 and 1,859,359, respectively.
Savings, investment and stock ownership plan. Under the savings,
investment and stock ownership plan available to substantially all
employees, the Company matches a portion of employee contributions.
Effective April 1, 1993, the match decreased from 100% to 50% of an
employee's first 5% contribution and a variable match based on the
Company's profitability was added. The Company's matching obligations
were $22 million in 1993 and $36 million in both 1992 and 1991. In the
second quarter of 1989, the Company established an Employee Stock
Ownership Plan (ESOP) to serve as the funding vehicle for its matching
obligation under the savings, investment and stock ownership plan
beginning in 1990. In June 1989, the ESOP purchased 3,755,869 shares
of the Company's $4.53 Series A ESOP Convertible Preference Stock at
$53.25 per share. The Series A preference stock is convertible into
the Company's common stock at a one-to-one conversion rate. The
shares may be redeemed at the option of the Company or the holder
under certain circumstances. Annual dividends of $4.53 are
cumulative. The Series A preference stock has a minimum liquidation
value of $53.25 plus unpaid and accrued dividends. The ESOP financed
the purchase of the Series A preference shares with a $200 million
variable interest rate loan from a third party. The Company has
guaranteed the ESOP's debt obligation, and the unpaid principal
balance is included in the Company's long-term debt with a
corresponding offset to the ESOP Series A preference stock.
Increasing semi-annual payments that began January 1, 1990 will fully
amortize the debt by July 1, 1997.
- 21 -
The Series A preference shares are held by the ESOP Trustee and are
allocated to participants by a method that considers the debt service
requirements of the ESOP. In 1993, 429,361 Series A preference shares
were allocated to participants under this method. This compares with
394,044 shares in 1992 and 384,738 shares in 1991. Remaining
unallocated shares are 2,061,214, 2,490,575 and 2,884,619 in 1993,
1992 and 1991, respectively. To the extent that the shares allocated
by this method are not sufficient to meet the Company's matching
obligation under the savings plan, additional contributions will be
made. No such contribution was required to meet the 1993 obligation.
In January 1993, 184,397 additional preference shares were contributed
to the ESOP to meet the 1992 matching obligation. In December 1991,
320,000 additional preference shares were contributed to the ESOP to
meet the estimated 1991 matching obligation. Likewise, in January
1991, 146,165 additional preference shares were contributed to the ESOP to
meet the 1990 matching obligation.
ESOP expense is recognized based upon the value of preference shares
allocated to plan participants, giving consideration to interest
incurred on the debt and credit for dividends received. The value of
additional Series A preference shares, common stock or cash necessary
to satisfy the matching requirement is included as a component of ESOP
expense. The amount of ESOP expense recognized by the Company was $25
million in 1993, $26 million in 1992 and $29 million in 1991.
Dividends of $20 million, $19 million and $17 million in 1993, 1992
and 1991, respectively, as well as contributions of $8 million in 1993
and 1992 and $10 million in 1991, were used by the ESOP to service its
debt. The ESOP incurred $4 million, $5 million and $9 million of
interest expense in 1993, 1992 and 1991, respectively.
Effective December 31, 1993, in conjunction with the Merger, all
outstanding Series A preference shares were transferred and converted
to shares of The Travelers Inc. $4.53 ESOP Convertible Preferred Stock,
Series C with substantially similar terms, and The Travelers Inc.
assumed the guarantee of the ESOP's debt obligation.
- 22 -
14. Federal Income Taxes
============================================================
(in millions) 1993 1992 1991
- ------------------------------------------------------------
Effective tax rate
Income (loss) before federal
income taxes $232 $(1,354) $ 323
- ------------------------------------------------------------
Statutory tax rate 35% 34% 34%
- ------------------------------------------------------------
Expected federal income taxes $ 81 $ (460) $ 110
Tax effect of:
Nontaxable investment income (39) (38) (44)
"Fresh start" adjustments (16) (20) (50)
Adjustment to benefit and
other reserves (41) (9) (1)
Adjustment to deferred tax asset
for enacted change in tax rates
from 34% to 35% (44) - -
Nondeductible merger expenses 10 - -
Other (7) 1 1
- ------------------------------------------------------------
Federal income taxes $ (56) $(526) $ 16
- ------------------------------------------------------------
Effective tax rate (24)% 39% 5%
- ------------------------------------------------------------
Composition of federal income taxes
Current:
United States $ 81 $ (31) $ 46
Foreign 5 8 2
- ------------------------------------------------------------
Total 86 (23) 48
- ------------------------------------------------------------
Deferred:
United States (142) (503) (32)
Foreign - - -
- ------------------------------------------------------------
Total (142) (503) (32)
- ------------------------------------------------------------
Federal income taxes $ (56) $(526) $ 16
============================================================
- 23 -
The net deferred tax assets at December 31, 1993 and 1992 were
comprised of the tax effects of the temporary differences related to
the following assets and liabilities:
======================================================================
(For the year ended December 31,
in millions) 1993 1992
- ----------------------------------------------------------------------
Deferred tax assets:
Property-casualty loss reserves $600 $570
Benefit, reinsurance and other reserves 347 239
Contractholder funds 185 173
Investments 382 379
Reserve for postretirement benefits 153 144
Restructuring reserves 60 98
Other 221 196
- ----------------------------------------------------------------------
Total 1,948 1,799
- ----------------------------------------------------------------------
Deferred tax liabilities:
Deferred acquisition costs 240 230
Accumulated depreciation 30 44
Prepaid pension expense 55 54
- ----------------------------------------------------------------------
Total 325 328
- ----------------------------------------------------------------------
Net deferred tax asset before valuation allowance 1,623 1,471
Valuation allowance for deferred tax assets (100) (100)
- ----------------------------------------------------------------------
Net deferred tax asset after valuation allowance $1,523 $1,371
======================================================================
The change in the net deferred tax asset after valuation allowance
includes a $10 million change in the deferred taxes relating to
unrealized investment losses.
The net tax effects of significant timing differences in the
deferred tax provision for 1991 were as follows:
===============================================
(in millions) 1991
- -----------------------------------------------
Components of deferred taxes:
Deferred acquisition costs $ (6)
Benefit, reinsurance and other reserves (32)
Dividends to contractholders 7
Property-casualty loss reserves (39)
Prepaid pension expense 2
Compensated absences 9
Investment valuation and other reserves 17
Other 10
- -----------------------------------------------
Deferred federal income taxes $(32)
===============================================
Consolidated federal income taxes. The Company files its federal
income tax return on a consolidated basis. The return includes one
subgroup of companies that are considered life insurers for federal
income tax purposes and one subgroup of companies that are not life
insurers. Certain limitations and restrictions apply to the
utilization of losses generated by one subgroup against income of the
other subgroup.
In August 1993, the President signed into law the Omnibus Budget
Reconciliation Act of 1993 (the Act). Included in the Act was a
provision that raised the tax rate on corporations from 34% to 35%.
Under current GAAP accounting rules, the Company was required to
restate its deferred tax asset using the new 35% rate as of the
enactment date of the legislation. This restatement produced a $40
million increase to the deferred tax asset (and an increase to
earnings) for 1993.
Upon adoption of FAS 109, a valuation allowance of $100 million was
established to reduce the net deferred tax asset on investment losses
to the amount that, based upon all available evidence, is more likely
- 24 -
than not to be realized. Reversal of the valuation allowance is
contingent upon the recognition of future capital gains in the
Company's federal income tax return or a change in circumstances which
causes the recognition of the benefits to become more likely than not.
There was no net change in the total valuation allowance during 1993.
As of December 31, 1993, the Company has no ordinary or capital loss
carryforwards. The Company has an alternative minimum tax (AMT)
credit carryforward of $51 million as of December 31, 1993 and
$63 million as of December 31, 1992. This credit will be utilized to
offset the excess of regular tax over AMT in future years and has no
expiration period.
Extraordinary tax credits of $11 million relating to the realization
of book capital loss carryforwards were recognized in 1991. In
addition, $316 million of deferred tax assets, which were in excess of
the amount of tax recoverable through carrybacks, were not recognized
at December 31, 1991. In 1992, this amount was included in the FAS
109 cumulative effect adjustment net of the valuation allowance of
$100 million.
Life insurance companies. The "policyholders surplus account", which
arose under prior tax law, is generally that portion of the gain from
operations that has not been subjected to tax, plus certain
deductions. The balance of this account, which, under provisions of
the Tax Reform Act (TRA) of 1984, will not increase after 1983, is
estimated to be $893 million. This amount has not been subjected to
current income taxes but, under certain conditions that management
considers to be remote, may become subject to income taxes in future
years. At current rates, the maximum amount of such tax (for which no
provision has been made in the financial statements) is approximately
$313 million.
Nonlife companies. Commencing in 1987, the TRA of 1986 required
insurance companies to discount property-casualty loss reserves for
tax purposes. Companies were, however, allowed a "fresh start"
adjustment by recomputation of the opening 1987 loss reserves. This
adjustment reduced 1991 taxes by $35 million. There was no 1993 or 1992
effect since the unamortized "fresh start" balance at December 31, 1991
was included in the FAS 109 cumulative effect adjustment.
Starting in 1990, the Omnibus Budget Reconciliation Act of 1990
required property-casualty insurance companies to accrue estimated
salvage and subrogation recoverables. Companies were, however,
allowed a "fresh start" adjustment equal to 87% of the discounted
opening 1990 reserve. For the Company, this amount was spread over a
four-year period beginning in 1990. "Fresh start" adjustments
relating to salvage and subrogation reduced 1993, 1992 and 1991 taxes
by $16 million, $20 million and $15 million, respectively.
15. Reinsurance
The Company, through its insurance subsidiaries, participates in
reinsurance to reduce overall risks, including exposure to large
losses and catastrophic events, and to effect business-sharing
arrangements. Its property-casualty insurance subsidiaries also
participate as a servicing carrier for and member of several pools and
associations. Amounts recoverable from reinsurers of short-duration
contracts are estimated in a manner consistent with the claim
liability associated with the reinsured policy. The Company remains
primarily liable as the direct insurer on all risks reinsured.
Reinsurance recoverables are reported after allowances for
uncollectible amounts. Generally, the cost of reinsurance is
recognized over the period of the reinsurance contract. Prepaid
reinsurance premiums are included in other assets within the
consolidated balance sheet.
- 25 -
A summary of reinsurance financial data reflected within the
consolidated statement of operations and retained earnings is
presented below (in millions):
========================================================================
(For the year ended
December 31, in millions) 1993 1992 1991
- ------------------------------------------------------------------------
Written Premiums:
- ----------------
Direct $ 7,716 $ 7,738 $ 8,178
Assumed 425 539 539
Ceded (1,557) (1,589) (1,415)
- ------------------------------------------------------------------------
Total $ 6,584 $ 6,688 $ 7,302
========================================================================
Earned Premiums:
- ---------------
Direct
Life business $ 3,005 $ 2,898 $ 2,978
Property-casualty business 4,510 4,936 5,256
Assumed
Life business 34 127 137
Property-casualty business 383 362 402
Ceded
Life business (87) (65) (20)
Property-casualty business (1,452) (1,454) (1,444)
- ------------------------------------------------------------------------
Total $ 6,393 $ 6,804 $ 7,309
========================================================================
The following table reflects reinsurance recoveries (in millions):
========================================================================
(For the year ended
December 31, in millions) 1993 1992 1991
- ------------------------------------------------------------------------
Reinsurance Recoveries:
- ----------------------
Life business $ 85 $ 85 $ 102
Property-casualty business 1,240 1,568* 1,191
- ------------------------------------------------------------------------
Total $1,325 $ 1,653 $ 1,293
========================================================================
* Increase in 1992 is due to Hurricane Andrew.
A summary of financial data reflected within the consolidated balance
sheet follows (in millions):
========================================================
(At December 31, in millions) 1993 1992
- --------------------------------------------------------
Reinsurance Recoverables:
- ------------------------
Life business $ 65 $ 86
Property-casualty business:
Pools and associations 2,585 2,582
Other reinsurers 1,546 1,500
- --------------------------------------------------------
4,131 4,082
- --------------------------------------------------------
Total $ 4,196 $ 4,168
========================================================
Included within the December 31, 1993 reinsurance recoverable balance
is a current estimate of reinsurance recoverable from Lloyd's of
London of $330 million. The collectibility of the reinsurance
recoverable from Lloyd's relating to the arbitration (see note 9) is
supported by a market agreement with Lloyd's favorable to the Company.
- 26 -
16. Investments and Investment Gains (Losses)
==========================================================================
(For the year ended
December 31, in millions) 1993 1992 1991
- --------------------------------------------------------------------------
Realized
Fixed maturities $372 $ 99 $ 103
Equity securities 43 34 43
Mortgage loans (35) (400) (103)
Real estate (235) (425) -
Foreign currency translation (7) (37) (32)
Other 71 94 (13)
- --------------------------------------------------------------------------
Realized investment gains (losses) $209 $(635) $ (2)
==========================================================================
Unrealized
Fixed maturities $(98) $167 $ 170
Equity securities 35 3 59
Other 35 16 27
- --------------------------------------------------------------------------
(28) 186 256
Related taxes (12) 62 65
- --------------------------------------------------------------------------
Net unrealized investment
gains (losses) (16) 124 191
Balance beginning of year 197 73 (118)
- --------------------------------------------------------------------------
Balance end of year $181 $197 $ 73
==========================================================================
Equity securities
Unrealized
----------------
(At December 31, in millions) Cost Gains Losses
- --------------------------------------------------------------------------
1993 $252 $96 $ 23
1992 251 58 20
1991 510 80 44
==========================================================================
Fixed maturities
Estimated Estimated market
(At December 31, Carrying market value greater than
in millions) value value carrying value
----------------------------------------------------
Amount Percent
- --------------------------------------------------------------------------
1993 $24,876 $25,823 $ 947 4
1992 22,946 23,771 825 4
1991 20,987 22,144 1,157 6
==========================================================================
Fixed maturities. Fixed maturities are valued based upon quoted
market prices or, if quoted prices are not available, discounted
expected cash flows using market rates commensurate with the credit
quality and maturity of the investment.
Sales from the amortized cost portfolios have been made periodically.
Such sales were $806 million, $1.1 billion and $2.6 billion in 1993,
1992 and 1991, respectively. Gross gains of $59 million, $49 million
and $92 million in 1993, 1992 and 1991 respectively, and gross losses
of $4 million in 1993 and $10 million in 1992 and 1991 were realized
on those sales.
The carrying values of the trading portfolio fixed maturities are
adjusted to market value as it is likely they will be sold prior to
maturity. These fixed maturities had market values of $9.0 billion at
December 31, 1993 and $8.9 billion at December 31, 1992. Net unrealized
gains were $205 million at December 31, 1993 and $322 million at
December 31, 1992. Sales of trading portfolio fixed maturities
were $9.6 billion, $4.4 billion and $3.8 billion in 1993, 1992
- 27 -
and 1991, respectively. Gross gains of $317 million, $124 million and
$90 million in 1993, 1992 and 1991, respectively, and gross losses of
$6 million, $16 million and $13 million in 1993, 1992 and 1991,
respectively, were realized on those sales.
Effective January 1, 1994, the Company will adopt FAS 115. For
further discussion see note 1.
==========================================================================================
Fixed maturities carried at amortized cost by investment type
- ------------------------------------------------------------------------------------------
Gross Gross
Carrying unrealized unrealized Market
(in millions) value gains losses value
- ------------------------------------------------------------------------------------------
December 31, 1993
Mortgage-backed securities,
CMOs and pass through securities $ 1,107 $ 64 $ 9 $ 1,162
U.S. Government and government
agencies and authorities 165 11 1 175
States, municipalities
and political subdivisions 2,664 89 7 2,746
Foreign governments 439 40 - 479
Public utilities 2,776 197 12 2,961
Convertible bonds 2 - - 2
All other corporate bonds 8,810* 578 81 9,307
Redeemable preferred stock 37 2 - 39
- ------------------------------------------------------------------------------------------
Total $16,000 $981 $110 $16,871
==========================================================================================
December 31, 1992
Mortgage-backed securities,
CMOs and pass through securities $ 1,186 $112 $ 1,298
U.S. Government and government
agencies and authorities 504 17 $ 2 519
States, municipalities
and political subdivisions 1,560 43 21 1,582
Foreign governments 453 28 1 480
Public utilities 2,847 165 6 3,006
Convertible bonds 1 - - 1
All other corporate bonds 7,496* 417 25 7,888
Redeemable preferred stock 52 3 2 53
- ------------------------------------------------------------------------------------------
Total $14,099 $785 $ 57 $14,827
==========================================================================================
* Before valuation reserves of $76 million and $97 million at December
31, 1993 and 1992, respectively.
- 28 -
======================================================================
Trading portfolio securities by investment type
- ----------------------------------------------------------------------
Carrying value at December 31,
(in millions) 1993 1992
- ----------------------------------------------------------------------
Mortgage-backed securities -
principally obligations of
U.S. Government agencies $3,779 $4,005
U.S. Government and government
agencies and authorities 3,472 3,168
States, municipalities and political subdivisions 14 18
Foreign governments 19 13
Public utilities 105 89
Convertible bonds 406 458
All other corporate bonds 1,157 1,193
- ----------------------------------------------------------------------
Total trading portfolio securities $8,952 $8,944
======================================================================
The carrying value and market value of fixed maturities at December
31, 1993, by contractual maturity, are shown below. Fixed maturities
subject to early or unscheduled prepayments have been included based
upon their contractual maturity dates. Expected maturities will
differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
======================================================
Maturity Carrying Market
(in millions) value* value
- ------------------------------------------------------
One year or less $1,090 $1,118
Over 1 year through 5 years 6,769 7,020
Over 5 years through 10 years 7,488 7,883
Over 10 years 4,719 4,861
- ------------------------------------------------------
20,066 20,882
Mortgage-backed securities 4,886 4,941
- ------------------------------------------------------
$24,952 $25,823
======================================================
* Before valuation reserves of $76 million at December 31, 1993.
Concentrations. At December 31, 1993, the Company had no
concentration of investments in a single investee exceeding 10% of
consolidated shareholders' equity.
Included in fixed maturities is a concentration in below investment
grade assets totaling $1.2 billion and $1.3 billion at December 31,
1993 and 1992, respectively. The Company defines its below investment
grade assets as those securities rated "Ba1" or below by external rating
agencies, or the equivalent by internal analysts when a public rating
does not exist. Such assets include publicly traded below investment
grade bonds, highly leveraged transactions and certain other privately
issued bonds that are classified as below investment grade loans. The
Company also has concentrations of investments in the following industries
prior to consideration of investment valuation reserves:
===============================================
(in millions) 1993 1992
- ------------------------------------------------
Electric utilities $1,715 $1,366
Banking* 1,519 1,681
Finance 1,471 1,683
================================================
* Includes $509 million and $900 million at December 31, 1993 and
1992, respectively, of primarily short-term investments and cash
equivalents issued by foreign banks.
- 29 -
Below investment grade assets included in the totals above were as
follows:
====================================================
(in millions) 1993 1992
- ----------------------------------------------------
Electric utilities $ 81 $ 33
Finance 61 121
Banking 21 37
====================================================
At December 31, 1993 and 1992, significant concentrations of
mortgage loans were for properties located in highly populated areas
in the states listed below. The amounts shown are prior to
consideration of investment valuation reserves:
====================================================
(in millions) 1993 1992
- ----------------------------------------------------
California $1,307 $1,460
New York 951 1,326
Texas 647 1,010
Illinois 620 694
Florida 614 962
====================================================
Other mortgage loan investments are fairly evenly dispersed
throughout the United States, with no holdings in any other state
exceeding $400 million and $600 million at December 31, 1993 and 1992,
respectively.
Mortgage loans by property type at December 31, 1993 and 1992 are
shown below, prior to consideration of investment valuation reserves:
====================================================
(in millions) 1993 1992
- ----------------------------------------------------
Office $3,571 $4,389
Apartment 1,769 2,690
Retail 974 1,236
Hotel 566 540
Industrial 316 423
Other 141 261
- ----------------------------------------------------
Total commercial 7,337 9,539
Agricultural 650 805
Residential 1 610
- ----------------------------------------------------
Total $7,988 $10,954
====================================================
Real estate assets at December 31, 1993 and 1992 included office
properties with carrying values of $1,270 million and $1,689 million,
respectively.
The Company monitors creditworthiness of counterparties to all
financial instruments by using controls that include credit approvals,
limits and other monitoring procedures. Collateral for fixed
maturities often includes pledges of assets, including stock and other
assets, guarantees and letters of credit. The Company's underwriting
standards with respect to new mortgage loans generally require loan to
value ratios of 75% or less at the time of mortgage origination.
- 30 -
Investment valuation reserves. At December 31, 1993, 1992 and 1991,
total investment valuation reserves, which are deducted from the
applicable investment carrying values in the consolidated balance
sheet, were as follows:
===================================================
(in millions) 1993 1992 1991
- ---------------------------------------------------
Beginning of year $1,497 $ 925 $1,046
Increase 208 883 172
Impairments, net of
gains/recoveries (628) (311) (293)
- ---------------------------------------------------
End of year $1,077 $1,497 $ 925
===================================================
At December 31, 1993, investment valuation reserves were comprised
of $498 million for mortgage loans, $495 million for real estate and
$84 million for securities. Increases in the investment valuation
reserves are reflected as realized investment losses.
The Company continually monitors its investment portfolios,
assessing status and creditworthiness of borrowers as well as other
variables. The valuation reserves reflect management's judgment of
the probable losses inherent in the portfolios. This judgment is
based on a review of factors that include individual loan and
historical loss experience and the specific industry and economic
conditions. Management believes the reserves are adequate based on
the current environment.
Nonincome producing. Investments included in the consolidated balance
sheets that were nonincome producing were as follows:
================================================
(in millions) 1993 1992
- ------------------------------------------------
Mortgage loans $ 451 $ 514
Real estate 337 699
Fixed maturities 36 16
- ------------------------------------------------
Total $ 824 $1,229
================================================
Restructured. The Company has restructured investments totaling
approximately $1.2 billion and $1.4 billion at December 31, 1993 and
1992, respectively. The new terms typically defer a portion of
contract interest payments to varying future periods. The accrual of
interest is suspended on all restructured loans, and interest income
is reported only as payment is received. Gross interest income on
restructured mortgage loans that would have been recorded in
accordance with the original terms of such loans amounted to $128
million in 1993 and $166 million in 1992. Interest on these loans,
included in net investment income, aggregated $56 million and $72
million in 1993 and 1992, respectively.
- 31 -
17. Net Investment Income
==========================================================
(For the year ended December 31,
in millions) 1993 1992 1991
- ----------------------------------------------------------
Gross investment income
Fixed maturities
Bonds $1,969 $1,984 $2,344
Redeemable preferred stocks 5 4 6
Equity securities
Common stocks 2 8 -
Nonredeemable preferred stocks 8 8 7
Mortgage loans 753 983 1,238
Real estate 415 399 266
Policy loans 106 109 96
Other 1 6 72
- -----------------------------------------------------------
3,259 3,501 4,029
- -----------------------------------------------------------
Investment expenses
General investment 544 553 443
Interest, discount and expense
on long-term debt 81 90 72
Other interest 34 59 286
- -----------------------------------------------------------
659 702 801
- -----------------------------------------------------------
Net investment income $2,600 $2,799 $3,228
===========================================================
The amounts shown in the above table are net of increases in the
investment income valuation reserves, which reflect estimates of
amounts considered doubtful of realization. There were no such
increases in 1993, 1992 and 1991. At December 31, 1993 and 1992, the
reserve, which is deducted from investment income accrued in the
consolidated balance sheet, amounted to $44 million and $58 million,
respectively.
At December 31, 1993 and 1992, the investment income valuation
reserves of a noninsurance subsidiary amounted to $17 million and $27
million, respectively.
18. Fair Value Of Certain Financial Instruments
The Company uses various financial instruments in the normal course of
its business. Fair value information for financial instruments not
presented elsewhere in these financial statements is discussed below.
Fair values of financial instruments which are considered insurance
contracts are not required to be disclosed and are not included in the
amounts discussed.
The estimated fair value of the Company's mortgage loan portfolio at
December 31, 1993 and 1992 is $7.2 billion and $9.7 billion, respectively.
Mortgage loans are grouped into homogeneous categories based on the Company's
internal rating system. Performing loans generally are valued using either
discounted cash flow analysis, reflecting market-based interest rates
commensurate with the underlying risk, or, if foreclosure is deemed
possible, the lower of carrying value or underlying collateral value.
In arriving at estimated fair value, the Company used interest rates
reflecting the higher returns required in the current real estate
financing market. As the marketplace changes, these rates will be
adjusted accordingly. Underperforming loans are valued at the lower
of carrying value or underlying collateral value.
The carrying value of $890 million and $537 million of financial
instruments classified as other assets approximates their fair value
at December 31, 1993 and 1992, respectively. The carrying values of
$2.5 billion and $2.7 billion of financial instruments classified as
other liabilities also approximate their fair values at December 31,
1993 and 1992, respectively. Fair value is determined using various
methods including discounted cash flows and carrying value, as
appropriate for the various financial instruments.
- 32 -
At December 31, 1993, contractholder funds with defined maturities
have a carrying value of $4.8 billion and a fair value of $5.0
billion, compared with a carrying value of $6.0 billion and fair value
of $6.2 billion at December 31, 1992. The fair value of these
contracts is determined by discounting expected cash flows at an
interest rate commensurate with the Company's credit risk and the
expected timing of cash flows. Contractholder funds without defined
maturities have a carrying value of $12.9 billion and a fair value of
$12.7 billion at December 31, 1993, compared to a carrying value of
$10.7 billion and a fair value of $10.4 billion at December 31, 1992.
These contracts generally are valued at surrender value.
The assets of separate accounts providing a guaranteed return have a
carrying value and fair value of $1.1 billion and $1.2 billion, respectively,
at December 31, 1993, compared to a carrying value and fair value of $711
million and $767 million, respectively, at December 31, 1992. The liabilities
of separate accounts providing a guaranteed return have a carrying value
and fair value of $1.1 billion and $1.3 billion, respectively, at
December 31, 1993, compared to a carrying value and fair value of $632
million and $735 million, respectively, at December 31, 1992.
The carrying values of short-term securities, investment income
accrued and securities transactions in the course of settlement
approximate their fair value.
19. Asbestos, Environmental Liabilities and Litigation Reserves
In the third quarter of 1993, the Company added $325 million to its
reserves for asbestos and environmental liabilities, as well as for
blood-related claims for policies issued in the early 1980s. This
addition to reserves resulted in an after-tax charge of $211 million.
Several recent developments contributed to the decision to add to
reserves. The insurance industry is witnessing a growth in claims
brought by outside workers who allege exposure to asbestos while
working on site at various companies. There has been an increase in
the incidence of this type of claim during 1993. The Company also has
experienced a growth in environmental claims primarily from smaller
companies with lower coverage limits and has been named as a defendant
in coverage cases brought by other insurers against their
policyholders and the policyholders' other carriers.
The insurance industry has been, and continues to be, involved in
extensive litigation involving policy coverage and liability issues as
they relate to environmental claims, as a result of various state and
federal regulatory efforts aimed at environmental remediation.
In addition to the regulatory pressures, certain court decisions
have expanded insurance coverage beyond the original intent of the
insurer and insured, frequently involving policies that were issued
prior to the mid-1970s. The results of court decisions affecting the
industry's coverage positions continue to be inconsistent.
Accordingly, the ultimate responsibility and liability for
environmental remediation costs remain uncertain.
- 33 -
The following table displays activity for environmental losses and
loss expenses and reserves for the three years ended December 31,
1993. Approximately 12% of the net environmental loss reserve (i.e.
approximately $40 million) at December 31, 1993 is case reserve for
resolved claims. The Company does not post case reserves for
environmental claims in which there is a coverage dispute. The
remainder of the reserve is for claims in which coverage is in dispute
and unreported environmental losses.
Environmental Losses
- ----------------------------------------------------------
(in millions) 1993 1992 1991
- ----------------------------------------------------------
Beginning reserves:
Direct $194 $ 170 $ 148
Ceded - - -
- ----------------------------------------------------------
Net 194 170 148
Incurred losses and loss expenses:
Direct 211 70 75
Ceded (21) (3) (2)
Losses paid:
Direct 61 46 53
Ceded (10) (3) (2)
- ----------------------------------------------------------
Ending reserves:
Direct 344 194 170
Ceded (11) - -
- ----------------------------------------------------------
Net $ 333 $ 194 $ 170
==========================================================
In the area of asbestos claims, the industry has suffered from
judicial interpretations that have attempted to maximize insurance
availability from both a coverage and liability standpoint far beyond
the intentions of the contracting parties. These policies generally
were issued prior to the 1980s. As a result of recent developments in
asbestos litigation, various classes of asbestos defendants, e.g.
major product manufacturers, peripheral and regional product
defendants as well as premises owners, are tendering asbestos-related
claims to the industry. Since each insured presents different
liability and coverage issues, the Company evaluates those issues on
an insured-by-insured basis. The following table displays asbestos
losses and loss expenses and reserves for the three years ended
December 31, 1993. Approximately 80% of the net asbestos reserves at
December 31, 1993 represented incurred but not reported losses.
Asbestos Losses
- -----------------------------------------------------------
(in millions) 1993 1992 1991
- -----------------------------------------------------------
Beginning reserves:
Direct $425 $ 395 $ 348
Ceded (247) (220) (167)
- -----------------------------------------------------------
Net 178 175 181
Incurred losses and loss expenses:
Direct 447 111 118
Ceded (218) (50) (69)
Losses paid:
Direct 98 81 71
Ceded (14) (23) (16)
- -----------------------------------------------------------
Ending reserves:
Direct 774 425 395
Ceded (451) (247) (220)
- -----------------------------------------------------------
Net $ 323 $ 178 $ 175
===========================================================
- 34 -
For both environmental and asbestos-related claims, the Company
carries on a continuing review of its overall position, its reserving
techniques and reinsurance recoverable. In each of these areas of
exposure, the Company has endeavored to litigate individual cases and
settle claims on favorable terms. Given the vagaries of court
coverage decisions, plaintiffs' expanded theories of liability, the
risks inherent in major litigation and other uncertainties, it is not
presently possible to quantify the ultimate exposure represented by
these claims. As a result, the Company expects that future earnings
may be adversely affected by environmental and asbestos claims,
although the amounts cannot be reasonably estimated. However, it is
not likely these claims will have a material adverse effect on the
Company's financial condition.
20. Restructuring Costs
During 1992, the Company announced a series of organizational
restructuring initiatives associated with its plan to streamline its
business and corporate operations. These initiatives resulted in a
pretax charge of $308 million, consisting of $197 million for severance,
benefits, accrued vacation and outplacement costs related to employees
who will be terminated, $13 million for relocation costs due to consolidation
efforts, $48 million for lease costs, $14 million for curtailment losses
charged to postretirement benefit plans, $15 million for writeoff of
goodwill related to identified divestitures and $21 million of miscellaneous
other costs.
21. Reconciliation of Net Income (Loss) to Net
Cash Used in Operating Activities
In the first quarter of 1992, the Company changed its presentation of
cash flows from operating activities from the indirect method to the
direct method. The following table reconciles net income (loss) to
net cash used in operating activities:
=======================================================================
(For the year ended December 31,
- -----------------------------------------------------------------------
in millions) 1993 1992 1991
- -----------------------------------------------------------------------
Net income (loss) $288 $(658) $ 318
Reconciling adjustments
Trading account investments,
(purchases) sales, net (998) (938) (1,973)
Realized gains (127) (159) (93)
Investment income accrued 9 30 67
Premium balances receivable 84 9 (9)
Deferred acquisition costs (36) (71) (14)
Deferred federal income taxes (142) (503) (32)
Cumulative effects of changes
in accounting principles - (170) -
Insurance reserves and
accrued expenses (36) 529 266
Restructuring reserve (122) 229 (28)
Other, including investment
valuation reserves 152 975 184
- -----------------------------------------------------------------------
Net cash used in operating activities $(928) $(727) $(1,314)
=======================================================================
- 35 -
22. Noncash Investing and Financing Activities
Significant noncash investing and financing activities include: a)
acquisition of real estate through foreclosures of mortgage loans
amounting to $600 million, $809 million and $861 million in 1993, 1992
and 1991, respectively; b) the 1993 transfer of $362 million of
mortgage loans and bonds from the Company's general account to two
separate accounts; c) acceptance of purchase money mortgages for sales
of real estate aggregating $192 million, $72 million and $33 million
in 1993, 1992 and 1991, respectively; d) increases in investment
valuation reserves in 1993, 1992 and 1991 for securities, mortgage
loans and real estate (see note 16); e) the issuance of additional
Series A preference stock in 1993 and 1991 (see note 13); f) the
issuance of stock under the Accrued Vacation Buy-Back Plan (see note
6); g) the 1992 acquisition of a 50% interest in Commercial Insurance
Resources, Inc. and the acquisition of Transport Life Insurance Company's
preferred provider and third party administrator organizations through
the issuance of common stock (see note 3); and h) the 1991 transfer of
$560 million of assets and liabilities supporting certain annuity businesses
into a separate account.
23. Subsequent Event - Acquisition by The Travelers Inc.
In December 1992, The Travelers Inc. (formerly Primerica Corporation)
exchanged $550 million in cash, 50 percent of the equity of Commercial
Insurance Resources, Inc. (the parent of Gulf Insurance Company), and
100 percent of the preferred provider organization and third party administrator
networks of Transport Life Insurance Company (a wholly owned subsidiary of
Primerica) for 38,026,314 shares of the Company's common stock issued
at $19 per share. These transactions resulted in an increase in the
shareholders' equity of the Company of $723 million and the ownership
by The Travelers Inc. of approximately 27% of the Company's common
stock.
Effective December 31, 1993, The Travelers Inc. acquired the
approximately 73% of the Company's common stock which it did not
already own, through the exchange of .80423 shares of The Travelers
Inc. common stock for each share of the Company's common stock. On
December 31, 1993, The Travelers Corporation merged into The Travelers
Inc. All subsidiaries of the former Travelers Corporation were
contributed to The Travelers Insurance Group Inc., a second tier
subsidiary of The Travelers Inc. In conjunction with the merger, The
Travelers Inc. contributed Primerica Insurance Holdings, Inc. and its
subsidiaries and made a cash capital contribution of $200 million to
the Company, and assumed the public debt obligations of the Company.
- 36 -
THE TRAVELERS CORPORATION AND SUBSIDIARIES
- ------------------------------------------------------------------------------------------------
SELECTED CONSOLIDATED QUARTERLY DATA (UNAUDITED) Pre-merger, historical accounting basis
- ------------------------------------------------------------------------------------------------
First Second Third Fourth
1993 (in millions) Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------
Premiums $1,783 $1,652 $1,547 $1,602
Net investment income 659 653 644 644
Realized investment gains (losses) 185 (1) 63 (38)
Other revenues, including gains and losses
on dispositions 223 223 223 222
Federal income taxes 67 13 (124) (12)
Net income (loss) 195 93 (36) 36
- ------------------------------------------------------------------------------------------------
Per common share (in dollars)
Primary
Net income (loss) $ 1.25 $ .55 $(.33) N/A
Assuming full dilution
Net income (loss) 1.22 .54 (.33) N/A
Dividends .40 .40 .40 $ .40
Common stock data
Price ranges
High 30 3/4 33 38 7/8 38 3/8
Low 23 3/4 26 1/8 29 3/4 30 1/2
Close 27 1/2 32 37 5/8 N/A - (1)
- ------------------------------------------------------------------------------------------------
<FN>
(1) On December 31, 1993, all of the Company's common stock was acquired by
The Travelers Inc. and, therefore, is no longer traded.
First Second Third Fourth
1992 (in millions) Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------
Premiums $1,875 $1,601 $1,668 $1,545
Net investment income 719 713 696 671
Realized investment gains (losses) (2) 12 57 (701)
Other revenues, including gains and losses
on dispositions 217 230 210 166
Federal income taxes 6 8 (206) (334)
Income (loss) before cumulative effects
of changes in accounting principles 54 66 (358) (589)
Cumulative effect of change in
accounting for postretirement benefits
other than pensions, net of tax (258) - - -
Cumulative effect of change in
accounting for income taxes 428 - - -
Net income (loss) 224 66 (358) (589)
- ------------------------------------------------------------------------------------------------
Per common share (in dollars)
Primary
Income (loss) before cumulative effects
of changes in accounting principles $ .49 $ .59 $ (3.54) $ (5.38)
Cumulative effect of change in
accounting for postretirement benefits
other than pensions, net of tax (2.48) - - -
Cumulative effect of change in
accounting for income taxes 4.11 - - -
Net income (loss) 2.12 .59 (3.54) (5.38)
Assuming full dilution
Income (loss) before cumulative effects
of changes in accounting principles .49 .58 (3.54) (5.38)
Cumulative effect of change in
accounting for postretirement benefits
other than pensions, net of tax (2.37) - - -
Cumulative effect of change in
accounting for income taxes 3.93 - - -
Net income (loss) 2.05 .58 (3.54) (5.38)
Dividends .40 .40 .40 .40
Common stock data
Price ranges
High 23 3/4 21 1/2 23 1/8 27 5/8
Low 19 1/2 19 1/2 17 1/8 21 1/2
Close 20 1/4 20 5/8 22 1/2 27 1/4
- ------------------------------------------------------------------------------------------------
Shareholders at year end 67,290
- ------------------------------------------------------------------------------------------------
- 37 -
THE TRAVELERS CORPORATION AND SUBSIDIARIES
- ------------------------------------------------------------------------------------------------------------------
SELECTED CONSOLIDATED FINANCIAL DATA Pre-merger, historical accounting basis
- ------------------------------------------------------------------------------------------------------------------
(in millions) 1993 1992 1991 1990 1989
- ------------------------------------------------------------------------------------------------------------------
Premiums $6,584 $6,688 $7,302 $7,435 $7,793
Net investment income 2,600 2,799 3,228 3,494 3,567
Realized investment gains (losses) 209 (635) (2) (616) 134
Other revenues, including gains and
losses on dispositions 891 823 849 1,001 1,029
Federal income taxes (56) (526) 16 26 84
Income (loss) before extraordinary
credit and cumulative effects of
changes in accounting principles 288 (828) 307 (178) 424
Extraordinary credit - - 11 - 31
Cumulative effect of change in
accounting for postretirement
benefits other than pensions, net of tax - (258) - - -
Cumulative effect of change in
accounting for income taxes - 428 - - -
Net income (loss) 288 (658) 318 (178) 455
Assets 54,610 58,029 57,975 61,826 62,071
Long-term debt 752 1,124 945 934 1,055
- ------------------------------------------------------------------------------------------------------------------
Per common share (in dollars)
Primary
Income (loss) before extraordinary
credit and cumulative effects of
changes in accounting principles N/A $ (8.11) $ 2.87 $ (1.85) $ 4.07
Extraordinary credit N/A - .10 - .30
Cumulative effect of change in
accounting for postretirement
benefits other than pensions, net of tax N/A (2.43) - - -
Cumulative effect of change in
accounting for income taxes N/A 4.03 - - -
Net income (loss) N/A (6.51) 2.97 (1.85) 4.37
Assuming full dilution
Income (loss) before extraordinary
credit and cumulative effects of
changes in accounting principles N/A (8.11) 2.80 (1.85) 3.99
Extraordinary credit N/A - .09 - .29
Cumulative effect of change in
accounting for postretirement
benefits other than pensions, net of tax N/A (2.43) - - -
Cumulative effect of change in
accounting for income taxes N/A 4.03 - - -
Net income (loss) N/A (6.51) 2.89 (1.85) 4.28
Dividends 1.60 1.60 1.60 2.20 2.40
Shareholders' equity at year end N/A 31.96 44.06 41.44 47.09
- ------------------------------------------------------------------------------------------------------------------
- 38 -
THE TRAVELERS CORPORATION AND SUBSIDIARIES
- -----------------------------------------------------------------------------------------------------------------
SELECTED LINE OF BUSINESS FINANCIAL DATA Pre-merger, historical accounting basis
- -----------------------------------------------------------------------------------------------------------------
(in millions) 1993 1992 1991 1990 1989
- -----------------------------------------------------------------------------------------------------------------
Life companies
Premiums $ 2,947 $ 2,833 $ 2,976 $ 3,038 $ 2,976
Net investment income 1,894 2,107 2,464 2,654 2,714
Realized investment gains (losses) (19) (746) (23) (588) 89
Other revenues, including gains
and losses on dispositions 675 565 532 510 445
Income (loss) before extraordinary
credit and cumulative effects of
changes in accounting principles 152 (574) 105 (327) 246
Extraordinary credit - - 11 - 31
Cumulative effect of change in
accounting for postretirement
benefits other than pensions, net of tax - (120) - - -
Cumulative effect of change in
accounting for income taxes - 345 - - -
Net income (loss) 152 (349) 116 (327) 277
Assets 33,986 35,838 36,756 36,639 36,429
Annual premiums on new individual
life and annuity business 232 227 230 226 239
Face amount of life insurance sales 23,442 26,828 27,326 42,008 14,259
Face amount of life insurance in force 184,257 196,093 218,128 204,904 182,037
- -----------------------------------------------------------------------------------------------------------------
Property-casualty companies
Premiums $3,637 $3,855 $4,326 $4,397 $4,817
Net investment income 682 673 724 731 705
Realized investment gains (losses) 223 112 17 (30) 42
Other revenues, including gains
and losses on dispositions (51) 32 - 157 66
Income (loss) before cumulative
effects of changes in
accounting principles 97 (231) 207 147 123
Cumulative effect of change in
accounting for postretirement
benefits other than pensions, net of tax - (123) - - -
Cumulative effect of change in
accounting for income taxes - 82 - - -
Net income (loss) 97 (272) 207 147 123
Assets 21,032 20,650 19,759 20,328 18,979
- -----------------------------------------------------------------------------------------------------------------
Noninsurance subsidiaries
Net income (loss) $ 39 $ (37) $ (5) $ 2 $ 55
- -----------------------------------------------------------------------------------------------------------------
- 39 -