<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
- ----- THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
- ----- THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
-------------------------
COMMISSION FILE NUMBER 1-14328
-------------------------
TRAVELERS/AETNA PROPERTY CASUALTY CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 06-1445591
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE TOWER SQUARE, HARTFORD, CONNECTICUT 06183
(Address of principal executive offices) (Zip Code)
(860) 277-0111
(Registrant's telephone number, including area code)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES NO X
--- ---
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK AS OF THE LATEST PRACTICABLE DATE:
COMMON STOCK OUTSTANDING AS OF MAY 31, 1996:
Class A 71,979,829
Class B 328,020,170
<PAGE> 2
TRAVELERS/AETNA PROPERTY CASUALTY CORP.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Part I - Financial Information
Item 1. Financial Statements: Page No.
--------
<S> <C>
Condensed Consolidated Statement of Operations (Unaudited) -
Three Months Ended March 31, 1996 and 1995 3
Condensed Consolidated Balance Sheet -
March 31, 1996 (Unaudited) and December 31, 1995 4
Condensed Consolidated Statement of Changes in
Stockholder's Equity (Unaudited) -
Three Months Ended March 31, 1996 5
Condensed Consolidated Statement of Cash Flows (Unaudited) -
Three Months Ended March 31, 1996 and 1995 6
Notes to Condensed Consolidated Financial Statements - Unaudited 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Part II - Other Information
Item 1. Legal Proceedings 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
Exhibit Index 19
Signatures 20
</TABLE>
2
<PAGE> 3
TRAVELERS/AETNA PROPERTY CASUALTY CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
(in millions, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
---- ----
<S> <C> <C>
REVENUES
Premiums $ 826 $ 866
Net investment income 196 168
Fee income 99 124
Realized investment gains (losses) 26 (6)
Other revenues 5 10
------ -------
1,152 1,162
------ -------
BENEFITS AND EXPENSES
Claims and claim adjustment expenses 730 784
Amortization of deferred acquisition costs 120 123
General and administrative expenses 177 165
------ -------
1,027 1,072
------ -------
Income before federal income taxes 125 90
Federal income taxes 27 15
------ -------
Net income $ 98 $ 75
====== =======
Net income per share of common stock $ 0.33 $ 0.25
====== =======
Weighted average number of
common shares outstanding 294.5 294.5
====== =======
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
TRAVELERS/AETNA PROPERTY CASUALTY CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(in millions, except shares)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
Fixed maturities, available for sale at market (cost, $10,398; $10,534) $ 10,484 $ 10,908
Equity securities, at market (cost, $642; $565) 694 603
Mortgage loans 189 213
Real estate held for sale 24 23
Short-term securities 812 786
Other investments 391 287
-------- --------
Total investments 12,594 12,820
-------- --------
Cash 57 51
Investment income accrued 160 165
Premium balances receivable 2,245 2,213
Reinsurance recoverables 5,428 5,407
Deferred acquisition costs 207 202
Deferred federal income taxes 719 650
Contractholder receivables 1,745 1,713
Other assets 1,515 1,400
-------- --------
Total assets $ 24,670 $ 24,621
======== ========
LIABILITIES
Claims and claim adjustment expense reserves $ 15,516 $ 15,460
Unearned premium reserves 1,709 1,695
Contractholder payables 1,745 1,713
Other liabilities 2,176 2,152
-------- --------
Total liabilities 21,146 21,020
-------- --------
STOCKHOLDER'S EQUITY
Common stock, 150,000 shares authorized, 100,000 shares issued and outstanding
with a par value of $100 at March 31, 1996 and December 31, 1995 and 1.4 billion
shares authorized, 100 shares issued and outstanding with a par value of
$.01 at March 31, 1996 10 10
Additional paid-in capital 2,890 2,889
Retained earnings 520 422
Unrealized investment gains, net of taxes 104 280
-------- --------
Total stockholder's equity 3,524 3,601
-------- --------
Total liabilities and stockholder's equity $ 24,670 $ 24,621
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
TRAVELERS/AETNA PROPERTY CASUALTY CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF
CHANGES IN STOCKHOLDER'S EQUITY (Unaudited)
(in millions, except shares)
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31, 1996
--------------
Amount Shares
------ ------
<S> <C> <C>
COMMON STOCK AND ADDITIONAL
PAID-IN CAPITAL
Balance, beginning of year $ 2,899 100,000
Capital contribution 1
Capitalization of Travelers/Aetna
Property Casualty Corp. - 100
------- -------
Balance, end of period 2,900 100,100
------- -------
RETAINED EARNINGS
Balance, beginning of year 422
Net income 98
-------
Balance, end of period 520
-------
UNREALIZED INVESTMENT GAINS (LOSSES),
NET OF TAXES
Balance, beginning of year 280
Net change in unrealized investment gains and
losses, net of taxes (176)
-------
Balance, end of period 104
------- =======
Total stockholder's equity $ 3,524 100,100
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
TRAVELERS/AETNA PROPERTY CASUALTY CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
INCREASE (DECREASE) IN CASH
(in millions)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
--------- ---------
<S> <C> <C>
Net cash provided by (used in) operating activities $ (89) $ 366
------- -------
Cash flows from investing activities
Investment repayments
Fixed maturities 221 139
Mortgage loans 1 3
Proceeds from sales of investments, including real estate held for sale
Fixed maturities 1,215 2,045
Equity securities 117 31
Mortgage loans 17 6
Real estate held for sale 2 9
Investments in
Fixed maturities (1,303) (1,168)
Equity securities (154) (63)
Mortgage loans -- (1)
Short-term securities, (purchases) sales, net (25) (1,147)
Other investments, net (4) --
Securities transactions in course of settlement 7 (173)
------- -------
Net cash provided by (used in) investing activities 94 (319)
------- -------
Cash flows from financing activities
Dividend to parent -- (46)
Contribution from parent 1 --
------- -------
Net cash provided by (used in) financing activities 1 (46)
------- -------
Net increase in cash 6 1
Cash at beginning of period 51 32
------- -------
Cash at end of period $ 57 $ 33
======= =======
Supplemental disclosure of cash flow information
Income taxes paid (refunded) $ 48 $ (18)
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE> 7
TRAVELERS/AETNA PROPERTY CASUALTY CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. General
The interim condensed consolidated financial statements include the
accounts of Travelers/Aetna Property Casualty Corp. (TAP) (a direct
subsidiary of The Travelers Insurance Group Inc. (TIGI) and an indirect
subsidiary of Travelers Group Inc.) and The Travelers Indemnity Company and
its subsidiaries (collectively, the Company) on a combined basis, have
been prepared in conformity with generally accepted accounting principles
(GAAP) and are unaudited. In the opinion of management, all adjustments,
consisting of normal recurring adjustments necessary for a fair
presentation, have been reflected. The accompanying condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and related notes for the year ended December 31,
1995 included in the Company's Form S-1 registration statement, which was
declared effective on April 22, 1996 (Registration No. 333-2254).
Earnings per common share is based on the weighted average number of common
shares outstanding during the period. For purposes of the computation of
earnings per share, the weighted average number of shares was computed by
treating the common stock issued within a one-year period prior to the
initial filing of the registration statement relating to the initial public
offering (IPO) as outstanding for all reported periods. This amount was
then reduced by the dilutive effect of such issuances determined by using
the actual proceeds and the number of shares that could have been
repurchased using the IPO price as the repurchase price for all periods
presented.
Certain financial information that is normally included in annual financial
statements prepared in accordance with generally accepted accounting
principles, but that is not required for interim reporting purposes, has
been condensed or omitted.
2. Changes in Accounting Principles
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of". This statement
establishes accounting standards for the impairment of long-lived assets
and certain identifiable intangibles to be disposed of. This statement
requires a write down to fair value when long-lived assets to be held and
used are impaired. The statement also requires long-lived assets to be
disposed of (e.g. real estate held for sale) to be carried at the lower of
cost or fair value less cost to sell, and does not allow such assets to be
depreciated. The adoption of this standard did not have a material impact
on the Company's financial condition, results of operations or liquidity.
3. Subsequent Events - Acquisition
On April 2, 1996, TAP purchased from Aetna Life and Casualty Company
(Aetna) all of the outstanding capital stock of The Aetna Casualty and
Surety Company and The Standard Fire Insurance Company (collectively, Aetna
P&C) for approximately $4.16 billion in cash. The acquisition will be
treated as a purchase and, accordingly, the financial results of Aetna
P&C are not included in these financial statements.
7
<PAGE> 8
TRAVELERS/AETNA PROPERTY CASUALTY CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
3. Subsequent Events - Acquisition, Continued
To finance the $4.16 billion purchase price, including transaction costs
and the capital contributions totalling $710 million to Aetna P&C, TAP
borrowed $2.65 billion from a syndicate of banks under a five-year
revolving credit facility that expires on March 15, 2001 (the Credit
Facility) and sold approximately 33 million shares of its Class A Common
Stock representing approximately 9% of its outstanding common stock (at
that time) to four private investors, including Aetna, for an aggregate of
$525 million. TIGI acquired approximately 328 million shares of Class B
Common Stock of TAP in exchange for contributing the outstanding capital
stock of The Travelers Indemnity Company and a capital contribution of
approximately $1.14 billion. In addition, Travelers Group Inc. purchased
from TAP $540 million of Series Z Preferred Stock of TAP. Approximately
$18 million of the purchase price was funded through the settlement of
receivables from Aetna.
On April 23, 1996, TAP sold in a public offering approximately 39 million
shares of its Class A Common Stock, representing approximately 9.75% of
its outstanding common stock, for total proceeds of $928 million. On April
24, 1996, TAP sold in a public offering $500 million of 6-3/4% Notes due
April 15, 2001 and $200 million of 7-3/4% Notes due April 15, 2026. On
April 26, 1996, Travelers P&C Capital I, a subsidiary trust of TAP, issued
$800 million of 8.08% Trust Preferred Securities in a public offering. On
May 10, 1996, Travelers P&C Capital II, a subsidiary trust of TAP, issued
$100 million of 8.00% Trust Preferred Securities in a public offering.
These Trust Preferred Securities, which are guaranteed by TAP, have a
liquidation value of $25 per Trust Preferred Security and are mandatorily
redeemable under certain circumstances. The aggregate proceeds from the
above offerings of $2.528 billion together with the proceeds from the
issuance by TAP of approximately $700 million of commercial paper were
used to repay in full the borrowings under the Credit Facility and to
redeem in full TAP's Series Z Preferred Stock.
The allocation of the purchase price to the assets and liabilities of
Aetna P&C is subject to valuations as of the date of its acquisition based
on appraisals and other studies, which are not yet completed. Adjustments
of claims and claim adjustment expense reserves and certain other
insurance accounts resulting from the valuation of these accounts will be
recorded in operations in the period or periods determined. The Company is
continuing to review the insurance reserves of Aetna P&C, including the
effect of applying the Company's strategies, policies and practices in
determining such reserves, primarily relating to reserves for cumulative
injury claims, insurance products involving financial guarantees based on
the fair value of underlying collateral and certain other insurance
accounts. Based on the reviews at this stage, it is possible that
additional reserves of up to approximately $750 million in the aggregate
may be recorded upon completion of these reviews, which would result in
after-tax charges to income of up to approximately $488 million in the
aggregate. Stockholders' equity would be correspondingly reduced by an
equivalent amount as a result of these charges. The Company believes that
its reviews are likely to be completed in the second quarter of 1996,
although there can be no assurance as to the ultimate timing thereof.
4. Capital and Debt
As discussed in Note 3, during the first quarter of 1996, TAP entered into
a five-year revolving credit facility in the amount of $2.65 billion with a
syndicate of banks led by Citibank, N.A., Chemical Bank and Morgan Guaranty
Trust Company. This facility was used to finance the purchase of Aetna P&C.
As of April 30, 1996, all borrowings under this facility have been repaid
in full and the amount of the facility was subsequently reduced to $1.2
billion, all of which is currently available. In addition to this facility,
TAP has in place a commercial paper program which at May 31, 1996 had $724
million outstanding. TAP at May 31, 1996, had $1.3 billion available for
debt offerings under its shelf registration statement. TAP also currently
has available to it a $200 million line of credit for working capital and
other general corporate purposes from a subsidiary of Travelers Group Inc.
The lender has no obligation to make any loan to TAP under this line of
credit.
8
<PAGE> 9
TRAVELERS/AETNA PROPERTY CASUALTY CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
4. Capital and Debt, Continued
The Company's insurance subsidiaries are subject to various regulatory
restrictions that limit the maximum amount of dividends available to be
paid to their parent without prior approval of insurance regulatory
authorities. Dividend payments to TAP from its insurance subsidiaries are
limited to $299 million in 1996 without prior approval of the Connecticut
Insurance Department.
5. Commitments and Contingencies
Lloyd's of London (Lloyd's) is currently undergoing a restructuring to
solidify its capital base and to segregate claims for years before 1993.
The Company is in arbitration with underwriters at Lloyd's in New York
State to enforce reinsurance contracts with respect to recoveries for
certain asbestos claims. The dispute involves the Company's ability to
aggregate asbestos claims under a market agreement between Lloyd's and the
Company or under the applicable reinsurance treaties.
The outcomes of the restructuring of Lloyd's and the arbitration referred
to above are uncertain and the impact, if any, on collectibility of amounts
recoverable by the Company from Lloyd's cannot be quantified at this time.
The Company believes that it is possible that an unfavorable resolution of
these matters could have a material adverse effect on the Company's
operating results in a future period. However, the Company believes that it
is not likely that the outcome of these matters could have a material
adverse effect on the Company's financial condition or liquidity. The
Company carries an allowance for uncollectible reinsurance which is not
allocated to any specific proceedings or disputes, whether for financial
impairments or coverage defenses. The Company believes that such allowance
properly states the net receivable from reinsurance contracts.
In relation to submitted and future asbestos and environmental-related
claims, the Company carries on a continuing review of its overall
position, its reserving techniques and its reinsurance recoverables. In
each of these areas of exposure, the Company has endeavored to litigate
individual cases and settle claims on favorable terms. Given the vagaries
of court coverage decisions, plaintiffs' expanded theories of liability,
the risks inherent in major litigation and other uncertainties, it is not
presently possible to quantify the ultimate exposure 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, the Company believes that it is not likely that these claims will
have a material adverse effect on the Company's financial condition or
liquidity.
The Company is a defendant or codefendant in various litigation matters
other than environmental and asbestos claims. Although there can be no
assurances, as of March 31, 1996, the Company believes, based on
information currently available, that the ultimate resolution of these
legal proceedings would not be likely to have a material adverse effect on
its results of operations, financial condition or liquidity.
9
<PAGE> 10
TRAVELERS/AETNA PROPERTY CASUALTY CORP.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Results of Operations reflect the combined results of operations of
Travelers/Aetna Property Casualty Corp. (TAP) and The Travelers Indemnity
Company and its subsidiaries (collectively, the Company).
CONSOLIDATED OVERVIEW
On April 2, 1996, TAP purchased from Aetna Life and Casualty Company (Aetna)
all of the outstanding capital stock of The Aetna Casualty and Surety Company
and The Standard Fire Insurance Company (collectively, Aetna P&C) for
approximately $4.16 billion in cash. To finance the $4.16 billion purchase
price, plus transaction costs and the capital contributions totalling $710
million to Aetna P&C, TAP borrowed $2.65 billion from a syndicate of banks
under a five-year revolving credit facility that expires on March 15, 2001
(the Credit Facility) and sold approximately 33 million shares of its Class A
Common Stock representing approximately 9% of its outstanding common stock
(at that time) to four private investors, including Aetna, for an aggregate
of $525 million. The Travelers Insurance Group Inc.(TIGI) acquired
approximately 328 million shares of Class B Common Stock of TAP
in exchange for contributing the outstanding capital stock of The Travelers
Indemnity Company and a capital contribution of approximately $1.14 billion. In
addition, Travelers Group Inc. purchased from TAP $540 million of Series Z
Preferred Stock of TAP. Approximately $18 million of the purchase price was
funded through the settlement of receivables from Aetna.
On April 23, 1996, TAP sold in a public offering approximately 39 million shares
of its Class A Common Stock, representing approximately 9.75% of its outstanding
common stock, for total proceeds of $928 million. On April 24, 1996, TAP sold in
a public offering $500 million of 6-3/4% Notes due April 15, 2001 and $200
million of 7-3/4% Notes due April 15, 2026. On April 26, 1996, Travelers P&C
Capital I, a subsidiary trust of TAP, issued $800 million of 8.08% Trust
Preferred Securities in a public offering. On May 10, 1996, Travelers P&C
Capital II, a subsidiary trust of TAP, issued $100 million of 8.00% Trust
Preferred Securities in a public offering. These Trust Preferred Securities,
which are guaranteed by TAP, have a liquidation value of $25 per Trust Preferred
Security and are mandatorily redeemable. The aggregate proceeds from the above
offerings of $2.528 billion, together with the proceeds from the issuance by TAP
of approximately $700 million of commercial paper, were used to repay in full
the borrowings under the Credit Facility and to redeem in full TAP's Series Z
Preferred Stock.
TAP provides a wide range of commercial and personal property and casualty
insurance products and services to businesses, government units, associations
and individuals throughout the United States.
CONSOLIDATED RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND
1995
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1996 1995
--------------------- ----------------------
Net Net
Revenues Income Revenues Income
(Dollars in millions)
<S> <C> <C> <C> <C>
Commercial Lines $ 775 $ 76 $ 801 $ 53
Personal Lines 373 23 359 22
Corporate and Other 4 (1) 2 0
--------- ---------- --------- --------
Total $ 1,152 $ 98 $ 1,162 $ 75
========= ========= ========= ========
</TABLE>
10
<PAGE> 11
Revenues of $1.152 billion in the first quarter of 1996 decreased $10 million
compared to 1995 first quarter revenues of $1.162 billion. This decrease was
primarily attributable to a $40 million decrease in premiums and a $25 million
decrease in fee income, partially offset by higher net investment income and
realized investment gains. The premium decline is the result of the Company's
selective renewal activity in Commercial Lines in response to the competitive
pricing environment as well as continued success in lowering workers'
compensation losses of customers, which reduces premiums and fee income, and
the settlement of a stop loss insurance arrangement with TIGI.
Net investment income was $196 million for the first quarter of 1996, an
increase of $28 million from the first quarter of 1995. The increase for the
first quarter of 1996 compared to the first quarter of 1995 is primarily due to
increased investable funds. Realized investment gains increased by $32 million
in the first quarter of 1996 compared to the first quarter of 1995.
Fee income is significantly impacted by National Accounts within Commercial
Lines because the recorded revenue from premium equivalents is primarily
reflected in fees. Fee income for the first quarter of 1996 was $99 million, a
$25 million decrease from the first quarter of 1995. This decrease in fee income
was due to the depopulation of involuntary pools as the loss experience of
workers' compensation improved and insureds moved to voluntary markets, the
Company's selective renewal activity to address the competitive pricing
environment and the Company's continued success in lowering workers'
compensation losses of customers.
Benefits and expenses of $1.027 billion for the first quarter of 1996 decreased
$45 million from the first quarter of 1995. This decrease was primarily
attributable to favorable loss development in personal auto lines and to
improvement in certain workers' compensation lines and residual markets,
partially offset by the higher level of catastrophes in the first quarter of
1996 compared to the first quarter of 1995.
The Company's effective tax rate was 22% for the first quarter of 1996 and 17%
for the first quarter of 1995. These rates differed from the statutory tax rate
in both periods primarily due to municipal bond interest not taxed for federal
income tax purposes. The 1996 first quarter effective rate was higher than the
1995 first quarter due to a consistent level of tax-exempt income included in a
greater amount of pre-tax income.
Net income for the first quarter of 1996 of $98 million increased $23 million
over the first quarter of 1995. The 1996 first quarter increase compared to the
first quarter of 1995 was the result of the previously mentioned increases in
realized investment gains and net investment income, as well as favorable loss
experience in personal auto lines and improvement in certain workers'
compensation lines and residual markets offset by higher catastrophe losses
resulting from winter storm-related claims in the first quarter of 1996 and a
$13 million after-tax charge relating to the settlement of a stop loss insurance
arrangement with TIGI.
RESULTS OF OPERATIONS BY SEGMENT
Commercial Lines
Commercial Lines net written premiums for the first quarter of 1996 totaled $619
million up $12 million compared to $607 million for the first quarter of 1995.
Premium equivalents for the first quarter of 1996 totaled $763 million, down
$121 million compared to $884 million for the first quarter of 1995. Premium
equivalents, which are associated largely with National Accounts, represent
estimates of premiums that customers would have been charged under a fully
insured arrangement and do not represent actual premium revenues.
11
<PAGE> 12
A significant component of Commercial Lines is National Accounts, which works
with national brokers and regional agents providing insurance coverages and
services, primarily workers' compensation, mainly to large corporations.
National Accounts net written premiums of $174 million for the first quarter of
1996 increased $7 million from the first quarter of 1995. National Accounts
premium equivalents of $752 million for the first quarter of 1996 were $120
million below the first quarter of 1995. The decrease in premium equivalents
reflects a depopulation of involuntary pools as the loss experience of workers'
compensation improved and insureds moved to voluntary markets. For the first
quarter of 1996, National Accounts new business, including both premiums and
premium equivalents, was $49 million compared to $178 million for the first
quarter of 1995. This decline reflected National Accounts policy of maintaining
its product pricing and underwriting standards in a highly competitive pricing
environment as insurers compete to retain business. The National Accounts
business retention ratio increased to 77% in the first quarter of 1996 from 73%
in the first quarter of 1995.
Commercial Accounts serves mid-sized businesses through a network of independent
agencies and brokers. Commercial Accounts net written premiums were $202
million in the 1996 first quarter compared to $207 million in the 1995 first
quarter, and Commercial Accounts premium equivalents were $11 million in the
1996 first quarter, about even with the 1995 first quarter. In this highly
competitive market, Commercial Accounts has continued to be more selective in
renewal activity. Programs designed to leverage underwriting experience in
specific industries have demonstrated continued growth. For the first quarter of
1996, new premium and premium equivalent business in Commercial Accounts was $37
million compared to $63 million for the first quarter of 1995. The Commercial
Accounts business retention ratio was 73% for the first quarter of 1996 and 75%
for the first quarter of 1995. Commercial Accounts continues to focus on the
retention of existing business while maintaining its product pricing standards
and its selective underwriting policy.
Select Accounts serves small businesses through a network of independent agents.
Select Accounts net written premiums of $141 million for the first quarter of
1996 were $6 million above the first quarter of 1995 premium levels, due
primarily to higher retention levels. New premium business in Select Accounts
was $41 million in the 1996 first quarter compared to $42 million in the 1995
first quarter. The Select Accounts business retention ratio was 76% in the 1996
first quarter compared to 75% in the comparable 1995 period.
Specialty Accounts net written premiums were $102 million for the 1996 first
quarter compared to $98 million in the 1995 first quarter. The growth is
primarily attributable to an increase in errors and omissions writings.
Benefits and expenses of $680 million for the first quarter of 1996 decreased
$58 million from the first quarter of 1995. These decreases were primarily
attributable to improvement in certain workers' compensation lines and residual
markets for the first quarter of 1996.
Catastrophe losses, net of tax and reinsurance, were $6 million and $1 million
in the 1996 and 1995 first quarters, respectively. This increase was due to
winter storm-related claims during the 1996 quarter. Effective April 1, 1995,
the threshold of losses incurred to qualify a specific event as a catastrophe
was increased.
Net income for the 1996 first quarter of $76 million increased $23 million
compared to the 1995 first quarter of $53 million. The 1996 first quarter
increase compared to the 1995 first quarter was due to higher realized
investment gains, higher net investment income and improvement in certain
workers' compensation lines and residual markets, partially offset by higher
catastrophe losses and a $13 million after tax charge relating to the settlement
of a stop loss insurance arrangement with TIGI.
12
<PAGE> 13
Statutory and GAAP combined ratios for Commercial Lines were as follows:
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1996 March 31, 1995
-------------- ----------------
<S> <C> <C>
Statutory:
Loss and LAE ratio...........................................................86.9% 88.1%
Underwriting expense ratio...................................................26.1 23.1
Combined ratio before policyholder dividends................................113.0 111.2
Combined ratio..............................................................113.4 112.1
GAAP:
Loss and LAE ratio...........................................................80.8% 81.5%
Underwriting expense ratio...................................................27.3 26.4
Combined ratio before policyholder dividends................................108.1 107.9
Combined ratio..............................................................108.4 108.7
</TABLE>
GAAP combined ratios for Commercial Lines differ from statutory combined ratios
primarily due to the gross up for GAAP reporting purposes of revenues and
expenses related to service business, including servicing of residual market
pools and deductible policies.
The increase in the 1996 first quarter statutory combined ratio for Commercial
Lines is primarily attributable to the cancellation of a reinsurance arrangement
with an affiliate and higher catastrophe losses in the first quarter of 1996.
The 1996 first quarter GAAP combined ratio for Commercial Lines was relatively
even with the 1995 ratio as the cancellation of the affiliated reinsurance
arrangement and the higher catastrophe losses were offset by changes in service
fee income in the first quarter of 1996 compared to the first quarter of 1995.
Personal Lines
Net written premiums in the 1996 first quarter were $341 million, which
represents a slight improvement over the first quarter of 1995, after excluding
the effect of a first quarter 1995 change in reinsurance coverage. This
improvement reflects growth in target markets, partially offset by reductions
due to catastrophe management strategies.
Benefits and expenses of $341 million for the 1996 first quarter increased $11
million from the 1995 first quarter. This increase was primarily attributable to
the higher level of catastrophe losses in the first quarter of 1996 compared to
the first quarter of 1995, partially offset by favorable loss experience in
personal auto lines.
Net income for the first quarter of 1996 of $23 million increased $1 million
compared to $22 million for the first quarter of 1995. A particularly high level
of winter storm-related catastrophe losses of $18 million, after taxes and
reinsurance, compared with $2 million in the prior year period, reduced earnings
in the 1996 first quarter. Effective April 1, 1995, the threshold of losses
incurred to qualify a specific event as a catastrophe was increased. Excluding
catastrophe losses, earnings before realized investment gains (losses) improved
$14 million compared to the 1995 first quarter, primarily reflecting favorable
loss experience in personal auto lines.
13
<PAGE> 14
Statutory and GAAP combined ratios for Personal Lines were as follows:
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1996 March 31, 1995
-------------- ----------------
<S> <C> <C>
Statutory:
Loss and LAE ratio...........................................................76.9% 74.4%
Underwriting expense ratio...................................................28.4 28.1
Combined ratio..............................................................105.3 102.5
GAAP:
Loss and LAE ratio...........................................................76.9% 74.4%
Underwriting expense ratio...................................................26.7 26.8
Combined ratio..............................................................103.6 101.2
</TABLE>
The increase in the combined ratios in 1996 was due to the higher level of
catastrophe losses, partially offset by favorable loss experience in personal
auto lines.
Corporate and Other
The Company's Corporate and Other operations reflect the accident and health
business written by certain affiliated companies and reinsured by the Company.
Environmental Claims
The Company's reserves for environmental claims are not established on a
claim-by-claim basis. An aggregate bulk reserve is carried for all of the
Company's environmental claims that are in the dispute process. This bulk
reserve is established and adjusted based upon the aggregate volume of in
process environmental claims and the Company's experience in resolving such
claims. Until the dispute is resolved, the estimated amounts for disputed
coverage claims are carried in a bulk reserve. At March 31, 1996, approximately
16% of the net environmental loss reserve (i.e., approximately $61 million) is
case reserve for resolved claims. The balance, approximately 84% of the net
aggregate reserve (i.e., approximately $326 million), is carried in a bulk
reserve together with incurred but not yet reported environmental claims for
which the Company has not received any specific claims.
The following table displays activity for environmental losses and loss expenses
and reserves for the three months ended March 31, 1996 and 1995.
<TABLE>
<CAPTION>
Environmental Losses
(millions) Three Months Ended Three Months Ended
March 31, 1996 March 31, 1995
-------------- --------------
<S> <C> <C>
Beginning reserves (1):
Direct.........................................................................$ 454 $ 482
Ceded.......................................................................... (50) (11)
------ -------
Net ........................................................................ 404 471
Incurred losses and loss expenses:
Direct......................................................................... 20 15
Ceded.......................................................................... (3) -
Losses paid:
Direct ........................................................................ 35 33
Ceded.......................................................................... (1) (1)
Ending reserves:
Direct......................................................................... 439 464
Ceded.......................................................................... (52) (10)
------ -------
Net..........................................................................$ 387 $ 454
====== =======
</TABLE>
(1) For 1995, includes the termination of certain agreements with TIGI whereby
TIGI had assumed certain reserves from the Company.
14
<PAGE> 15
As of March 31, 1996, the Company had approximately 10,700 pending
environmental-related claims and had resolved over 21,400 such claims since
1986. Approximately 62% of the pending environmental-related claims in
inventory at such date represent federal or state EPA-type claims tendered by
approximately 700 insureds. The balance represents bodily injury claims
alleging injury due to the discharge of insureds' waste or pollutants.
Asbestos Claims
The following table displays activity for asbestos losses and loss expenses and
reserves for the three months ended March 31, 1996 and 1995. In general, the
Company posts case reserves for pending but unsettled asbestos claims within
approximately 30 business days of receipt of such claims. At March 31, 1996,
approximately 17% of the net aggregate reserve (i.e., approximately $71
million) is for pending but unsettled asbestos claims. The balance,
approximately 83% (i.e., approximately $336 million) of the net asbestos
reserves, represents incurred but not yet reported losses for which the
Company has not received any specific claims.
<TABLE>
<CAPTION>
Asbestos Losses
(millions) Three Months Ended Three Months Ended
March 31, 1996 March 31, 1995
-------------- --------------
<S> <C> <C>
Beginning reserves (1):
Direct ................................. $ 695 $ 702
Ceded .................................. (293) (319)
----- -----
Net .................................. 402 383
Incurred losses and loss expenses:
Direct ................................. 16 10
Ceded .................................. (5) --
Losses paid:
Direct ................................. 24 27
Ceded .................................. (18) (49)
Ending reserves:
Direct ................................. 687 685
Ceded .................................. (280) (270)
----- -----
Net .................................. $ 407 $ 415
===== =====
</TABLE>
(1) For 1995, includes the termination of certain agreements with TIGI whereby
TIGI had assumed certain reserves from the Company.
In relation to submitted and future asbestos and environmental-related claims,
the Company carries on a continuing review of its overall position, its
reserving techniques and reinsurance recoverables. In this area of exposure, the
Company has endeavored to litigate individual cases and settle claims on
favorable terms. Given the vagaries of court coverage decisions, plaintiffs'
expanded theories of liability, the risks inherent in major litigation and other
uncertainties, it is not presently possible to quantify the ultimate exposure 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 reserves
by an amount that would be material to the Company's operating results in a
future period. However, the Company believes that it is not likely that these
claims will have a material adverse effect on the Company's financial condition
or liquidity.
Liquidity and Capital Resources
On April 2, 1996, TAP acquired the domestic property and casualty insurance
subsidiaries of Aetna for approximately $4.16 billion in cash. TAP is a holding
company and has no direct operations. TAP's principal asset is the capital stock
of its insurance subsidiaries.
15
<PAGE> 16
To finance the $4.16 billion purchase price, plus transaction costs and the
capital contributions totalling $710 million to Aetna P&C, TAP borrowed $2.65
billion from a syndicate of banks under a five-year revolving credit facility
that expires on March 15, 2001 (the Credit Facility) and sold approximately 33
million shares of its Class A Common Stock representing approximately 9% of its
outstanding common stock (at that time) to four private investors, including
Aetna, for an aggregate of $525 million. TIGI acquired approximately 328 million
shares of Class B Common Stock of TAP in exchange for contributing the
outstanding capital stock of Travelers Indemnity and a capital contribution of
approximately $1.14 billion. In addition, Travelers Group Inc. purchased from
TAP $540 million of Series Z Preferred Stock of TAP. Approximately $18 million
of the purchase price was funded through the settlement of receivables from
Aetna.
On April 23, 1996, TAP sold in a public offering approximately 39 million shares
of its Class A Common Stock, representing approximately 9.75% of its outstanding
common stock, for total proceeds of $928 million. On April 24, 1996, TAP sold in
a public offering $500 million of 6 3/4% Notes due April 15, 2001 and $200
million of 7 3/4% Notes due April 15, 2026. On April 26, 1996, Travelers P&C
Capital I, a subsidiary trust of TAP, issued $800 million of 8.08% Trust
Preferred Securities in a public offering. On May 10, 1996, Travelers P&C
Capital II, a subsidiary trust of TAP, issued $100 million of 8.00% Trust
Preferred Securities in a public offering. These Trust Preferred Securities,
which are guaranteed by TAP, have a liquidation value of $25 per Trust Preferred
Security and are mandatorily redeemable. The aggregate proceeds from the above
offerings of $2.528 billion together with the proceeds from the issuance by TAP
of approximately $700 million of commercial paper were used to repay in full the
borrowings under the Credit Facility and to redeem in full TAP's Series Z
Preferred Stock.
Cash flow needs at TAP will include stockholder dividends and debt service. TAP
anticipates that its cash flow needs will be met primarily through dividends
from operating subsidiaries. In addition, TAP currently has available to it a
$200 million line of credit for working capital and other general corporate
purposes from a subsidiary of Travelers Group Inc. The lender has no obligation
to make any loan to TAP under this line of credit. Moreover, TAP will continue
to be able to make borrowings under the Credit Facility, which it has reduced
to $1.2 billion, all of which is currently available. In addition to this
facility, TAP has in place a commercial paper program which at May 31, 1996
had $724 million outstanding.
TAP at May 31, 1996, had $1.3 billion available for debt offerings under its
shelf registration statement.
Aetna P&C Acquisition
The allocation of the purchase price to the assets and liabilities of Aetna P&C
is subject to valuations as of the date of its acquisition based on appraisals
and other studies, which are not yet completed. Adjustments of claims and claim
adjustment expense reserves and certain other insurance accounts resulting from
the valuation of these accounts will be recorded in operations in the period or
periods determined. The Company is continuing to review the insurance reserves
of Aetna P&C, including the effect of applying the Company's strategies,
policies and practices in determining such reserves, primarily relating to
cumulative injury claims, insurance products involving financial guarantees
based upon fair value of underlying collateral and certain other insurance
accounts.
Cumulative injury claims often involve an allegation by a claimant against an
insured that the claimant has suffered injuries as a result of long-term or
continuous exposure to harmful products or substances. Such harmful products or
substances include, but are not limited to, lead paint, pesticides,
pharmaceutical products, silicone-based personal products, solvents and other
deleterious substances. Numerous complex issues exist when such claims are
presented. The claimant's theories of liability must be evaluated, evidence
pertaining to a causal link between injury and exposure to a substance must be
reviewed, the potential role of other causes of injury must be analyzed, the
potential liability of other defendants must be explored, an assessment of the
claimant's damages must be made and the law of the jurisdiction must be applied.
16
<PAGE> 17
Based on the reviews at this stage, it is possible that additional reserves of
up to approximately $750 million in the aggregate may be recorded upon
completion of these reviews, which would result in after-tax charges to income
of up to approximately $488 million in the aggregate. Stockholder's equity would
be correspondingly reduced by an equivalent after-tax amount as a result of
these charges. The Company believes that its reviews are likely to be completed
in the second quarter of 1996, although there can be no assurance as to the
ultimate timing thereof.
Future Application of Accounting Standards
Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation"
(FAS 123), is effective for 1996 reporting. This statement addresses the
accounting for the cost of stock-based compensation, such as stock options and
restricted stock. FAS 123 permits either expensing the value of stock-based
compensation over the period earned or disclosing in the financial statement
footnotes the pro forma impact to net income as if the value of stock-based
compensation awards had been expensed. The value of awards would be measured at
the grant date based upon estimated fair value, using option pricing models.
The Company has selected the disclosure alternative which requires that such pro
forma disclosures be included in annual financial statements.
17
<PAGE> 18
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
For information concerning a case involving the enforcement of certain
reinsurance contracts with Lloyd's of London, see the description that appears
in the fifth full paragraph on page 90 of the Prospectus dated April 22, 1996 of
TAP, which description is incorporated by reference herein. Hearings before the
American Arbitration Association are expected to begin in the second half of
1996.
ITEM 5. OTHER INFORMATION.
RECENT OPERATING RESULTS OF AETNA P&C
First Quarter Results
For the quarter ended March 31, 1996, Aetna P&C net income increased to $218
million compared to $66 million in the first quarter of 1995. Excluding net
realized investment gains, earnings were $18 million in the first quarter of
1996 compared to $61 million in the first quarter of 1995. This decrease in
earnings was due to catastrophe losses resulting from winter storms in the first
quarter of 1996 totalling $44 million (after tax and after reinsurance) compared
to catastrophe losses in the first quarter of 1995 of $13 million. The results
for the 1996 first quarter also include reserve strengthening of $26 million
after tax relating to general liability claims other than asbestos and
environmental. The 1995 first quarter includes reserve strengthening of $34
million after tax relating to asbestos and environmental claims.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS:
See Exhibit Index.
(b) REPORTS ON FORM 8-K:
During the quarter ended March 31, 1996, TAP was not subject to the reporting
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, and
accordingly, no Current Reports on Form 8-K were filed during that period;
however, on April 25, 1996, TAP filed a Current Report on Form 8-K dated April
24, 1996, filing certain exhibits under Item 7 thereof relating to the offer and
sale of TAP's 6 3/4% Notes due April 15, 2001 and 7 3/4% Notes due April 15,
2026; and on May 14, 1996, TAP filed a Current Report on Form 8-K dated May 10,
1996 filing certain exhibits under Item 7 thereof relating to the offer and sale
of (i) the 8% Trust Preferred Securities of Travelers P&C Capital II, a
subsidiary of TAP, and (ii) TAP's 8% Junior Subordinated Deferrable Interest
Debentures due May 15, 2036.
18
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Filing
Number Description of Exhibit Method
- ------- ---------------------- ------
<S> <C> <C>
3.01 Restated Certificate of Incorporation of Travelers/Aetna
Property Casualty Corp. (TAP) incorporated by reference to
Exhibit 3.1 to Amendment No. 5 of the Registration Statement
on Form S-1 of TAP (No. 333-2254) ("TAP's Form S-1").
3.02 Certificate of Designations, Powers, Preferences and Rights of
7.5% Redeemable Preferred Stock, Series Z of TAP,
incorporated by reference to Exhibit 3.3 of TAP's Form
S-1.
3.03 Restated By-Laws of the Company effective March 29, 1996,
incorporated by reference to Exhibit 3.2 of TAP's Form
S-1.
10.01 TAP's 1996 Compensation Plan for Non-Employee Directors. Electronic
11.01 Computation of Earnings Per Share Electronic
12.01 Computation of Ratio of Earnings to Fixed Charges Electronic
27.01 Financial Data Schedule Electronic
99.01 The fifth full paragraph of page 90 of TAP's Prospectus
dated April 22, 1996, filed pursuant to Rule 424(b) of the
Securities Act of 1933 (File No. 333-2254). Electronic
The total amount of securities authorized pursuant to any
instrument defining rights of holders of long-term debt of TAP
does not exceed 10% of the total assets of TAP and its
consolidated subsidiaries. TAP will furnish copies of any such
instrument to the Commission upon request.
</TABLE>
19
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRAVELERS/AETNA PROPERTY CASUALTY CORP.
Date: June 5, 1996 By /s/ William P. Hannon
-----------------------------------
William P. Hannon
Chief Financial Officer
(Principal Financial Officer)
Date: June 5, 1996 By /s/ Christine B. Mead
----------------------------------
Christine B. Mead
Chief Accounting Officer
20
<PAGE> 1
Exhibit 10.01
TRAVELERS/AETNA PROPERTY CASUALTY CORP.
1996 COMPENSATION PLAN
FOR NON-EMPLOYEE DIRECTORS (THE "PLAN")
AS OF MARCH 29, 1996
Section 1. ELIGIBILITY. Each member of the Board of Directors of
Travelers/Aetna Property Casualty Corp. (the "Company") who is not an employee
of the Company or any of its subsidiaries (an "Eligible Director") is eligible
to participate in the Plan.
Section 2. ADMINISTRATION. The Plan shall be administered, construed and
interpreted by the Board of Directors of the Company. Pursuant to such
authorization, the Board of Directors shall have the responsibility for carrying
out the terms of the Plan, including but not limited to the determination of the
annual retainer to be paid to all Eligible Directors (the "Annual Fixed Director
Compensation"). To the extent permitted under the securities laws applicable to
compensation plans (including, without limitation, the requirements of Section
16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"))
or under the Internal Revenue Code of 1986, as amended (the "Code"), the
Nominations and Compensation Committee of the Board of Directors, or a
subcommittee of the Nominations and Compensation Committee, may exercise the
discretion granted to the Board under the Plan, provided that such Committee or
subcommittee consists of persons who qualify as "disinterested persons" in
accordance with Rule 16b-3 under the Exchange Act, or any successor rule or
regulation. The Board of Directors may also designate a plan administrator to
manage the record keeping and other routine administrative duties under the
Plan.
Section 3. COMPENSATION. Annual Fixed Director Compensation payable to
Eligible Directors for services rendered as a director during a calendar year,
if not deferred pursuant to paragraph 4 of the Plan, shall be paid partly in
shares of Class A common stock, par value $.01 per share (the "Common Stock"),
of the Company and partly in cash. Payment shall be made quarterly, on the first
business day following the end of the quarter for which the compensation is
payable, to each Eligible Director who served as a director during at least
one-half of such quarter and who was a director on the last day of such quarter.
The percentage of such payment to be made in cash shall approximate the maximum
Federal income tax liability that could be incurred by the Eligible Director in
respect of receipt of the shares of Common Stock as compensation, which amount
shall be determined from time to time by the Board of Directors, with the advice
of tax counsel. The number of shares of the Company's Common Stock to be
transferred to the Eligible Director in payment of the balance of such quarterly
installment of Annual Fixed Director Compensation shall be determined in the
manner set forth in paragraph 5(a).
1
<PAGE> 2
Section 4. ELECTION TO DEFER.
(a) TIME OF ELECTION. As soon as practicable prior to the
beginning of a calendar year, an Eligible Director may elect to defer
compensation to be received pursuant to the Plan by directing that all of the
Annual Fixed Director Compensation which otherwise would have been payable in
accordance with paragraph 3 above during such calendar year and succeeding
calendar years shall be credited to a deferred compensation account (the
"Director's Account"). Under a valid election, such deferred Compensation shall
be payable entirely in shares of Common Stock, determined in accordance with
paragraph 5(a) below. Any person who shall become an Eligible Director during
any calendar year, and who was not an Eligible Director of the Company prior to
the beginning of such calendar year, may elect, within 30 days after his or her
term begins, to defer payment of all his or her Annual Fixed Director
Compensation earned during the remainder of such calendar year and for
succeeding calendar years.
(b) FORM AND DURATION OF ELECTION. An election to defer Annual
Fixed Director Compensation shall be made by written notice executed by the
Eligible Director and filed with the Secretary of the Company. Such election
shall continue until the Eligible Director terminates such election by
subsequent written notice filed with the Secretary of the Company. Any such
termination shall become effective as of the later of (i) the end of the
calendar year in which such notice is given, or (ii) six months and one day from
the date of such notice, and shall only be effective with respect to Annual
Fixed Director Compensation payable for services rendered as an Eligible
Director thereafter. Amounts credited to the Director's Account prior to the
effective date of termination shall not be affected by such termination and
shall be distributed only in accordance with the terms of the Plan.
(c) RENEWAL. An Eligible Director who has terminated his or her
election to defer compensation hereunder may thereafter file another election in
accordance with paragraph 4(a) to defer such compensation for the calendar year
subsequent to the filing of such election and succeeding calendar years.
Section 5. THE DIRECTOR'S ACCOUNT. All Annual Fixed Director Compensation
that an Eligible Director has elected to defer under the Plan shall be credited
to the Director's Account as follows:
(a) As of the date a quarterly installment of the Annual Fixed
Director Compensation would otherwise be payable, there shall be credited to the
Director's Account the number of full shares of the Company's Common Stock
obtained by dividing the amount of the Annual Fixed Director Compensation for
the calendar quarter by the average of the closing price of the Company's Common
Stock on the Composite Tape of the New York Stock Exchange Inc. on the last ten
trading days of the calendar quarter for which such Compensation is otherwise
payable. If the amount of the Annual Fixed Director Compensation for the
calendar quarter is not evenly divisible by such average closing price of the
Company's Common Stock, the balance shall be credited to the Director's Account
in cash.
(b) At the end of each calendar quarter, there shall be credited
to the Director's Account an amount equal to the cash dividends that would have
been paid on the number of shares of
2
<PAGE> 3
Common Stock credited to the Director's Account as of the dividend record date,
if any, occurring during such calendar quarter as if such shares had been shares
of issued and outstanding Common Stock on such record date, and such amount
shall be treated as reinvested in additional shares of Common Stock on the
dividend payment date.
(c) Cash amounts credited to the Director's Account pursuant to
subparagraphs (a) and (b) above shall accrue interest commencing from the date
the cash amounts are credited to the Director's Account at a rate per annum to
be determined from time to time by the Company. Amounts credited to the
Director's Account shall continue to accrue interest until distributed in
accordance with the Plan.
(d) An Eligible Director shall not have any interest in the cash
or Common Stock in his or her Director's Account until such cash or Common Stock
is distributed in accordance with the Plan.
Section 6. DISTRIBUTION FROM ACCOUNTS.
(a) FORM OF ELECTION. At the time an Eligible Director makes an
election pursuant to paragraphs 5(a) or 5(c), such Director shall also file with
the Secretary of the Company a written election with respect to the distribution
of the aggregate amount of cash and shares credited to the Director's Account
pursuant to such election. An Eligible Director may elect to receive such amount
in one lump-sum payment or in a number of approximately equal annual
installments (provided the payout period does not exceed 15 years). The lump-sum
payment or the first installment shall be paid as of (i) the first business day
of any calendar year subsequent to the date the Annual Fixed Director
Compensation would otherwise be payable, as specified by the Director, (ii) the
first business day of the calendar quarter immediately following the cessation
of the Eligible Director's service as a director of the Company or (iii) the
earlier of (i) or (ii), as the Eligible Director may elect. Subsequent
installments shall be paid as of the first business day of each succeeding
annual installment period until the entire amount credited to the Director's
Account shall have been paid. A cash payment will be made with the final
installment for any fraction of a share of Common Stock credited to the
Director's Account.
(b) ADJUSTMENT OF METHOD OF DISTRIBUTION. An Eligible Director
participating in the Plan may, prior to the beginning of any calendar year, file
another written notice with the Secretary of the Company electing to change the
date and/or method of distribution of the aggregate amount of cash and shares of
Common Stock credited to the Director's Account for services rendered as a
director commencing with such calendar year. Amounts credited to the Director's
Account prior to the effective date of such change (the "Prior Amounts") shall
not be affected by such change and shall be distributed only in accordance with
the election in effect at the time the Prior Amounts were credited to the
Director's Account; provided, however, that an Eligible Director may elect to
change the time at which Prior Amounts are to be paid, if (i) a written election
to effect such change is filed with the Secretary of the Company at least one
year before the earliest scheduled payment of the Prior Amounts and (ii) such
change would not accelerate the Eligible Director's receipt of the Prior
Amounts. Notwithstanding the foregoing, in the event an Eligible Director
suffers a severe financial hardship outside the control of such Director, as
determined by the Company, the Eligible Director
3
<PAGE> 4
may elect to advance or defer the date of distribution of his or her Director's
Account or change the method of distribution thereof.
(c) Notwithstanding anything to the contrary contained herein,
upon a "Change of Control" (as defined below), the full number of shares of
Common Stock and cash in each Director's Account shall be immediately funded and
be distributable on the later of the date six months and one day following the
"Change of Control" or the distribution date(s) previously elected by an
Eligible Director. For purposes of this Plan, a Change in Control shall mean the
occurrence of any of the following: (i) any person within the meaning of
Sections 13(d) and 14(d) of the Exchange Act, shall have become the beneficial
owner, within the meaning of Rule 13d-3 under the Exchange Act, of shares of
stock of the Company having twenty-five percent (25%) or more of the total
number of votes that may be cast for election of the directors of the Company,
unless each transaction by which such twenty-five percent (25%) or more was
acquired was approved or ratified by a vote of at least two-thirds (2/3) of the
directors of the Company; or (ii) there shall have been a change in the
composition of the Board of Directors such that at any time a majority of the
Board of Directors shall have been members of the Board for less than
twenty-four (24) months, unless the election of each new director who was not a
director at the beginning of the period was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who were directors at the
beginning of such period, or who were approved as directors pursuant to the
provisions of this paragraph.
Section 7. DISTRIBUTION ON DEATH. If an Eligible Director should die
before all amounts credited to the Director's Account shall have been paid in
accordance with the election referred to in paragraph 6, the balance in such
Director's Account as of the date of such Director's death shall be paid
promptly following such Director's death, in accordance with the method of
payment elected by the Eligible Director, to the beneficiary designated in
writing by such Director. Such balance shall be paid to the estate of the
Eligible Director if (a) no such designation has been made or (b) the designated
beneficiary shall have predeceased the Director and no further beneficiary
designation has been made.
Section 8. MISCELLANEOUS.
(a) The right of an Eligible Director to receive any amount in the
Director's Account shall not be transferable or assignable by such Director,
except by will or by the laws of descent and distribution, and no part of such
amount shall be subject to attachment or other legal process.
(b) Except as otherwise set forth herein, the Company shall not be
required to reserve or otherwise set aside funds or shares of Common Stock for
the payment of its obligations hereunder. The Company shall make available as
and when required a sufficient number of shares of Common Stock to meet the
requirements arising under the Plan.
(c) The establishment and maintenance of, or allocation and
credits to, the Director's Account shall not vest in the Eligible Director or
his beneficiary any right, title or interest in and to any specific assets of
the Company. An Eligible Director shall not have any dividend or voting rights
or any other rights of a stockholder (except as expressly set forth in paragraph
5(b) with respect to
4
<PAGE> 5
dividends and as provided in subparagraph (f) below) until the shares of Common
Stock credited to a Director's Account are distributed. The rights of an
Eligible Director to receive payments under this Plan shall be no greater than
the right of an unsecured general creditor of the Company.
(d) The Plan shall expire on April 24, 2006, unless sooner
terminated by the Board of Directors. The Board of Directors may at any time
amend or terminate the Plan; provided, however, that (i) no amendment or
termination shall impair the rights of an Eligible Director with respect to
amounts then credited to the Director's Account; (ii) the provisions of the Plan
relating to eligibility, the amount and price of securities to be awarded, the
timing of and the amount of Annual Fixed Director Compensation awards shall not
be amended more than once every six months, other than to comport with changes
in the Internal Revenue Code of 1986, as amended, the Employee Retirement Income
Security Act of 1974, as amended, or the rules thereunder; and (iii) no
amendment shall become effective without approval of the stockholders of the
Company if such stockholder approval is required to enable the Plan to satisfy
applicable state or Federal statutory or regulatory requirements.
(e) Each Eligible Director participating in the Plan will receive
an annual statement indicating the amount of cash and number of shares of Common
Stock credited to the Director's Account as of the end of the preceding calendar
year.
(f) If adjustments are made to outstanding shares of Common Stock
as a result of stock dividends, split-ups, recapitalizations, mergers,
consolidations and similar transactions, an appropriate adjustment shall be made
in the number of shares of Common Stock credited to the Director's Account.
(g) Transactions under the Plan are intended to comply with all
applicable conditions of Rule 16b-3 promulgated under the Securities Exchange
Act of 1934, as amended, or any successor rule or provision. To the extent any
provision of the Plan or action in furtherance of administration of the Plan
fails to so comply, it shall be deemed null and void, to the extent permitted by
law and deemed advisable by the Board of Directors.
(h) The aggregate number of shares of Common Stock that may be
granted under the Plan shall not exceed 100,000, subject to adjustment upon the
occurrence of adjustments to the outstanding Common Stock described in paragraph
8(f) hereof.
(i) The validity, construction, interpretation, administration and
effect of the Plan and of its rules and regulations, and rights relating to the
Plan, shall be determined solely in accordance with the laws of the State of
Delaware.
(j) All claims and disputes between an Eligible Director and the
Company arising out of the Plan shall be submitted to arbitration in accordance
with the then current arbitration policy of the Company. Notice of demand for
arbitration shall be given in writing to the other party and shall be made
within a reasonable time after the claim or dispute has arisen. The award
rendered by the arbitrator shall be final, and judgment may be entered upon it
in accordance with applicable law in any
5
<PAGE> 6
court having jurisdiction thereof. The provisions of this Section 8(j) shall be
specifically enforceable under applicable law in any court having jurisdiction
thereof.
(k) If any term or provision of this Plan or the application
thereof to any person or circumstances shall, to any extent, be invalid or
unenforceable, then the remainder of the Plan, or the application of such term
or provision to persons or circumstances other than those as to which it is held
invalid or unenforceable, shall not be affected thereby, and each term and
provision hereof shall be valid and be enforced to the fullest extent permitted
by applicable law.
6
<PAGE> 1
Exhibit 11.01
Travelers/Aetna Property Casualty Corp. and Subsidiaries
Computation of Earnings Per Share
(In millions, except for per share amounts)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1996 1995
---- ----
<S> <C> <C>
Earnings:
Net income $ 98 $ 75
====== ======
Average shares:
Common 294.5 294.5
====== ======
Earnings per share $ 0.33 $ 0.25
====== ======
</TABLE>
Earnings per common share is based on the weighted average number of common
shares outstanding during the period. For purposes of the computation of
earnings per share, the weighted average number of shares was computed by
treating the common stock issued within a one-year period prior to the initial
filing of the registration statement relating to the initial public offering
(IPO) as outstanding for all reported periods. This amount was then reduced by
the dilutive effect of such issuances determined by using the actual proceeds
and the number of shares that could have been repurchased using the IPO price as
the repurchase price for all periods presented.
<PAGE> 1
Exhibit 12.01
Travelers/Aetna Property Casualty Corp. and Subsidiaries
Computation of Ratio of Earnings to Fixed Charges
(In millions of dollars, except for ratio)
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1996
--------------
<S> <C>
Income before income taxes $ 125
Portion of rentals deemed to be interest 9
-----
Earnings available for fixed charges $ 134
=====
Fixed charges:
Portion of rentals deemed to be interest $ 9
=====
Ratio of earnings to fixed charges 14.89x
=====
</TABLE>
The ratio of earnings to fixed charges has been computed by dividing income
before income taxes and fixed charges by the fixed charges. For purposes of this
ratio, fixed charges consist of that portion of rentals deemed representative of
the appropriate interest factor.
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
TRAVELERS/AETNA PROPERTY CASUALTY CORP.'S FINANCIAL STATEMENTS AS OF MARCH 31,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0001010551
<NAME> TRAVELERS/AETNA PROPERTY CASUALTY CORP.
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 10,484
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 694
<MORTGAGE> 189
<REAL-ESTATE> 24
<TOTAL-INVEST> 12,594
<CASH> 57
<RECOVER-REINSURE> 5,428
<DEFERRED-ACQUISITION> 207
<TOTAL-ASSETS> 24,670
<POLICY-LOSSES> 15,516
<UNEARNED-PREMIUMS> 1,709
<POLICY-OTHER> 1,745
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 10
<OTHER-SE> 3,514
<TOTAL-LIABILITY-AND-EQUITY> 24,670
826
<INVESTMENT-INCOME> 196
<INVESTMENT-GAINS> 26
<OTHER-INCOME> 5
<BENEFITS> 730
<UNDERWRITING-AMORTIZATION> 120
<UNDERWRITING-OTHER> 177
<INCOME-PRETAX> 125
<INCOME-TAX> 27
<INCOME-CONTINUING> 98
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 98
<EPS-PRIMARY> .33
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
<PAGE> 1
Exhibit 99.01
Prospectus of the Company
April 22, 1996
Page 90
In The Travelers Insurance Company, et al., v. Richard John
Ratcliffe Keeling, filed in New York Supreme Court in June 1991, Travelers P&C
and certain of its affiliates seek to enforce reinsurance contracts against
certain underwriters at Lloyd's and certain London companies with respect to
recoveries for certain asbestos claims. In January 1994, the court stayed
litigation of this matter in favor of arbitration. The issues before the
arbitration panel include the underwriters' breach of contract and anticipated
breach of their agreement with the plaintiffs on asbestos-related reinsurance
claims. The Travelers P&C/Lloyd's dispute related to asbestos recoveries
involves approximately $100 million of current ceded receivables and
approximately $60 million collected by Travelers P&C as of December 31, 1995,
plus future potential recoverables. The dispute will be determined by an
arbitration panel at an arbitration commencing in May 1996, based on the panel's
interpretation of the reinsurance arrangement between Travelers P&C and Lloyd's.
