SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______
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Commission file number 1-9924
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THE TRAVELERS INC.
(Exact name of registrant as specified in its charter)
Delaware 52-1568099
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
65 East 55th Street, New York, New York 10022
(Address of principal executive offices) (Zip Code)
(212) 891-8900
(Registrant's telephone number, including area code)
_______________
Title of each class Name of each exchange on which registered
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Common Stock, par value $ .01 per share New York Stock Exchange and Pacific Stock Exchange
Depositary Shares, each representing 1/10th of a New York Stock Exchange
share of 8.125% Cumulative Preferred Stock, Series A
5.50% Convertible Preferred Stock, Series B New York Stock Exchange
Depositary Shares, each representing 1/2 of a New York Stock Exchange
share of 9.25% Preferred Stock, Series D
7 3/4% Notes Due June 15, 1999 New York Stock Exchange
7 5/8% Notes Due January 15, 1997 New York Stock Exchange
1998 Warrants to Purchase Common Stock New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No _______
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of March 10, 1995 was approximately $11.84 billion.
As of March 10, 1995, 320,960,465 shares of the registrant's common stock,
par value $.01 per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrant's Annual Report to Stockholders for the
fiscal year ended December 31, 1994 are incorporated by reference into Part
II of this Form 10-K.
Certain portions of the registrant's Proxy Statement for the 1995 Annual
Meeting of Stockholders to be held on April 26, 1995 are incorporated by
reference into Part III of this Form 10-K.
THE TRAVELERS INC.
Annual Report on Form 10-K
For Fiscal Year Ended December 31, 1994
______________________________
TABLE OF CONTENTS
Form 10-K
Item Number
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Part I
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1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . 58
3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 59
4. Submission of Matters to a Vote of Security Holders . . . . 62
Part II
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5. Market for Registrant's Common Equity and
Related Stockholder Matters . . . . . . . . . . . . . . . 62
6. Selected Financial Data . . . . . . . . . . . . . . . . . . 63
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . 63
8. Financial Statements and Supplementary Data . . . . . . . . 63
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . 63
Part III
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10. Directors and Executive Officers of the Registrant . . . . . 63
11. Executive Compensation . . . . . . . . . . . . . . . . . . . 64
12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . . 64
13. Certain Relationships and Related Transactions . . . . . . . 64
Part IV
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14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . 64
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . 66
Index to Consolidated Financial Statements and Schedules .. F-1
PART I
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Item 1. BUSINESS.
THE COMPANY
The Travelers Inc. (the "Company") is a financial services
holding company engaged, through its subsidiaries, principally in
four business segments: (i) Investment Services; (ii) Consumer
Finance Services; (iii) Life Insurance Services; and (iv)
Property & Casualty Insurance Services.
On December 31, 1993, the Company acquired the
approximately 73% of the common stock of The Travelers
Corporation, a Connecticut corporation ("old Travelers"), it did
not already own, through the merger of old Travelers into the
Company (the "Merger"). The Company's results of operations for
periods prior to the Merger do not include those of old
Travelers, other than for the equity in earnings relating to the
27% previously owned. See Note 1 of Notes to Consolidated
Financial Statements.
In December 1994, the Company sold all of the capital
stock of American Capital Management & Research, Inc. ("ACMR")
owned by it to The Van Kampen Merritt Companies, Inc. ("VKM") for
a purchase price of approximately $430 million. See "Investment
Services -- Other Operations."
On January 3, 1995, the Company completed the sale of its
group life and related businesses to Metropolitan Life Insurance
Company ("MetLife"). The purchase price for the group life
business was $350 million. In connection with the sale, the
Company agreed to cede to MetLife 100% of its risks in the
businesses sold on an indemnity reinsurance basis, effective
January 1, 1995.
Also on January 3, 1995, the Company and MetLife, and
certain of their subsidiaries, contributed their medical
businesses to The MetraHealth Companies, Inc. ("MetraHealth"), a
newly formed joint venture, in exchange for shares of common
stock of MetraHealth. The Company and MetLife are equal partners
in the joint venture. The Company's total contribution to
MetraHealth amounted to approximately $448 million, at carrying
value. The Company owns approximately 48% of the outstanding
capital stock of MetraHealth, and its investment will be
accounted for on the equity method. See Note 3 of Notes to
Consolidated Financial Statements and "Other Information --
MetraHealth." All of the businesses sold to MetLife or
contributed to MetraHealth were included in the Company's Managed
Care and Employee Benefits Operations.
The periodic reports of Commercial Credit Company ("CCC"),
Smith Barney Holdings Inc. ("SB Holdings"), and The Travelers
Insurance Company ("TIC"), subsidiaries of the Company that make
filings pursuant to the Securities Exchange Act of 1934, as
1
amended (the "Exchange Act"), provide additional business and
financial information concerning those companies and their
consolidated subsidiaries.
The principal executive offices of the Company are located
at 65 East 55th Street, New York, New York 10022; telephone
number 212-891-8900. The Company plans to relocate its executive
offices to 388 Greenwich Street, New York, New York 10013 during
the second quarter of 1995.
This discussion of the Company's business is organized as
follows: (i) a description of each of the Company's four business
segments; (ii) combined product line information for the
property-casualty businesses; (iii) a description of the
Corporate and Other Operations segment; and (iv) certain other
information. A glossary of insurance terms is included beginning
on page 54.
INVESTMENT SERVICES
This segment includes the operations of SB Holdings and
its subsidiaries and, through 1994, the mutual fund and other
asset management activities of ACMR and the Company's interest in
RCM Capital Management, a California Limited Partnership ("RCM").
Smith Barney
SB Holdings provides investment banking, asset management,
brokerage and other financial services through its subsidiaries.
Its principal operating subsidiary is Smith Barney Inc. ("SBI"),
an investment banking, securities trading and brokerage firm that
traces its origins back to 1873. In July 1993, SB Holdings
acquired substantially all of the assets and certain of the
liabilities of the domestic retail brokerage business and the
asset management business of Shearson Lehman Brothers Holdings
Inc. and its subsidiaries ("SLB") for approximately $1.6 billion
(the "Shearson Acquisition"). Smith Barney has agreed to pay
additional amounts based upon its performance, consisting of up
to $50 million per year for three years based on revenues and 10%
of after-tax profits in excess of $250 million per year over a
five-year period. See Note 1 of Notes to Consolidated Financial
Statements. As part of the Shearson Acquisition, The Robinson-
Humphrey Company ("R-H"), a regional firm headquartered in
Atlanta, Georgia, became a subsidiary of SBI. As used herein,
unless the context otherwise requires, "Smith Barney" refers to
SB Holdings and its consolidated subsidiaries.
Smith Barney operates through approximately 475 offices
throughout the United States, and 12 offices in nine foreign
countries. With over 11,000 financial consultants, the Company
believes that Smith Barney is the second largest brokerage firm
in the United States.
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Investment Banking and Securities Brokerage
Smith Barney is an investment banking and securities
trading and brokerage firm serving United States and foreign
corporations, governments and institutional and individual
investors. Its business includes securities, options and
commodities brokerage for domestic and international
institutional and individual clients; underwriting and
distribution of securities; arranging for the private placement
of securities; assisting in mergers and acquisitions and
providing financial advisory services; market making and trading
in corporate debt and equity, United States government and agency,
mortgage-related and municipal securities and foreign exchange,
futures and forward contracts; customer financing activities;
securities lending activities; investment management and advisory
services; securities research; and other related activities.
Smith Barney's investment banking services include the
underwriting of debt and equity issues for United States and
foreign corporations and for state, local and other governmental
authorities. Frequently, Smith Barney acts as managing
underwriter in corporate and public securities offerings. Smith
Barney also acts as a private placement agent for various
clients. In this role Smith Barney helps to place securities for
clients with large institutions and other eligible investors.
Smith Barney also provides financial advice to investment banking
clients on a wide variety of transactions including securities
offerings, mergers and acquisitions and corporate restructurings.
Smith Barney executes securities brokerage transactions on
all major United States exchanges and distributes a wide variety
of financial products. It makes inter-dealer markets and trades
as principal in corporate debt and equity securities primarily of
United States corporate issuers, United States and foreign
government and agency securities, mortgage-related securities,
whole loans, municipal and other tax-exempt securities and
emerging market debt securities. The firm carries inventories of
securities to facilitate sales to customers and other dealers and
with a view to realizing trading gains. SBI is one of the
leading dealers in municipal securities and is a "Primary Dealer"
in United States government securities, as designated by the
Federal Reserve Bank of New York. Its daily trading inventory
positions in United States government and agency securities are
financed largely through the use of repurchase agreements
pursuant to which Smith Barney sells the securities and
simultaneously agrees to repurchase them at a future date. Smith
Barney also acts as an intermediary between borrowers and lenders
of short-term funds utilizing repurchase and reverse repurchase
agreements. Smith Barney uses derivative financial instruments
to facilitate customer transactions and to manage exposure to
interest rate, currency and market risk. On a limited basis,
Smith Barney also began structuring derivative financial
instruments in 1994, as part of its proprietary trading
activities. In addition, for its own account Smith Barney
engages in a limited manner in certain arbitrage activities,
which primarily seek to benefit from temporary price
discrepancies that occur with respect to related securities or to
the same security on different markets. Smith Barney also
engages in the borrowing and lending of securities. In June
1994, the Smith Barney network of financial consultants began
selling TIC individual products, primarily variable annuities.
See "Life Insurance Services -- Travelers Life and Annuities."
3
Smith Barney executes transactions in large blocks of
exchange-listed stocks, usually with institutional investors, and
often acts as principal to facilitate these transactions. It
makes markets, buying and selling as principal, in common stocks,
convertible preferred stocks, warrants and other securities
traded on the NASDAQ system or otherwise in the over-the-counter
market. Smith Barney also maintains trading positions in equity
options, convertible securities, debt options, foreign exchange
and commodities instruments. It executes significant client
transactions in both listed and unlisted options and in foreign
exchange, and often acts as principal to facilitate these
transactions. Smith Barney also sells various types of
structured securities on both a principal and an agency basis.
The firm's securities trading and investment activities involve
significant risk in that the values of positions carried in its
trading and investment accounts are subject to market
fluctuations. Smith Barney engages in a variety of financial
techniques designed to manage this risk.
Customer Financing
Customers' securities transactions are executed on either
a cash or margin basis. Federal regulations prescribe the
minimum original margin that must be deposited by securities
purchasers, and exchange regulations prescribe the minimum
margins that must be maintained by customers. Smith Barney
imposes margin maintenance requirements that are equal to or
exceed those required by exchange regulations. Such requirements
are intended to reduce the risk assumed by Smith Barney that a
market decline will reduce the value of a customer's collateral
below the amount of the customer's indebtedness before the
collateral can be sold. Substantially all transactions in
commodities futures contracts are on margin subject to individual
exchange regulations. Margin, in the case of commodities futures
contracts, is primarily funded in the form of cash or United
States Treasury securities. Commodities transactions involve
substantial risk, principally because of low margin requirements
permitted by the exchanges.
Income earned on financing customers' securities
transactions provides Smith Barney with an additional source of
income. Credit losses may arise as a result of this financing
activity; however, such losses have not been material.
Asset Management
Smith Barney provides asset management services to
corporations, not-for-profit institutions, pension and profit-
sharing plans, municipalities and individual investors in equity,
fixed income and other securities, including commodities futures
contracts. The Smith Barney Consulting Group is a money
management consulting service that offers "wrap fee" and other
programs for individual as well as institutional investors.
"Wrap fee" accounts consist of customer accounts paying a single
asset-based fee for multiple services that may include brokerage,
custody and advisory services. The Smith Barney TRAK(R) program
provides investors with personalized investment management
through a broad array of investment portfolios. SBI receives a
fee, but does not have specific investment discretion, with
respect to assets invested through TRAK(R).
4
Smith Barney provides asset management services to, and
sponsors, 132 separate portfolios within 50 investment companies
that invest in United States and foreign corporate debt and
equity securities, and municipal and United States and foreign
government and agency securities, including 11 taxable or tax-
exempt money market portfolios. The portfolios managed by Smith
Barney have various investment objectives, including growth,
growth and income, income and tax-exempt income. Smith Barney
also provides investment management and advisory services to four
affiliated insurance company separate accounts.
At December 31, 1994, Smith Barney had total assets under
management of approximately $74.1 billion, consisting of
approximately $28.9 billion of money market funds, $26.0 billion
of other mutual funds and closed-end funds and $19.2 billion of
other portfolio assets of institutional and individual clients.
These amounts exclude assets held in trust by the trust companies
owned directly by the Company and described under the heading
"Miscellaneous Activities" below, except for the portion of such
assets that are held in accounts actively managed by Smith
Barney. Smith Barney also sells mutual funds sponsored by other
organizations. In addition, Smith Barney's Unit Trust business
(i.e., unit investment trusts that do not involve continuing
investment management) consists of the TEST and CST series of
securities trusts and other proprietary unit trusts. The TEST
and CST securities trusts, for which Smith Barney is the sole
sponsor of the syndicate, consist of municipal and corporate
securities. A total of $2.8 billion par value of all series of
TEST and CST trusts was outstanding as of December 31, 1994. The
other proprietary unit trusts, consisting primarily of equity and
taxable bond trusts for which Smith Barney is the sole sponsor,
have a market value of approximately $1.8 billion as of December
31, 1994. Smith Barney also participates in a syndicate that
sponsors unit trusts including equity, taxable and tax-exempt
fixed income trusts.
Miscellaneous Activities
In November 1994, Smith Barney sold its interest in HG
Asia (Holdings) Limited ("HG Asia") for $55 million. HG Asia and
its subsidiaries act as brokers and dealers in securities that
are primarily traded in countries in Asia.
Certain subsidiaries of the Company are chartered as trust
companies and provide a full range of fiduciary services with a
particular emphasis on personal trust services. Another
subsidiary offers a broad range of trustee services for qualified
retirement plans, with particular emphasis on the 401(k) plan
market. Each of these trust companies is subject to the
supervision of the state banking authority where it was chartered
and uses the distribution network of SBI to market its services.
Although these trust companies are subsidiaries of the Company
and not of SB Holdings, their results are included with Smith
Barney for segment reporting purposes. Smith Barney provides
certain advisory and support services to the trust companies and
receives fees for such services.
5
Other Operations
In December 1994, the Company sold all of the capital
stock of ACMR owned by it to VKM for approximately $430 million.
Following the sale, ACMR was merged into a subsidiary of VKM, and
the surviving entity was renamed VK/AC Holding, Inc. ("VK/AC
Holding"). In connection with the transaction a subsidiary of
the Company purchased common stock of VK/AC Holding, representing
approximately 4.9% of the issued and outstanding common stock.
The Company also has an option to purchase up to an additional 5%
of the common stock of VK/AC Holding, exercisable for a two-year
period beginning in December 1999. Certain subsidiaries of the
Company continue to provide services to the Common Sense(R) II
Funds.1 See "Life Insurance Services -- Primerica Financial
Services."
A subsidiary of the Company is the sole limited partner in
RCM, a limited partnership headquartered in San Francisco,
California, which provides investment management services,
principally for pension funds, other institutional clients and
high net worth individuals. Assets under management by RCM were
$22.4 billion at December 31, 1994, as compared to $24.5 billion
at December 31, 1993 and $23.8 billion at December 31, 1992.
General
Competition
The businesses included in the Investment Services segment
are highly competitive. The principal factors affecting
competition in the investment banking and securities brokerage
industry are the quality and ability of professional personnel
and the relative prices of services and products offered. In
addition to competition from other investment banking firms, both
domestic and international, and securities brokerage companies
and discount securities brokerage operations, including regional
firms in the United States, there has been increasing competition
from other sources, such as commercial banks, insurance companies
and other major companies that have entered the investment
banking and securities brokerage industry, in many cases through
acquisitions. Certain of those competitors may have greater
capital and other resources than Smith Barney. The Federal
Reserve Board has substantially removed the barrier originally
erected by the Glass-Steagall Act restricting investment banking
activities of commercial banks and their affiliates, by
permitting certain commercial banks to engage, through
affiliates, in the underwriting of and dealing in certain types
of securities, subject to certain limitations. Proposed
legislation has been introduced in Congress that would modify
certain other provisions of the Glass-Steagall Act and other laws
and regulations affecting the financial services industry. The
potential impact of such legislation on the Company's businesses
cannot be predicted at this time.
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1 Common Sense is a registered trademark of American
Capital Asset Management, Inc. ("ACAM").
6
Competitors of the Company's mutual funds and asset
management groups include a large number of mutual fund
management and sales companies and asset management firms.
Competition in mutual fund sales and investment management is
based on investment performance, service to clients, and product
design.
Regulation
Certain of the Company's subsidiaries are registered as
broker-dealers and as investment advisers with the Securities and
Exchange Commission (the "Commission") and as futures commission
merchants and as a commodity pool operator with the Commodity
Futures Trading Commission ("CFTC"). SBI and R-H are members of
the New York Stock Exchange, Inc. (the "NYSE") and other
principal United States securities exchanges, as well as the
National Association of Securities Dealers, Inc. ("NASD") and the
National Futures Association ("NFA"), a not-for-profit membership
corporation which has been designated as a registered futures
association by the CFTC. SBI and R-H are registered as broker-
dealers in all 50 states, the District of Columbia and Puerto
Rico, and in addition are registered as investment advisers in
certain states that require such registration. SBI is also a
reporting dealer to the Federal Reserve Bank of New York, a
member of the principal United States futures exchanges and a
registered broker-dealer in Guam. Both SBI and R-H are subject
to extensive regulation, primarily for the benefit of their
customers, including minimum capital requirements, which are
promulgated and enforced by, among others, the Commission, the
CFTC, the NFA, the NYSE, various self-regulatory organizations of
which SBI and R-H are members and the securities administrators of
the 50 states, the District of Columbia and Puerto Rico and, in SBI's
case, Guam. The Commission and the CFTC also require certain
registered broker-dealers (including SBI) to maintain records
concerning certain financial and securities activities of affiliated
companies that may be material to the broker-dealer, and to file
certain financial and other information regarding such affiliated
companies.
In addition, the Investment Company Act of 1940 generally
prohibits registered investment companies managed by affiliates
of the Company from, among other things, entering into securities
transactions on a principal basis with affiliated broker-dealers,
including SBI, and restricts their ability to purchase securities
in underwritings in which an affiliated broker-dealer
participates as an underwriting syndicate member. Transactions
between Smith Barney and RCM are also subject to certain
limitations.
Smith Barney's operations abroad, described in this
paragraph, are conducted through various subsidiaries. Smith
Barney has representative offices in Paris, Beijing and Manama,
Bahrain. Its activities in the United Kingdom, which include
investment banking, brokerage and asset management services, are
subject to the Financial Services Act 1986, which regulates
organizations that conduct investment businesses in the United
Kingdom (including imposing capital and liquidity requirements),
and to the rules of the Securities and Futures Authority and the
Investment Management Regulatory Organisation. Smith Barney is a
member of the International Petroleum Exchange, the London Metals
Exchange and the
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London International Financial Futures and Options Exchange, and
as such is subject to the rules and regulations of those
Exchanges. In France, Smith Barney operates as a regulated
securities house, a member of the MATIF, and an authorized mutual
fund manager. Smith Barney is a licensed securities company in
Japan and, as such, its activities in Japan are subject to
Japanese law applicable to foreign securities firms. Smith
Barney is also a member of the Tokyo Stock Exchange and,
therefore, its activities in Japan are subject to the rules and
regulations of that Exchange. Smith Barney conducts securities
and commodities businesses in Singapore which are regulated by
the Monetary Authority of Singapore. Additionally, certain
subsidiaries of SB Holdings are registered as a "dealer" and
"adviser" with the Hong Kong Securities and Futures Commission,
as an "international dealer" and as an "investment dealer" with
the Ontario Securities Commission, as broker-dealers with the
Securities Board of The Netherlands and as a "B license holder"
with the Zurich Stock Exchange.
In connection with the mutual funds business, the Company
and its subsidiaries must comply with regulations of a number of
regulatory agencies and organizations, including the Commission
and the NASD. The Company is the indirect parent of investment
advisers registered and regulated under the Investment Advisers
Act of 1940, and of companies that distribute shares of mutual
funds pursuant to distribution agreements subject to regulation
under the Investment Company Act of 1940. Under those Acts, the
advisory contracts between the Company's investment adviser
subsidiaries and the mutual funds they serve, as well as the
mutual fund distribution agreements, would automatically
terminate upon an assignment of such contracts by the investment
adviser or the fund distribution company, as the case may be.
Such an assignment would be presumed to have occurred if any
party were to acquire more than 25% of the Company's voting
securities. Continuation of advisory and distribution
relationships under these circumstances could be achieved only by
obtaining consent to the assignment from the shareholders of the
mutual funds involved.
SBI and R-H are members of the Securities Investor
Protection Corporation ("SIPC"), which, in the event of
liquidation of a broker-dealer, provides protection for
customers' securities accounts held by the firm of up to $500,000
for each eligible customer, subject to a limitation of $100,000
for claims for cash balances. In addition, Smith Barney has
purchased additional coverage from a subsidiary of the Company,
Gulf Insurance Company, for eligible customers.
As registered broker-dealers, SBI and R-H are subject to
the Commission's net capital rule (Rule 15c3-1, the "Net Capital
Rule") promulgated under the Exchange Act. SBI and R-H compute
net capital under the alternative method of the Net Capital Rule
which requires the maintenance of minimum net capital, as
defined. A member of the NYSE may be required to reduce its
business if its net capital is less than 4% of aggregate debit
balances (as defined) and may also be prohibited from expanding
its business or paying cash dividends if resulting net capital
would be less than 5% of aggregate debit balances. Furthermore,
the Net Capital Rule does not permit withdrawal of equity or
subordinated capital if the resulting net capital would be less
than 5% of such debit balances.
8
The Net Capital Rule also limits the ability of broker-
dealers to transfer large amounts of capital to parent companies
and other affiliates. Under the Net Capital Rule, equity capital
cannot be withdrawn from a broker-dealer without the prior
approval of the Commission when net capital after the withdrawal
would be less than 25% of its securities position "haircuts," or
deductions from capital of certain specified percentages of the
market value of securities to reflect the possibility of a market
decline prior to disposition. In addition, the Net Capital Rule
requires broker-dealers to notify the Commission and the
appropriate self-regulatory organization two business days before
a withdrawal of excess net capital if the withdrawal would exceed
the greater of $500,000 or 30% of the broker-dealer's excess net
capital, and two business days after a withdrawal that exceeds
the greater of $500,000 or 20% of excess net capital. Finally,
the Net Capital Rule authorizes the Commission to order a freeze
on the transfer of capital if a broker-dealer plans a withdrawal
of more than 30% of its excess net capital and the Commission
believes that such a withdrawal would be detrimental to the
financial integrity of the firm or would jeopardize the broker-
dealer's ability to pay its customers.
CONSUMER FINANCE SERVICES
The Company's Consumer Finance Services segment includes
consumer lending services conducted primarily under the name
"Commercial Credit," as well as credit-related insurance and
credit card services. CCC's predecessor was founded in 1912.
Consumer Finance
As of December 31, 1994, CCC maintained 828 loan offices
in 42 states, and it plans to open approximately 50 additional
offices in 1995. The Company owns two state-chartered banks
headquartered in Newark, Delaware, which generally limit their
activities to offering credit card services nationwide.
Loans to consumers by the Consumer Finance Services unit
include secured and unsecured personal loans, both fixed and
variable rate real estate-secured loans and loans to finance
consumer goods purchases. Credit card loans are discussed below.
CCC's loan offices are generally located in small to medium-sized
communities in suburban or rural areas, and are managed by
individuals who generally have considerable consumer lending
experience. The primary market for CCC's consumer loans consists
of households with an annual income of $20,000 to $50,000. The
number of loan customers (excluding credit card customers) was
approximately 1,250,000 at December 31, 1994, as compared to
approximately 1,142,000 at December 31, 1993, and approximately
1,058,000 at December 31, 1992. A CCC loan program solicits
applications for loans through the Primerica Financial Services
sales force. At December 31, 1994, the total loans outstanding
generated from this program was approximately $1.1 billion, as
compared to approximately $765
9
million at December 31, 1993 and approximately $487 million at
December 31, 1992. See "Life Insurance Services -- Primerica
Financial Services."
The average amount of cash advanced per personal loan made
was approximately $4,200 in 1994 and $3,800 in each of 1993 and
1992. The average amount of cash advanced per real estate-
secured loan made was approximately $28,400 in 1994,
approximately $28,800 in 1993 and approximately $26,000 in 1992.
The average annual yield for loans in 1994 was 15.41%, as
compared to 15.83% in 1993 and 16.31% in 1992. The average
annual yield for personal loans in 1994 was 20.20%, as compared
to 20.11% in 1993 and 19.99% in 1992, and for real estate-secured
loans it was 12.20% in 1994, as compared to 13.14% in 1993 and
14.05% in 1992. The average yield for real estate-secured loans
has been affected by the introduction in 1993 of a variable rate
product and by decreases generally in prevailing market interest
rates. The Company's average net interest margin for loans was
8.76% in 1994, 8.44% in 1993 and 8.66% in 1992.
In the late 1980's, both delinquencies and charge-offs had
increased, reflecting the recessionary economic environment. CCC
took steps to combat this trend, by tightening the credit
criteria used for making new loans and placing a greater emphasis
on collection policies and practices. As a result of these
measures and recent economic trends, delinquency rates and
charge-offs have improved from 1992 through 1994. See
"Delinquent Receivables and Loss Experience," below.
Analysis of Consumer Finance Receivables
For an analysis of consumer finance receivables, net of
unearned finance charges ("Consumer Finance Receivables"), see
Note 9 of Notes to Consolidated Financial Statements.
Delinquent Receivables and Loss Experience
Due to the nature of the finance business, some customer
delinquency and loss is unavoidable. The management of the
consumer finance business attempts to control customer
delinquencies through careful evaluation of each borrower's
application and credit history at the time the loan is made or
acquired, and appropriate collection activity. An account is
considered delinquent for financial reporting purposes when a
payment is more than 60 days past due, based on the original or
extended terms of the contract. The delinquency and loss
experience on real estate-secured loans is generally more
favorable than on personal loans.
The table on the next page shows the ratio of receivables
delinquent for 60 days or more on a contractual basis (i.e., more
than 60 days past due) to gross receivables outstanding:
10
Ratio of Receivables Delinquent 60 Days or More to Gross
Receivables Outstanding (1)
Real
Estate-
Personal Secured Credit Sales Total
As of December 31, Loans Loans Cards Finance Consumer
------------------ ----- ----- ----- ------- --------
1994 2.40% 1.48% 1.05% 1.79% 1.88%
1993 2.62% 2.15% 1.03% 1.54% 2.21%
1992 3.02% 2.31% 1.87% 1.48% 2.55%
__________________________
(1) The receivable balance used for these ratios is before the
deduction of unearned finance charges and excludes accrued
interest receivable. Receivables delinquent 60 days or
more include, for all periods presented, accounts in the
process of foreclosure.
The following table shows the ratio of net charge-offs to
average Consumer Finance Receivables. For all periods presented,
the ratios shown below give effect to all deferred origination
costs.
Ratio of Net Charge-Offs to Average Consumer Finance Receivables
Real
Estate-
Year Ended Personal Secured Credit Sales Total
December 31, Loans Loans Cards Finance Consumer
------------ ----- ----- ----- ------- --------
1994 3.50% 0.82% 1.83% 2.03% 2.08%
1993 4.08% 0.84% 2.56% 1.78% 2.36%
1992 5.09% 0.74% 4.01% 2.05% 2.84%
The following table sets forth information regarding the
ratio of allowance for losses to Consumer Finance Receivables.
Ratio of Allowance For Losses to Consumer Finance Receivables
As of December 31,
------------------
1994 2.64%
1993 2.64%
1992 2.91%
Credit-Related Insurance
American Health and Life Insurance Company ("AHL"), a
subsidiary of CCC, underwrites or arranges for credit-related
insurance, which is offered to customers of the consumer finance
business. AHL has an A+ (superior) rating from the A.M. Best
Company, whose ratings may be revised or withdrawn at any time.
Credit life insurance covers the declining balance of unpaid
indebtedness. Credit disability insurance provides
11
monthly benefits during periods of covered disability. Credit
property insurance covers the loss of property given as security
for loans. Other insurance products offered or arranged for by
AHL include accidental death and dismemberment, auto single
interest and involuntary unemployment insurance. Most of AHL's
products are single premium, which premiums are earned over the
related contract period. See "Life Insurance Services" for
information concerning life and accident and health insurance
other than credit-related insurance.
The following table sets forth gross written insurance
premiums, net of refunds, for consumer finance customers:
Consumer Finance Insurance Premiums Written
(in millions)
Year Ended December 31,
-----------------------
1994 1993 1992
---- ---- ----
Premiums written by AHL and its affiliates
Writings for consumer finance:
Credit life . . . . . . . . . $ 43.3 $ 36.4 $ 36.0
Credit disability and other . 69.3 49.2 $ 46.7
------ ------ ------
Total . . . . . . . . . . . $112.6 $ 85.6 $ 82.7
====== ====== ======
Premiums written by other insurance companies
Credit property and other . . $ 52.8 $ 38.7 $ 31.0
====== ====== ======
The increase in 1994 written premiums is primarily the
result of the increase in receivables and expanded availability
of certain products in additional states.
Credit Card Services
The Travelers Bank (formerly Primerica Bank), a subsidiary
of CCC, is a state-chartered bank located in Newark, Delaware,
which provides credit card services, including upper market gold
credit card services, to individuals and to affinity groups (such
as nationwide professional associations and fraternal
organizations). The Travelers Bank USA, another state-chartered
bank subsidiary of CCC, was formed in September 1989. The
Travelers Bank USA is not subject to certain regulatory
restrictions relating to growth and cross-marketing activities to
which The Travelers Bank is subject. See "Regulation" below.
These banks generally limit their activities to credit card
operations.
The table on the next page sets forth aggregate
information regarding credit cards issued by The Travelers Bank
and The Travelers Bank USA:
12
Credit Cardholders and Total Outstandings
(outstandings in millions)
As of and for the year ended December 31,
-----------------------------------------
1994 1993 1992
---- ---- ----
Approximate total credit cardholders 621,000 534,000 423,000
Approximate gold credit cardholders 519,000 478,000 371,000
Total outstandings $712.5 $697.1 $538.2
Average annual yield 11.88% 11.66% 12.12%
The primary market for the banks' credit cards consists of
households with annual incomes of $40,000 and above.
The banks offer deposit-taking services (which as to The
Travelers Bank USA are limited to deposits of at least $100,000
per account). At December 31, 1994, deposits of unaffiliated entities
were $73.3 million, as compared to $56.5 million at December 31, 1993
and $22.3 million at December 31, 1992. The increase in deposits in
1993 primarily resulted from a balance transfer promotion conducted by
The Travelers Bank.
Competition
The consumer finance business competes with banks, savings
and loan associations, credit unions, credit card issuers and
other consumer finance companies. Additionally, substantial
national financial services networks have been formed by major
brokerage firms, insurance companies, retailers and bank holding
companies. Some competitors have substantial local market
positions; others are part of large, diversified organizations.
Deregulation of banking institutions has greatly expanded the
consumer lending products permitted to be offered by these
institutions, and because of their long-standing insured deposit
base, many of them are able to offer financial services on very
competitive terms. The Company believes that it is able to
compete effectively with such institutions. In particular, the
Company believes that the diversity and features of the products
it offers, personal service and cultivation of repeat and
referral business support and strengthen its competitive position
in its Consumer Finance Services businesses.
Regulation
Most consumer finance activities are subject to extensive
federal and state regulation. Personal loan, real estate-secured
loan and sales finance laws generally require licensing of the
lender, limitations on the amount, duration and charges for
various categories of loans, adequate disclosure of certain
contract terms and limitations on certain collection practices
and creditor remedies. Federal consumer credit statutes
primarily require disclosure of credit terms in consumer finance
transactions. CCC's banks, which must undergo periodic
examination, are subject to additional regulations relating to
capitalization,
13
leverage, reporting, dividends and permitted asset and liability
products. These banks are also covered by the Competitive
Equality Banking Act of 1987 (the "Banking Act"), which, among
other things, prevents the Company from acquiring or forming most
types of new banks or savings and loan institutions and, with
respect to The Travelers Bank, restricts cross-marketing of
products by or of certain affiliates. CCC's banks are also
subject to the Community Reinvestment Act, which requires a bank
to provide equal credit opportunity to all persons in such bank's
delineated community. The Company believes that it complies in
all material respects with applicable regulations. See
"Insurance Services - General -- Regulation" at the end of the
description of the Property & Casualty Insurance segment for a
discussion of the regulatory factors governing the insurance
businesses of CCC.
The Real Estate Settlement Procedures Act of 1974
("RESPA") has been extended to cover real estate-secured loans
that are subordinated to other mortgage loans. Generally, RESPA
requires disclosure of certain information to customers and
regulates the receipt or payment of fees or charges for services
performed.
Proposed legislation has been introduced in Congress that
would modify certain laws and regulations affecting the financial
services industry. The potential impact of such legislation on
the Company's businesses cannot be predicted at this time.
LIFE INSURANCE SERVICES
The businesses in the Company's Life Insurance Services
segment write principally individual life insurance, annuities
and pension programs. Most of these products are offered on a
nationwide basis in the United States. For information
concerning the Company's credit-related insurance businesses, see
"Consumer Finance Services."
This segment includes the operations of The Travelers
Insurance Company ("TIC") and the Primerica Financial Services
group of companies (collectively, "PFS"), including Primerica
Life Insurance Company ("Primerica Life"). TIC was incorporated
in 1863. With $40.5 billion of assets at December 31, 1994, the
Company believes that TIC, Primerica Life and TIC's other
subsidiaries together constitute one of the largest stock life
insurance groups in the United States as measured by assets at
December 31, 1994.
Because the Company's interest in old Travelers in 1993
was accounted for on the equity method, the Company's results of
operations for periods prior to the Merger do not include the
full results of TIC's business. See Notes 1 and 4 of Notes to
Consolidated Financial Statements. For informational purposes,
the premium and other operational information provided below
includes TIC's businesses for all periods presented.
14
Primerica Financial Services
Principal Markets and Methods of Distribution
The business operations of the PFS group of companies
involve the sale of insurance, mutual funds and other financial
products, and consist of an affiliated group of companies engaged
in (i) the underwriting and administration of individual term
life insurance throughout the United States and in Canada and
(ii) securities brokerage, consisting primarily of mutual fund
sales. The PFS sales force, composed of approximately 100,000
independent agents, primarily markets term life insurance and
certain other products of subsidiaries of the Company, including
certain loans offered by the Company's consumer finance
subsidiaries, and other products approved by the Company. In
1994, the PFS sales force began selling, on a test basis, certain
property-casualty insurance products of The Travelers Indemnity
Company. See "Property & Casualty Insurance Services --
Property-Casualty Personal Lines." Because the great majority of
the licensed sales force works on a part-time basis, a
substantial portion of the sales force is inactive from time to
time.
Primerica Life and its subsidiaries, Primerica Life
Insurance Company of Canada and National Benefit Life Insurance
Company ("NBL"), primarily offer individual term life insurance.
NBL provides statutory disability benefits in New York, as well
as direct response student term life insurance nationwide.
Primerica Life and its subsidiaries together are licensed to sell
and market term life insurance in all 50 states, the District of
Columbia, Canada, Puerto Rico, Guam, the U.S. Virgin Islands and
Northern Mariana Islands.
For information concerning PFS Investments Inc. ("PFS
Investments"), see "Mutual Funds and Asset Management," below.
Premium revenues, net of reinsurance, for PFS for the
years ended December 31, 1994, 1993 and 1992 were $962.4 million,
$889.9 million and $862.7 million, respectively. The increase in
premium revenues in recent years is primarily attributable to
growth in production and in the retention of in force business.
See "Insurance Services - General -- Reinsurance," at the end of
the description of the Property & Casualty Insurance Services
segment, for a discussion of reinsurance.
Life Insurance in Force
The table on the next page provides a reconciliation of
beginning and ending life insurance in force for Primerica Life
and subsidiaries, and related statistical data for 1992-1994.
15
(in millions of dollars, except as noted)
Year Ended December 31,
-----------------------
1994 1993 1992
---- ---- ----
In force beginning of year $ 317,403 $ 311,276 $ 318,793
Additions 57,389 49,300 46,867
Terminations(1) (39,820) (43,173) (54,384)
-------- -------- --------
In force end of year $ 334,972 $ 317,403 $ 311,276
======= ======= ========
The amounts in force at end of
year are before reinsurance
ceded in the following amounts $ 94,930 $ 82,293 $ 87,232
======= ======= ========
At end of year:
Number of policies in force
PFS 2,075,600 2,003,491 1,993,686
NBL other lines 396,717 406,977 413,063
Average size of policy
in force (in dollars)
PFS $ 157,739 $ 154,360 $ 151,636
NBL other lines 19,079 20,011 21,696
______________________________
(1) Includes terminations due to death, surrenders and lapses.
AIDS-related claims, net of reinsurance, as a percentage
of total net life claims paid by Primerica Life in 1994 and 1993,
were 7.1% and 6.7%, respectively. Management believes that
current pricing and reserves make adequate provision for AIDS-
related claim experience.
Mutual Funds and Asset Management
PFS Investments is a registered broker-dealer and is the
exclusive retail distributor of the Common Sense(R) Trust mutual
funds.2 Since the Company's sale of ACMR, a number of intra-
Company joint ventures, including companies that are part of PFS,
continue to provide underwriting, transfer agency and custodial
services to the Common Sense(R) Trust funds. For the years ended
December 31, 1994, 1993 and 1992, PFS Investments' total mutual
fund sales were $1,322.2 million, $1,266.4 million and $1,071.2
million, respectively, with sales of shares of the Common Sense(R)
Trust funds and the
--------------------
2 Common Sense is a registered trademark of ACAM.
16
American Capital family of mutual funds collectively accounting
for approximately 74%, 75% and 81%, respectively, of total sales.
The overall increase in sales in recent years is primarily
attributable to the economic environment and expanded marketing
efforts for mutual funds. At December 31, 1994, approximately
24,000 independent agent members of the PFS sales force were also
independent registered securities representatives of PFS
Investments.
Travelers Life and Annuities
This section includes the businesses identified by old
Travelers as Financial Services and Asset Management & Pension
Services, as well as Transport Life Insurance Company and its
affiliates ("Transport"). Transport specializes in accident and
health insurance including cancer, heart/stroke and long-term
care coverage, and became a subsidiary of TIC in connection with
the Merger.
Principal Products
Travelers Life and Annuities offers individual life
insurance, annuities and accident and health insurance to
individuals and small businesses. It also provides group pension
deposit products, including guaranteed investment contracts, and
annuities to employer-sponsored retirement and savings plans.
TIC views market specialization as a critical component of
profitability and has updated its individual product portfolio
with a range of competitively priced life, long-term care and
fixed and variable annuity products for its customers.
Individual life and accident and health insurance provide
protection against financial loss due to death, illness or
disability. Life insurance is also used to meet estate, business
planning and retirement needs. Individual accumulation fixed and
variable annuities are used for retirement funding purposes.
Variable annuities allow the policyholder to choose to direct
deposits into a number of separate accounts, each of which has a
different investment strategy. Individual immediate annuities
are used for structuring settlements of certain indemnity claims
and making other payments to policyholders over a period of time.
In recent years, TIC has increased the amount of individual
variable annuities that it sells.
The table on the next page sets forth written premiums,
net of reinsurance, and deposits for the Travelers Life and
Annuities unit.
17
Premiums and Deposits
(in millions)
Year Ended December 31,
----------------------------
1994 1993 1992
---- ---- ----
Premiums
Individual life $ 124 $ 117 $ 109
Individual accident and health 361 344 362
Annuities
Individual single premium 21 19 22
Group single premium 21 27 28
Group fixed 50 110 86
-------- -------- --------
Total premiums 577 617 607
-------- -------- --------
Deposits
Universal life insurance 162 163 164
Annuities
Individual fixed accumulation 569 577 647
Individual variable accumulation 693 392 232
Individual immediate(1) 26 34 50
Guaranteed investment contracts(2) 347 918 502
Group separate accounts and managed funds(3) 747 772 730
Other fixed funds 119 265 223
-------- -------- --------
Total deposits 2,663 3,121 2,548
-------- -------- --------
Total premiums and deposits $ 3,240 $ 3,738 $ 3,155
======== ======== ========
______________________________
(1) Represents primarily structured settlement annuities, in
which payments are currently being made to annuitants.
(2) The 1992 amount includes the adverse impact of downgrades
in TIC's financial strength ratings and general industry
conditions. The 1993 increase reflects success in
attracting guaranteed business in alternative markets.
Such business was not expected to, and did not, recur.
The 1994 decrease also reflects TIC's more selective
approach to issuing guaranteed investment contracts.
(3) The 1993 increase reflects an increase in deposits to
guaranteed separate accounts offset by a decrease in
deposits to indexed separate accounts. The 1994 decrease
results from the decision, in the third quarter of 1993,
to no longer market index funds, offset by the transfer by
the Company of certain assets of one of its employee
pension plans, which were previously managed externally.
For information about reinsurance, see "Insurance Services
- General -- Reinsurance" at the end of the description of the
Property & Casualty Insurance Services segment.
Principal Markets and Methods of Distribution
TIC is licensed to sell and market its individual products
in all 50 states, the District of Columbia, Puerto Rico, Guam,
the Bahamas and the U.S. and British Virgin Islands.
Individual products are primarily marketed through three
distribution channels: independent agents, H.C. Copeland and
Associates, Inc. ("Copeland") and the financial consultants of
SBI. Both Copeland and SBI are subsidiaries of the Company. The
18
independent agents, including a core group of approximately 450
professional life insurance general agencies, sell the majority
of the individual life and accident and health insurance and, in
1994, sold 39% of individual annuity premiums and deposits.
Copeland accounted for 49% of 1994's individual annuity premiums
and deposits. In June 1994, Smith Barney began distributing TIC
individual products, primarily variable annuities. Smith Barney
accounted for 12% of total 1994 individual annuity premiums and
deposits. The price of individual products is affected by long-
term assumptions as to interest, expenses and rates of mortality,
morbidity and persistency, as well as competitive and regulatory
considerations.
TIC has significantly reduced its writing of group pension
contracts by adopting a more selective approach to the issuance
of guaranteed investment contracts. Group pension products and
annuities are marketed by TIC's salaried staff directly to plan
sponsors and is also placed through independent consultants and
investment advisers. The major factors affecting the pricing of
these contracts are the economics of the capital markets,
primarily the interest rate environment, the availability of
appropriate investments and surplus required to support this
business due to risk-adjusted capital standards. The pricing of
products and services also reflects charges for expenses,
mortality, profit and other relevant financial factors such as
credit risk.
Life Insurance in Force
The following table provides a reconciliation of beginning
and ending Travelers Life and Annuities life insurance in force
and related statistical data on a statutory basis for 1992-1994.
(in millions of dollars, except as noted)
Year Ended December 31,
--------------------------------
1994 1993 1992
---- ---- ----
In force beginning of year $ 44,909 $ 39,434 $ 32,590
Additions 9,265 9,944 10,503
Terminations(1) (5,176) (4,469) (3,659)
-------- -------- --------
In force end of year $ 48,998 $ 44,909 $ 39,434
========= ========= =========
The amounts in force at end of
year are before reinsurance ceded
in the following amounts $ 6,575 $ 5,042 $ 3,933
========= ========= =========
At end of year:
Number of policies in force 606,089 619,710 623,411
Average size of policy
in force (in dollars) $ 80,843 $ 72,468 $ 63,255
______________________________
(1) Includes terminations due to death, surrenders and lapses.
19
Insurance Reserves and Contractholder Funds
As life, accident and health insurance and annuity
premiums are received, TIC establishes policy benefit reserves
that reflect the present value of expected future obligations,
net of the present value of expected future net premiums. These
reserves generally reflect long-term fixed obligations to
policyholders and are based on assumptions as to interest rates,
future mortality, morbidity, persistency and expenses, with
provision for adverse deviation. Policy benefit reserves, which
give appropriate recognition to reinsurance, are established
based on factors derived from past experience.
Contractholder funds arise from the issuance of individual
life contracts that include an investment component, deferred
annuities and certain individual immediate annuity investment
contracts. Contractholder funds are equal to deposits received
and interest credited less withdrawals, mortality charges and
administrative expenses. Contractholder funds also include
receipts from the issuance of pension investment contracts.
AIDS-related claims paid by Travelers Life and Annuities
in 1994 and 1993 were 2.1% and 1.2%, respectively, as a
percentage of total life claims paid, and 1.5% and 0.7%,
respectively, as a percentage of total health claims paid.
Management believes that current pricing and reserves make
adequate provision for AIDS-related claim experience.
Competition and Regulation
For a description of competition and regulation relating
to the Company's life insurance businesses, see "Insurance
Services - General" at the end of the description of the Property
& Casualty Insurance Services segment.
PROPERTY & CASUALTY INSURANCE SERVICES
This segment includes the operations of The Travelers
Indemnity Company and its subsidiary and affiliated property-
casualty insurance companies ("Travelers Indemnity"), including
Gulf Insurance Company and its subsidiaries ("Gulf").
Because the Company's interest in old Travelers prior to
the Merger was accounted for on the equity method, the Company's
results of operations for periods prior to 1994 do not include
the full results of the businesses of Travelers Indemnity. See
Notes 1 and 4 of Notes to Consolidated Financial Statements. For
informational purposes, the premium and other operational
information provided below includes Travelers Indemnity's
businesses prior to the Merger. For additional information with
respect to the combined property and casualty insurance
businesses of the Company, see "Combined Property-Casualty
Product Line Information."
20
Property-Casualty Commercial Lines
Principal Products
Property-Casualty Commercial Lines ("Commercial Lines") is
organized to serve the needs of its customer base by market:
National Accounts ("National"), Agency Marketing ("Agency"), and
Specialty Lines ("Specialty"). Each marketing and underwriting
area targets specific segments of the marketplace based upon size
of business, nature of risk and specific customer needs.
National serves large organizations, as well as employee groups,
associations and franchises, and includes the Company's residual
market business. Agency serves small and medium-sized
businesses, with a strategic emphasis on the medium-sized
businesses, and individuals with commercial exposures, through a
network of independent agents and brokers. Protection is
afforded to customers of National and Agency for the risks of
property loss such as fire and windstorm, financial loss such as
business interruption, liability claims arising from operations
and workers' compensation benefits through insurance products
where risk is transferred from the customer to Commercial Lines.
Such coverages include workers' compensation, liability,
automobile, property and multiple-peril.
Commercial Lines also provides policy, loss and benefit
administration through service agreements, and participates in
state assigned risk pools. The primary product serviced under
these agreements is workers' compensation. The Company
emphasizes cost containment strategies and customer service in
this market. It has introduced managed care coupled with
services such as toll free telephone numbers for reporting of
claims and early intervention in the care process.
Specialty is written through Gulf and Travelers Indemnity.
The principal products of Specialty include various forms of
professional liability insurance, including directors' and
officers' liability and medical malpractice insurance, product
liability, fidelity bonds, commercial umbrella and excess
insurance, excess property insurance, coverages relating to the
entertainment and transportation industries, and standard
commercial property and casualty products for specific niche
markets. Specialty also assumes various types of reinsurance on
both a proportional and a non-proportional basis.
In December 1994, Travelers Indemnity acquired from CCC
the 50% of Gulf's parent corporation that it did not already own,
making Gulf a wholly owned subsidiary of Travelers Indemnity. As
of January 1, 1995, Gulf discontinued writing regional property
and casualty commercial lines of insurance and transferred all
new and renewal business to Travelers Indemnity. This allows
Gulf to focus on its specialty lines of business.
21
Premium equivalents, presented in the tables below, represent
estimates of premiums that customers would have been charged
under a fully insured arrangement. The amounts are based on
expected losses associated with non-risk bearing components of
each account, as determined in the pricing process. Premium
equivalents do not represent actual revenues.
The following tables set forth written premiums, net of
reinsurance, and premium equivalents for Commercial Lines.
Premiums and Premium Equivalents
(in millions)
Year Ended December 31,
------------------------------------
1994 1993 1992
---- ---- ----
Net written premiums by market:
National
Net written premiums $ 566 $ 731 $ 839
Premium equivalents 2,644 2,595 2,289
-------- -------- --------
Total National 3,210 3,326 3,128
-------- -------- --------
Agency
Net written premiums 1,526 1,556 1,507
Premium equivalents 334 162 89
-------- -------- --------
Total Agency 1,860 1,718 1,596
-------- -------- --------
Specialty
Net written premiums 299 212 199
-------- -------- --------
Total net written premiums and
premium equivalents $ 5,369 $ 5,256 $ 4,923
======== ======== ========
Net written premiums by product line:
Workers' compensation $ 907 $ 1,001 $ 1,023
Multiple-peril 304 279 291
Automobile 417 443 448
Other liability 426 478 468
Property and other 337 298 315
-------- -------- --------
Total net premiums 2,391 2,499 2,545
Premium equivalents 2,978 2,757 2,378
-------- -------- --------
Total net written premiums and
premium equivalents $ 5,369 $ 5,256 $ 4,923
======== ======== ========
Principal Markets and Methods of Distribution
National markets programs that involve both insurance
(i.e., risk transfer) and risk service (i.e., claim settlement,
loss control and risk management). Customers range in size from
businesses with sales of approximately $10 million per year to
Fortune 1000
22
corporations. Each customer typically generates annual premiums
of at least $1 million and generally selects products under
retrospective rating plans, large self-insured retentions or some
other loss-responsive arrangement. National customers continue
to demand increased levels of risk service programs where the
ultimate cost is based on their own loss experience. Based on
premiums written and premium equivalents, National constituted
approximately 60% of Commercial Lines' business in 1994. These
large customers are usually national in scope and highly complex
in their operations.
A significant portion of Commercial Lines business is
written with retrospectively rated insurance policies in which
the ultimate cost of insurance for a given policy year is
dependent on the loss experience of the insured. This type of
policy limits the insurance risk to Commercial Lines. The
payment terms and long-term nature of the loss development
reduces insurance risk and introduces some additional credit
risk. Receivables from retrospectively rated policies totaled
approximately $1.0 billion at December 31, 1994. Collateral,
primarily letters of credit, is generally required for contracts
that provide for deferred collection of ultimate premiums. The
amount of collateral required is predicated upon the
creditworthiness of the client and the nature of the insured
risks. Commercial Lines continually monitors credit risk of
individual accounts and the adequacy of collateral.
The residual market business of Commercial Lines sells
claim and policy management services to workers' compensation
assigned risk pools throughout the country. Since 1993, these
contracts have been awarded through a formal bid process intended
to reduce the number of servicing carriers and to measure the
quality of service being provided. Contracts are awarded for a
term of three years and about one-third of the states are bid
each year. Travelers Indemnity has thus far been successful in
winning nine of 14 bids.
Agency, which made up approximately 35% of Commercial
Lines' business in 1994, sells a broad range of commercial
property-casualty products to small and medium-sized customers.
Small accounts tend to be more price-sensitive and make up
approximately 27% of Agency's business. The core products for
the small customer are package contracts covering property and
general liability exposures. The product choice for the medium-
sized customer is a retrospectively rated or a large deductible
contract covering workers' compensation. Other coverages are
sold to complement the core products. Products are distributed
primarily through independent agents (for small customers) and
brokers (for medium-sized customers) working with Travelers
Indemnity's marketing and underwriting specialists in a field
office network of 42 locations. Agency continues to selectively
streamline its distribution force as management focuses on
selected markets and producers.
Travelers Indemnity is also a member of, and therefore
participates in, the underwriting operations of insurance and
reinsurance pools and associations, several of which make
independent underwriting decisions on behalf of their members.
These pools insure specialized risks such as property exposures
of large manufacturing plants, nuclear power plants and
transporters of nuclear materials and other specialty risks.
23
Specialty products are marketed to small, medium, and large
customers and are distributed primarily through wholesale brokers
and other specialty producers, including underwriting managers
for specific industry programs. The Company's Specialty business
requires specialized underwriting and generally has better
combined ratios and lower loss frequencies than traditional
lines.
The following table shows the distribution of Commercial
Lines' 1994 premiums for the states that accounted for the
majority of the premium volume.
% of
State Total
----- -----
New York 11.9%
California 8.8
Texas 7.3
Massachusetts 6.4
Illinois 4.3
Florida 4.2
Pennsylvania 3.7
New Jersey 3.6
All others(1) 49.8
-----
Total 100.0%
=====
______________________________
(1) No one of these states accounted for as much as 3.0% of
the total.
Pricing levels for property and casualty insurance products
are generally developed based upon estimated losses, the expenses
of producing business and administering claims, and a reasonable
allowance for profit. In addition, most retrospective rating
plans contain sufficient flexibility that the subjective
evaluation of a risk by the underwriter can be incorporated in
the pricing. In guaranteed cost products, however, loss cost
inflation has outpaced marketplace price changes. In addition,
current economic conditions have constrained business growth,
thereby decreasing the size of customers' workforces and
consequently reducing the insurable market.
A variety of factors continue to affect the casualty
market. The Company attempts to avoid exposure to high hazard
liability risks through careful underwriting, extensive use of
retrospective rating and reliance on financially secure
reinsurers. The workers' compensation line has improved
dramatically across the industry over the past few years,
particularly during the last two years, in part due to loss
management efforts of the insureds and providers such as
Travelers Indemnity. These trends are also reflected in the
workers' compensation book of business at Commercial Lines, where
workers' compensation combined ratios after policyholder
dividends have improved from 105.6% in 1992 to 99.8% in 1994.
The improvement is due to a variety of factors including, but not
limited to, legislative reform, economic conditions, insurer
investment, employer involvement and lower medical inflation.
This business is subject to retrospective rating premium
adjustments, and
24
accordingly the net impact on results of operations of the
premium adjustment and loss reserve development is minimal. In
addition, because of the improving trends within workers'
compensation, insurers have increased their voluntary market
share, thereby reducing the size of the involuntary market.
Travelers Indemnity's service volume from the National Council on
Compensation Insurance has declined from $638 million in 1993 to
$431 million in 1994. However, its direct assignment volume has
increased from $26 million for the year ended December 31, 1993
to $217 million for the year ended December 31, 1994. Under
direct assignment, Travelers Indemnity acts as a third-party
administrator for other insurance carriers to fulfill their
involuntary pool requirement.
In the commercial property market, 1994 was another
difficult year for natural catastrophes. While the industry's
catastrophe losses were approximately $13 billion on a pre-tax
basis, Commercial Lines' catastrophe losses for 1994 totalled $33
million, pre-tax. The commercial property market capacity
remained adequate during 1994, keeping downward pressure on
pricing.
In most lines, pricing did not improve during the past
year. For Agency, the duration of the current downturn in the
underwriting cycle continues to pressure the pricing of
guaranteed cost products. In the small account market, which
primarily buys guaranteed cost products, price increases have not
exceeded loss cost inflation for several years. The focus is to
retain existing profitable business and obtain new accounts where
the Company can maintain its selective underwriting policy. The
Company continues to adhere to strict guidelines to maintain high
quality underwriting, which could affect future premium levels.
Because of its large fee-for-service component, National business
is less affected by pricing; however, the pricing of large
account business continues to be very competitive. Customer
retention levels remained high in 1994 as a result of Travelers
Indemnity's continued delivery of quality service, primarily
claims management focused on loss cost reduction.
See "Insurance Services - General -- Reinsurance" below
for information regarding reinsurance.
Hazardous Substances
The Special Liability Group ("SLG") was established in
1986 to deal exclusively with environmental exposures and other
exposures of a cumulative nature. SLG is essentially a claim
operation, segregated from other claim areas within the Company.
Its objective is to fulfill all of the Company's contractual
obligations to its policyholders in a manner that most
effectively preserves corporate assets.
Environmental Claims
As a result of various state and federal regulatory
efforts aimed at environmental remediation (particularly
"Superfund"), the insurance industry has been, and continues to
be, involved in extensive litigation involving policy coverage
and liability issues. The possible
25
reauthorization of Superfund in 1995 may have some effect on the
resolution of these issues, but it is not possible at the present
time to determine what the potential impact, if any, will be. 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.
Certain of the Company's subsidiaries are part of the
industry segment affected by these issues and continue to receive
claims alleging liability exposures arising out of insureds'
alleged disposition of toxic substances. The review of
environmental claims includes an assessment of the probable
liability, available coverage, judicial interpretations and
historic value of similar claims. In addition, the unique facts
presented in each claim are evaluated individually and
collectively. Due consideration is given to the many variables
presented in each claim, such as: the nature of the alleged
activities of the insured at each site; the allegations of
environmental damage at each site; the number of sites; the total
number of potentially responsible parties at each site; the
nature of environmental harm and the corresponding remedy at a
site; the nature of government enforcement activities at each
site; the ownership and general use of each site; the willingness
and ability of other potentially responsible parties to
contribute to the cost of the required remediation at each site;
the contractual relationship between the Company and the insured;
the identification of other insurers; the potential coverage
available, if any; the number of years of coverage, if any; the
obligation to provide a defense to insureds, if any; and the
applicable law in each jurisdiction. Analysis of these and other
factors on a case-by-case basis results in the ultimate reserve
assessment.
Environmental loss and loss expense reserves of the
Company at December 31, 1994 were $471 million, net of
reinsurance of $11 million. Approximately 14% of the net
environmental loss reserve (i.e., approximately $65 million) is
case reserve for resolved claims. The Company does not post
individual case reserves for environmental claims in which there
is a coverage dispute until the dispute is resolved. Until then,
the estimated amounts for disputed coverage claims are carried in
a bulk reserve, together with unreported environmental losses.
The industry does not have a standard method of
calculating claim activity for environmental losses. Generally,
for environmental claims, the Company establishes a claim file
for each insured on a per site, per claimant basis. If there is
more than one claimant, e.g., a federal and a state agency. This
method will result in two claims being set up for a policyholder
at that one site. The Company adheres to its method of
calculating claim activity on all environmental-related claims,
whether such claims are tendered on primary, excess or umbrella
policies.
As of December 31, 1994, the Company had approximately
8,200 pending environmental-related claims and had resolved over
17,200 such claims since 1986.
26
Approximately 70% of the pending environmental-related claims in
inventory represent active federal or state EPA-type claims
tendered by approximately 640 insureds. The balance represents
bodily injury claims alleging injury due to the discharge of
insureds' waste or pollutants.
To date, the Company generally has been successful in its
coverage litigation and continues to reduce its potential
exposure through favorable settlements with certain insureds.
These settlement agreements are based on the variables presented
in each piece of coverage litigation. Generally the settlement
dollars paid in disputed coverage claims are a percentage of the
total coverage sought by such insureds. In addition, with
respect to many of the environmental claims there is a "buy-back"
of the liability under the policy by the Company, together with
appropriate indemnities and hold harmless provisions to protect
the Company.
Asbestos Claims
In the area of asbestos claims, the property and casualty
insurance 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. Originally the cases involved mainly plant
workers and traditional asbestos manufacturers and distributors.
However, in the mid-1980s, a new group of plaintiffs, whose
exposure to asbestos was less direct and whose injuries were
often speculative, began to file lawsuits in increasing numbers
against the traditional defendants as well as peripheral
defendants who had produced products that may have contained
small amounts of encapsulated asbestos. These claims continue to
arise and on an individual basis generally involve smaller
companies with smaller limits of potential coverage. There has
emerged a group of nonproduct claims by plaintiffs, mostly
independent labor union workers, mainly against companies,
alleging exposure to asbestos while working at these companies'
premises. In addition, various insurers, including Travelers
Indemnity, remain defendants in a widely publicized action
brought in Philadelphia regarding potential consolidation and
resolution of future asbestos bodily injury claims. The
cumulative effect of these claims and the judicial actions on the
Company and its insureds currently is uncertain.
Also various classes of asbestos defendants, including
major product manufacturers, peripheral and regional product
defendants as well as premises owners, continue to tender
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 Company's evaluations have not resulted in any
meaningful data from which an average asbestos defense or
indemnity payment may be determined. The varying defense and
indemnity payments made by the Company on behalf of its insureds
has also precluded the Company from deriving any meaningful data
by which it can predict whether its defense and indemnity
payments for asbestos claims (on average or in the aggregate)
will remain the same or change in the future.
27
Asbestos loss and loss expense reserves of the Company at
December 31, 1994 were $383 million, net of reinsurance of $319
million. Approximately 85% of the net asbestos reserves at
December 31, 1994 represented incurred but not reported losses.
In relation to these asbestos and environmental-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 inconsistencies 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 or range of exposure
represented by these claims to the Company's financial condition,
results of operations or liquidity. The Company believes that it
is reasonably possible that the outcome of the uncertainties
regarding environmental and asbestos claims could result in a
liability exceeding the reserves by an amount that would be
material to operating results in a future period. However, it is
not likely these claims will have a material adverse effect on
the Company's financial condition or liquidity.
For additional information regarding asbestos and
environmental-related claims, see the discussion in Item 7 of
this Form 10-K, "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Property-Casualty Personal Lines
Principal Products
Property-Casualty Personal Lines ("Personal Lines") writes
virtually all types of property and casualty insurance covering
personal risks. The primary coverages in Personal Lines are
automobile and homeowners insurance sold to individuals, which
account for 97% of the premium volume. Automobile policies
provide coverage for liability to others for both bodily injury
and property damage, and for physical damage to an insured's own
vehicle from collision and various other perils. In addition,
many states require policies to provide first-party personal
injury protection, frequently referred to as no-fault coverage.
Homeowners policies are available for dwellings,
condominiums, mobile homes and rental property contents.
Protection against losses to dwellings and contents from a wide
variety of perils is included in these policies, as well as
coverage for liability arising from ownership or occupancy.
In October 1994, Travelers Indemnity sold Bankers and
Shippers Insurance Company to Integon Corporation for
approximately $142 million. Bankers and Shippers Insurance
Company primarily writes nonstandard private passenger automobile
insurance.
28
The following table sets forth written premiums, net of
reinsurance, for Personal Lines.
Premiums
(in millions)
Year Ended December 31,
-------------------------------------
1994 1993 1992
---- ---- ----
Automobile $ 1,187(1) $ 1,202 $ 1,153
Homeowners 209 122(2) 236
Other 37 37 39
-------- -------- --------
Total premiums $ 1,433 $ 1,361 $ 1,428
======== ======== ========
______________________________
(1) The written premium decline in 1994 reflects the sale of
Bankers and Shippers Insurance Company in October 1994.
(2) The written premium decline in 1993 reflects the purchase
of additional reinsurance to reduce exposure to
catastrophe losses.
Principal Markets and Methods of Distribution
Personal Lines business is distributed through
approximately 3,000 independent agencies, supported by a network
of 15 field marketing offices and two regional service centers.
The principal markets for Personal Lines insurance are in states
along the east coast, in the south, and in the mid-west.
Personal Lines has implemented various programs over the
past five years in order to improve operating and financial
results, including expense reductions, the termination of
contracts of underperforming agents and the withdrawal from
markets where Personal Lines had a small market share or saw
little potential for long-term, profitable growth. While these
actions have reduced the overall size of the Personal Lines
business, the core automobile and homeowners insurance businesses
have begun to grow in terms of policy counts and premium volume.
In 1994, Personal Lines began writing private passenger
automobile and homeowners insurance that was marketed on a test
basis by licensed members of the PFS sales force in two states.
This program is expected to expand during 1995 to additional
states.
For 1994, Personal Lines business was concentrated in the
states shown in the table on the next page.
29
% of
State Total
----- -----
New York 23.1%
Massachusetts 16.2
New Jersey 8.6
Florida 8.1
Pennsylvania 6.5
Connecticut 5.2
Virginia 4.6
Georgia 3.9
Texas 3.8
All others(1) 20.0
------
Total 100.0%
=====
______________________________
(1) No one of these states accounted for as much as 3.0% of
the total.
In addition, approximately 49% of Personal Lines'
homeowners premiums in 1994 was in New York, Florida,
Massachusetts and New Jersey.
Pricing for automobile insurance is driven by changes in
the relative frequency of claims and by inflation in the cost of
automobile repairs, medical care and litigation of liability
claims. As a result, the profitability of the business is
largely dependent on promptly identifying and rectifying
disparities between premium levels and expected claim costs, and
obtaining the indicated rate increases. Premiums charged for
physical damage coverages reflect insured car values and,
accordingly, premium levels are somewhat related to the volume of
new car sales.
In addition to the normal risks associated with any
multiple-peril coverage, the profitability and pricing of
homeowners insurance is affected by the incidence of natural
disasters, particularly tornadoes and hurricanes. Most policies
offer automatic increases in coverage to reflect growth in
replacement costs and property values.
The high level of catastrophe losses in recent periods has
led to an expansion of the reinsurance market without a
corresponding decrease in reinsurance costs. These factors have
resulted in a reduced availability of homeowners insurance and
have led to higher prices for homeowners policies in some
markets.
Several insurance companies have attempted to limit their
writings in coastal areas of the country as a result of heavy
claim losses sustained from Hurricane Andrew. Travelers
Indemnity has stopped writing new homeowners policies in certain
counties in South Florida and in coastal areas of New York and
Connecticut. In addition, Travelers Indemnity has reduced
agents' commissions on homeowners insurance in certain markets
within those states previously identified, strengthened
underwriting standards, implemented price increases, and
purchased additional reinsurance to limit its exposure to future
catastrophe losses. Changes to a company's methods of marketing
and underwriting in coastal areas of Florida and New
30
York are subject to state-imposed restrictions, the general
effect of which is to retard an insurer's ability to withdraw
from such areas. While homeowners premium volume in Florida for
1994 was substantially level with 1993, gross exposure to
catastrophe loss was lower due to a decline in the number of
policies written, offset by price increases.
INSURANCE SERVICES - GENERAL
----------------------------
The following table summarizes the financial strength
ratings of the Company's life insurance companies and the claims-
paying ratings of its property-casualty insurance companies.
These ratings are not a recommendation to buy, sell or hold
securities, and they may be revised or withdrawn at any time.
Each rating should be evaluated independently of any other
rating.
Moody's
A.M. Best Duff & Investor's Standard
Company Phelps Corp. Service Inc. & Poor's Corp.
------- ------------ ------------ --------------
TIC A- (excellent) A+ (high) A2 (good) A+ (strong)
Primerica Life A- (excellent) - - AA (excellent)
Travelers Indemnity
Pool(1) A (excellent) AA- (very high) A1 (good) AA- (excellent)
Gulf Pool(2) A+ (superior) - - -
______________________________
(1) The companies that participate in the pool are The
Travelers Indemnity Company, The Charter Oak Fire
Insurance Company, The Phoenix Insurance Company, The
Travelers Indemnity Company of America, The Travelers
Indemnity Company of Illinois and The Travelers Indemnity
Company of Connecticut (formerly The Travelers Indemnity
Company of Rhode Island).
(2) The Gulf pool includes Gulf Insurance Company and its
subsidiaries.
Reinsurance
Reinsurance is subject to collectibility in all cases and
to aggregate loss limits in certain cases. The Company remains
primarily liable as the direct insurer on all risks reinsured.
Reinsurance recoverables are reported after allowances for
uncollectible amounts. The Company also holds collateral
including escrow funds and letters of credit under certain
reinsurance agreements. Uncollectible reinsurance recoverables
have not had, and management does not expect that any amounts
becoming uncollectible in the future would have, a material
adverse effect on the consolidated financial position of the
Company. For additional information concerning reinsurance, see
Note 12 of Notes to Consolidated Financial Statements.
Reinsurers are selected based on their financial position
and business practices. The Company monitors the financial
condition of reinsurers on an ongoing basis, and reviews its
reinsurance arrangements periodically.
At December 31, 1994, the Company had $4.3 billion in
property-casualty reinsurance recoverable. Of this amount, $2.6
billion was ceded to pools and associations, which have the
strength of the participating insurance companies supporting
these cessions.
31
The remainder is due from reinsurers. The two largest
reinsurers, Lloyd's of London and General Reinsurance
Corporation, had assumed losses from the Company at December 31,
1994 of $215 million and $142 million, respectively. Lloyd's of
London is currently undergoing restructuring to seek to obtain
additional capital and to segregate claims for years before 1986.
The ultimate effect of this restructuring on the Company's
reinsurance recoverable is not yet known. The Company does not
believe that any uncollectible amounts of reinsurance recoverables
would be material to its results of operations, financial condition
or liquidity. See Item 3, "Legal Proceedings," for additional
information regarding Lloyd's of London.
Life Insurance
The Company's policy is to obtain reinsurance on
individual life policies for amounts above certain retention
limits, which limits vary with age and underwriting
classification. During 1994, certain subsidiaries of the Company
increased the level of reinsurance on certain policies.
Retention on life insurance risks after reinsurance varies up to
a maximum of $1.5 million per insured for an ordinary life risk,
depending on the subsidiary involved, the type of policy, the
year of issue and the age of the insured. Other reinsurance
arrangements are made from time to time to cede or assume
existing blocks of business.
Property and Casualty Insurance
Currently, for third-party liability, including automobile
no-fault, the reinsurance agreements used by Commercial Lines
limit its net retention to a maximum of $5 million per insured,
per occurrence. For commercial property insurance, there is a $5
million retention per insured with 100% coverage for risks with
higher limits. For large accounts, reinsurance arrangements are
typically tiered, or layered, such that only levels of risk
acceptable to the Company are retained. The reinsurance
agreements in place for Personal Lines cover 90% of each loss
between $2 million and $6 million for all third-party liability,
including automobile no-fault.
In addition to traditional reinsurance agreements that
serve to control its exposure to loss, Travelers Indemnity acts
as a servicing carrier for many pools and associations, such as
workers' compensation pools. These transactions are reflected as
direct business on the Company's books and records. This
business is then ceded to the pools and recorded as reinsurance
ceded.
Catastrophe Reinsurance
The Company utilizes reinsurance agreements with nonaffiliated
reinsurers to control its exposure to losses resulting from one
occurrence. For the accumulation of net property losses arising out
of one occurrence, reinsurance coverage averages 75% of total losses
between $175 million and $375 million. For multiple workers'
compensation losses arising from a single occurrence, reinsurance
coverage averages 100% of losses between $10 million and $160 million
and for losses caused by property perils reinsurance coverage averages
75% of losses between $175 million and $345 million.
32
For Agency-produced commercial property insurance, 25% of all
losses were reinsured in 1994, subject to an occurrence limitation
of 200% of ceded premium or an estimated $225 million. In 1995,
the quota share is 20%, with a fixed dollar occurrence limit of $225
million. For Personal Lines homeowners insurance, in 1994, 30% of
losses were reinsured up to a maximum recovery of $96 million, and for
1995, 16.25% of losses will be reinsured up to a maximum recovery
of $64 million per occurrence.
Competition and Other Factors Affecting Growth
Life Insurance
The Company's life insurance businesses compete with
national, regional and local insurance companies. Competition is
based upon price, product design and services rendered to
producers and policyholders. The insurance industry is extremely
competitive, in both price and services, and no single insurer is
dominant. Insurance companies that operate through salaried
personnel and employee agents may benefit from cost advantages,
once they have achieved sufficient size, over insurers that
utilize independent agents and brokers. The PFS sales force is
composed of independent commissioned agents, and approximately
40% of the Travelers Life and Annuities individual annuity
premiums and deposits were sold through independent agents. PFS
competes in its market segment by emphasizing the value of term
life insurance, and aggressively markets its products which often
replace existing life insurance policies underwritten by other
companies, including cash value whole life policies. In January
1995, the U.S. Supreme Court ruled that national banks may sell
annuities. It is not clear at this time whether the decision
will have a positive or negative impact upon the Company's
annuity sales.
Savings banks also compete directly in the sale of life
insurance in Connecticut, Massachusetts and New York.
Competition for the savings dollar arises from entities such as
banks, investment advisers, mutual funds and other financial
institutions.
PFS Investments is registered as a broker-dealer with the
SEC, in all 50 states, the District of Columbia, Puerto Rico, the
Virgin Islands and Guam, and is a member of the NASD. It is
subject to extensive regulation by those agencies and the
securities administrators of those jurisdictions, primarily for
the benefits of its customers, including minimum capital and
licensing requirements. PFS Investments faces competition not
only from large financial services firms offering products and
services that cross traditional business boundaries, but also
from insurance companies, including other subsidiaries of the
Company, offering life insurance products with investment
features.
33
Property and Casualty Insurance
The insurance industry is represented in the commercial
lines marketplace by many insurance companies of varying size.
Companies may be small local firms, large regional firms or large
national firms, as well as self-insurance programs or captive
insurers. Market competition, regulated by state insurance
departments, works to set the price charged for insurance
products and the level of service provided. Growth is driven by
a company's ability to provide insurance and services at a price
that is reasonable and acceptable to the customer. In addition,
the marketplace is affected by available capacity of the
insurance industry as measured by policyholders' surplus.
Surplus expands and contracts primarily in conjunction with
profit levels generated by the industry. Growth in premium and
service business is also measured by a company's ability to
retain existing customers and to attract new customers.
In addition to traditional insurance services, National
offers to risk managers of large national accounts programs that
provide increased flexibility in selecting loss prevention and
claim services, and premium payment plans. This business is
highly competitive on the basis of quality of service provided
and somewhat sensitive to price competition, and is written
primarily by Travelers Indemnity and several other very large
companies. New business levels remained strong in 1994, and
retentions remained high in both traditional insurance products
and risk service programs.
The bid process for selecting servicing carriers to
administer the involuntary pools is ongoing and is intended to
reduce the number of servicing carriers while increasing the
quality of service being provided. As the number of servicing
carriers is significantly reduced, the market share of the
remaining carriers is likely to grow. The Company believes that
a successful bid strategy will allow it to maintain a significant
market presence in the face of these changes.
Overhead reductions and improved efficiency through
automation are key competitive issues for Agency business.
During the past several years, Agency management has taken
significant steps to streamline this operation and establish
efficiencies to make these products more competitive in the
marketplace. In addition, Travelers Indemnity believes that its
breadth of products, highly qualified field staff and applied
technology provide for distinct competitive advantages. The
highly competitive business for medium-sized accounts has
historically been written by companies dealing through agents and
brokers, although some direct writing companies are represented
in the field. A competitive advantage resides in local
representation and underwriting authority. With emphasis on
regional locations and resident entrepreneurs marketing the full
spectrum of Travelers Indemnity's commercial products, Travelers
Indemnity believes it has created significant opportunity for
growth in this area.
The marketplace in which Specialty competes includes small
to medium-sized niche companies that focus on certain types of
risk and larger companies or branches/divisions of
34
multi-line companies that offer numerous products covering
various risks. Distribution of products is generally through
wholesale and/or retail brokers. Specialty's underwriting
responsiveness and quality are key to maintaining broker
relationships. A competitive advantage resides in the cross-
selling opportunities of Specialty products through Agency and
National underwriters, agents and brokers.
The insurance industry is represented in the personal
lines marketplace by many hundreds of insurance companies of
varying size. Although national companies write the majority of
the business, local or regional companies are effective
competitors because of their expense structure or because they
specialize in providing coverage to particular risk groups.
Personal automobile and homeowners insurance is marketed
mainly through one of two distribution systems: independent
agents or direct writing. The Company's Personal Lines unit
operates through 3,000 independent agents who usually represent
several unrelated property-casualty companies. Direct writing
companies operate either by mail or through exclusive agents or
sales representatives. Due in part to the expense advantage that
direct writers typically have relative to agency companies, the
direct writers have been able to gradually expand their market
share. Personal Lines continues to focus on the independent
agency distribution system, recognizing the service and
underwriting advantages the agent can deliver. In addition,
Personal Lines has taken advantage of complementary distribution
mechanisms, including affinity groups, mortgage lenders and the
independent agents of the PFS sales force, and plans to continue
to pursue other opportunities as they arise.
In recent years, reductions in the volume of Personal
Lines voluntary business have caused similar reductions in the
involuntary business assigned to the Company. However, this
trend has been somewhat offset by increases in the size of many
of the pools themselves. Intense regulation in the personal
automobile insurance business has caused some insurance companies
to withdraw from or reduce their writings in the personal lines
market, which has forced more individuals to obtain insurance in
the involuntary market.
Regulation
The Company's insurance subsidiaries are subject to
considerable regulation and supervision by insurance departments
or other authorities in each state or other jurisdiction in which
they transact business. The laws of the various jurisdictions
establish supervisory and regulatory agencies with broad
administrative powers. The purpose of such regulation and
supervision is primarily to provide safeguards for policyholders,
rather than to protect the interests of the insurers'
stockholders. Typically, state regulation extends to such
matters as licensing companies, regulating the type, amount and
quality of permitted investments, licensing agents, regulating
aspects of a company's relationship with its agents, requiring
triennial financial examinations, market conduct surveys, reports
on financial condition, recording complaints, restricting expenses,
commissions and new business issued, restricting use of some
underwriting criteria, regulating rates, forms and advertising,
35
specifying what might constitute unfair practices, fixing maximum
interest rates on policy loans and establishing minimum reserve
requirements and minimum policy surrender values. Such powers
also extend to premium rate regulation, which varies from open
competition to limited review upon implementation, to requirements
for prior approval for rate changes. State regulation may also cover
capital and surplus and actuarial reserve maintenance, setting
solvency standards, mandating loss ratios for certain kinds of
insurance, limiting the grounds for cancellation or nonrenewal of
policies and regulating solicitation and replacement practices.
State laws also regulate transactions and dividends between an
insurance company and its parent or affiliates, and require prior
approval or notification of any change in control of an insurance
subsidiary. In addition, under insurance holding company legislation,
most states regulate affiliated groups with respect to intercorporate
transfers of assets, service arrangements and dividend payments from
insurance subsidiaries.
The insurance industry generally is exempt from federal
antitrust laws because of the application of the McCarran-
Ferguson Act. In recent years, legislation has been introduced
to modify or repeal the McCarran-Ferguson Act. The effect of any
such modification or repeal cannot currently be determined.
Virtually all states mandate participation in insurance
guaranty associations and/or insolvency funds, which assess
insurance companies in order to fund claims of policyholders of
insolvent insurance companies. Under these arrangements,
insurers are assessed their proportionate share (based on
premiums written for the relevant lines of insurance in that
state each year) of the estimated loss and loss expense of
insolvent insurers. Similarly, as a condition to writing a line
of property and casualty business, many states mandate
participation in "fair plans" and/or "assigned risk pools" that
underwrite insurance for individuals and businesses that are
otherwise unable to obtain insurance. Participation is based on
the amount of premiums written in past years by the participating
company in an individual state for the classes of insurance
involved. These plans or pools traditionally have been
unprofitable, although the effect of their performance has been
partially mitigated in certain lines of insurance by the states'
allowance of increases in rates for business voluntarily written
by plan or pool participants in such states. For workers'
compensation plans or pools the effect may be further mitigated
by the method of participation selected by insurance companies.
In addition to state insurance laws, the Company's
insurance subsidiaries are also subject to general business and
corporation laws, state securities laws, consumer protection
laws, fair credit reporting acts and other laws.
Certain variable life insurance and individual variable
annuities and their related separate accounts are subject to
regulation by the Securities and Exchange Commission.
Health care reform has been at the forefront of domestic
policy issues at the federal level and is a leading issue in many
state legislatures in 1995. Various proposals have been
introduced and a great deal of uncertainty remains regarding what
the final health reform
36
package will contain or what effect it will have on the Company's
businesses, including its investment in MetraHealth. These
proposals may also affect workers' compensation and automobile
insurance. Furthermore, a number of states have passed, or are
considering, some form of health care reform. Such state
regulation primarily impacts fully insured small employer plans.
The overall impact of federal or state legislation on the
Company's businesses is impossible to predict at this time. The
Company continues to monitor political and legislative activity
that addresses the cost, availability and quality of health care.
Many jurisdictions require prior regulatory approval of
rate and rating plan changes and some impose restrictions on the
cancellation or nonrenewal of risks and the termination of agency
contracts, or have regulations that preclude immediate withdrawal
from certain lines of business. Certain lines of business, such
as commercial automobile and workers' compensation, experience
rate inadequacies in many jurisdictions. Automobile insurance is
also subject to varying regulatory requirements as to mandated
coverages and availability, such as no-fault benefits, assigned
risk pools, reinsurance facilities and joint underwriting
associations. The added expense associated with involuntary
pools in this and other areas has adversely affected
profitability.
See "Property-Casualty Commercial Lines -- Hazardous
Substances" on pages 25 through 28 for a discussion of the
effect on the Company of various state and federal regulatory
efforts aimed at environmental remediation, including proposed
amendments to the federal Superfund statute.
In December 1992, the Florida legislature created the
Residential Property and Casualty Joint Underwriting Association
("RPCJUA") to provide residential property and casualty insurance
to individuals who cannot obtain coverage in the voluntary
market. Property-casualty insurance companies in Florida,
including Travelers Indemnity, will be required to share the risk
in the RPCJUA.
In November 1993, the Florida legislature created a
Florida Hurricane Catastrophe Fund to provide reimbursement to
insurers for a portion of their future catastrophic hurricane
losses. This Hurricane Catastrophe Fund will be funded in part
by assessments on insurance companies.
Proposed legislation has been introduced in Congress that
would modify certain laws and regulations affecting the financial
services industry, including the provisions regarding
affiliations among insurance companies, investment banks and
commercial banks. The potential impact of such legislation on
the Company's businesses cannot be predicted at this time.
Recent Developments in Insurance Regulations
The National Association of Insurance Commissioners (the
"NAIC") adopted risk-based capital ("RBC") requirements for life
insurance companies in 1992, effective with
37
reporting for 1993, and for property-casualty companies in
December 1993, effective with reporting for 1994. The RBC
requirements are to be used as early warning tools by the NAIC
and states to identify companies that merit further regulatory
action.
For these purposes, an insurer's surplus is measured in
relation to its specific asset and liability profiles. A
company's risk-based capital is calculated by applying factors to
various asset, premium and reserve items, where the factor is
higher for those items with greater underlying risk and lower for
less risky items.
The life formula calculates baseline life risk-based
capital ("LRBC") as a mathematical combination of amounts for the
following four categories of risk: asset risk (i.e., the risk of
asset default), insurance risk (i.e., the risk of adverse
mortality and morbidity experience), interest rate risk (i.e.,
the risk of loss due to changes in interest rates) and business
risk (i.e., normal business and management risk).
Fifty percent of the baseline LRBC calculation is defined
as Authorized Control Level RBC. The insurer's ratio of adjusted
capital to Authorized Control Level RBC (the "RBC ratio") can
then be calculated from data contained in the annual statement.
Adjusted capital is defined as the sum of statutory capital,
statutory surplus, asset valuation reserve, voluntary investment
reserves and one-half the policyholder dividend liability.
The property-casualty formula calculates baseline
property-casualty risk-based capital ("PCRBC") as a mathematical
combination of amounts for the following categories of risk:
asset risk, credit risk (i.e., the risk of nonpayment of amounts
due under reinsurance ceded and other miscellaneous receivables),
off-balance-sheet risk (i.e., the risk of loss due to adverse
experience from non-controlled assets, guarantees for affiliates,
contingent liabilities, and reserve and premium growth) and
underwriting risk (i.e., the risk associated with loss reserves
and written premiums).
Forty percent of the baseline PCRBC calculation is defined
as Authorized Control Level RBC for 1994 (this percentage will
increase to 45% for 1995 and to 50% by 1996). The PCRBC ratio is
then calculated from data contained in the annual statement.
Within certain ratio ranges, regulators have increasing
authority to take action as the RBC ratio decreases. There are
four levels of regulatory action. The first of these levels is
the "company action level." The RBC ratio for this level is less
than 200% but greater than 150%. Insurers within this level must
submit a comprehensive plan (an "RBC plan") to the commissioner.
The next level is the "regulatory action level." The RBC ratio
for this level is less than 150% but greater than 100%. An
insurer within this level must submit an RBC plan, is subject to
an examination of assets, liabilities and operations by the
commissioner, and is subject to provisions of any corrective
order subsequently issued by the commissioner. The third level
is the "authorized control level." The RBC ratio for this level
is less than 100% but greater than 70%. At this level, the
commissioner takes action as described under "regulatory action
level" and may cause the insurer to be placed under regulatory
control if
38
such action is deemed to be in the best interests of
policyholders. The fourth level is the "mandatory control
level." The RBC ratio for this level is less than 70%, and the
commissioner takes actions necessary to place the insurer under
regulatory control.
The formulas have not been designed to differentiate among
adequately capitalized companies which operate with higher levels
of capital. Therefore, it is inappropriate and ineffective to
use the formulas to rate or to rank such companies. At December
31, 1994, all of the Company's life and property-casualty
insurance companies had adjusted capital in excess of amounts
requiring regulatory action at any of the four levels.
As part of the process of accreditation by the NAIC, state
insurance regulators have been recommending the adoption of new
statutory standards for the payment of dividends by insurance
companies without prior approval. As part of this effort, the
Connecticut General Assembly passed legislation to require prior
approval by the Connecticut Insurance Commissioner for any
dividend distributions during a twelve-month period that are in
excess of the greater of (i) ten percent of an insurer's surplus
limited by unassigned funds-surplus, or (ii) net gain from
operations (for life companies) or net income (for non-life
companies), in each case measured as of the preceding December
31.
Under the legislation, statutory surplus would not be
available in 1995 for dividends from The Travelers Insurance
Group Inc. (the parent of TIC and Travelers Indemnity) to The
Travelers Inc. without prior approval.
The NAIC Insurance Regulatory Information System ("IRIS")
ratios, discussed under "Combined Property-Casualty Product Line
Information" on page 49, are part of the NAIC solvency
surveillance process. They consist of approximately 12 ratios
with defined acceptable ranges. They are used as an initial
screening process for identifying companies that may be in need
of special attention. Companies that have several ratios that
fall outside of the acceptable range are selected for closer
review by the NAIC examiner team. If the examiner determines
that more attention may be warranted, one of several priority
designations is assigned, and the insurance department of the
state of domicile is then responsible for follow-up action.
Occasionally one or more of the Company's subsidiaries has
been "flagged" by the IRIS ratios. In all such instances, the
regulators have been satisfied upon follow up that there is no
solvency problem. It is possible that similar events could occur
this year, and management believes that the resolution would be
the same.
Reserving Methods
Reserves are subject to ongoing review as additional
experience and other data become available. Increases or
decreases to reserves for loss and loss adjustment expenses may
be made, which would be reflected in operating results for the
period in which such adjustments, if any, are made.
39
Property-casualty loss reserves are established to account
for the estimated ultimate costs of claims and claim adjustment
expenses that have been reported but not yet settled, reopened
claims, and claims which have been incurred but not reported.
Property-casualty personal and commercial lines actuaries use a
number of generally accepted actuarial and statistical techniques
to estimate ultimate liabilities. These techniques generally
rely upon analyses of historical development patterns of various
types of accident year data. Typically, these techniques utilize
review of paid and incurred claim data and paid and incurred
expense data, closed claim data, claim counts, claim costs and
various types of pricing data. Subsequent to reviewing a variety
of tests, management selects what it believes is the best
estimate of ultimate loss and loss adjustment expense for each
line of business and market segment. These estimates are refined
over time as experience develops and further claims are reported
and settled. Any required adjustments to reserves are reflected
in the results of the periods in which such adjustments are made.
Recognition is given to recoveries for reinsurance, salvage and
subrogation.
The ultimate incurred losses and the corresponding reserve
levels carried for all accident years have an implicit provision
for inflation and other factors that result in differences in
levels of claim cost by accident year. Ultimate claim values are
based in part on analysis of historical trends in average closed
claim costs and open claim costs. Average closed claim costs
reflect actual historic inflation trends while reported losses
reflect historic trends based upon both paid losses and
adjusters' estimates. There is no precise method for evaluating
the impact of inflation. Claim settlements are also affected
by many other factors including judicial decisions, the social
environment and claims handling procedures. Frequent reviews are
therefore performed for the major property-casualty insurance
coverages, particularly those related to third party claims.
Such third party claims often involve lengthy litigation or are
otherwise settled only after a considerable passage of time and
are particularly subject to the effects of judicial trends and
changes in the social environment.
Investments
This section discusses the investment portfolios of the
businesses described in the Company's insurance services
segments.
At December 31, 1994, the investment holdings of the
companies included in the insurance services segments were
composed primarily of fixed maturities. At December 31, 1994,
approximately 94.8% in total dollar amount of the fixed
maturities portfolios of such companies had investment grade
ratings. The remaining investments are principally mortgage
loans and real estate, discussed below, policy loans and other
investments. For additional information regarding these
investment portfolios, see Note 5 of Notes to Consolidated
Financial Statements and the discussion of Asset Quality in the
Insurance Services Segment discussion in Item 7 of this Form 10-
K, "Management's Discussion and Analysis of Financial Condition
and Results of Operations." State insurance laws prescribe the
types, quality and diversity of permissible investments for
insurance companies.
40
Consistent with the nature of related contract obligations, the
invested assets attributable to group insurance and individual
life, accident and health and financial services are primarily
long-term fixed income investments such as corporate debt
securities, mortgage and asset-backed securities, and mortgage
loans. A small portion of the invested assets related to these
operations is in preferred and common stocks and real estate
equity investments. The Company did not originate a significant
amount of new real estate business in 1994 and does not plan to
do so in 1995. The property-casualty fixed maturities portfolios
(principally bonds) are shifted from time to time to respond to
the changing economic outlook, insurance underwriting results and
the resultant changes in the federal income tax position of the
Company and its subsidiaries.
Cash available for investment is principally derived from
operating activities and investment income. In addition, cash
becomes available for investment from prepayment, maturity and
sale of investments. The underperforming mortgage loan and real
estate portfolios have been significantly reduced since 1992.
See "Mortgage Loans and Real Estate" below. Different investment
policies have been developed for various lines of business based
on the product requirements, the type and term of the liabilities
associated with these products, regulatory requirements and tax
treatment of the businesses in which each company is engaged.
Mortgage Loans and Real Estate
The Company is continuing its program to dispose of its
real estate investments and some of its mortgage loans and to
reinvest the proceeds to obtain current market yields. At
December 31, 1994, the mortgage loan and real estate portfolios
of the businesses included in the Company's insurance services
segments consisted of approximately $5.4 billion and $418
million, respectively. At December 31, 1993, the mortgage loan
and real estate portfolios consisted of approximately $7.4
billion and $1.0 billion, respectively. See Item 7,
"Management's Discussion and Analysis of Financial Condition and
Results of Operations," for additional information.
The Company's accelerated liquidation strategy for
foreclosed real estate and certain mortgage loans has mitigated the
negative impact that these underperforming portfolios have had on
investment income. Management anticipates that approximately
half of maturing commercial mortgage loans will be refinanced,
restructured, sold or foreclosed. Restructured loans are defined
as loans the terms of which have been changed from the original
contract generally by lowering the pay rate of interest in the
early years after modification. Loans which have pay rates of
interest after modification that are equal to or above market
rates are not included in the underperforming mortgage loan
inventory. At December 31, 1994 and 1993, approximately $511
million and $1.3 billion, or 9% and 17%, respectively, of the
mortgage loan portfolio was classified as underperforming.
Underperforming mortgage loans include delinquent loans, loans in
the process of foreclosure and loans modified at interest rates
below market.
41
For information regarding the principal balance of mortgage
loans at December 31, 1994 by contractual maturity, see Note 5 of
Notes to Consolidated Financial Statements. Actual maturities
will differ from contractual maturities because borrowers may
have the right to prepay loans with or without prepayment
premiums. Unscheduled payments and sales of mortgage loans were
$1.3 billion in 1994 and $1.0 billion in 1993. The majority of
these mortgages are seven-year term loans.
Real estate management evaluates the portfolio on an
ongoing basis, assessing the probabilities of loss with respect
to a comprehensive series of future projections, including a host
of variables relating to the borrower, the property, the term of
the loan, the tenant composition, rental rates, other supply and
demand factors, and overall economic conditions.
The mortgage loan portfolio and real estate assets
included in the investment portfolios as of December 31, 1994 and
1993 are summarized by property type as set forth in the table
below. For information summarizing the geographic distribution
of the mortgage loan portfolio and real estate assets, see Note 5
of Notes to Consolidated Financial Statements.
(in millions)
Property Type: Mortgage Loans Real Estate
-------------- -------------- -----------
1994 1993 1994 1993
---- ---- ---- ----
Office $2,141 $2,875 $ 224 $ 641
Apartment 1,112 1,711 9 66
Hotel 642 782 79 77
Retail 623 938 46 137
Industrial 228 267 13 69
Other 108 116 33 41
----- ----- ----- -----
Total commercial 4,854 6,689 404 1,031
Agricultural 562 673 14 18
Residential - 3 - -
----- ----- ----- -----
Total $5,416 $7,365 $ 418 $1,049
===== ===== ===== =====
COMBINED PROPERTY-CASUALTY PRODUCT LINE INFORMATION
The following discussion of the Company's combined
property-casualty lines displays information for the insurance
operations of Property-Casualty Commercial Lines and Property-
Casualty Personal Lines on a combined basis, consolidating Gulf
and old Travelers. The operating results of old Travelers prior
to the December 31, 1993 Merger are not included in the Company's
Consolidated Financial Statements, other than for the equity in
earnings relating to the 27% previously owned.
42
Combined Property-Casualty Reserves
Property-casualty loss reserves are established to account
for the estimated ultimate costs of claims and claim adjustment
expenses for claims that have been reported but not yet settled,
reopened claims and claims which have been incurred but not
reported. The process of estimating this liability is an
imprecise science subject to a number of variables. These
variables are impacted by both internal and external events such
as changes in claim handling procedures, economic inflation,
judicial trends and legislative changes. Many of these items are
not directly quantifiable, particularly on a prospective basis.
Additionally, there may be significant reporting lags between the
occurrence of the insured event and its actual reporting to the
insurer. At December 31, 1994, 1993 and 1992, $5.9 billion, $5.5
billion and $5.4 billion, respectively, of unpaid claim and claim
adjustment expenses were provided for claims which had not yet
been reported and for future development on reported claims.
Reserve estimates are continually refined in a regular ongoing
process as experience develops and further claims are reported
and settled. Adjustments to reserves are reflected in the
results of the periods in which such adjustments are made.
Estimates for reported claims are established based on
judgments by the claim department on a case by case basis. These
estimates are reviewed on a regular basis and revised as
additional facts become known.
Estimates for unreported claims, future reopened claims
and development on reported claims are principally derived from
actuarial analyses of historical patterns of claim development by
accident year for each line of business and market segment.
Similarly, estimates of unpaid claim adjustment expenses are also
principally derived from actuarial analyses of historical
development patterns of the relationship of claim adjustment
expenses to losses by accident year for each line of business and
market segment.
Refer to "Insurance Services - General -- Reserving
Methods" at page 39 for a more complete discussion of reserving
methodology.
For a reconciliation of beginning and ending reserve
liability balances for 1994, 1993 and 1992, see Note 11 of Notes
to Consolidated Financial Statements. The table on page 45
shows the development of the estimated reserves for the 10 years
prior to 1994, and includes information for old Travelers for
periods prior to the Merger.
See "Property & Casualty Insurance Services -- Property-
Casualty Commercial Lines" for a discussion of environmental and
asbestos claims and the Special Liability Group that deals with
such claims.
The differences between the reserves for losses and LAE
shown in the table on page 45, which is prepared in accordance
with generally accepted accounting principles ("GAAP"), and those
reported in the annual statements filed with state insurance
departments, which are prepared in accordance with statutory
accounting practices ("SAP"),
43
were $(24) million, $32 million and $38 million for the years
1994, 1993 and 1992, respectively. Those differences are
attributable to a certain portion of the discounting of workers'
compensation reserves impacting all three years. The 1994 year
was also affected by the gross-up of assets and liabilities for
GAAP that were recorded on a net basis for SAP.
Discounting
The liability for losses for certain long-term disability
payments under workers' compensation insurance has been
discounted by $509 million at December 31, 1994 using a maximum
interest rate of 5%. The corresponding amounts of discount for
calendar years 1993 and 1992 were $610 million and $623 million,
respectively. The 1994 decrease was due to more favorable
experience trends anticipated on certain of these claims.
44
Analysis of Combined Property-Casualty Loss and Loss Adjustment
Expense Development (excluding accident and health business)
(in millions)
Year Ended December 31,
--------------------------------------------------------------------------------------
1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Reserves for Loss and LAE
Originally Estimated $4,817 $5,475 $6,658 $7,644 $8,116 $8,947 $9,239 $9,406 $9,872 $10,190 $10,251
Cumulative Amount Paid as of
----------------------------
One year later 1,655 1,753 1,839 2,376 2,146 2,430 2,418 2,136 2,206 1,903
Two years later 2,559 2,748 3,261 3,631 3,632 3,992 3,932 3,584 3,556
Three years later 3,138 3,737 4,075 4,648 4,706 5,095 4,993 4,596
Four years later 3,795 4,258 4,760 5,402 5,487 5,878 5,755
Five years later 4,119 4,732 5,303 5,978 6,080 6,481
Six years later 4,425 5,130 5,735 6,443 6,557
Seven years later 4,717 5,459 6,109 6,831
Eight years later 4,951 5,784 6,445
Nine years later 5,128 6,086
Ten years later 5,352
Reserves Reestimated as of
--------------------------
One year later 4,937 5,863 6,799 7,858 8,292 9,099 9,358 9,446 10,014 9,941
Two years later 5,261 6,135 7,078 8,051 8,497 9,220 9,470 9,756 10,116
Three years later 5,460 6,376 7,292 8,254 8,698 9,408 9,898 10,042
Four years later 5,656 6,665 7,569 8,497 8,912 9,954 10,327
Five years later 5,856 6,922 7,765 8,746 9,489 10,425
Six years later 6,097 7,136 8,021 9,334 9,974
Seven years later 6,266 7,368 8,637 9,817
Eight years later 6,464 7,951 9,079
Nine years later 6,988 8,422
Ten years later 7,383
Cumulative Deficiency (Redundancy) 2,566 2,947 2,421 2,173 1,858 1,478 1,088 636 244 (249)
Gross liability - end of year $13,805 $13,872
Reinsurance recoverable 3,615 3,621
----- -----
Net liability - end of year $10,190 $10,251
====== ======
Gross reestimated liability - latest $13,226
Reestimated reinsurance recoverable
- latest 3,285
-----
Net reestimated liability - latest $ 9,941
======
Gross cumulative deficiency (redundancy) $ (579)
=======
45
The net reserve balance at December 31, 1993 reflected
above includes a $225 million purchase accounting adjustment
relating to the acquisition of old Travelers. See Note 11 of
Notes to Consolidated Financial Statements.
The data in the above table is presented in accordance with
reporting requirements of the Securities and Exchange Commission.
Care must be taken to avoid misinterpretation by those unfamiliar
with such information or familiar with other data commonly
reported by the insurance industry. The above data is not
"accident year" data, but rather a display of 1984-1994 year-end
reserves and the subsequent changes in those reserves.
For instance, the "cumulative deficiency or redundancy"
shown above for each year represents the aggregate amount by
which original estimates of reserves as of that year end have
changed in subsequent years. Accordingly, the cumulative
deficiency for a year relates only to reserves at that year end
and such amounts are not additive. Expressed another way, if the
original reserves at the end of 1984 included $4 million for a loss
which is finally settled in 1994 for $5 million, the $1 million
deficiency (excess of actual settlement of $5 million over original
estimate of $4 million) would be included in the cumulative
deficiencies in each of the years 1984-1993 shown above.
A substantial portion of the cumulative deficiencies in
each of the years 1984-1992 arises from claims on policies
written prior to the mid-1970s involving liability exposures such
as asbestos. In the post-1984 period, the Company has developed
more stringent underwriting standards and policy exclusions and
significantly contracted or terminated the writing of such risks.
General conditions and trends that have affected the
development of these liabilities in the past will not necessarily
recur in the future; however, deficiencies will occur in the
future due to the discount on the workers compensation reserves,
therefore, it would be difficult to develop meaningful
extrapolation of estimated future redundancies or deficiencies in
loss reserves from the data in the table on page 45.
A significant portion of National business is underwritten
with retrospectively rated insurance policies in which the
ultimate cost of insurance for a given year is dependent on the
loss experience of the insured. This analysis does not reflect
amounts recoverable from insureds in the retrospective rating
process. Such recoverables tend to significantly mitigate the
impact of the cumulative deficiencies shown above. Retrospective
rating is particularly significant for National business for the
workers' compensation, general liability and commercial
automobile liability coverages. This mechanism affords the
Company a significant measure of financial protection against
adverse development on a large block ($3.2 billion) of net
reserves.
Combined Ratios
Combined ratios are a measure of property-casualty
underwriting results. The combined ratio is the sum of (i) the
ratio of losses, loss adjustment expenses and policyholder
dividends to earned premiums, and (ii) the ratio of other
underwriting expenses to written premiums. When the combined
ratio is under 100%, underwriting results are generally
profitable; when this ratio is over 100%, underwriting results
are generally unprofitable.
46
Underwriting results do not include investment income which makes
a significant contribution to overall property-casualty
profitability. In preparing the following table, anticipated
salvage and subrogation were deducted from losses.
The following table and related discussions present
information regarding the combined ratios of Travelers Indemnity,
including Gulf and the other property-casualty insurance
operations of old Travelers and its subsidiaries.
Year Ended December 31,
-----------------------------
1994 1993 1992
---- ---- ----
Personal Lines
Automobile 96.0% 101.6% 104.1%
Homeowners 124.2 131.9 246.6
Total Personal Lines
Losses and loss adjustment expenses 71.0 71.2 98.1
Other underwriting expenses 29.4 33.2 33.7
------- -------- -------
Combined Personal Lines 100.4 104.4 131.8
Commercial Lines
Workers' compensation 104.9 99.1 104.9
Multiple-peril 119.9 125.6 134.9
Automobile 102.6 106.8 116.0
Other liability 245.5 227.5 144.7
Property and other 107.3 93.9 144.0
Total Commercial Lines
Losses and loss adjustment expenses 100.0 98.2 94.4
Other underwriting expenses 24.7 27.1 27.6
-------- -------- --------
Combined before policyholder dividends 124.7 125.3 122.0
Combined Commercial Lines 123.0 126.6 122.3
Total Personal and Commercial Lines
Losses and loss adjustment expenses 88.7 88.2 95.7
Other underwriting expenses 26.5 29.2 29.8
-------- -------- --------
Combined before policyholder dividends 115.2 117.4 125.5
Combined 114.2% 118.2% 125.7%
The improvement in the combined ratio for Personal Lines
in 1994 compared to 1993 is primarily attributable to improved
underwriting results due to lower operating expenses and to
favorable loss reserve development in 1994 on prior years'
business. This improvement was partially offset by the increase
in catastrophe losses, which after taxes and reinsurance
increased to $26.4 million for 1994 from $13.5 million in 1993,
due to the severe winter storms in the Northeast during the first
quarter of 1994.
47
Personal Lines underwriting profitability is driven
principally by results in the automobile line and is influenced
by factors such as inflation in medical, legal and auto repair
costs, accident frequencies and regulatory actions. Results have
improved in the automobile line due in part to programs
implemented by Travelers Indemnity to be more selective in
marketing and underwriting.
In 1993 and 1994, Personal Lines purchased additional
amounts of reinsurance to reduce its exposure to future
catastrophe losses. Homeowners results are heavily influenced by
the cost of reinsurance, as well as the incidence of natural
catastrophes. Personal Lines' results in 1992 were adversely
affected by Hurricane Andrew, which added 22.3 percentage points
to the total Personal Lines combined ratio. Excluding Hurricane
Andrew, the total Personal Lines combined ratio in 1992 would
have been 109.5%.
Commercial Lines underwriting profitability has
historically been cyclical, influenced by factors such as
inflation levels, changes in the interpretation of the doctrines
of tort liability, unemployment trends, legislative actions
affecting workers' compensation benefit levels, crime rates,
natural catastrophes and general business conditions. The
softening of market prices which began in 1988 has continued.
The combined ratio has been, and will continue to be, affected by
the shift to fee-for-service products, which reduces premiums and
losses while expenses remain in insurance results.
During 1994, asbestos and environmental claims continued
to negatively impact other liability lines. The combined impact
from these claims added 4.6 percentage points to the total 1994
Commercial Lines combined ratio. Asbestos claims incurred
totaled $51 million in 1994, $229 million in 1993 and $61 million
in 1992. Environmental claims incurred were $49 million in 1994,
$190 million in 1993 and $67 million in 1992. In addition,
purchase accounting adjustments amounting to $225 million for
asbestos and environmental claims were included in incurred
losses, for statutory purposes only, in 1994. This adjustment
increased the 1994 Commercial Lines combined ratio by an
additional 10.5 percentage points. In the multiple-peril and
property lines, the 1992 combined ratios were severely impacted
by Hurricane Andrew and other natural catastrophes. Hurricane
Andrew alone added 4.9 percentage points to the total Commercial
Lines combined ratio.
Travelers Indemnity has heavily invested in workers'
compensation cost containment initiatives since 1989.
Investments in early intervention, managed care, systems
technology and employer education have allowed Travelers
Indemnity to outperform the industry's workers' compensation
combined ratio results. In addition, Travelers Indemnity's
overall strategy of restricting growth in states with rate
inadequacy, its strong shift towards large self-insured and loss
responsive products, and its growth in service of assigned risk
pools have all contributed to favorable combined ratio trends.
The table on the next page and the related discussion set
forth information regarding the premium to surplus ratios of
Travelers Indemnity, including Gulf and the other property-
casualty insurance operations of old Travelers and its
subsidiaries.
48
Schedule of Premiums to Surplus Ratios (Statutory Basis)
(Including Accident and Health Business)
(in millions)
Year Ended December 31,
------------------------------------
1994 1993 1992
---- ---- ----
A. Net written premiums $ 3,862 $ 3,902 $ 4,105
B. Capital and surplus 2,062 2,454 1,868
Ratio of premiums to capital and surplus
(A divided by B) 1.87 1.59 2.20
The ratio of net written premiums to capital and surplus
is a key financial indicator of the overall strength of a
property-casualty insurance company. The usual range for this
ratio, which is used as a benchmark by the IRIS of the National
Association of Insurance Commissioners, is 3.00 to 1 or less.
The ratio deteriorated slightly in 1994 as a result of the impact
of reserve increases for environmental claims, litigation and
ceded reinsurance balances, partially offset by reductions in
written premium volume. The ratio improved in 1993 due to a
modest decline in premium volume from the continuing trend toward
self-insured service business in Commercial Lines, and due to a
significant increase in capital and surplus, largely resulting
from the assumption of old Travelers public debt by the Company.
CORPORATE AND OTHER OPERATIONS
In addition to its four business segments, the Company's
Corporate and Other segment consists of unallocated expenses and
earnings primarily related to interest, corporate administration,
and certain corporate investments. This segment has also
included the Company's 27% equity interest in old Travelers
(1993), lines of business retained from the sale in 1993 of
Voyager Group, Inc. and its affiliates ("Voyager") (1993 and
1992), and the Company's interest in Fingerhut Companies, Inc.
("Fingerhut") (1992), a direct marketing business. For
additional information regarding the inclusion of Fingerhut in
the Company's consolidated operating results, see Note 3 of Notes
to Consolidated Financial Statements.
In May 1993, the stock of Voyager was sold. Voyager sold
credit insurance on installment loans through independent
consumer finance companies and furniture and appliance retailers.
OTHER INFORMATION
General Business Factors
In the judgment of the Company, no material part of the
business of the Company and its subsidiaries is dependent upon a
single customer or group of customers, the loss of
49
any one of which would have a materially adverse effect on the
Company, and no one customer or group of affiliated customers
accounts for as much as 10% of the Company's consolidated
revenues.
At January 5, 1995, the Company had approximately 52,000
full-time and 2,800 part-time employees.
Source of Funds
For a discussion of the Company's sources of funds and
maturities of the long-term debt of the Company's subsidiaries,
see Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital
Resources," and Note 10 of Notes to Consolidated Financial
Statements.
Taxation
For a discussion of tax matters affecting the Company and
its operations, see Item 7, "Management's Discussion and Analysis
of Financial Condition and Results of Operations," and Notes 2
and 13 of Notes to Consolidated Financial Statements.
Financial Information about Industry Segments
For financial information regarding industry segments of
the Company, see Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and Note 4 of
Notes to Consolidated Financial Statements.
MetraHealth
Upon formation of MetraHealth, the joint venture created
by the combination of the medical businesses of TIC and MetLife,
the Company owned 50% of MetraHealth's common stock. The
Company's interest in MetraHealth will be accounted for on the
equity method. See Note 3 of Notes to Consolidated Financial
Statements.
MetraHealth will provide group health insurance, health
maintenance organizations, managed care and ancillary services
throughout the United States, in Puerto Rico and in the U.S.
Virgin Islands. The range of services provided by these products
includes programs to maintain health and wellness, as well as to
promote patient education and to manage health care through
networks of providers of medical/surgical, mental health and
pharmaceutical services. MetraHealth network products rely on
contractual arrangements between it and providers of health care
to deliver services to covered individuals at negotiated
reimbursement levels as well as to participate in utilization
and quality management programs.
50
As of December 31, 1994, the businesses acquired by
MetraHealth included health maintenance organizations in 29
network areas, with approximately 400,000 members; point-of-
service operations in 72 network areas, with approximately 1.7
million members; and preferred provider organizations in 90
network areas, with approximately 2.8 million members. Covered
lives using the managed care networks and covered by indemnity
products, in the aggregate at December 31, 1994, were
approximately 11.3 million. MetraHealth expects some decline in
covered lives during 1995.
In March 1995, MetraHealth acquired HealthSpring, Inc. for
common stock of MetraHealth. HealthSpring builds and manages
primary care physician practices and serves approximately 32,000
patients through seven sites in Pennsylvania, Ohio and Illinois.
This acquisition resulted in a reduction in the participation of
the Company and MetLife in the MetraHealth venture to 48.25%
each.
Executive Officers of the Company
The current executive officers of the Company are
indicated on the following page. Periods of offices held include
offices with the Company's predecessor, CCC. Ages are given as
of March 10, 1995.
Officer
Name Age Positions Since
---- --- --------- -------
Sanford I. Weill 61 Chairman of the Board 1986
and Chief Executive Officer*
Robert I. Lipp 56 Vice Chairman of the Board and 1986
Group Chief Executive of the
Company; Chief Executive Officer of
The Travelers Insurance Group Inc.*
James Dimon 38 President, Chief Operating Officer and 1986
Chief Financial Officer of the Company;
Chief Operating Officer of SB Holdings*
Joseph Plumeri, II 51 Vice Chairman and Group Chief Executive 1994
of PFS
Robert F. Greenhill 58 Chairman and Chief Executive Officer of 1993
SB Holdings*
Michael A. Carpenter 47 Executive Vice President 1995
Edwin M. Cooperman 51 Executive Vice President 1991
Irwin R. Ettinger 56 Senior Vice President, and Chief 1987
Accounting Officer
Charles O. Prince, III 45 Senior Vice President, General Counsel 1986
and Secretary
Samuel V. Miller, Jr. 49 Senior Vice President 1994
______________________________
* Member of the Office of the Chairman
51
Mr. Weill has been a director of the Company since 1986. He
has been Chairman of the Board and Chief Executive Officer of the
Company and its predecessor, CCC, since 1986; he was also its
President from 1986 until 1991. He was President of American
Express Company from 1983 to 1985; Chairman of the Board and
Chief Executive Officer of American Express Insurance Services,
Inc. from 1984 to 1985; Chairman of the Board and Chief Executive
Officer, or a principal executive officer, of Shearson Lehman
Brothers Inc. from 1965 to 1984; Chairman of the Board of
Shearson Lehman Brothers Holdings Inc. from 1984 to 1985; and a
founding partner of Shearson's predecessor partnership from 1960
to 1965. He is Chairman of the Board of Trustees of Carnegie
Hall, and a director of the Baltimore Symphony Orchestra. Mr.
Weill is a member of the Board of Governors of New York Hospital
and is Vice Chairman of the Board of Overseers of Cornell
University Medical Center and a member of the Joint Board of New
York Hospital--Cornell University Medical College. He is a member
of Cornell University's Johnson Graduate School of Management
Advisory Board and a Board of Trustees Fellow. He has served as
Chairman of the Joint Mayoral/City Council Commission on Early
Child and Child Care Programs during the Dinkins Administration.
Mr. Lipp has been a director of the Company since 1991,
and is a Vice Chairman and Group Chief Executive of the Company.
In November 1993, he was named a member of the newly-created
Office of the Chairman of the Company. Upon completion of the
merger with old Travelers on December 31, 1993, Mr. Lipp was
named Chief Executive Officer of The Travelers Insurance Group
Inc. From 1991 to 1993, he was Chairman and Chief Executive
Officer of CCC. From April 1986 through September 1991, he was
an Executive Vice President of the Company and its corporate
predecessor. Prior to joining the Company in 1986, he was a
President and a director of Chemical New York Corporation and
Chemical Bank where he held senior executive positions for more
than five years prior thereto. Mr. Lipp is a director of The New
York City Ballet.
Mr. Dimon has been a director of the Company since
September 1991. He is President, Chief Operating Officer and
Chief Financial Officer of the Company. In November 1993, he was
named a member of the newly-created Office of the Chairman of the
Company. He was, from May 1988 to September 1991, Executive Vice
President and Chief Financial Officer of the Company, and was
Senior Executive Vice President and Chief Administrative Officer
of SBI from 1990 to 1991. He is also a director, the Chief
Operating Officer and a member of the Executive Committee of SBI
and SB Holdings. From 1986 to 1988, Mr. Dimon was Senior Vice
President and Chief Financial Officer of CCC, the Company's
predecessor. From 1982 to 1985, he was a Vice President of
American Express Company and Assistant to the President, Sanford
I. Weill. Mr. Dimon is a trustee of New York University Medical
Center and Chairman of the Board of the New York Academy of
Finance.
Mr. Plumeri became a Vice Chairman of the Company in
August 1994 and has been Group Chief Executive responsible for
the operations of the PFS group of companies since October 1994.
He joined the Company in August 1993, serving as President of SBI
52
from that time through July 1994. Mr. Plumeri had worked for
Shearson Lehman Brothers Inc. or its predecessors for over 25
years, in various positions of increasing responsibility, until
SBI acquired certain businesses from SLB. At that time, Mr.
Plumeri was a Managing Partner of SLB, and from 1990 until
September 1992 he served as President of SLB's Private Client
Group.
Mr. Greenhill became a director of the Company in August
1993. In November 1993, he was named a member of the newly-
created Office of the Chairman of the Company. He became
Chairman and Chief Executive Officer of SBI in June 1993. He
also serves as Chairman and Chief Executive Officer of SB
Holdings. Mr. Greenhill was President of Morgan Stanley Group,
Inc. from January 1991 to June 1993. Mr. Greenhill joined Morgan
Stanley in 1962 and became a Partner in 1970. In 1972, he
directed Morgan Stanley's newly-formed Mergers and Acquisitions
Department. In 1980, Mr. Greenhill was named director of Morgan
Stanley's Investment Banking Division with responsibility for
domestic and international corporate finance, mergers and
acquisitions, merchant banking, capital market services and real
estate. In 1980, he also became a member of Morgan Stanley's
Management Committee which was the firm's policy-making group.
He became a Vice Chairman of Morgan Stanley Group, Inc. in
January 1989. Mr. Greenhill is a trustee of the Whitney Museum
of American Art, a trustee of the American Enterprise Institute
for Public Policy Research and a member of the International
Advisory Board of the British-American Chamber of Commerce.
Mr. Carpenter joined the Company in January 1995 as
Executive Vice President, and also serves as Chairman and Chief
Executive Officer of Travelers Life and Annuity Company. From
January 1989 to June 1994, Mr. Carpenter was Chairman of the
Board, President and Chief Executive Officer of Kidder, Peabody
Group, Inc., an investment banking and brokerage company that was
a wholly owned subsidiary of General Electric Company. Prior
thereto, he served as Executive Vice President of General
Electric Capital Corporation and Vice President of General
Electric Company.
Mr. Cooperman joined the Company in November 1991. Prior
thereto, he was Chairman and Co-Chief Executive Officer of
American Express Company Travel Related Services. He joined
American Express in 1972 and assumed positions of increasing
responsibility during his tenure there.
Mr. Ettinger, prior to joining CCC in October 1987, was
Partner in charge of the Tax Department of Arthur Young and
Company's New York offices for more than five years prior
thereto.
Mr. Miller has been a Senior Vice President of the Company
since March 1994, and also currently serves as Chairman of NBL
and the Canadian operations of PFS. From March 1994 until
October 1994, he was Chairman and Chief Executive Officer of the
PFS group of companies. For ten years prior to joining the
Company, Mr. Miller was President and Chief Executive Officer of
AMEX Life Assurance Company, a division of American
53
Express Company. He is a member of the board of directors of the
Health Insurance Association of America.
Mr. Prince has been General Counsel of the Company or its
predecessor since 1983, and has been a Senior Vice President
since 1986.
GLOSSARY OF INSURANCE TERMS
Annuity -- A contract that pays a periodic income benefit
for the life of a person (the annuitant), the lives of two or
more persons or for a specified period of time.
Assumption Reinsurance -- A transaction whereby the ceding
company transfers its entire obligation under the policy to the
reinsurer, who becomes directly liable to the policyholder in all
respects, including collecting premiums and paying benefits. See
"Reinsurance."
Benefits Under Administration, Including Fees -- Estimates
of amounts that fee-based Managed Care and Employee Benefits
customers would have been charged if their group health plans had
been fully insured.
Catastrophe -- A severe loss, usually involving many risks
such as conflagration, earthquake, windstorm, explosion and other
similar events.
Ceded Reinsurance -- Risks transferred to another company
as reinsurance. See "Reinsurance."
Claim -- Request by an insured for indemnification by an
insurance company for loss incurred from an insured peril.
Combined Ratio -- A measure of property-casualty
underwriting results. The combined ratio is the sum of (a) Loss
Ratio -- the ratio of losses, loss adjustment expenses and, where
applicable, policyholder dividends to earned premiums, and (b)
Expense Ratio -- the ratio of other underwriting expenses to
written premiums. When the combined ratio is under 100%,
underwriting results are generally profitable; when the ratio is
over 100%, underwriting results are generally unprofitable.
Underwriting results do not include investment income, which may
make a significant contribution to overall profitability.
Contractholder Funds -- 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
risks.
Deductible -- The amount of loss that an insured retains.
54
Deferred Acquisition Costs -- Commissions and other selling
expenses that vary with and are directly related to the
production of business. These acquisition costs are deferred and
amortized to achieve a matching of revenues and expenses when
reported in financial statements prepared in conformity with
GAAP.
Defined Contribution Plans -- Type of pension plan in which
the contribution rate is certain but the retirement benefit is
variable.
Deposits and Other Considerations -- Consist of cash
deposits and charges for mortality risk and expenses associated
with universal life insurance, annuities and group pensions.
Excess Loss Coverage -- Coverage which indemnifies the
person for that portion of the loss (arising out of a loss
occurrence) which is in excess of the deductible.
Expense Ratio -- See "Combined Ratio."
Experience Rated Contracts -- Insurance contracts in which
future rates and/or commissions are compiled from past
experience, that is, total premiums earned and losses incurred.
This can be applied by certain risk classifications or to an
individual risk.
Fiduciary Accounts -- Accounts held on behalf of others.
General Account -- All an insurer's assets other than those
allocated to separate accounts.
Guaranteed Cost Insurance -- Premium charged on a
prospective basis which may be fixed or adjustable on a specified
rating basis but never on the basis of loss experience in the
period of coverage.
Guaranteed Investment Contracts (GICs) -- Group contracts
sold to pension plans, profit sharing plans and funding
agreements that guarantee a stated interest rate for a specified
period of time.
Guaranty Fund -- State-regulated mechanism which is
financed by assessing insurers doing business in those states.
Should insolvencies occur, these funds are available to meet some
or all of the obligations to policyholders.
Incurred But Not Reported Losses (IBNR) -- Losses that have
occurred but have not been reported.
Indemnity Reinsurance -- A transaction whereby the
reinsurer agrees to indemnify the ceding company against all or
part of the loss that the latter may sustain under the
55
policies it issued that are being reinsured. The ceding company
remains primarily liable as the direct insurer on all risks
ceded. See "Reinsurance."
Insurance -- Mechanism for contractually shifting burdens
of a number of risks by pooling them.
Involuntary Business (residual market) -- Risks that are
not insurable in the voluntary market due to either the level of
risk or pricing. Residual markets are largest for lines in which
state governments or other agencies mandate coverage such as
workers' compensation. Generally states provide residual market
plans that are designed to allocate the underwriting experience
for these coverages in proportion to a given carrier's market
share.
Life Contingencies -- Contingencies affecting the duration
of life of an individual or a group of individuals.
Long-Term Care -- Coverage for extended stays in a nursing
home or home health services.
Loss Adjustment Expense (LAE) -- Expenses paid in
connection with settling claims.
Loss Ratios -- See "Combined Ratio."
Loss Reserves -- Liabilities established by insurers to
reflect the estimated cost of claims payments that the insurer
will ultimately be required to pay in the future in respect of
losses occurring on or prior to the balance sheet date.
Losses Under Administration -- Projected loss and loss
adjustment expense payments to be made for the current policy
year on behalf of clients who self-insure and purchase claim
adjustment services.
Market Reinsurance -- Ceded reinsurance purchased from
reinsurance companies in the competitive marketplace.
Morbidity -- The rate at which people become diseased,
mentally or physically, or physically impaired.
Mortality -- The rate at which people die.
Policy Loan -- A loan made by an insurance company to a
policyholder on the security of the cash value of the policy.
Policy loans offset benefits payable to policyholders.
56
Pool -- Syndicate or association of insurance companies
organized to underwrite a particular risk, usually with high
limits of exposure. Each member shares in premiums, losses and
expenses, according to a predetermined agreement.
Reinsurance -- The acceptance by one or more insurers,
called reinsurers, of all or a portion of the risk underwritten
by another insurer (the ceding company) who has directly written
the coverage. However, the legal rights of the insured generally
are not affected by the reinsurance transaction.
Reinsurance Pools and Associations -- Mechanisms
established to aggregate insurance, and then distribute results
to participants in the mechanism. The pool or association
performs rating, loss adjustment and engineering services for
certain exposures. In some cases, they are established to absorb
business that will not be written voluntarily by insurers.
Residual Market -- See "Involuntary Business."
Retention -- The amount of exposure an insurance company
retains on any one risk or group of risks.
Retrospective Rating -- A plan or method which permits
adjustment of the final premium or commission on the basis of the
actual loss experience, subject to certain minimum and maximum
limits.
Salvage -- Amount received by an insurer from the sale of
property (usually damaged) on which the insurer has paid a total
loss to the insured. For example, when an insurer has paid the
insured the actual cash value of an automobile damaged (usually
extensively) by collision, then the insurer takes title to and
sells the damaged automobile for its own account. Salvage is
applied by insurance companies to reduce the amount of loss paid.
Self-Insured Retentions -- That portion of the risk
retained by a person for its own account. Generally, that person
retains an amount of first loss for its own account and purchases
an excess of loss cover to protect itself for losses above its
retention.
Separate Accounts -- Funds for which investment income and
investment gains and losses accrue directly to, and investment
risk is borne by, the contractholders. The assets of these
separate accounts are legally segregated and not subject to
claims that arise out of any other business of the insurance
company.
Servicing Carrier -- An insurance company that provides
various services including policy issuance, claims adjusting and
customer service for insureds in a reinsurance pool, for a fee.
57
Statutory Accounting Practices -- Those accounting
practices prescribed or permitted by the National Association of
Insurance Commissioners or an insurer's domiciliary state
insurance regulator for purposes of financial reporting to
regulators.
Statutory Capital and Surplus -- The excess of statutory
admitted assets over statutory liabilities as shown on an
insurer's statutory financial statements.
Structured Settlements -- Periodic payments to an injured
person or survivor for a determined number of years or for life,
typically in settlement of a claim under a liability policy.
Subrogation -- The statutory or legal right of an insurer
to recover from a third party who is wholly or partially
responsible for a loss paid by the insurer under the terms of a
policy. For example, when an insurer has paid the insured for
loss sustained to his or her automobile as a result of a
collision, the insurer may collect through the process of
subrogation from the person whose automobile caused the damage.
Subrogation recoveries are treated as reductions of the losses
paid.
Surrender Value -- The amount of money, usually the legal
reserve under the policy, less sometimes a surrender charge,
which an insurance company will pay to a policyholder who cancels
a policy. This value may be used as collateral for a loan.
Trading Portfolio -- Fixed maturity investments that are
likely to be sold prior to maturity and are therefore carried at
current market value. Unrealized gains and losses on these
investments are reflected in stockholders' equity.
Underwriting --The assumption of risk for designated loss
or damage in consideration of receiving a premium. Also includes
the process of examining, accepting or rejecting insurance risks,
and determining the proper premium.
Item 2. PROPERTIES.
The Company's executive offices are located in New York
City. Offices and other properties used by the Company's
subsidiaries are located throughout the United States. A few
subsidiaries have offices located in foreign countries. Most
office locations and other properties are leased on terms and for
durations which are reflective of commercial standards in the
communities where such offices and other properties are located.
At December 31, 1994, leasehold interests of Travelers
Insurance included a total of approximately 5,700,000 square feet
of office space at about 285 locations throughout the United
States under both operating and capital leases. TIC owns
buildings containing approximately 1,570,000 square feet of
office space located in Hartford, Connecticut and vicinity,
serving as the home office for TIC and Travelers Indemnity. TIC
also owns a building in Norcross, Georgia that is occupied by its
information systems department.
58
SBI owns two office buildings in New York City, which
total approximately 627,000 square feet. Most of SBI's other
offices are located in leased premises, the leases for which
expire at various times.
SBI leases two buildings, including an office building
located at 388 Greenwich Street, with a total of approximately 2.3
million square feet, and plans to consolidate its executive offices
and certain other New York City operations at these locations. The
buildings were acquired from Shearson Lehman Brothers by an
independent third party and are leased by SBI through 1999. SBI
has a purchase option with respect to these properties.
A few other offices and certain warehouse space are owned,
none of which is material to the Company's financial condition or
operations. The Company is the lessee under the lease on old
Primerica's former headquarters in Greenwich, Connecticut. The
lease obligation on half of this property ended in December 1991;
the remainder of the lease expires in December 1996. The Company
believes its properties are adequate and suitable for its
business as presently conducted and are adequately maintained.
For further information concerning leases, see Note 18 of Notes
to Consolidated Financial Statements.
Item 3. LEGAL PROCEEDINGS.
This section describes the major pending legal
proceedings, other than ordinary routine litigation incidental to
the business, to which the Company or its subsidiaries is a party
or of which any of their property is subject. Certain additional
matters may be described in the periodic reports filed under the
Exchange Act by certain subsidiaries of the Company.
Shareholder Litigation
For information concerning purported class actions
challenging certain aspects of the Merger, see the descriptions
that appear in the last paragraph on page 2 and the first two
paragraphs on page 3 of the Company's filing on Form 8-K dated
September 23, 1993, the third paragraph on page 26 of the
Company's filing on Form 10-Q for the quarter ended September 30,
1993, and the third paragraph on page 2 of the Company's filing
on Form 8-K dated March 1, 1994, which descriptions are
incorporated by reference herein. A copy of the pertinent
paragraphs of such filings is included as an exhibit to this Form
10-K. The trial court granted the defendants' motion to dismiss
the case in January 1995.
For information concerning purported class actions
challenging certain aspects of the 1988 merger of Primerica
Corporation, a New Jersey corporation ("old Primerica") into
Primerica Holdings, see the description contained in the third
and fourth paragraphs of page 30 of the Company's filing on Form
10-K for the year ended December 31, 1989, which description is
incorporated by reference herein. A copy of the pertinent
paragraphs of such filing is included as an exhibit to this Form
10-K. Subsequent to that filing, other shareholder class actions
relating to the same subject were commenced in Federal, New
59
Jersey state, New York state and Connecticut state courts. All
of these subsequent actions are currently stayed, and the Company
has reached an agreement to settle these actions, subject to
approval by the court.
Other Litigation and Legal Proceedings
Smith Barney
For information concerning purported class actions and an
individual action against SBI and others in connection with
Worlds of Wonder common stock and convertible debentures, see the
description that appears in the first, second and third
paragraphs of page 31 of the Company's filing on Form 10-K for
the year ended December 31, 1989, and the description that
appears in the first paragraph of page 30 of the Company's filing
on Form 10-K for the year ended December 31, 1990, which
descriptions are incorporated by reference herein. A copy of the
pertinent paragraphs of such filings is included as an exhibit to
this Form 10-K. The individual action was dismissed in May 1992.
In January 1993, summary judgment was granted for SBI and the
other defendants in the class action. The judgment was affirmed
by the U.S. Court of Appeals for the Ninth Circuit in September
1994. Plaintiffs have requested a rehearing en banc.
For information concerning several purported class action
lawsuits filed against SBI in connection with three funds managed
by Hyperion Capital Management Inc., see the description that
appears in the fourth paragraph of page 26 of the Company's
filing on Form 10-Q for the quarter ended September 30, 1993,
which description is incorporated by reference herein. A copy of
the pertinent paragraph of such filing is included as an exhibit
to this Form 10-K. An amended consolidated complaint with
respect to these actions was filed in March 1994, and again in
November 1994, and the consolidated action is entitled In re:
Hyperion Securities Litigation. SBI has moved to dismiss the
claims.
Old Primerica
For information concerning matters involving the Company
and certain of its subsidiaries relating to federal, state or
local regulations or laws regulating the discharge of materials
into the environment, see the description that appears in the
first full paragraph of page 26 of the Company's filing on Form
10-K for the year ended December 31, 1992, which description is
incorporated by reference herein. A copy of the pertinent
paragraph of such filing is included as an exhibit to this Form
10-K. The Company has entered into a consent decrees with
respect to both groundwater and soil remediation. The Company
believes that insurance maintained by or on behalf of the
Company, old Primerica or certain affiliates, indemnities in
favor of the Company or such subsidiaries and contributions from
other potentially responsible parties will be available to
mitigate the financial exposure of the Company and its
subsidiaries in these matters. The Company is using a variety of
approaches to recover from each of these sources, including
pursuing litigation where appropriate relating to such matters.
Although there can be no assurance, the Company does
60
not believe that the ultimate resolution of these matters will
have a material adverse effect on the consolidated financial
condition of the Company and its subsidiaries.
Old Travelers
For information concerning a case brought by the federal
government against old Travelers involving benefit claims for
Medicare handled by old Travelers, see the description that
appears in the fourth paragraph of page 2 of the Company's filing
on Form 8-K, dated March 1, 1994, which description is
incorporated by reference herein. A copy of the pertinent
paragraph of such filing is included as an exhibit to this Form
10-K.
For information concerning a case filed by certain
subsidiaries of old Travelers involving certain reinsurance
contracts with Lloyd's of London, see the description that
appears in the paragraph that begins on page 2 and ends on page 3
of the Company's filing on Form 8-K, dated March 1, 1994, which
description is incorporated by reference herein. A copy of the
pertinent paragraph of such filing is included as an exhibit to
this Form 10-K.
Certain of the subsidiaries that the Company acquired in
the Merger are involved in defending against claims asserting
alleged injuries and damages from asbestos and other hazardous
and toxic substances. For additional information with respect to
these claims, reference is made to the discussion of asbestos and
environmental claims contained on pages 25 through 28 of this
Form 10-K.
Other
For information concerning purported class actions and
other actions relating to service fee charges and premium
calculations on certain workers compensation insurance sold by
subsidiaries of the Company, see the description that appears in
the second paragraph of page 29 of the Company's filing on Form
10-Q for the quarter ended September 30, 1994, which description
is incorporated by reference herein. A copy of the pertinent
paragraph of such filing is included as an exhibit to this Form
10-K. In one of these cases, North Carolina Steel, Inc. v.
National Council on Compensation Insurance, Inc., et al, the
North Carolina trial court granted the Company's motion to
dismiss in February 1995.
The Company and various subsidiaries have also been named
as defendants in various matters incident to and typical of the
businesses in which they are engaged. These include numerous
civil actions, arbitration proceedings and other matters in which
SBI and R-H have been named, arising in the normal course of
business out of activities as a broker and dealer in securities,
as an underwriter, as an investment banker or otherwise. In the
opinion of the Company's management, none of these actions is
expected to have a material adverse effect on the consolidated
financial condition of the Company and its subsidiaries.
61
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
-------
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Company's common stock is listed on the NYSE and the
Pacific Stock Exchange under the symbol "TRV." It is also listed
on the Toronto Stock Exchange under the symbol "TVG." The high
and low sale prices, as reported on the consolidated transaction
reporting system, for the common stock of the Company for the
periods indicated, and the dividends per share, are set forth
below. All amounts have been adjusted to give retroactive effect
to the two stock splits effected in 1993 on the Company's common
stock.
1993 1994 1995
-------------------------------------- --------------------------------------- ----
1st Q 2nd Q 3rd Q 4th Q 1st Q 2nd Q 3rd Q 4th Q 1st Q*
----- ----- ----- ----- ----- ----- ----- ----- -----
Common Stock
Price
High $37.6875 $39.6563 $49.5000 $48.6250 $43.1250 $37.1250 $37.1250 $35.0000 $39.8750
Low $24.0625 $31.2188 $37.2188 $37.6250 $34.3750 $31.3125 $31.0000 $30.3750 $32.3750
Dividends per
Share of
Common Stock $.120 $.120 $.125 $.125 $.125 $.150 $.150 $.150 $.200
_______________________________
* Through February 28, 1995
At February 28, 1995, the Company had approximately 61,000
common stockholders of record. This figure does not represent
the actual number of beneficial owners of common stock because
shares are frequently held in "street name" by securities dealers
and others for the benefit of individual owners who may vote the
shares.
For information on dividend restrictions in certain long-
term loan and credit agreements of the Company and its
subsidiaries, as well as restrictions on the ability of certain
of the Company's subsidiaries to transfer funds to the Company
in the form of cash dividends or otherwise, see Item 7,
"Management's Discussion and Analysis of Financial Condition and
Results of Operations."
62
Item 6. SELECTED FINANCIAL DATA.
See "Five-Year Summary of Selected Financial Data" on page
29 of the Company's 1994 Annual Report to Stockholders (the "1994
Annual Report"), included as part of Exhibit 13 to this Form 10-K
and incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" beginning on page 30 of the
1994 Annual Report, included as part of Exhibit 13 to this Form
10-K and incorporated herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Index to Consolidated Financial Statements and
Schedules on page F-1 hereof. There is also incorporated by
reference herein in response to this Item the material under the
caption "Quarterly Financial Data (unaudited)" on page 67 of the
1994 Annual Report, which material is included as part of Exhibit
13 to this Form 10-K.
The preacquisition consolidated balance sheets of The
Travelers Corporation and Subsidiaries as of December 31, 1993
and 1992, and the related consolidated statements of operations
and retained earnings and cash flows for each of the three years
in the period ended December 31, 1993, together with the notes
thereto and the related report of Independent Accountants, are
included as Exhibit 99.01 to this Form 10-K and are incorporated
herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
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Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
For information on the directors of the Company, see the
material under the caption "Election of Directors," in the
definitive Proxy Statement for the Company's Annual Meeting of
Stockholders to be held on April 26, 1995, filed with the
Securities and Exchange Commission (the "Proxy Statement"),
incorporated herein by reference. For information on
63
executive officers, see Item 1, "Business -- Other Information --
Executive Officers of the Company" herein.
Item 11. EXECUTIVE COMPENSATION.
See the material under the caption "Executive
Compensation" of the Proxy Statement, incorporated herein by
reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
See the material under the captions "Voting Rights" and
"Security Ownership of Management" of the Proxy Statement,
incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
See the material under the captions "Election of
Directors" and "Executive Compensation" of the Proxy Statement,
incorporated herein by reference.
PART IV
-------
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a) Documents filed as a part of the report:
(1) Financial Statements. See Index to
Consolidated Financial Statements and Schedules
on page F-1 hereof. Also filed as a part of
this report are the preacquisition consolidated
balance sheets of The Travelers Corporation and
Subsidiaries as of December 31, 1993 and 1992,
and the related consolidated statements of
operations and retained earnings and cash flows
for each of the three years in the period ended
December 31, 1993, together with the notes
thereto and the related report of Independent
Accountants. See Exhibit 99.01.
(2) Financial Statement Schedules. See Index to
Consolidated Financial Statements and Schedules
on page F-1 hereof.
(3) Exhibits:
See Exhibit Index.
64
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed by the Company
during the last quarter of the period covered by this
report.
65
EXHIBIT INDEX
-------------
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
3.01 Restated Certificate of Incorporation of The
Travelers Inc. (the "Company") and
Certificate of Designation of Cumulative
Adjustable Rate Preferred Stock, Series Y,
incorporated by reference to Exhibit 3.01 to
the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended March 31, 1994
(File No. 1-9924) (the "Company's March 31,
1994 10-Q")
3.02 By-Laws of the Company as amended through
April 27, 1994, incorporated by reference to
Exhibit 3.02 to the Company's March 31, 1994
10-Q.
10.01* Employment Protection Agreement, dated as of
December 31, 1987, between the Company (as
successor to Commercial Credit Company
("CCC")) and Sanford I. Weill, incorporated
by reference to Exhibit 10.03 to CCC's
Annual Report on Form 10-K for the fiscal
year ended December 31, 1987 (File No. 1-
6594).
10.02.1* Stock Option Plan of the Company, as amended
through April 26, 1989, incorporated by
reference to Annex A to the prospectus
contained in the Company's Registration
Statement on Form S-8 (No. 33-29711).
10.02.2* Amendment to the Company's Stock Option
Plan, dated October 23, 1991, incorporated
by reference to Exhibit 10.02.2 to the
Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1991 (File
No. 1-9924) (the "Company's 1991 10-K").
10.02.3* Amendments to the Company's Stock Option
Plan, approved by the Company's stockholders
on April 22, 1992, incorporated by reference
to Exhibit 10.02.3 to the Company's Annual
Report on Form 10-K for the fiscal year
ended December 31, 1992 (File No.1-9924)
(the "Company's 1992 10-K").
10.02.4* Amendment to the Company's Stock Option
Plan, dated July 22, 1992, incorporated by
reference to Exhibit 10.02.4 to the
Company's 1992 10-K.
10.02.5* Amendment No. 11 to the Company's Stock
Option Plan, incorporated by reference to
Exhibit 10.02.5 to the Company's Annual
Report on Form 10-K for the fiscal year
ended December 31, 1993 (File No. 1-9924)
(the "Company's 1993 10-K").
66
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
10.02.6* Amendment No. 12 to the Company's Stock
Option Plan, incorporated by reference to
Exhibit 10.02.6 to the Company's 1993 10-K.
10.03* Retirement Benefit Equalization Plan of the
Company (as successor to Primerica Holdings,
Inc.), as amended, incorporated by reference
to Exhibit 10.03 to the Company's 1993 10-K.
10.04* Letter Agreement between Joseph A. Califano,
Jr. and the Company, dated December 14,
1988, incorporated by reference to Exhibit
10.21.1 to the Company's Annual Report on
Form 10-K for the fiscal year ended December
31, 1988 (File No. 1-9924) (the "Company's
1988 10-K").
10.05.1* The Company's Deferred Compensation Plan for
Directors, incorporated by reference to
Exhibit 10.21.2 to the Company's 1988 10-K.
10.05.2* Amendment to the Company's Deferred
Compensation Plan for Directors, dated July
22, 1992, incorporated by reference to
Exhibit 10.06.2 of the Company's 1992 10-K.
10.06.1* Supplemental Retirement Plan of the Company,
incorporated by reference to Exhibit 10.23
to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1990
(File No. 1-9924) (the "Company's 1990 10-
K").
10.06.2* Amendment to the Company's Supplemental
Retirement Plan, incorporated by reference
to Exhibit 10.06.2 to the Company's 1993 10-
K.
10.07* Long-Term Incentive Plan of the Company, as
amended, incorporated by reference to
Exhibit 10.08 to the Company's 1992 10-K.
10.08* Capital Accumulation Plan of the Company Electronic
(the "CAP Plan"), as amended to May 16,
1994.
10.09* Agreement dated December 21, 1993 between
the Company and Edward H. Budd, incorporated
by reference to Exhibit 10.22 to the
Company's 1993 10-K.
67
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
10.10 Restated Stockholder Rights and Support
Agreement dated as of November 1, 1989 by
and among the Company and Arthur L.
Williams, Jr., Angela H. Williams, A.L.
Williams & Associates, Inc. and The A.L.
Williams & Associates, Inc. Pension and
Profit Sharing Plan, incorporated by
reference to Exhibit 10.13 to the Company's
1990 10-K.
10.11 Amended and Restated Exclusive Marketing
Agreement dated as of November 1, 1989 by
and among the Company, A.L. Williams &
Associates, Inc. and Arthur L. Williams,
Jr., incorporated by reference to Exhibit
10.14 to the Company's 1990 10-K.
10.12 Restated Second Amended General Agency
Agreement ("SAGAA") dated as of November 1,
1989 by and among Primerica Life Insurance
Company (formerly Massachusetts Indemnity
Life Insurance Company; hereinafter
"Primerica Life"), A.L. Williams &
Associates, Inc. and Arthur L. Williams,
Jr., incorporated by reference to Exhibit
10.15 to the Company's 1990 10-K.
10.13 Restated First Amendment to SAGAA dated as
of November 1, 1989 by and among Primerica
Life, A.L. Williams & Associates, Inc. and
Arthur L. Williams, Jr., incorporated by
reference to Exhibit 10.16 to the Company's
1990 10-K.
10.14 Restated and Amended Agreement of Charles D.
Adams dated as of November 1, 1989 for the
benefit of each of the Company, A.L.
Williams & Associates, Inc. and The A.L.
Williams Corporation, incorporated by
reference to Exhibit 10.17 to the Company's
1990 10-K.
10.15 Restated and Amended Agreement of Angela H.
Williams dated as of November 1, 1989 for
the benefit of each of the Company, A.L.
Williams & Associates, Inc. and The A.L.
Williams Corporation, incorporated by
reference to Exhibit 10.18 to the Company's
1990 10-K.
10.16.1 Asset Purchase Agreement dated as of March
12, 1993, by and among Shearson Lehman
Brothers Inc., Smith Barney Inc. ("SBI";
formerly Smith Barney, Harris Upham & Co.
Incorporated), the Company, American Express
Company and Shearson Lehman Brothers
Holdings Inc. (the "SLB Agreement"),
incorporated by reference to Exhibit 10.21
to the Company's 1992 10-K.
68
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
10.16.2 Amendment No. 1, dated as of July 31, 1993,
to the SLB Agreement, incorporated by
reference to Exhibit 10.01 to the Company's
Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 1993 (File No. 1-
9924) (the "Company's June 30, 1993 10-Q").
10.16.3 Amendment No. 2 dated as of July 31, 1993,
to the SLB Agreement, incorporated by
reference to Exhibit 10.02 to the Company's
June 30, 1993 10-Q.
10.17.1* Employment Agreement dated June 23, 1993, by
and among SBI, the Company and Robert F.
Greenhill (the "RFG Employment Agreement"),
incorporated by reference to Exhibit 10.01
to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended September
30, 1993 (File No. 1-9924) (the "Company's
September 30, 1993 10-Q").
10.17.2* Amendment to the RFG Employment Agreement,
incorporated by reference to Exhibit 10.17.2
to the Company's March 31, 1994 10-Q.
10.18* Memorandum of Sale dated June 23, 1993,
between the Company and Robert F. Greenhill,
incorporated by reference to Exhibit 10.02
to the Company's September 30, 1993 10-Q.
10.19* Registration Rights Agreement dated June 23,
1993, between the Company and Robert F.
Greenhill, incorporated by reference to
Exhibit 10.03 to the Company's September 30,
1993 10-Q.
10.20* Restricted Shares Agreement dated June 23,
1993, by and between the Company and Robert
F. Greenhill, incorporated by reference to
Exhibit 10.04 to the Company's September 30,
1993 10-Q.
10.21 Agreement and Plan of Merger, dated as of
September 23, 1993, between the Company and
The Travelers Corporation ("old Travelers"),
incorporated by reference to Exhibit 2.1 to
the Current Report on Form 8-K of old
Travelers, dated September 23, 1993 and
filed with the Commission on October 8, 1993
(File No. 1-5799).
10.22* Employment Agreement effective January 1, Electronic
1995 between the Company and Michael A.
Carpenter.
69
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
10.23.1* The Travelers Corporation 1982 Stock Option
Plan, as amended January 10, 1992,
incorporated by reference to Exhibit 10(a)
to the Annual Report on Form 10-K of old
Travelers for the fiscal year ended December
31, 1991 (File No. 1-5799) (the "old
Travelers' 1991 10-K").
10.23.2* Amendment to The Travelers Corporation 1982 Electronic
Stock Option Plan.
10.24.1* The Travelers Corporation 1988 Stock
Incentive Plan, as amended April 7, 1992,
incorporated by reference to Exhibit 10(b)
to the Annual Report on Form 10-K of old
Travelers for the fiscal year ended December
31, 1992 (File No. 1-5799) (the "old
Travelers' 1992 10-K").
10.24.2* Amendment to The Travelers Corporation 1988 Electronic
Stock Incentive Plan.
10.25* The Travelers Corporation 1984 Management
Incentive Plan, as amended effective January
1, 1991, incorporated by reference to
Exhibit 10(c) to the Annual Report on Form
10-K of old Travelers for the fiscal year
ended December 31, 1990 (File No. 1-5799).
10.26* The Travelers Corporation Supplemental
Benefit Plan, effective December 20, 1992,
incorporated by reference to Exhibit 10(d)
to the Annual Report on the old Travelers'
1992 10-K.
10.27* The Travelers Corporation TESIP Restoration
and Non-Qualified Savings Plan, effective
January 1, 1991, incorporated by reference
to Exhibit 10(e) to the old Travelers' 1991
10-K.
10.28* The Travelers Severance Plan of Officers, as
amended September 23, 1993, incorporated by
reference to Exhibit 10.30 to the Company's
1993 Form 10-K.
10.29* The Travelers Corporation Directors'
Deferred Compensation Plan, as amended
November 7, 1986, incorporated by reference
to Exhibit 10(d) to the Annual Report on
Form 10-K of old Travelers for the fiscal
year ended December 31, 1986 (File No. 1-
5799).
10.30* Employment Agreement dated as of December Electronic
30, 1994, between SBI and Joseph J. Plumeri
II.
11.01 Computation of Earnings Per Share. Electronic
70
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
12.01 Computation of Ratio of Earnings to Fixed Electronic
Charges.
13.01 Pages 29 through 68 of the 1994 Annual Electronic
Report to Stockholders of the Company
(pagination of exhibit does not correspond
to pagination in the 1994 Annual Report to
Stockholders).
21.01 Subsidiaries of the Company. Electronic
23.01 Consent of KPMG Peat Marwick LLP, Independent Electronic
Certified Public Accountants.
23.02 Consent of Coopers & Lybrand L.L.P., Electronic
Independent Accountants.
24.01 Powers of Attorney. Electronic
27.01 Financial Data Schedule. Electronic
28.01 Information from Reports Furnished to State P
Insurance Regulatory Authorities. Schedule Paper
P of the Combined Annual Statement of
The Travelers Insurance Group Inc. and its
affiliated property and casualty insurers.
99.01 Consolidated balance sheets of The Travelers Electronic
Corporation and Subsidiaries as of December
31, 1993 and 1992, and the related
consolidated statements of operations and
retained earnings and cash flows for each of
the three years in the period ended December
31, 1993, together with the notes thereto
and the related report of Independent
Accountants.
99.02 The last paragraph of page 2 and the first Electronic
two paragraphs of page 3 of the Company's
Current Report on Form 8-K dated September
23, 1993 (File No. 1-9924), the third
paragraph of page 26 of the Company's
September 30, 1993 10-Q, and the third
paragraph of page 2 of the Company's Current
Report on Form 8-K dated March 1, 1994 (File
No. 1-9924) (the "Company's March 1, 1994
8-K").
99.03 The third and fourth paragraphs of page 30 Electronic
of the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1989
(File No. 1-9924) (the "Company's 1989
10-K").
99.04 The first, second and third paragraphs of Electronic
page 31 of the Company's 1989 10-K, and the
first paragraph of page 30 of the Company's
1990 10-K.
71
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
99.05 The fourth paragraph of page 26 of the Electronic
Company's September 30, 1993 10-Q.
99.06 The first full paragraph of page 26 of the Electronic
Company's 1992 10-K.
99.07 The fourth paragraph of page 2 of the Electronic
Company's March 1, 1994 8-K.
99.08 The paragraph that begins on page 2 and ends Electronic
on page 3 of the Company's March 1, 1994 8-K.
99.09 The second paragraph of page 29 of the Electronic
Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended September 30, 1994
(File No. 1-9924).
The total amount of securities authorized pursuant to any
instrument defining rights of holders of long-term debt of the
Company does not exceed 10% of the total assets of the Company
and its consolidated subsidiaries. The Company will furnish
copies of any such instrument to the Commission upon request.
The financial statements required by Form 11-K for 1994 for the
Company's employee savings plans will be filed as exhibits by
amendment to this Form 10-K pursuant to Rule 15d-21 of the
Securities Exchange Act of 1934, as amended.
Copies of any of the exhibits referred to above will be furnished
at a cost of $.25 per page (except that no charge will be made
for the 1994 Annual Report on Form 10-K) to security holders who
make written request therefor to Corporate Communications and
Investor Relations Department, The Travelers Inc., 388 Greenwich
Street, New York, New York 10013.
-------------
* Denotes a management contract or compensatory plan or
arrangement required to be filed as an exhibit pursuant to
Item 14(c) of Form 10-K.
72
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized, on the 30th day of March, 1995.
THE TRAVELERS INC.
(Registrant)
By: /s/ Sanford I. Weill
. . . . . . . . . . . . . . .
Sanford I. Weill, Chairman of
the Board and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons on behalf
of the registrant and in the capacities indicated on the 30th day of
March, 1995.
Signature Title
--------- -----
/s/ Sanford I. Weill
. . . . . . . . . . . . . . Chairman of the Board, Chief
Sanford I. Weill Executive Officer
(Principal Executive Officer)
and Director
/s/ James Dimon
. . . . . . . . . . . . . . President, Chief Operating
James Dimon Officer,
Chief Financial Officer
(Principal Financial
Officer) and Director
/s/ Irwin R. Ettinger
. . . . . . . . . . . . . . Senior Vice President and Chief
Irwin R. Ettinger Accounting Officer
(Principal Accounting Officer)
*
. . . . . . . . . . . . . . Director
C. Michael Armstrong
*
. . . . . . . . . . . . . . Director
Kenneth J. Bialkin
73
Signature Title
--------- -----
*
. . . . . . . . . . . . . . Director
Edward H. Budd
*
. . . . . . . . . . . . . . Director
Joseph A. Califano, Jr.
*
. . . . . . . . . . . . . . Director
Douglas D. Danforth
*
. . . . . . . . . . . . . . Director
Robert F. Daniell
*
. . . . . . . . . . . . . . Director
Leslie B. Disharoon
. . . . . . . . . . . . . . Director
Gerald R. Ford
*
. . . . . . . . . . . . . . Director
Robert F. Greenhill
*
. . . . . . . . . . . . . . Director
Ann Dibble Jordan
*
. . . . . . . . . . . . . . Director
Robert I. Lipp
*
. . . . . . . . . . . . . . Director
Dudley C. Mecum
74
Signature Title
--------- -----
*
. . . . . . . . . . . . . . Director
Andrall E. Pearson
*
. . . . . . . . . . . . . . Director
Frank J. Tasco
. . . . . . . . . . . . . . Director
Linda J. Wachner
*
. . . . . . . . . . . . . . Director
Joseph R. Wright, Jr.
*
. . . . . . . . . . . . . . Director
Arthur Zankel
/s/ James Dimon
*By: . . . . . . . . . . .
James Dimon
Attorney-in-fact
75
The Travelers Inc. and Subsidiaries
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES*
_________________________________
Incorporated
By Reference from
the Company's 1994
Annual Report to
Page Stockholders at
Herein Page Indicated
------ ------------------
Independent Auditors' Report F-2 68
Consolidated Statement of Income for the year ended
December 31, 1994, 1993 and 1992 41
Consolidated Statement of Financial Position at
December 31, 1994 and 1993 42
Consolidated Statement of Changes in Stockholders'
Equity for the year ended December 31, 1994, 1993 and 1992 43
Consolidated Statement of Cash Flows for the year ended
December 31, 1994, 1993 and 1992 44
Notes to Consolidated Financial Statements 45-67
Schedules:
Schedule I - Condensed Financial Information of
Registrant (Parent Company only) F-3 - F-6
Schedule III - Supplementary Insurance Information F-7
Schedule IV - Reinsurance F-8
*Schedules not listed are omitted as not applicable or not required by
Regulation S-X.
F - 1
Independent Auditors' Report
----------------------------
The Board of Directors and Stockholders
The Travelers Inc.:
Under date of January 17, 1995, we reported on the consolidated
statements of financial position of The Travelers Inc. and
subsidiaries as of December 31, 1994 and 1993, and the related
statements of income, changes in stockholders' equity, and cash
flows for each of the years in the three-year period ended
December 31, 1994, which are contained in the 1994 annual report
to stockholders. These consolidated financial statements and our
report thereon are incorporated by reference in the annual report
on Form 10-K for the year ended December 31, 1994. In connection
with our audits of the aforementioned consolidated financial
statements, we also audited the related financial statement
schedules which are listed on the accompanying index. These
financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statement schedules based on our
audits.
In our opinion, these financial statement schedules, when
considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material
respects, the information set forth therein.
As discussed in Note 2 to the consolidated financial statements,
the Company changed its method of accounting for certain
investments in debt and equity securities in 1994. Also, as
discussed in Note 2 to the consolidated financial statements, the
Company changed its methods of accounting for postretirement
benefits other than pensions and accounting for postemployment
benefits in 1993, and its method of accounting for income taxes
in 1992.
/s/ KPMG Peat Marwick LLP
New York, New York
January 17, 1995
F-2
SCHEDULE I
The Travelers Inc.
(Parent Company Only)
Condensed Financial Information of Registrant
(In millions of dollars)
Condensed Statement of Income
Year Ended December 31,
-----------------------
1994 1993 1992
---- ---- ----
Income:
-------
Equity in income of old Travelers $ - $126 $ -
Gain on sales of stock of subsidiaries and affiliate - 96
Other 3 6 12
----- --- ---
Total 3 132 108
----- --- ---
Expenses:
---------
Interest 120 77 79
Other 87 46 58
----- --- ---
Total 207 123 137
----- --- ---
Pre-tax income (loss) (204) 9 (29)
Income tax benefit 82 35 9
----- --- ---
Net (loss) income before equity in net income
of subsidiaries (122) 44 (20)
Equity in net income of subsidiaries 1,448 907 776
Cumulative effect of changes in accounting principles
(including $17 and $28 in 1993 and 1992,
respectively, applicable to subsidiaries) - (35) (28)
----- --- ---
Net income $1,326 $916 $728
===== === ===
The condensed financial statements should be read in conjunction
with the consolidated financial statements and notes thereto and
the accompanying notes to the condensed financial information of
Registrant.
F-3
SCHEDULE I
The Travelers Inc.
(Parent Company Only)
Condensed Financial Information of Registrant
(In millions of dollars except per share amounts)
Condensed Statement of Financial Position
December 31,
------------
1994 1993
----- ----
Assets
------
Investment in subsidiaries at equity $10,592 $11,808
Advances to and receivables from subsidiaries 96 433
Cost of acquired businesses in excess of net assets 508 686
Other 39 24
------ ------
$11,235 $12,951
------ ------
Liabilities
-----------
Short-term borrowings $ 101 $ 329
Long-term debt 1,377 1,504
Advances from and payables to subsidiaries 285 1,033
Other liabilities 433 549
------ ------
2,196 3,415
------ ------
Redeemable preferred stock (held by subsidiary) 261 100
------ ------
ESOP Preferred stock - Series C 235 235
Guaranteed ESOP obligation (97) (125)
------ ------
138 110
------ ------
Stockholders' equity
--------------------
Preferred stock ($1.00 par value; authorized shares: 30 million), at
aggregate liquidation value 800 800
Common stock ($.01 par value; authorized shares:
500 million; issued shares: 1994 - 368,195,609 and
1993 - 368,287,709) 4 4
Additional paid-in capital 6,655 6,566
Retained earnings 4,199 3,140
Treasury stock, at cost (1994 - 51,684,618 shares;
1993 - 41,155,405 shares) (1,553) (1,121)
Unrealized gain (loss) on investment securities and other, net (1,465) (63)
------- ------
8,640 9,326
------- ------
$ 11,235 $12,951
======= ======
The condensed financial statements should be read in conjunction with
the consolidated financial statements and notes thereto and the
accompanying notes to the condensed financial information of
Registrant.
F-4
SCHEDULE I
The Travelers Inc.
(Parent Company Only)
Condensed Financial Information of Registrant
(In millions of dollars)
Condensed Statement of Cash Flows
Year ended December 31,
-----------------------
1994 1993 1992
---- ---- ----
Cash Flows From Operating Activities
------------------------------------
Net Income $1,326 $ 916 $ 728
Adjustments to reconcile net income to
cash provided by operating activities:
Equity in net income of subsidiaries (1,448) (907) (776)
Dividends received from subsidiaries, net 1,409 349 365
Advances (to) from subsidiaries, net (411) 45 292
Other, net 377 61 57
------ ----- -----
Net cash provided by (used in) operating activities 1,253 464 666
------ ----- -----
Cash Flows From Investing Activities
------------------------------------
Capital contribution to subsidiaries - (1,100) -
Business acquisitions - - (485)
Business divestments - - 258
------ ------ -----
Net cash provided by (used in) investing activities - (1,100) (227)
------ ------ -----
Cash Flows From Financing Activities
------------------------------------
Issuance of preferred stock - - 290
Dividends paid (267) (139) (85)
Issuance of common stock - 329 -
Treasury stock acquired (543) (58) (122)
Issuance of long-term debt - 450 100
Payments and redemptions of long-term debt (93) (35) (209)
Net change in short-term borrowings (228) 258 (271)
Redemption of redeemable preferred stock
(held by subsidiary) (100) (100) (100)
Other, net (22) (69) (42)
------- ------- ------
Net cash provided by (used in) financing activities (1,253) 636 (439)
------ ------ -----
Change in cash $ - $ - $ -
======= ======= ======
Supplemental disclosure of cash flow information:
-------------------------------------------------
Cash paid during the period for interest $ 107 $ 68 $ 84
====== ====== =====
Cash received during the period for taxes $ 268 $ 129 $ 65
====== ====== =====
The condensed financial statements should be read in conjunction
with the consolidated financial statements and notes thereto and the
accompanying notes to the condensed financial information of
Registrant.
F-5
SCHEDULE I
Notes to Condensed Financial Statements of Registrant
(In millions of dollars)
1. Principles of Consolidation
---------------------------
The accompanying financial statement include the accounts of
The Travelers Inc. (the Parent) and on an equity basis its
subsidiaries and affiliates and should be read in conjunction
with the Consolidated Financial Statements and notes thereto.
2. Debt
----
Aggregate annual maturities for the next five years on long-
term debt obligations excluding principal payments on the ESOP
loan obligation are as follows:
1995 $ -
1996 $ 100
1997 $ 185
1998 $ 250
1999 $ 100
3. Supplementary Disclosure of Non-Cash Investing and Financing
------------------------------------------------------------
Activities
----------
During 1994, the Parent issued $261 of redeemable preferred
stock to various subsidiaries in exchange for an equivalent
value of The Travelers Inc. common stock previously held by
these subsidiaries. This activity was recorded as a non-cash
capital contribution to subsidiaries by the Parent.
F-6
SCHEDULE III
THE TRAVELERS INC. AND SUBSIDIARIES
Supplementary Insurance Information
1994
(In millions of dollars)
Value of
insurance in
force and Future policy
deferred benefits Other policy
policy losses, claims claims and Net
acquisition and loss Unearned benefits Premium investment
Segment costs expenses premiums payable revenue income
----------- ----------- -------------- -------- ------------ ------- ----------
Life Insurance Services $1,923 $ 9,115 $1,853 $1,248 $3,985 $1,869
P&C Insurance Services 221 14,374 103 - 3,498 644
Consumer Finance Services* 19 15 320 56 115 31
Corporate and Other (8) 9
--- -
------ ------- ------ ------ ------- ------
Total $2,163 $23,504 $2,276 $1,304 $7,590 $2,553
====== ======= ====== ====== ======= ======
Amortization
Benefits, of deferred
claims policy
losses acquisition costs
and and value Other
settlement of insurance operating Premiums
Segment expenses in force expenses written
----------- ---------- ------------ --------- -----------
Life Insurance Services $4,661 $282 $1,040 $4,032
P&C Insurance Services 3,114 532 615 3,824
Consumer Finance Services* 43 4 22 172
Corporate and Other (21) 77
------- ---- ------ ------
Total $7,797 $818 $1,754 $8,028
======= ==== ====== ======
* Includes credit life insurance operations.
F-7
SCHEDULE IV
The Travelers Inc. and Subsidiaries
Reinsurance
(In millions of dollars)
Column A Column B Column C Column D Column E Column F
-------- -------- -------- -------- -------- --------
% of
Ceded to Assumed Amount
Gross Other From Other Net Assumed
Amount Companies Companies Amount To Net
------ --------- --------- ------ -------
Year ended December 31, 1994
----------------------------
Life insurance in force $527,964 $(106,024) $4,284 $426,224 1.01%
======= ======== ===== ======= =====
Premiums
Life insurance $1,872 $(295) $6 $1,583 0.4%
Accident and health insurance 2,568 (107) 23 2,484 0.9%
Property and
casualty insurance 4,630 (1,529) 422 3,523 12.0%
----- ------ --- -----
$9,070 $(1,931) $451 $7,590
===== ====== === =====
Year ended December 31, 1993
----------------------------
Life insurance in force $502,319 $( 93,744) $5,126 $413,701 1.24%
======= ======== ===== ======= ======
Premiums
Life insurance $1,176 $(284) $ 2 $ 894 0.2%
Accident and health insurance 393 (56) (8) 329 (2.4)%
Property and
casualty insurance 417 (177) 17 257 6.6%
----- ---- --- -----
$1,986 $(517) $ 11 $1,480
===== ==== === =====
Year ended December 31, 1992
----------------------------
Life insurance in force $324,643 $ (90,379) $1,550 $235,814 0.7%
======= ======== ===== ======= =====
Premiums
Life insurance $1,212 $(312) $ 9 $ 909 1.0%
Accident and health insurance 437 (40) 7 404 1.7%
Property and
casualty insurance 513 (180) 48 381 12.6%
----- ---- -- -----
$2,162 $(532) $64 $1,694
===== ==== == =====
F-8
EXHIBIT INDEX
-------------
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
3.01 Restated Certificate of Incorporation of The
Travelers Inc. (the "Company") and
Certificate of Designation of Cumulative
Adjustable Rate Preferred Stock, Series Y,
incorporated by reference to Exhibit 3.01 to
the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended March 31, 1994
(File No. 1-9924) (the "Company's March 31,
1994 10-Q")
3.02 By-Laws of the Company as amended through
April 27, 1994, incorporated by reference to
Exhibit 3.02 to the Company's March 31, 1994
10-Q.
10.01* Employment Protection Agreement, dated as of
December 31, 1987, between the Company (as
successor to Commercial Credit Company
("CCC")) and Sanford I. Weill, incorporated
by reference to Exhibit 10.03 to CCC's
Annual Report on Form 10-K for the fiscal
year ended December 31, 1987 (File No. 1-
6594).
10.02.1* Stock Option Plan of the Company, as amended
through April 26, 1989, incorporated by
reference to Annex A to the prospectus
contained in the Company's Registration
Statement on Form S-8 (No. 33-29711).
10.02.2* Amendment to the Company's Stock Option
Plan, dated October 23, 1991, incorporated
by reference to Exhibit 10.02.2 to the
Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1991 (File
No. 1-9924) (the "Company's 1991 10-K").
10.02.3* Amendments to the Company's Stock Option
Plan, approved by the Company's stockholders
on April 22, 1992, incorporated by reference
to Exhibit 10.02.3 to the Company's Annual
Report on Form 10-K for the fiscal year
ended December 31, 1992 (File No.1-9924)
(the "Company's 1992 10-K").
10.02.4* Amendment to the Company's Stock Option
Plan, dated July 22, 1992, incorporated by
reference to Exhibit 10.02.4 to the
Company's 1992 10-K.
10.02.5* Amendment No. 11 to the Company's Stock
Option Plan, incorporated by reference to
Exhibit 10.02.5 to the Company's Annual
Report on Form 10-K for the fiscal year
ended December 31, 1993 (File No. 1-9924)
(the "Company's 1993 10-K").
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
10.02.6* Amendment No. 12 to the Company's Stock
Option Plan, incorporated by reference to
Exhibit 10.02.6 to the Company's 1993 10-K.
10.03* Retirement Benefit Equalization Plan of the
Company (as successor to Primerica Holdings,
Inc.), as amended, incorporated by reference
to Exhibit 10.03 to the Company's 1993 10-K.
10.04* Letter Agreement between Joseph A. Califano,
Jr. and the Company, dated December 14,
1988, incorporated by reference to Exhibit
10.21.1 to the Company's Annual Report on
Form 10-K for the fiscal year ended December
31, 1988 (File No. 1-9924) (the "Company's
1988 10-K").
10.05.1* The Company's Deferred Compensation Plan for
Directors, incorporated by reference to
Exhibit 10.21.2 to the Company's 1988 10-K.
10.05.2* Amendment to the Company's Deferred
Compensation Plan for Directors, dated July
22, 1992, incorporated by reference to
Exhibit 10.06.2 of the Company's 1992 10-K.
10.06.1* Supplemental Retirement Plan of the Company,
incorporated by reference to Exhibit 10.23
to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1990
(File No. 1-9924) (the "Company's 1990 10-
K").
10.06.2* Amendment to the Company's Supplemental
Retirement Plan, incorporated by reference
to Exhibit 10.06.2 to the Company's 1993 10-
K.
10.07* Long-Term Incentive Plan of the Company, as
amended, incorporated by reference to
Exhibit 10.08 to the Company's 1992 10-K.
10.08* Capital Accumulation Plan of the Company Electronic
(the "CAP Plan"), as amended to May 16,
1994.
10.09* Agreement dated December 21, 1993 between
the Company and Edward H. Budd, incorporated
by reference to Exhibit 10.22 to the
Company's 1993 10-K.
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
10.10 Restated Stockholder Rights and Support
Agreement dated as of November 1, 1989 by
and among the Company and Arthur L.
Williams, Jr., Angela H. Williams, A.L.
Williams & Associates, Inc. and The A.L.
Williams & Associates, Inc. Pension and
Profit Sharing Plan, incorporated by
reference to Exhibit 10.13 to the Company's
1990 10-K.
10.11 Amended and Restated Exclusive Marketing
Agreement dated as of November 1, 1989 by
and among the Company, A.L. Williams &
Associates, Inc. and Arthur L. Williams,
Jr., incorporated by reference to Exhibit
10.14 to the Company's 1990 10-K.
10.12 Restated Second Amended General Agency
Agreement ("SAGAA") dated as of November 1,
1989 by and among Primerica Life Insurance
Company (formerly Massachusetts Indemnity
Life Insurance Company; hereinafter
"Primerica Life"), A.L. Williams &
Associates, Inc. and Arthur L. Williams,
Jr., incorporated by reference to Exhibit
10.15 to the Company's 1990 10-K.
10.13 Restated First Amendment to SAGAA dated as
of November 1, 1989 by and among Primerica
Life, A.L. Williams & Associates, Inc. and
Arthur L. Williams, Jr., incorporated by
reference to Exhibit 10.16 to the Company's
1990 10-K.
10.14 Restated and Amended Agreement of Charles D.
Adams dated as of November 1, 1989 for the
benefit of each of the Company, A.L.
Williams & Associates, Inc. and The A.L.
Williams Corporation, incorporated by
reference to Exhibit 10.17 to the Company's
1990 10-K.
10.15 Restated and Amended Agreement of Angela H.
Williams dated as of November 1, 1989 for
the benefit of each of the Company, A.L.
Williams & Associates, Inc. and The A.L.
Williams Corporation, incorporated by
reference to Exhibit 10.18 to the Company's
1990 10-K.
10.16.1 Asset Purchase Agreement dated as of March
12, 1993, by and among Shearson Lehman
Brothers Inc., Smith Barney Inc. ("SBI";
formerly Smith Barney, Harris Upham & Co.
Incorporated), the Company, American Express
Company and Shearson Lehman Brothers
Holdings Inc. (the "SLB Agreement"),
incorporated by reference to Exhibit 10.21
to the Company's 1992 10-K.
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
10.16.2 Amendment No. 1, dated as of July 31, 1993,
to the SLB Agreement, incorporated by
reference to Exhibit 10.01 to the Company's
Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 1993 (File No. 1-
9924) (the "Company's June 30, 1993 10-Q").
10.16.3 Amendment No. 2 dated as of July 31, 1993,
to the SLB Agreement, incorporated by
reference to Exhibit 10.02 to the Company's
June 30, 1993 10-Q.
10.17.1* Employment Agreement dated June 23, 1993, by
and among SBI, the Company and Robert F.
Greenhill (the "RFG Employment Agreement"),
incorporated by reference to Exhibit 10.01
to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended September
30, 1993 (File No. 1-9924) (the "Company's
September 30, 1993 10-Q").
10.17.2* Amendment to the RFG Employment Agreement,
incorporated by reference to Exhibit 10.17.2
to the Company's March 31, 1994 10-Q.
10.18* Memorandum of Sale dated June 23, 1993,
between the Company and Robert F. Greenhill,
incorporated by reference to Exhibit 10.02
to the Company's September 30, 1993 10-Q.
10.19* Registration Rights Agreement dated June 23,
1993, between the Company and Robert F.
Greenhill, incorporated by reference to
Exhibit 10.03 to the Company's September 30,
1993 10-Q.
10.20* Restricted Shares Agreement dated June 23,
1993, by and between the Company and Robert
F. Greenhill, incorporated by reference to
Exhibit 10.04 to the Company's September 30,
1993 10-Q.
10.21 Agreement and Plan of Merger, dated as of
September 23, 1993, between the Company and
The Travelers Corporation ("old Travelers"),
incorporated by reference to Exhibit 2.1 to
the Current Report on Form 8-K of old
Travelers, dated September 23, 1993 and
filed with the Commission on October 8, 1993
(File No. 1-5799).
10.22* Employment Agreement effective January 1, Electronic
1995 between the Company and Michael A.
Carpenter.
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
10.23.1* The Travelers Corporation 1982 Stock Option
Plan, as amended January 10, 1992,
incorporated by reference to Exhibit 10(a)
to the Annual Report on Form 10-K of old
Travelers for the fiscal year ended December
31, 1991 (File No. 1-5799) (the "old
Travelers' 1991 10-K").
10.23.2* Amendment to The Travelers Corporation 1982 Electronic
Stock Option Plan.
10.24.1* The Travelers Corporation 1988 Stock
Incentive Plan, as amended April 7, 1992,
incorporated by reference to Exhibit 10(b)
to the Annual Report on Form 10-K of old
Travelers for the fiscal year ended December
31, 1992 (File No. 1-5799) (the "old
Travelers' 1992 10-K").
10.24.2* Amendment to The Travelers Corporation 1988 Electronic
Stock Incentive Plan.
10.25* The Travelers Corporation 1984 Management
Incentive Plan, as amended effective January
1, 1991, incorporated by reference to
Exhibit 10(c) to the Annual Report on Form
10-K of old Travelers for the fiscal year
ended December 31, 1990 (File No. 1-5799).
10.26* The Travelers Corporation Supplemental
Benefit Plan, effective December 20, 1992,
incorporated by reference to Exhibit 10(d)
to the Annual Report on the old Travelers'
1992 10-K.
10.27* The Travelers Corporation TESIP Restoration
and Non-Qualified Savings Plan, effective
January 1, 1991, incorporated by reference
to Exhibit 10(e) to the old Travelers' 1991
10-K.
10.28* The Travelers Severance Plan of Officers, as
amended September 23, 1993, incorporated by
reference to Exhibit 10.30 to the Company's
1993 Form 10-K.
10.29* The Travelers Corporation Directors'
Deferred Compensation Plan, as amended
November 7, 1986, incorporated by reference
to Exhibit 10(d) to the Annual Report on
Form 10-K of old Travelers for the fiscal
year ended December 31, 1986 (File No. 1-
5799).
10.30* Employment Agreement dated as of December Electronic
30, 1994, between SBI and Joseph J. Plumeri
II.
11.01 Computation of Earnings Per Share. Electronic
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
12.01 Computation of Ratio of Earnings to Fixed Electronic
Charges.
13.01 Pages 29 through 68 of the 1994 Annual Electronic
Report to Stockholders of the Company
(pagination of exhibit does not correspond
to pagination in the 1994 Annual Report to
Stockholders).
21.01 Subsidiaries of the Company. Electronic
23.01 Consent of KPMG Peat Marwick LLP, Independent Electronic
Certified Public Accountants.
23.02 Consent of Coopers & Lybrand L.L.P., Electronic
Independent Accountants.
24.01 Powers of Attorney. Electronic
27.01 Financial Data Schedule. Electronic
28.01 Information from Reports Furnished to State Paper
Insurance Regulatory Authorities. Schedule
P of the Combined Annual Statement of
The Travelers Insurance Group Inc. and its
affiliated property and casualty insurers.
99.01 Consolidated balance sheets of The Travelers Electronic
Corporation and Subsidiaries as of December
31, 1993 and 1992, and the related
consolidated statements of operations and
retained earnings and cash flows for each of
the three years in the period ended December
31, 1993, together with the notes thereto
and the related report of Independent
Accountants.
99.02 The last paragraph of page 2 and the first Electronic
two paragraphs of page 3 of the Company's
Current Report on Form 8-K dated September
23, 1993 (File No. 1-9924), the third
paragraph of page 26 of the Company's
September 30, 1993 10-Q, and the third
paragraph of page 2 of the Company's Current
Report on Form 8-K dated March 1, 1994 (File
No. 1-9924) (the "Company's March 1, 1994
8-K").
99.03 The third and fourth paragraphs of page 30 Electronic
of the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1989
(File No. 1-9924) (the "Company's 1989
10-K").
99.04 The first, second and third paragraphs of Electronic
page 31 of the Company's 1989 10-K, and the
first paragraph of page 30 of the Company's
1990 10-K.
Exhibit Filing
Number Description of Exhibit Method
------ ---------------------- ------
99.05 The fourth paragraph of page 26 of the Electronic
Company's September 30, 1993 10-Q.
99.06 The first full paragraph of page 26 of the Electronic
Company's 1992 10-K.
99.07 The fourth paragraph of page 2 of the Electronic
Company's March 1, 1994 8-K.
99.08 The paragraph that begins on page 2 and ends Electronic
on page 3 of the Company's March 1, 1994 8-K.
99.09 The second paragraph of page 29 of the Electronic
Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended September 30, 1994
(File No. 1-9924).
The total amount of securities authorized pursuant to any
instrument defining rights of holders of long-term debt of the
Company does not exceed 10% of the total assets of the Company
and its consolidated subsidiaries. The Company will furnish
copies of any such instrument to the Commission upon request.
The financial statements required by Form 11-K for 1994 for the
Company's employee savings plans will be filed as exhibits by
amendment to this Form 10-K pursuant to Rule 15d-21 of the
Securities Exchange Act of 1934, as amended.
Copies of any of the exhibits referred to above will be furnished
at a cost of $.25 per page (except that no charge will be made
for the 1994 Annual Report on Form 10-K) to security holders who
make written request therefor to Corporate Communications and
Investor Relations Department, The Travelers Inc., 388 Greenwich
Street, New York, New York 10013.
-------------
* Denotes a management contract or compensatory plan or
arrangement required to be filed as an exhibit pursuant to
Item 14(c) of Form 10-K.