<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): OCTOBER 13, 1997
TRAVELERS PROPERTY CASUALTY CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 1-14328 06-1445591
(State or other (Commission File Number) (IRS Employer
jurisdiction of Identification No.)
incorporation)
ONE TOWER SQUARE, HARTFORD, CONNECTICUT 06183
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (860) 277-0111
<PAGE> 2
TRAVELERS PROPERTY CASUALTY CORP.
CURRENT REPORT ON FORM 8-K
ITEM 5. OTHER EVENTS
Travelers Property Casualty Corp. (the Company) reported operating
earnings of $290.0 million, or $0.74 per share, for the quarter ended September
30, 1997, up 18% from $246.1 million, or $0.62 per share in 1996. Net income was
$326.8 million, or $0.83 per share in 1997, compared with $247.0 million, or
$0.62 per share in 1996. Net income includes $36.8 million in realized
investment gains for the 1997 period, compared to $0.9 million in realized
investment gains in the prior year period. Per share results are based on 392.5
million and 400.0 million average shares outstanding during the 1997 and 1996
quarters, respectively.
Net written premiums for the quarter were $1.951 billion compared to
$1.884 billion for the corresponding 1996 period. The statutory combined ratio
for the quarter was 102.6%, an improvement from 106.7% in the 1996 quarter.
Combined net written premiums for the nine-month period were $5.950
billion in 1997 compared to $5.542 billion in 1996.
Following the close of the quarter, the Company finalized an agreement
with certain underwriters at Lloyd's and certain London companies to settle
their pending arbitration regarding reinsurance recoveries for certain asbestos
claims and related claim adjustment expenses. The outcome of this agreement will
result in no charge to earnings.
Note: Financial results for the nine months of 1996 do not include the former
Aetna property and casualty businesses for the first quarter of 1996, since
these businesses were acquired by the Company on April 2, 1996. We have included
certain combined production statistics for the nine months of 1996 for
comparative purposes only.
2
<PAGE> 3
COMMERCIAL LINES:
QUARTER -- OPERATING EARNINGS ROSE 10% TO $223.9 MILLION FROM $203.4
MILLION
NINE MONTHS -- OPERATING EARNINGS OF $626.7 MILLION, UP 42% FROM
$440.7 MILLION
In Commercial Lines, retention remained strong while production levels
decreased slightly. The Company continues to maintain its disciplined
underwriting policy to generate profitable business in this highly competitive
marketplace while focusing on retaining existing business.
Operating earnings reached $223.9 million compared to $203.4 million in
the 1996 quarter. The operating results in this segment reflect strong net
investment income. There were no catastrophe losses during the current quarter
versus $16.2 million after taxes and reinsurance in the prior year quarter.
The statutory combined ratio for the quarter was 109.2% compared to
109.0% in the 1996 quarter. Total net written premiums for the quarter were
$1.176 billion compared to $1.217 billion in the third quarter of 1996. Combined
net written premiums were $3.656 billion for the nine months, compared to $3.541
billion in the 1996 period. This increase was attributable to a change in the
first quarter of 1997 to conform the Aetna method with the Travelers method of
recording net written premiums.
PERSONAL LINES:
QUARTER -- OPERATING EARNINGS GREW 35% TO $95.4 MILLION, UP FROM $70.9
MILLION
NINE MONTHS -- OPERATING EARNINGS REACHED $304.2 MILLION, UP 92% FROM
$158.3 MILLION
Personal Lines third quarter performance was strong as operating income
increased 35% over last year, benefiting from an absence of catastrophe losses
during the quarter and favorable prior year reserve development in the
automobile line. Catastrophe losses for the prior year quarter were $19.5
million after taxes and reinsurance.
These results reflect solid growth in production from new business
channels. The Company monitors its experience with this business very closely to
ensure that reserve levels are appropriately conservative as this business
develops, and is also investing in the systems and service capability to serve
the unique needs of these distribution channels. These new production sources
continued to account for a significant portion of our total new business. In
addition, we experienced good growth in our independent agency base this
quarter, and retention continued strong.
The statutory combined ratio for the quarter was 93.0% compared to
102.5% in the 1996 quarter. Total net written premiums were $774.8 million for
the quarter compared to $667.7 million in 1996. Combined net written premiums
were $2.295 billion for the nine months, compared to $2.001 billion in the 1996
period.
3
<PAGE> 4
CORPORATE AND OTHER: OPERATING EXPENSE OF $29.3 MILLION FOR THE QUARTER COMPARED
TO $28.2 MILLION IN THE 1996 QUARTER
The primary component of Corporate and Other operating expense for the
quarter was interest expense of $26.6 million reflecting financing costs
associated with the Aetna property casualty acquisition.
Travelers Property Casualty Corp. is a leading provider of a broad
range of insurance products and services for commercial markets, including
workers' compensation, property, liability, specialty and fidelity and surety
bonds. The Company is also a leading provider of homeowners and auto insurance
for consumers. Travelers Property Casualty Corp. is a member of Travelers
Group, a diversified financial services company.
4
<PAGE> 5
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
SUMMARY OF EARNINGS Travelers Property Casualty Corp.
(in millions, except per share data)
- --------------------------------------------------------------------------------------------------------------------------------
AS OF, AND FOR THE QUARTER AS OF, AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1997 1996 1997 1996
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 2,506.7 $ 2,451.5 $ 7,368.9 $ 5,805.6
- --------------------------------------------------------------------------------------------------------------------------------
Operating income $ 290.0 $ 246.1 $ 838.3 $ 539.9
Net charges related to the acquisition and integration of Aetna P&C -- -- -- (391.0)
Realized investment gains (losses) 36.8 0.9 37.6 (20.1)
- --------------------------------------------------------------------------------------------------------------------------------
Net income 326.8 247.0 875.9 128.8
Preferred dividends -- -- -- 3.5
- --------------------------------------------------------------------------------------------------------------------------------
Net income applicable to common stock $ 326.8 $ 247.0 $ 875.9 $ 125.3
- --------------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE:
Operating income $ 0.74 $ 0.62 $ 2.11 $ 1.51
Net charges related to the acquisition and integration of Aetna P&C -- -- -- (1.10)
Realized investment gains (losses) 0.09 -- 0.10 (0.06)
- --------------------------------------------------------------------------------------------------------------------------------
Net income $ 0.83 $ 0.62 $ 2.21 $ 0.35
- --------------------------------------------------------------------------------------------------------------------------------
Dividends declared $ 29.5 $ 30.0 $ 89.5 $ 30.0
Weighted average number of common shares outstanding and
common stock equivalents 392.5 400.0 396.8 356.2
Common shares outstanding at period end 393.1 399.9 393.1 399.9
================================================================================================================================
OPERATING INCOME (LOSS)
Commercial Lines $ 223.9 $ 203.4 $ 626.7 $ 440.7
Personal Lines 95.4 70.9 304.2 158.3
Corporate and Other (29.3) (28.2) (92.6) (59.1)
- --------------------------------------------------------------------------------------------------------------------------------
$ 290.0 $ 246.1 $ 838.3 $ 539.9
- --------------------------------------------------------------------------------------------------------------------------------
REVENUES
Commercial Lines $ 1,651.1 $ 1,668.9 $ 4,887.5 $ 3,888.8
Personal Lines 852.7 780.5 2,472.6 1,902.8
Corporate and Other 2.9 2.1 8.8 14.0
- --------------------------------------------------------------------------------------------------------------------------------
$ 2,506.7 $ 2,451.5 $ 7,368.9 $ 5,805.6
- --------------------------------------------------------------------------------------------------------------------------------
REVENUES EXCLUDING REALIZED INVESTMENT GAINS (LOSSES)
Commercial Lines $ 1,602.8 $ 1,669.9 $ 4,827.5 $ 3,913.3
Personal Lines 844.3 778.1 2,474.6 1,908.9
Corporate and Other 2.9 2.1 8.8 14.4
- --------------------------------------------------------------------------------------------------------------------------------
$ 2,450.0 $ 2,450.1 $ 7,310.9 $ 5,836.6
================================================================================================================================
</TABLE>
Note: Financial data for Travelers Casualty and Surety Company (formerly The
Aetna Casualty and Surety Company) and The Standard Fire Insurance
Company (collectively, Aetna P&C) is included from the date of
acquisition (April 2, 1996).
5
<PAGE> 6
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
AFTER-TAX INCOME BY SOURCE Travelers Property Casualty Corp.
(in millions)
- -----------------------------------------------------------------------------------------------------------------------
FOR THE QUARTER FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Property Casualty Operations:
Underwriting:
Commercial Lines $ (91.6) $ (87.7) $ (284.0) $ (623.5)
Personal Lines 25.7 (5.8) 96.1 (30.6)
- -----------------------------------------------------------------------------------------------------------------------
Total GAAP underwriting loss (65.9) (93.5) (187.9) (654.1)
- -----------------------------------------------------------------------------------------------------------------------
Other income 16.0 25.2 49.1 46.4
Net investment income 369.2 342.6 1,069.7 815.7
Effective tax rate on net investment income 30.0% 30.5% 30.2% 29.7%
Net charges related to the acquisition and integration of Aetna P&C -- -- -- 391.0
- -----------------------------------------------------------------------------------------------------------------------
Operating income from Property Casualty Operations 319.3 274.3 930.9 599.0
Operating loss from Corporate and Other (29.3) (28.2) (92.6) (59.1)
- -----------------------------------------------------------------------------------------------------------------------
Total operating income 290.0 246.1 838.3 539.9
Net charges related to the acquisition and integration of Aetna P&C -- -- -- (391.0)
Realized investment gains (losses) 36.8 0.9 37.6 (20.1)
- -----------------------------------------------------------------------------------------------------------------------
Net income 326.8 247.0 875.9 128.8
Preferred dividends -- -- -- 3.5
- -----------------------------------------------------------------------------------------------------------------------
Net income applicable to common stock $ 326.8 $ 247.0 $ 875.9 $ 125.3
=======================================================================================================================
</TABLE>
Note: Financial data for Travelers Casualty and Surety Company (formerly The
Aetna Casualty and Surety Company) and The Standard Fire Insurance
Company (collectively, Aetna P&C) is included from the date of
acquisition (April 2, 1996).
Certain reclassifications have been made to prior year financial
information to conform to the current year's presentation.
6
<PAGE> 7
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS Travelers Property Casualty Corp.
(in millions)
- --------------------------------------------------------------------------------------------
FOR THE QUARTER FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1997 1996 1997 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Premiums $1,806.0 $1,817.7 $5,417.7 $4,310.5
Net investment income 528.0 493.8 1,534.6 1,161.3
Fee income 90.4 100.6 278.8 294.3
Realized investment gains (losses) 56.7 1.4 58.0 (31.0)
Other revenues 25.6 38.0 79.8 70.5
- --------------------------------------------------------------------------------------------
Total revenues 2,506.7 2,451.5 7,368.9 5,805.6
- --------------------------------------------------------------------------------------------
Claims and expenses:
Claims and claim adjustment expenses* 1,362.4 1,442.1 4,110.6 3,979.3
Amortization of deferred acquisition costs 286.0 278.5 848.3 648.5
Interest expense 40.9 39.9 120.8 77.9
General and administrative expenses 350.5 338.5 1,039.6 983.2
- --------------------------------------------------------------------------------------------
Total expenses 2,039.8 2,099.0 6,119.3 5,688.9
- --------------------------------------------------------------------------------------------
Net income before federal income taxes 466.9 352.5 1,249.6 116.7
Federal income taxes (benefit) 140.1 105.5 373.7 (12.1)
- --------------------------------------------------------------------------------------------
Net income $ 326.8 $ 247.0 $ 875.9 $ 128.8
- --------------------------------------------------------------------------------------------
Operating income $ 290.0 $ 246.1 $ 838.3 $ 539.9
*Includes pre-tax:
Catastrophe losses, net of reinsurance $ -- $ 54.9 $ 14.8 $ 114.0
Asbestos and environmental losses $ 40.0 $ 25.0 $ 99.0 $ 126.0
============================================================================================
</TABLE>
Note: Financial data for Travelers Casualty and Surety Company (formerly The
Aetna Casualty and Surety Company) and The Standard Fire Insurance
Company (collectively, Aetna P&C) is included from the date of
acquisition (April 2, 1996).
Certain reclassifications have been made to prior year financial
information to conform to the current year's presentation.
7
<PAGE> 8
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
SELECTED STATISTICS Travelers Property Casualty Corp.
PROPERTY CASUALTY OPERATIONS (1)
(in millions)
- ---------------------------------------------------------------------------------------------------
FOR THE QUARTER FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
GAAP CONSOLIDATED STATEMENT OF OPERATIONS
Revenues:
Premiums $1,806.0 $1,817.3 $5,417.7 $4,300.1
Net investment income 527.6 493.2 1,532.6 1,159.5
Fee income 90.4 100.6 278.8 294.3
Realized investment gains (losses) 56.7 1.4 58.0 (30.6)
Other revenues 23.1 36.9 73.0 68.3
- ---------------------------------------------------------------------------------------------------
Total revenues 2,503.8 2,449.4 7,360.1 5,791.6
- ---------------------------------------------------------------------------------------------------
Claims and expenses:
Claims and claim adjustment expenses 1,344.8 1,430.6 4,076.3 3,951.7
Policyholder dividends 17.6 10.9 34.3 23.1
Amortization of deferred acquisition costs 286.0 278.5 848.3 648.5
General and administrative expenses 343.3 333.9 1,009.2 960.9
- ---------------------------------------------------------------------------------------------------
Total expenses 1,991.7 2,053.9 5,968.1 5,584.2
- ---------------------------------------------------------------------------------------------------
Net income before federal income taxes 512.1 395.5 1,392.0 207.4
Federal income taxes 156.0 120.3 423.5 19.2
- ---------------------------------------------------------------------------------------------------
Net income from Property Casualty Operations* $ 356.1 $ 275.2 $ 968.5 $ 188.2
- ---------------------------------------------------------------------------------------------------
*Includes investment results, net of taxes:
Net investment income $ 369.2 $ 342.6 $1,069.7 $ 815.7
Realized investment gains (losses) $ 36.8 $ 0.9 $ 37.6 $ (19.8)
===================================================================================================
</TABLE>
(1) Excludes Corporate and Other.
Note: Financial data for Travelers Casualty and Surety Company (formerly The
Aetna Casualty and Surety Company) and The Standard Fire Insurance
Company (collectively, Aetna P&C) is included from the date of
acquisition (April 2, 1996).
Certain reclassifications have been made to prior year financial
information to conform to the current year's presentation.
8
<PAGE> 9
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
COMBINED RATIOS (BEFORE POLICYHOLDER DIVIDENDS) Travelers Property Casualty Corp.
PROPERTY CASUALTY OPERATIONS
- ----------------------------------------------------------------------------------------------------
FOR THE QUARTER FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1997 1996 1997 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
GAAP COMBINED RATIO: (1)
Loss and loss adjustment expense ratio 71.6% 75.7% 72.4% 88.2%
Other underwriting expense ratio 30.3% 30.1% 29.1% 32.5%
- ----------------------------------------------------------------------------------------------------
Combined ratio 101.9% 105.8% 101.5% 120.7%
- ----------------------------------------------------------------------------------------------------
GAAP COMBINED RATIO, EXCLUDING NET CHARGES RELATED
TO THE ACQUISITION AND INTEGRATION OF AETNA P&C: (1)
Loss and loss adjustment expense ratio 71.6% 75.7% 72.4% 77.5%
Other underwriting expense ratio 30.3% 30.1% 29.1% 30.2%
- ----------------------------------------------------------------------------------------------------
Combined ratio 101.9% 105.8% 101.5% 107.7%
====================================================================================================
STATUTORY COMBINED RATIO:
Loss and loss adjustment expense ratio 71.8% 75.7% 72.7% 89.8%
Other underwriting expense ratio 30.8% 31.0% 29.6% 31.4%
- ----------------------------------------------------------------------------------------------------
Combined ratio 102.6% 106.7% 102.3% 121.2%
- ----------------------------------------------------------------------------------------------------
STATUTORY COMBINED RATIO, EXCLUDING NET CHARGES RELATED
TO THE ACQUISITION AND INTEGRATION OF AETNA P&C:
Loss and loss adjustment expense ratio 71.8% 75.7% 72.7% 77.5%
Other underwriting expense ratio 30.8% 31.0% 29.6% 30.0%
- ----------------------------------------------------------------------------------------------------
Combined ratio 102.6% 106.7% 102.3% 107.5%
====================================================================================================
</TABLE>
(1) Beginning in 1997, for purposes of computing GAAP combined ratios, fee
income is allocated as a reduction of losses and loss adjustment
expenses and other underwriting expenses. Previously fee income was
included with premiums for purposes of computing GAAP combined ratios.
Fee income allocated as a reduction of losses and loss adjustment
expenses and other underwriting expenses in the GAAP combined ratios
was $52.2 million and $38.2 million in the 1997 third quarter, $55.0
million and $45.6 million in the 1996 third quarter, $155.4 million and
$123.4 million in the 1997 nine months, and $157.8 million and $136.5
million in the 1996 nine months. The 1996 GAAP combined ratios have
been restated to conform to the current year's presentation.
Note: Financial data for Travelers Casualty and Surety Company (formerly The
Aetna Casualty and Surety Company) and The Standard Fire Insurance
Company (collectively, Aetna P&C) is included from the date of
acquisition (April 2, 1996).
9
<PAGE> 10
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
SELECTED INVESTMENT PORTFOLIO DATA Travelers Property Casualty Corp.
(At carrying value, in millions)
- ----------------------------------------------------------------------------------------------------------------------
AS OF AS OF
SEPTEMBER 30, DECEMBER 31,
1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Fixed maturities, available for sale at fair value:
Mortgage-backed securities - principally obligations of U.S. Government agencies $ 4,909.4 $ 4,527.2
U.S. Treasury securities and obligations of U.S. Government corporations and agencies 2,095.5 2,450.6
Corporates (including redeemable preferreds) 11,916.5 11,653.4
Obligations of states and political subdivisions 6,678.3 5,218.8
Debt securities issued by foreign governments 665.7 595.9
- ----------------------------------------------------------------------------------------------------------------------
Total fixed maturities 26,265.4 24,445.9
Equity securities, at fair value 1,050.5 778.6
Mortgage loans and real estate held for sale 951.1 1,162.3
Short-term and other 2,211.0 2,977.5
- ----------------------------------------------------------------------------------------------------------------------
Total invested assets $30,478.0 $29,364.3
- ----------------------------------------------------------------------------------------------------------------------
Unrealized gain on investment securities, net of tax, included in stockholders' equity $ 573.4 $ 284.5
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
SIGNATURE
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 hereunto duly authorized.
Dated: October 14, 1997
Travelers Property Casualty Corp.
By: /s/ William P. Hannon
-----------------------------
William P. Hannon
Chief Financial Officer
11
