<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 JUNE 30, 1997
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 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 X NO
--- ---
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 JULY 31, 1997:
CLASS A 65,105,052
CLASS B 328,020,170
<PAGE> 2
TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
TABLE OF CONTENTS
Part I - Financial Information
<TABLE>
<CAPTION>
Item 1. Financial Statements: Page No.
--------
<S> <C>
Condensed Consolidated Statement of Operations (Unaudited) -
Three and Six Months Ended June 30, 1997 and 1996 3
Condensed Consolidated Balance Sheet -
June 30, 1997 (Unaudited) and December 31, 1996 4
Condensed Consolidated Statement of Changes in
Stockholders' Equity (Unaudited) -
Six Months Ended June 30, 1997 5
Condensed Consolidated Statement of Cash Flows (Unaudited) -
Six Months Ended June 30, 1997 and 1996 6
Notes to Condensed Consolidated Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Part II - Other Information
Item 1. Legal Proceedings 25
Item 6. Exhibits and Reports on Form 8-K 25
Exhibit Index 26
Signatures 27
</TABLE>
2
<PAGE> 3
TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME (Unaudited)
(in millions, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- -------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Premiums $ 1,812 $ 1,667 $ 3,612 $ 2,493
Net investment income 507 472 1,007 668
Fee income 91 101 188 194
Realized investment gains (losses) (7) (59) 1 (33)
Other revenues 28 21 54 32
--------- -------- --------- ---------
Total revenues 2,431 2,202 4,862 3,354
--------- -------- --------- ---------
CLAIMS AND EXPENSES
Claims and claim adjustment expenses 1,375 1,807 2,748 2,537
Amortization of deferred acquisition costs 279 247 562 370
Interest expense 40 38 80 38
General and administrative expenses 344 471 689 645
--------- -------- --------- ---------
Total claims and expenses 2,038 2,563 4,079 3,590
--------- -------- --------- ---------
Income (loss) before federal income taxes 393 (361) 783 (236)
Federal income taxes (benefit) 117 (145) 234 (118)
--------- -------- --------- ---------
Net income (loss) $ 276 $ (216) $ 549 $ (118)
========= ======== ========= =========
Net income (loss) per share of common stock
and common stock equivalents $ 0.69 $ (0.59) $ 1.38 $ (0.36)
========= ======== ========= =========
Weighted average number of common shares
outstanding and common stock equivalents 398.5 374.2 399.0 334.3
========= ======== ========= =========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(in millions, except shares)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Fixed maturities, available for sale at fair value (cost, $24,977 and $24,052) $ 25,380 $ 24,446
Equity securities, at fair value (cost, $946 and $756) 983 779
Mortgage loans 855 1,005
Real estate held for sale 210 157
Short-term securities 1,702 2,311
Other investments 454 666
---------- ----------
Total investments 29,584 29,364
---------- ----------
Cash 71 106
Investment income accrued 380 381
Premium balances receivable 3,021 2,976
Reinsurance recoverables 9,401 9,714
Deferred acquisition costs 475 426
Deferred federal income taxes 1,589 1,583
Contractholder receivables 1,931 1,828
Goodwill 1,517 1,549
Other assets 1,932 1,852
---------- ----------
Total assets $ 49,901 $ 49,779
========== ==========
LIABILITIES
Claims and claim adjustment expense reserves $ 30,726 $ 31,177
Unearned premium reserves 3,814 3,554
Contractholder payables 1,931 1,828
Commercial paper - 25
Long-term debt 1,249 1,249
Other liabilities 4,580 4,566
---------- ----------
Total liabilities 42,300 42,399
---------- ----------
TAP - obligated mandatorily redeemable preferred
securities of subsidiary trusts holding solely junior
subordinated debt securities of TAP 900 900
STOCKHOLDERS' EQUITY
Common Stock:
Class A, $.01 par value, 700 million shares authorized;
(issued shares, 72,393,407 and 71,979,829) 1 1
Class B, $.01 par value, 700 million shares authorized,
328,020,170 shares issued and outstanding 3 3
Additional paid-in capital 5,473 5,455
Retained earnings 1,238 749
Treasury stock, at cost (shares, 7,281,942 and 406,860) (265) (13)
Unrealized gain on investment securities, net of tax 280 285
Unearned compensation (29) -
---------- ----------
Total stockholders' equity 6,701 6,480
---------- ----------
Total liabilities and stockholders' equity $ 49,901 $ 49,779
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF
CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)
(in millions, except shares)
<TABLE>
<CAPTION>
Six Months Ended June 30, 1997
-------------------------------------------------
Amount Shares
--------- ----------------------------
COMMON STOCK AND ADDITIONAL
PAID-IN CAPITAL Class A Class B
---------- -----------
<S> <C> <C> <C>
Balance, beginning of period $ 5,459 71,979,829 328,020,170
Capital Accumulation Plan grant 18 413,578 -
--------- ---------- -----------
Balance, end of period 5,477 72,393,407 328,020,170
--------- ---------- -----------
RETAINED EARNINGS
Balance, beginning of period 749
Net income 549
Dividends (60)
---------
Balance, end of period 1,238
---------
TREASURY STOCK (at cost)
Balance, beginning of period (13) (406,860)
Treasury stock acquired (268) (7,357,896)
Capital Accumulation Plan grant, net of forfeitures 16 482,814
--------- ----------
Balance, end of period (265) (7,281,942)
--------- ----------
UNREALIZED GAIN ON INVESTMENT
SECURITIES, NET OF TAX
Balance, beginning of period 285
Net change in unrealized gains and losses
on investment securities, net of tax (5)
---------
Balance, end of period 280
---------
UNEARNED COMPENSATION
Balance, beginning of period -
Issuance of restricted stock under Capital
Accumulation Plan, net of forfeitures (34)
Restricted stock amortization 5
---------
Balance, end of period (29)
---------
Total stockholders' equity and shares outstanding $ 6,701 65,111,465 328,020,170
========= ========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
(in millions)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------
1997 1996
------- --------
<S> <C> <C>
Net cash provided by (used in) operating activities $ 396 $ (152)
------- --------
Cash flows from investing activities:
Proceeds from maturities of investments
Fixed maturities 719 613
Mortgage loans 100 19
Proceeds from sales of investments
Fixed maturities 5,691 7,440
Equity securities 237 296
Mortgage loans 59 17
Real estate held for sale 9 1
Purchase of investments
Fixed maturities (7,344) (8,163)
Equity securities (263) (328)
Short-term securities, (purchases) sales, net 617 (654)
Other investments, net 15 (133)
Business acquisition - (4,160)
Securities transactions in course of settlement 82 482
------- --------
Net cash used in investing activities (78) (4,570)
------- --------
Cash flows from financing activities:
Issuance of commercial paper, net (25) 631
Issuance of long-term debt - 700
Borrowings on revolving line of credit - 2,650
Payments on revolving line of credit - (2,650)
Contribution from TIGI - 1,138
Purchase of treasury stock (268) -
Private offering of common stock - 525
Initial public offering of common stock - 928
Issuance of mandatorily redeemable preferred securities - 900
Issuance of Series Z preferred stock - 540
Redemptions of Series Z preferred stock - (540)
Dividends on Series Z preferred stock - (4)
Dividends to TIGI (49) -
Dividends to minority stockholders (11) -
------- --------
Net cash provided by (used in) financing activities (353) 4,818
------- --------
Net increase (decrease) in cash (35) 96
Cash at beginning of period 106 51
------- --------
Cash at end of period $ 71 $ 147
======= ========
Supplemental disclosure of cash flow information:
Income taxes paid $ 433 $ 103
======= ========
Interest paid $ 80 $ 15
======= ========
Supplemental disclosure of business acquisition:
Fair value of investments acquired $ - $ 13,969
Fair value of other assets acquired - 10,386
Claims and claim adjustment expense reserves assumed - (16,907)
Other liabilities assumed - (3,288)
------- --------
Business acquisition $ - $ 4,160
======= ========
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE> 7
TRAVELERS 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 Property Casualty Corp. (TAP) (a direct
majority-owned subsidiary of The Travelers Insurance Group Inc. (TIGI) and
an indirect majority-owned subsidiary of Travelers Group Inc.) and its
subsidiaries (collectively, the Company), are 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
included in the Company's Annual Report to Stockholders for the year ended
December 31, 1996.
On April 2, 1996, TAP purchased from Aetna Services, Inc. all of the
outstanding capital stock of Travelers Casualty and Surety Company
(formerly The Aetna Casualty and Surety Company) and The Standard Fire
Insurance Company (collectively, Aetna P&C) for approximately $4.2 billion
in cash. The acquisition was accounted for under the purchase method of
accounting and, accordingly, the condensed consolidated financial
statements include the results of Aetna P&C's operations only from the date
of acquisition.
Prior to January 1, 1997, Aetna P&C recorded certain written premiums
within Commercial Lines when the premiums were billed. The Company
conformed the Aetna P&C method to the method employed by The Travelers
Indemnity Company and its subsidiaries (Travelers P&C), which is to record
written premiums when the policies are written. There was no change in
earned premiums as a result of conforming the method; however, certain
written premium comparisons were impacted by this change, although not
significantly.
During the second quarter of 1996, the Company recorded charges related to
the acquisition and integration of Aetna P&C. These charges resulted
primarily from anticipated costs of the acquisition and the application of
the Company's strategies, policies and practices to Aetna P&C reserves and
include: $269 million after tax ($414 million before tax) in reserve
increases, net of reinsurance, related primarily to cumulative injury
claims other than asbestos (CIOTA), insurance products involving financial
guarantees, and assumed reinsurance; $99 million after tax ($152 million
before tax) in uncollectible reinsurance and other receivables; and $23
million after tax ($35 million before tax) in lease and severance costs of
Travelers P&C related to the restructuring plan for the acquisition.
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. Certain prior year amounts have been
reclassified to conform with the 1997 presentation.
7
<PAGE> 8
TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
2. Aetna P&C Acquisition - Pro Forma Results of Operations
The following unaudited pro forma information presents the results of
operations of the Company and Aetna P&C for the six months ended June 30,
1996, with pro forma adjustments as if the acquisition and transactions
related to the funding of the acquisition had been consummated as of the
beginning of the period presented. This pro forma information is not
indicative of what would have occurred had the acquisition and related
transactions occurred on the date indicated, or of future results of the
Company.
<TABLE>
<CAPTION>
Six Months Ended
(in millions, except per share data) June 30, 1996 *
----------------
<S> <C>
Revenues $ 4,962
Net income 75
Net income per share of common stock 0.19
</TABLE>
* Historical results of Aetna P&C for the first quarter of 1996 include
$307 million ($200 million after tax) of realized investment gains.
Excluding the acquisition-related charges outlined in Note 1, pro forma net
income would have been $466 million or $1.17 per share for the six months
ended June 30, 1996.
3. Changes in Accounting Principles and Accounting Standards not yet Adopted
Effective January 1, 1997, the Company adopted Statement of Financial
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" (FAS 125). This
statement establishes accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities. These
standards are based on an approach that focuses on control. Under this
approach, after a transfer of financial assets, an entity recognizes the
financial and servicing assets it controls and the liabilities it has
incurred, derecognizes financial assets when control has been surrendered
and derecognizes liabilities when extinguished. FAS 125 provides standards
for distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings. The requirements of FAS 125 are
effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996, and are
to be applied prospectively. However, in December 1996 the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards No. 127, "Deferral of the Effective Date of Certain Provisions of
FASB Statement No. 125," which delays until January 1, 1998 the effective
date for certain provisions. Earlier or retroactive application is not
permitted. The adoption of the provisions of this statement effective
January 1, 1997 did not have a material impact on results of operations,
financial condition or liquidity, and the Company is currently evaluating
the impact of the provisions whose effective date has been delayed until
January 1, 1998.
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 128, "Earnings per Share" (FAS 128). This statement
establishes standards for computing and presenting earnings per share (EPS)
and applies to entities with publicly held common stock. This statement
simplifies the standards for computing earnings per share previously found
in Accounting Principles Board Opinion No. 15, "Earnings per Share"
(Opinion 15), and makes them comparable to international EPS standards. It
replaces the presentation of primary EPS with a presentation of basic EPS.
It also requires dual presentation of basic and diluted EPS on the face of
the income statement for all entities with complex capital structures and
requires a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS
computation.
8
<PAGE> 9
TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
3. Changes in Accounting Principles and Accounting Standards not yet Adopted,
Continued
Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock
were exercised.
FAS 128 supersedes Opinion 15 and related accounting interpretations and is
effective for financial statements issued for periods ending after December
15, 1997, including interim periods; earlier application is not permitted.
However, an entity is permitted to disclose pro forma amounts computed
using this statement in the notes to the financial statements in periods
prior to required adoption.
Based upon the Company's current capital structure, the adoption of FAS 128
will not materially impact the Company's EPS computation.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" (FAS 130). FAS 130 establishes
standards for the reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements. All items
that are required to be recognized under accounting standards as components
of comprehensive income are to be reported in a financial statement that is
displayed with the same prominence as other financial statements. This
statement stipulates that comprehensive income reflect the change in equity
of an enterprise during a period from transactions and other events and
circumstances from nonowner sources. Comprehensive income will thus
represent the sum of net income and other comprehensive income, although
FAS 130 does not require the use of the terms comprehensive income or other
comprehensive income. The accumulated balance of other comprehensive income
is required to be displayed separately from retained earnings and
additional paid-in capital in the consolidated balance sheet. This
statement is effective for fiscal years beginning after December 15, 1997.
The Company anticipates that the adoption of FAS 130 will result primarily
in reporting unrealized gains and losses on investments in debt and equity
securities in comprehensive income.
In June 1997, the FASB also issued Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" (FAS 131). FAS 131 establishes standards for the way that
public enterprises report information about operating segments in annual
financial statements and requires that selected information about those
operating segments be reported in interim financial statements. This
statement supersedes Statement of Financial Accounting Standards No. 14,
"Financial Reporting for Segments of a Business Enterprise". FAS 131
requires that all public enterprises report financial and descriptive
information about its reportable operating segments. Operating segments are
defined as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. This statement is effective for fiscal years beginning after
December 15, 1997. The Company's reportable operating segments are not
expected to change as a result of the adoption of FAS 131.
9
<PAGE> 10
TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
4. Earnings Per Share
Earnings per common share is based on the weighted average number of common
shares and common stock equivalents outstanding during the period. For
purposes of the computation of earnings per share for the three and six
months ended June 30, 1996, the weighted average number of common shares
and common stock equivalents 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 of stock prior to the IPO 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.
5. Capital and Debt
TAP has a five-year revolving credit facility in the amount of $500 million
with a syndicate of banks that expires in December 2001. Under this
facility TAP is required to maintain a certain level of consolidated
stockholders' equity (as defined in the agreement). At June 30, 1997, this
requirement was exceeded by approximately $3.0 billion. In addition, this
facility places restrictions on the amount of consolidated debt TAP can
incur. At June 30, 1997, there were no borrowings outstanding under this
facility. TAP also issues commercial paper directly to investors and
maintains unused credit availability under the revolving credit facility at
least equal to the amount of commercial paper outstanding. At June 30,
1997, TAP had no commercial paper outstanding. TAP also currently has
available 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.
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 $647 million in 1997 without prior approval of the Connecticut
Insurance Department. TAP received $145 million of dividends from its
insurance subsidiaries during the first six months of 1997 and received an
additional $100 million of dividends on July 1, 1997.
On June 23, 1997, the Company repurchased, in the aggregate, 6,600,102
shares of Class A Common Stock held by Aetna Services, Inc., J.P. Morgan
Capital Corporation, Fund American Enterprise Holdings, Inc. and The
Trident Partnership, L.P. (collectively, the Private Investors) for a total
purchase price of approximately $240.8 million, representing a discount to
the then current market price. The repurchases represent 20% of the
holdings of each of the Private Investors. As part of the repurchase
agreement, each of the Private Investors agreed to extend its contractual
sale restrictions on 50% of the remaining shares held by the Private
Investors for an additional period of approximately six months, to March
15, 1998. Following these transactions, Travelers Group Inc.'s beneficial
ownership of the Company increased to approximately 83.4%.
On January 22, 1997, the Company, through the Travelers Property Casualty
Corp. Capital Accumulation Plan, issued 414 thousand shares of the
Company's Class A Common Stock and reissued 502 thousand shares of treasury
stock in the form of restricted stock to participating officers and other
key employees. The restricted stock generally vests after a three-year
period. Except under limited circumstances, the stock cannot be sold or
transferred during the restricted period by the participants, who are
required to render service to the Company during the restricted period.
Unearned compensation expense associated with the restricted stock grants
represents the market value of the Company's common stock at the date of
grant and is recognized as a charge to income ratably over the vesting
period.
10
<PAGE> 11
TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
6. Commitments and Contingencies
In 1996, Lloyd's of London (Lloyd's) restructured its operations with
respect to claims for years prior to 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 ability of the Company to aggregate asbestos claims
under a market agreement between Lloyd's and the Company or under the
applicable reinsurance treaties.
The outcome of the arbitration referred to above is 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 this matter could have a
material adverse effect on the Company's results of operations in a future
period. However, the Company believes that it is not likely that the
outcome 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. Including this
allowance, the Company believes that the net receivable from reinsurance
contracts is properly stated.
It is difficult to estimate the reserves for environmental and
asbestos-related claims due to the vagaries of court coverage decisions,
plaintiffs' expanded theories of liability, the risks inherent in major
litigation and other uncertainties. Conventional actuarial techniques are
not used to estimate such reserves.
The reserves carried for environmental and asbestos claims at June 30, 1997
are the Company's best estimate of ultimate claims and claim adjustment
expenses based upon known facts and current law. However, the conditions
surrounding the final resolution of these claims continue to change.
Currently, it is not possible to predict changes in the legal and
legislative environment and their impact on the future development of
asbestos and environmental claims. Such development will be affected by
future court decisions and interpretations and changes in legislation.
Because of these future unknowns, additional liabilities may arise for
amounts in excess of the current reserves. These additional amounts, or a
range of these additional amounts, cannot now be reasonably estimated, and
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.
In the ordinary course of business, the Company is a defendant or
codefendant in various litigation matters other than those described above.
Although there can be no assurances, 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.
11
<PAGE> 12
TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Results of Operations reflect the consolidated results of operations of
Travelers Property Casualty Corp. (TAP) and its subsidiaries (the Company).
On April 2, 1996, TAP purchased from Aetna Services, Inc. (Aetna) all of the
outstanding capital stock of Travelers Casualty and Surety Company (formerly The
Aetna Casualty and Surety Company) and The Standard Fire Insurance Company
(collectively, Aetna P&C) for approximately $4.2 billion in cash. The
acquisition was accounted for under the purchase method of accounting and,
accordingly, the condensed consolidated financial statements include the results
of Aetna P&C's operations only from the date of acquisition.
The Company provides a wide range of commercial and personal property and
casualty insurance products and services to businesses, associations and
individuals throughout the United States.
CONSOLIDATED RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30,
1997 AND 1996
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
(in millions, except per share data) June 30, June 30,
---------------------- ----------------------
1997 1996 1997 1996
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Revenues $ 2,431 $ 2,202 $ 4,862 $ 3,354
======== ========= ======== =========
Net income (loss) $ 276 $ (216) $ 549 $ (118)
======== ========= ======== =========
EARNINGS PER SHARE:
Net income (loss) $ 0.69 $ (0.59) $ 1.38 $ (0.36)
======== ========= ======== =========
Weighted average number of common
shares outstanding and common stock equivalents 398.5 374.2 399.0 334.3
-------- --------- -------- ---------
</TABLE>
Consolidated Results of Operations for the Three Months Ended June 30, 1997 and
1996
Net income for the second quarter of 1997 was $276 million or $0.69 per share
compared to a net loss of $216 million or $0.59 per share in the second quarter
of 1996. This $492 million increase in net income was primarily due to $391
million of net charges related to the acquisition and integration of Aetna P&C
by the Company in the second quarter of 1996. These net acquisition-related
charges include $269 million in reserve increases, net of reinsurance, for
cumulative injury claims other than asbestos, insurance products involving
financial guarantees and assumed reinsurance, $99 million in uncollectible
reinsurance and other receivables, and $23 million in lease and severance costs
related to the restructuring plan for the acquisition. Operating earnings, which
exclude realized investment gains (losses) and acquisition-related charges, were
$280 million or $0.70 per share in the second quarter of 1997, an increase of
$67 million or $0.14 per share from the second quarter of 1996. The increase in
operating earnings was primarily the result of increased net investment income,
a lower level of catastrophe losses and continuing benefits from expense
control.
Revenues of $2.431 billion in the second quarter of 1997 increased $229 million
from $2.202 billion in the second quarter of 1996. This increase was primarily
attributable to a $145 million increase in earned premiums, reflecting an
adjustment associated with a reinsurance transaction which reduced Commercial
Lines' earned premiums by $89 million in the second quarter of 1996 and an
increase in Personal Lines earned premiums of $64 million. The Personal Lines
increase reflects lower ceded premiums due to a change in a reinsurance
arrangement beginning January 1, 1997, growth in target markets served by
independent agents, growth in affinity marketing and TRAVELERS SECURE(R)
programs and good retention.
Net investment income was $507 million for the second quarter of 1997, an
increase of $35 million from the second quarter of 1996. Realized investment
gains (losses) increased by $52 million to a loss of $7 million in the second
quarter of 1997 from a loss of $59 million in the second quarter of 1996.
12
<PAGE> 13
National Accounts within Commercial Lines is the primary source of fee income
due to its service business. Fee income for the second quarter of 1997 was $91
million, a $10 million decrease from the second quarter of 1996. This decrease
in fee income was due to the depopulation of involuntary pools as the loss
experience of workers' compensation improves and insureds move to voluntary
markets, the Company's selective renewal activity to address the competitive
pricing environment and its continued success in lowering workers' compensation
losses of service customers.
Claims and expenses of $2.038 billion for the second quarter of 1997 decreased
$525 million from the second quarter of 1996. The decrease was primarily
attributable to the claims and expenses related to the acquisition and
integration of the Aetna P&C business incurred in the second quarter of 1996,
partially offset by an adjustment associated with a reinsurance transaction.
The Company's effective tax rate was 30% for the second quarter of 1997 and 40%
for the second quarter of 1996. The tax rate on net income for the second
quarter of 1997 was less than the statutory rate of 35% primarily due to
non-taxable investment income. The tax rate on the net loss for the second
quarter of 1996 reflects a tax benefit that is greater than the statutory rate
primarily due to non-taxable investment income.
The overall statutory and GAAP combined ratios were as follows:
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
June 30, 1997 June 30, 1996
------------------ ------------------
<S> <C> <C>
Statutory:
Loss and loss adjustment expense (LAE) ratio.... 72.7% 108.7%
Underwriting expense ratio...................... 30.3 34.3
Combined ratio before policyholder dividends.... 103.0 143.0
Combined ratio.................................. 104.0 143.4
GAAP:
Loss and LAE ratio.............................. 72.5% 104.8%
Underwriting expense ratio...................... 30.4 39.0
Combined ratio before policyholder dividends.... 102.9 143.8
Combined ratio.................................. 103.4 144.4
</TABLE>
Beginning in 1997, for purposes of computing GAAP combined ratios, fee income is
now 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. The 1996 GAAP combined ratios have
been restated to conform to the current year's presentation.
GAAP combined ratios differ from statutory combined ratios primarily due to the
deferral and amortization of certain expenses for GAAP reporting purposes only.
In addition, the purchase accounting adjustments recorded for GAAP in connection
with the Aetna P&C acquisition resulted in a statutory charge in 1996.
The decreases in the 1997 second quarter overall statutory and GAAP combined
ratios before policyholder dividends compared to the 1996 second quarter overall
combined ratios were primarily attributable to the 1996 charges related to the
acquisition and integration of Aetna P&C. Excluding these amounts, the statutory
and GAAP combined ratios before policyholder dividends for the three months
ended June 30, 1996 would have been 107.2% and 109.7%, respectively. The
decrease in the 1997 second quarter overall statutory and GAAP combined ratios
compared to the 1996 second quarter overall statutory and GAAP combined ratios
excluding acquisition-related charges was primarily due to the favorable prior
year reserve development in personal auto lines, expense reductions and lower
catastrophe losses.
13
<PAGE> 14
Consolidated Results of Operations for the Six Months Ended June 30, 1997 and
1996
Net income for the six months ended June 30, 1997 was $549 million or $1.38 per
share compared to a net loss of $118 million or $0.36 per share for the six
months ended June 30, 1996. Excluding realized investment gains (losses) and
acquisition-related charges, operating income was $548 million or $1.37 per
share for the six months ended June 30, 1997 compared to $294 million or $0.87
per share for the six months ended June 30, 1996. The increase in operating
income in the six months ended June 30, 1997 compared to the six months ended
June 30, 1996 was due to the inclusion in 1997 of Aetna P&C for the entire six
months compared to only the second quarter in 1996, continued favorable prior
year reserve development in personal auto lines, continuing benefits of expense
reductions associated with the acquisition and lower catastrophe losses.
The overall statutory and GAAP combined ratios were as follows:
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1997 June 30, 1996
---------------- ----------------
<S> <C> <C>
Statutory:
Loss and LAE ratio................................ 73.2% 100.1%
Underwriting expense ratio........................ 29.1 31.7
Combined ratio before policyholder dividends...... 102.3 131.8
Combined ratio.................................... 102.9 132.2
GAAP:
Loss and LAE ratio................................ 72.8% 97.4%
Underwriting expense ratio........................ 28.6 34.2
Combined ratio before policyholder dividends...... 101.4 131.6
Combined ratio.................................... 101.9 132.1
</TABLE>
GAAP combined ratios differ from statutory combined ratios primarily due to the
deferral and amortization of certain expenses for GAAP reporting purposes only.
In addition, the purchase accounting adjustments recorded for GAAP in connection
with the Aetna P&C acquisition resulted in a statutory charge in 1996.
The decrease in the first six months of 1997 overall statutory and GAAP combined
ratios before policyholder dividends from the first six months of 1996 was
primarily attributable to charges taken in the second quarter of 1996 related to
the acquisition and integration of Aetna P&C. Excluding these amounts, the
statutory and GAAP combined ratios before policyholder dividends for the six
months ended June 30, 1996 would have been 108.0% and 109.1%, respectively. The
decrease in the first six months of 1997 statutory and GAAP combined ratios from
the first six months of 1996 statutory and GAAP combined ratios excluding
acquisition-related charges was generally due to the inclusion in 1997 of Aetna
P&C's results for the entire six months compared to only the second quarter in
1996. Aetna P&C has historically had a higher underwriting expense ratio,
partially offset by a lower loss ratio, which reflects the mix of business
including the favorable effect of the lower loss ratio of the Bond business. In
addition, the first six months of 1997 statutory and GAAP combined ratios were
lower than the first six months of 1996 statutory and GAAP combined ratios
excluding acquisition-related charges due to the favorable prior year reserve
development in personal auto lines, lower catastrophe losses and expense
reductions.
The other consolidated operating trends for the six months ended June 30, 1997
and 1996 are substantially the same as noted above for the quarters then ended,
after taking into consideration the inclusion of Aetna P&C for the entire six
months of 1997 compared to only the second quarter of 1996.
14
<PAGE> 15
SEGMENT RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996
Commercial Lines
<TABLE>
<CAPTION>
(in millions) Three Months Ended Three Months Ended
June 30, 1997 June 30, 1996
------------------ ------------------
<S> <C> <C>
Revenues............................ $ 1,612 $ 1,445
Net income (loss)................... $ 209 $ (237)
</TABLE>
Commercial Lines net income for the 1997 second quarter was $209 million
compared to a net loss of $237 million in the 1996 second quarter. This increase
was primarily due to the acquisition-related charges of $383 million in 1996,
higher net investment income, lower realized investment losses and expense
savings. Excluding realized investment gains (losses) and acquisition-related
charges, Commercial Lines operating income was $209 million in the second
quarter of 1997 compared to $178 million in the second quarter of 1996,
primarily reflecting higher net investment income and expense savings.
Commercial Lines net written premiums for the second quarter of 1997 totaled
$1.141 billion, up $41 million from $1.100 billion for the second quarter of
1996 (excluding an adjustment associated with a reinsurance transaction in
1996), reflecting continued growth in programs designed to leverage underwriting
experience in specific industries, offset in part by the highly competitive
conditions in the marketplace and the Company's continuing focus on writing
profitable business.
Fee income for the second quarter of 1997 was $91 million, a $10 million
decrease from the second quarter of 1996. This decrease was due to the
depopulation of involuntary pools as the loss experience of workers'
compensation improves and insureds move to voluntary markets, the Company's
selective renewal activity to address the competitive pricing environment and
its continued success in lowering workers' compensation losses of service
customers, partially offset by National Accounts writing more service fee based
product versus premium-based product.
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 also includes the alternative market business which covers
primarily workers' compensation products and services to voluntary and
involuntary pools. National Accounts net written premiums of $150 million in the
second quarter of 1997 decreased $29 million from the second quarter of 1996
(excluding an adjustment associated with a reinsurance transaction). This
decrease was due to National Accounts writing less premium-based product versus
service fee based product and the competitive marketplace. For the second
quarter of 1997, National Accounts new business was significantly lower than the
second quarter of 1996. This change primarily reflected the addition of one
large account in the second quarter of 1996 and the competitive marketplace.
National Accounts business retention ratio was virtually the same in the second
quarter of 1997 and 1996.
Commercial Accounts serves mid-sized businesses through a network of independent
agencies and brokers. Commercial Accounts net written premiums were $453 million
in the 1997 second quarter compared to $380 million in the 1996 second quarter.
For the second quarter of 1997, new premium business in Commercial Accounts was
significantly higher compared to the second quarter of 1996. This increase
reflects continued growth through programs designed to leverage underwriting
experience in specific industries. The Commercial Accounts business retention
ratio was also significantly higher in the second quarter of 1997 compared to
the second quarter of 1996. Commercial Accounts continues to focus on the
retention of existing business while maintaining its product pricing standards
and its selective underwriting policy.
15
<PAGE> 16
Select Accounts serves small businesses through a network of independent agents.
Select Accounts net written premiums of $370 million in the second quarter of
1997 were virtually the same as the second quarter of 1996 premium levels. New
premium business in Select Accounts was moderately higher in the second quarter
of 1997 compared to the second quarter of 1996. Select Accounts business
retention ratio was moderately higher in the second quarter of 1997 compared to
the second quarter of 1996. These increases reflect the broader industry and
product line expertise of the combined company.
Specialty Accounts markets products to national, midsize and small customers and
distributes them through both wholesale brokers and retail agents and brokers
throughout the United States. Specialty Accounts net written premiums were $168
million in the 1997 second quarter compared to $172 million in the 1996 second
quarter.
Commercial Lines claims and expenses of $1.319 billion for the second quarter of
1997 decreased $515 million from the second quarter of 1996. This decrease was
due to the acquisition-related charges recorded in the second quarter of 1996,
partially offset by an adjustment associated with a reinsurance transaction.
Catastrophe losses, net of taxes and reinsurance, were insignificant in both the
1997 and 1996 second quarters.
Statutory and GAAP combined ratios for Commercial Lines were as follows:
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
June 30, 1997 June 30, 1996
------------------ ------------------
<S> <C> <C>
Statutory:
Loss and LAE ratio................................ 77.8% 133.2%
Underwriting expense ratio........................ 31.9 37.9
Combined ratio before policyholder dividends...... 109.7 171.1
Combined ratio.................................... 111.4 171.9
GAAP:
Loss and LAE ratio................................ 77.5% 126.5%
Underwriting expense ratio........................ 32.5 44.6
Combined ratio before policyholder dividends...... 110.0 171.1
Combined ratio.................................... 110.9 172.1
</TABLE>
GAAP combined ratios for Commercial Lines differ from statutory combined ratios
primarily due to the deferral and amortization of certain expenses for GAAP
reporting purposes only. In addition, the purchase accounting adjustments
recorded for GAAP in connection with the Aetna P&C acquisition resulted in a
statutory charge in 1996.
The decreases in the second quarter of 1997 statutory and GAAP combined ratios
before policyholder dividends for Commercial Lines were primarily attributable
to the 1996 charges related to the acquisition and integration of Aetna P&C.
Excluding these amounts, the statutory and GAAP combined ratios before
policyholder dividends for the three months ended June 30, 1996 would have been
111.5% and 114.3%, respectively. The decrease in the second quarter of 1997
statutory and GAAP combined ratios compared to the 1996 second quarter statutory
and GAAP combined ratios excluding acquisition-related charges was due to
slightly lower losses and loss adjustment expenses in the second quarter of 1997
compared to the second quarter of 1996 as well as expense reductions in 1997.
16
<PAGE> 17
Personal Lines
<TABLE>
<CAPTION>
(in millions) Three Months Ended Three Months Ended
June 30, 1997 June 30, 1996
------------------ ------------------
<S> <C> <C>
Revenues......................... $ 815 $ 750
Net income....................... $ 97 $ 51
</TABLE>
Net income in the second quarter of 1997 of $97 million increased $46 million
from $51 million in the second quarter of 1996. Excluding realized investment
gains (losses) and acquisition-related charges, Personal Lines operating income
was $101 million in the second quarter of 1997 compared to $65 million in the
second quarter of 1996. These increases primarily reflect reduced catastrophe
losses, lower expenses and continued favorable prior year reserve development in
the automobile line.
Net written premiums in the second quarter of 1997 were $745 million, compared
to $676 million in the second quarter of 1996. This increase reflects lower
ceded premiums due to a change in a reinsurance arrangement in January 1997,
growth in target markets served by independent agents and growth in the affinity
marketing and TRAVELERS SECURE(R) programs. Business retention continued to be
strong.
Personal Lines claims and expenses of $670 million in the 1997 second quarter
decreased $5 million from the 1996 second quarter. Catastrophe losses, after
taxes and reinsurance, were $5 million in the second quarter of 1997 compared to
$14 million in the second quarter of 1996. The catastrophe losses in the second
quarter of 1996 were primarily from hail and wind storms.
Statutory and GAAP combined ratios for Personal Lines were as follows:
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
June 30, 1997 June 30, 1996
------------------ ------------------
<S> <C> <C>
Statutory:
Loss and LAE ratio................... 64.9% 71.0%
Underwriting expense ratio........... 27.9 29.1
Combined ratio....................... 92.8 100.1
GAAP:
Loss and LAE ratio................... 64.9% 71.6%
Underwriting expense ratio........... 27.2 30.5
Combined ratio....................... 92.1 102.1
</TABLE>
GAAP combined ratios differ from statutory combined ratios for Personal Lines
primarily due to the deferral and amortization of certain expenses for GAAP
reporting purposes only.
The decrease in the combined ratios in 1997 from 1996 was due to the favorable
prior year reserve development in personal auto lines, lower catastrophe losses
and expense reductions.
Corporate and Other
<TABLE>
<CAPTION>
(in millions) Three Months Ended Three Months Ended
June 30, 1997 June 30, 1996
------------------ ------------------
<S> <C> <C>
Revenues....................... $ 4 $ 7
Net income (loss).............. $ (30) $ (30)
</TABLE>
The primary component of net income (loss) for the 1997 and 1996 second quarter
was interest expense of $26 million and $25 million after tax, respectively,
reflecting financing costs associated with the acquisition.
17
<PAGE> 18
SEGMENT RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
Commercial Lines
<TABLE>
<CAPTION>
(in millions) Six Months Ended Six Months Ended
June 30, 1997 June 30, 1996
---------------- ----------------
<S> <C> <C>
Revenues..................... $ 3,236 $ 2,220
Net income (loss)............ $ 410 $ (161)
</TABLE>
Net income in the first six months of 1997 was $410 million compared to a net
loss of $161 million in the first six months of 1996. Excluding realized
investment gains (losses) and acquisition-related charges, Commercial Lines
operating earnings were $403 million in the six months ended June 30, 1997
compared to $237 million in the six months ended June 30, 1996. This increase
was due to the inclusion in 1997 of Aetna P&C for the entire six months compared
to only the second quarter in 1996, and expense savings associated with the
acquisition and integration of Aetna P&C.
Commercial Lines net written premiums in the first six months of 1997 totaled
$2.479 billion, up $760 million from $1.719 billion in the first six months of
1996 (excluding an adjustment associated with a reinsurance transaction in
1996), reflecting the inclusion in 1997 of Aetna P&C for the entire six months
compared to only the second quarter of 1996 and a $142 million increase due to a
change to conform Aetna P&C's method with The Travelers Indemnity Company and
its subsidiaries' (Travelers P&C) method of recording certain net written
premiums within Commercial Lines. This was offset in part by the highly
competitive conditions in the marketplace and the Company's continuing focus on
writing profitable business.
On a combined total basis including Aetna P&C (for periods prior to April 2,
1996 for comparative purposes only), Commercial Lines net written premiums in
the first six months of 1997 totaled $2.479 billion, up $155 million from $2.324
billion in the first six months of 1996. This increase was primarily
attributable to the change to conform the Aetna P&C method with the Travelers
P&C method of recording net written premiums.
Fee income for the first six months of 1997 was $188 million, a $6 million
decrease from the first six months of 1996. This decrease was the result of the
depopulation of involuntary pools as the loss experience of workers'
compensation improves and insureds move to voluntary markets, partially offset
by the acquisition of Aetna P&C.
On a combined total basis including Aetna P&C (for periods prior to April 2,
1996 for comparative purposes only), National Accounts net written premiums were
$371 million in the first six months of 1997 compared to $425 million in the
first six months of 1996. This decrease reflected the competitive marketplace.
National Accounts new business in the first six months of 1997 was virtually the
same as the first six months of 1996. National Accounts business retention ratio
was significantly higher in the first six months of 1997 compared to the first
six months of 1996, reflecting an unusually low retention ratio in the first
quarter of 1996.
On a combined total basis including Aetna P&C (for periods prior to April 2,
1996 for comparative purposes only), Commercial Accounts net written premiums
were $1.014 billion in the first six months of 1997 compared to $821 million in
the first six months of 1996. This increase reflected $127 million due to the
change to conform the Aetna P&C method with the Travelers P&C method of
recording certain net written premiums and the continued growth through programs
designed to leverage underwriting experience in specific industries, partially
offset by the competitive marketplace. For the first six months of 1997, new
premium business in Commercial Accounts has significantly improved compared to
the first six months of 1996, reflecting continued growth in programs designed
to leverage underwriting experience in specific industries. The Commercial
Accounts business retention ratio in the first six months of 1997 has
significantly improved compared to the first six months of 1996. Commercial
Accounts continues to focus on the retention of existing business while
maintaining its product pricing standards and its selective underwriting policy.
18
<PAGE> 19
On a combined total basis including Aetna P&C (for periods prior to April 2,
1996 for comparative purposes only), Select Accounts net written premiums of
$733 million in the first six months of 1997 were $2 million above the premium
levels for the first six months of 1996. This increase reflected $15 million due
to the change to conform the Aetna P&C method with the Travelers P&C method of
recording certain net written premiums, mostly offset by a decrease due to the
competitive marketplace. New premium business in Select Accounts was moderately
higher in the first six months of 1997 compared to the first six months of 1996,
reflecting an increase due to the acquisition of Aetna P&C, partially offset by
a decrease due to the competitive marketplace. The Select Accounts business
retention ratio was moderately higher in the first six months of 1997 compared
to the comparable 1996 period, reflecting the broader industry and product line
expertise of the combined company.
On a combined total basis including Aetna P&C (for periods prior to April 2,
1996 for comparative purposes only), Specialty Accounts net written premiums
were $361 million in the first six months of 1997 compared to $347 million in
the first six months of 1996. The growth is primarily attributable to increased
writings of its excess and surplus lines business.
Commercial Lines claims and expenses of $2.660 billion in the first six months
of 1997 increased $146 million from the first six months of 1996. This increase
was primarily attributable to the inclusion in 1997 of Aetna P&C for the entire
six months compared to only the second quarter in 1996, partly offset by the net
acquisition-related charges and financing costs associated with the acquisition
in 1996.
Catastrophe losses, net of taxes and reinsurance, were $5 million and $6 million
in the first six months of 1997 and 1996, respectively. The 1997 catastrophe
losses were primarily due to tornadoes in the Midwest in the first quarter. The
1996 catastrophe losses were primarily due to winter storms in the first
quarter.
Statutory and GAAP combined ratios for Commercial Lines were as follows:
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1997 June 30, 1996
---------------- ----------------
<S> <C> <C>
Statutory:
Loss and LAE ratio............................. 79.8% 117.9%
Underwriting expense ratio..................... 29.5 33.4
Combined ratio before policyholder dividends... 109.3 151.3
Combined ratio................................. 110.3 151.9
GAAP:
Loss and LAE ratio............................. 79.1% 113.1%
Underwriting expense ratio..................... 29.4 37.4
Combined ratio before policyholder dividends... 108.5 150.5
Combined ratio................................. 109.3 151.3
</TABLE>
GAAP combined ratios for Commercial Lines differ from statutory combined ratios
primarily due to the deferral and amortization of certain expenses for GAAP
reporting purposes only. In addition, the purchase accounting adjustments
recorded for GAAP in connection with the Aetna P&C acquisition resulted in a
statutory charge in 1996.
The decreases in the first six months of 1997 statutory and GAAP combined ratios
for Commercial Lines compared to the first six months of 1996 were primarily
attributable to the 1996 charges related to the acquisition and integration of
Aetna P&C. Excluding these amounts, the statutory and GAAP combined ratios
before policyholder dividends for the six months ended June 30, 1996 would have
been 112.0% and 113.1%, respectively. The decrease in the first six months of
1997 statutory and GAAP combined ratios compared to the first six months of 1996
statutory and GAAP combined ratios excluding acquisition-related charges was
generally due to the inclusion in 1997 of Aetna P&C's results for the entire six
months compared to only the second quarter in 1996. Aetna P&C has historically
had a higher underwriting expense ratio, partially offset by a lower loss ratio,
which reflects the mix of business including the favorable effect of the lower
loss ratio of the Bond business.
19
<PAGE> 20
Personal Lines
<TABLE>
<CAPTION>
(in millions) Six Months Ended Six Months Ended
June 30, 1997 June 30, 1996
---------------- ----------------
<S> <C> <C>
Revenues.......................... $ 1,620 $ 1,122
Net income........................ $ 202 $ 74
</TABLE>
Net income in the first six months of 1997 of $202 million increased $128
million from $74 million in the first six months of 1996. Excluding realized
investment gains (losses) and the acquisition-related charges, Personal Lines
operating income was $209 million in the first six months of 1997 compared to
$87 million in the first six months of 1996. These increases primarily reflect
the inclusion in 1997 of Aetna P&C for the entire six months compared to only
the second quarter in 1996, reduced catastrophe losses, lower expenses and
continued favorable prior year reserve development in personal auto lines.
Net written premiums in the first six months of 1997 were $1.520 billion,
compared to $1.017 billion in the first six months of 1996. This increase
primarily reflects the acquisition of Aetna P&C and, to a lesser extent, lower
ceded premiums due to a change in a reinsurance arrangement in January 1997,
growth in target markets served by independent agents and growth in the affinity
marketing and TRAVELERS SECURE(R) programs. Business retention continued to be
strong. On a combined total basis including Aetna P&C (for periods prior to
April 2, 1996 for comparative purposes only), Personal Lines net written
premiums in the first six months of 1996 totaled $1.333 billion.
Personal Lines claims and expenses of $1.316 billion in the first six months of
1997 increased $299 million from the first six months of 1996. This increase was
primarily attributable to the inclusion of Aetna P&C's operations for the entire
six months of 1997 compared to only the second quarter of 1996, partially offset
by expense reductions. Catastrophe losses, after taxes and reinsurance, were $5
million in the first half of 1997 compared to $32 million in the first half of
1996. The 1996 catastrophe losses were primarily from first quarter winter
storms and second quarter hail and wind storms.
Statutory and GAAP combined ratios for Personal Lines were as follows:
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1997 June 30, 1996
---------------- ----------------
<S> <C> <C>
Statutory:
Loss and LAE ratio ....................... 63.1% 73.0%
Underwriting expense ratio ............... 28.4 28.9
Combined ratio ........................... 91.5 101.9
GAAP:
Loss and LAE ratio ....................... 63.1% 73.4%
Underwriting expense ratio ............... 27.3 29.2
Combined ratio ........................... 90.4 102.6
</TABLE>
The decrease in the combined ratios in 1997 compared to 1996 was due to the
favorable prior year reserve development in personal auto lines, lower
catastrophe losses and expense reductions.
20
<PAGE> 21
Corporate and Other
<TABLE>
<CAPTION>
(in millions) Six Months Ended Six Months Ended
June 30, 1997 June 30, 1996
---------------- ----------------
<S> <C> <C>
Revenues ............................. $ 6 $ 12
Net income (loss) .................... $(63) $(31)
</TABLE>
The primary component of net income (loss) for the six months ended June 30,
1997 and 1996 was interest expense of $52 million and $25 million after tax,
respectively, reflecting financing costs associated with the acquisition of
Aetna P&C in the second quarter of 1996.
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, until the
dispute is resolved. This bulk reserve is established and adjusted based upon
the volume of in-process environmental claims and the Company's experience in
resolving such claims. At June 30, 1997, approximately 15% of the net
environmental reserve (i.e., approximately $182 million) is case reserves for
resolved claims. The balance, approximately 85% of the net environmental reserve
(i.e., approximately $1.041 billion), is carried in a bulk reserve and includes
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 six months ended June 30, 1997 and 1996.
Environmental Losses
<TABLE>
<CAPTION>
(millions) Six Months Ended Six Months Ended
June 30, 1997 June 30, 1996
---------------- ----------------
<S> <C> <C>
Beginning reserves:
Direct .................................. $ 1,369 $ 454
Ceded ................................... (127) (50)
------- -------
Net ................................... 1,242 404
Acquisition of Aetna P&C:
Direct .................................. - 938
Ceded ................................... - (24)
Incurred losses and loss expenses:
Direct .................................. 38 38
Ceded ................................... (2) (2)
Losses paid:
Direct .................................. 100 63
Ceded ................................... (45) (20)
Ending reserves:
Direct .................................. 1,307 1,367
Ceded ................................... (84) (56)
------- -------
Net ................................... $ 1,223 $ 1,311
======= =======
</TABLE>
ASBESTOS CLAIMS
At June 30, 1997, approximately 24% of the net asbestos reserve (i.e.,
approximately $257 million) is for pending asbestos claims. The balance,
approximately 76% (i.e., approximately $808 million) of the net asbestos
reserves, represents incurred but not yet reported losses.
21
<PAGE> 22
The following table displays activity for asbestos losses and loss expenses and
reserves for the six months ended June 30, 1997 and 1996. In general, the
Company posts case reserves for pending asbestos claims within approximately 30
business days of receipt of such claims.
Asbestos Losses
<TABLE>
<CAPTION>
(millions) Six Months Ended Six Months Ended
June 30, 1997 June 30, 1996
---------------- ----------------
<S> <C> <C>
Beginning reserves:
Direct .................................. $ 1,443 $ 695
Ceded ................................... (370) (293)
------- -------
Net ................................... 1,073 402
Acquisition of Aetna P&C:
Direct .................................. - 776
Ceded ................................... - (116)
Incurred losses and loss expenses:
Direct .................................. 37 49
Ceded ................................... (14) 16
Losses paid:
Direct .................................. 89 65
Ceded ................................... (58) (36)
Ending reserves:
Direct .................................. 1,391 1,455
Ceded ................................... (326) (357)
------- -------
Net ................................... $ 1,065 $ 1,098
======= =======
</TABLE>
UNCERTAINTY REGARDING ADEQUACY OF ENVIRONMENTAL AND ASBESTOS RESERVES
It is difficult to estimate the reserves for environmental and asbestos-related
claims due to the vagaries of court coverage decisions, plaintiffs' expanded
theories of liability, the risks inherent in major litigation and other
uncertainties. Conventional actuarial techniques are not used to estimate such
reserves.
The reserves carried for environmental and asbestos claims at June 30, 1997 are
the Company's best estimate of ultimate claims and claim adjustment expenses
based upon known facts and current law. However, the conditions surrounding the
final resolution of these claims continue to change. Currently, it is not
possible to predict changes in the legal and legislative environment and their
impact on the future development of asbestos and environmental claims. Such
development will be affected by future court decisions and interpretations and
changes in legislation. Because of these future unknowns, additional liabilities
may arise for amounts in excess of the current reserves. These additional
amounts, or a range of these additional amounts, cannot now be reasonably
estimated, and 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.
CUMULATIVE INJURY OTHER THAN ASBESTOS (CIOTA) CLAIMS
CIOTA claims are generally submitted to the Company under general liability
policies and 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 potentially harmful products or substances. Such potentially harmful
products or substances include, but are not limited to, lead paint, pesticides,
pharmaceutical products, silicone-based personal products, solvents and other
deleterious substances.
At June 30, 1997, approximately 18% of the net CIOTA reserve (i.e.,
approximately $204 million) is for pending CIOTA claims. The balance,
approximately 82% (i.e., approximately $901 million) of the net CIOTA reserves,
represents incurred but not yet reported losses for which the Company has not
reviewed any specific claims.
22
<PAGE> 23
The following table displays activity for CIOTA losses and loss expenses and
reserves for the six months ended June 30, 1997 and 1996. In general, the
Company posts case reserves for pending CIOTA claims within approximately 30
business days of receipt of such claims.
CIOTA Losses
<TABLE>
<CAPTION>
(millions) Six Months Ended Six Months Ended
June 30, 1997 June 30, 1996
---------------- ----------------
<S> <C> <C>
Beginning reserves:
Direct .................................. $ 1,560 $ 374
Ceded ................................... (446) -
------- -------
Net.................................... 1,114 374
Acquisition of Aetna P&C:
Direct .................................. - 709
Ceded ................................... - (293)
Incurred losses and loss expenses:
Direct .................................. 12 544
Ceded ................................... - (160)
Losses paid:
Direct .................................. 36 36
Ceded ................................... (15) (4)
Ending reserves:
Direct .................................. 1,536 1,591
Ceded ................................... (431) (449)
------- -------
Net ................................... $ 1,105 $ 1,142
======= =======
</TABLE>
Liquidity and Capital Resources
TAP was formed in January 1996 to hold the property and casualty insurance
subsidiaries of The Travelers Insurance Group Inc. (TIGI). TIGI contributed to
TAP all of the outstanding shares of common stock of The Travelers Indemnity
Company on April 1, 1996. On April 2, 1996, TAP acquired the domestic property
and casualty insurance subsidiaries of Aetna for approximately $4.2 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.
The liquidity requirements of the Company's business have been met primarily by
funds generated from operations, asset maturities and income received on
investments. Cash provided from these sources is used primarily for claims and
claim adjustment expense payments and operating expenses. Catastrophe claims,
the timing and amount of which are inherently unpredictable, may create
increased liquidity requirements. Additional sources of cash flow include the
sale of invested assets and financing activities. The Company believes that its
future liquidity needs will be met from all of the above sources.
Net cash flows are generally invested in marketable securities. The Company
closely monitors the duration of these investments, and investment purchases and
sales are executed with the objective of having adequate funds available to
satisfy the Company's maturing liabilities. As the Company's investment strategy
focuses on asset and liability durations, and not specific cash flows, asset
sales may be required to satisfy liability obligations and/or rebalance asset
portfolios. The Company's invested assets at June 30, 1997 totaled $29.6
billion, of which 85.8% was invested in fixed maturity investments, 3.6% in
mortgage loans and real estate held for sale, 3.3% in common stocks and other
equity securities and 7.3% in short-term and other investments. The average
duration of the fixed maturity portfolio, including short-term investments, was
5.1 years at such date. Included in fixed maturity investments are
non-investment grade securities totaling $763 million, representing
approximately 3.0% of the Company's fixed maturity investments as of June 30,
1997. The following table reflects the average yield (annualized) of the
investment portfolio excluding unrealized and realized investment gains and
losses:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Average Yield (Annualized) ......... 7.1% 7.3% 7.0% 7.0%
</TABLE>
23
<PAGE> 24
Cash flow needs at TAP include stockholder dividends and debt service. TAP meets
its cash flow needs 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. Also, TAP will continue to be able to borrow under a $500
million five-year revolving credit facility with a syndicate of banks that
expires on December 19, 2001 (the Credit Facility). Under the Credit Facility,
TAP is required to maintain a certain level of consolidated stockholders' equity
(as defined in the agreement). At June 30, 1997, this requirement was exceeded
by approximately $3.0 billion. In addition, the Credit Facility places
restrictions on the amount of consolidated debt TAP can incur. At June 30, 1997,
there were no borrowings outstanding under this facility. TAP also issues
commercial paper directly to investors and maintains unused credit availability
under the Credit Facility at least equal to the amount of commercial paper
outstanding. At June 30, 1997, TAP had no commercial paper outstanding.
At June 30, 1997, TAP had issued a total of $1.25 billion of, and had $750
million available for, debt offerings under its shelf registration statement.
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 $647
million in 1997 without prior approval of the Connecticut Insurance Department.
The Company has received $145 million of dividends from its insurance
subsidiaries during the first six months of 1997 and received an additional $100
million of dividends on July 1, 1997.
On June 23, 1997, the Company repurchased, in the aggregate, 6,600,102 shares of
Class A Common Stock held by Aetna, J.P. Morgan Capital Corporation, Fund
American Enterprise Holdings, Inc. and The Trident Partnership, L.P.
(collectively, the "Private Investors") for a total purchase price of
approximately $240.8 million, representing a discount to the then current market
price. The repurchases represent 20% of the holdings of each of the Private
Investors. As part of the repurchase agreement, each of the Private Investors
agreed to extend its contractual sale restrictions on 50% of the remaining
shares held by the Private Investors for an additional period of approximately
six months, to March 15, 1998. On July 24, 1996, TAP's Board of Directors had
authorized the expenditure of up to $100 million for the repurchase of common
stock. This transaction satisfied the Company's previously announced program to
repurchase $100 million of its shares. The Company had repurchased in the open
market approximately 1.17 million shares under the repurchase program, which was
terminated.
On January 22, 1997, the Company, through the Travelers Property Casualty Corp.
Capital Accumulation Plan, issued 414 thousand shares of the Company's Class A
Common Stock and reissued 502 thousand shares of treasury stock in the form of
restricted stock to participating officers and other key employees. The
restricted stock generally vests after a three-year period. Except under limited
circumstances, the stock cannot be sold or transferred during the restricted
period by the participant, who is required to render service to the Company
during the restricted period. Unearned compensation expense associated with the
restricted stock grants represents the market value of the Company's common
stock at the date of grant and is recognized as a charge to income ratably over
the vesting period.
FUTURE APPLICATION OF ACCOUNTING STANDARDS
See Note 3 of Notes to Condensed Consolidated Financial Statements for a
discussion of recently issued accounting pronouncements.
24
<PAGE> 25
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
For information concerning actions filed against several insurance companies and
industry organizations relating to service fee charges and premium calculations
on certain workers' compensation insurance, see the descriptions that appear in
the paragraph that begins on page 90 and ends on page 91 of the Company's
Prospectus dated April 22, 1996, the paragraph that begins on page 54 and ends
on page 55 of the Company's Annual Report on Form 10-K for the year ended
December 31, 1996 and the first paragraph on page 21 of the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1997, which descriptions are
incorporated by reference herein. A copy of the pertinent paragraphs of such
filings is included as an exhibit to this Form 10-Q. In July 1997, the Texas
Department of Insurance issued a rule addressing the same premium calculation
issues raised by the proposed intervenor class in Travelers Indemnity Company of
Connecticut v. Texas Workers Compensation Insurance Facility. The Company
believes that this rule, which requires that rebates be paid to certain 1991 to
1994 Texas workers compensation policyholders, exceeds the Department's
authority. Accordingly, the Company has joined with several other insurers in an
appeal proceeding, entitled Highlands Insurance Company v. Texas Department of
Insurance, which was filed in July 1997 in the District Court of Travis County,
Texas. In July 1997, a purported class action, entitled El Chico Restaurants,
Inc. v. The Aetna Casualty and Surety Company, et al., was filed in the U.S.
District Court for the Southern District of Florida, with allegations similar to
those in the two El Chico purported class actions filed earlier this year in
Tennessee and Georgia. Plaintiffs seek unspecified monetary damages. The Company
believes it has meritorious defenses to this action and intends to contest the
allegations.
For information concerning the appeal of a Memorandum of Decision issued by the
Connecticut Department of Insurance approving the acquisition by the Company of
Aetna P&C, see the descriptions that appear in the second full paragraph on page
91 of the Company's Prospectus dated April 22, 1996, the first paragraph on page
55 of the Company's Annual Report on Form 10-K for the year ended December 31,
1996 and the second paragraph on page 21 of the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1997, which descriptions are
incorporated by reference herein. A copy of the pertinent paragraphs of such
filings is included as an exhibit to this Form 10-Q. In June 1997, the
Connecticut Supreme Court denied plaintiffs' request that it review the
appellate court's dismissal of the appeal.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS:
See Exhibit Index.
(b) REPORTS ON FORM 8-K:
On April 17, 1997, the Company filed a Current Report on Form 8-K, dated April
17, 1997, reporting under Item 5 thereof certain additional financial
information of the Company as of March 31, 1997.
No other reports on Form 8-K were filed by the Company during the quarter ended
June 30, 1997; however, on July 21, 1997, the Company filed a Current Report on
Form 8-K, dated July 15, 1997, reporting under Item 5 thereof the results of its
operations for the three months ended June 30, 1997, and certain other selected
financial data.
25
<PAGE> 26
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Filing
Number Description of Exhibit Method
- ------- ---------------------- ------
<S> <C> <C>
3.01 Restated Certificate of Incorporation of Travelers
Property Casualty Corp. (formerly Travelers/Aetna
Property Casualty Corp.) (the "Company"),
Certificate of Designations, Powers, Preferences
and Rights of 7.5% Redeemable Preferred Stock,
Series Z, of the Company, Certificate of Amendment
to the Restated Certificate of Incorporation,
filed March 7, 1997, and Certificate of Amendment
to the Restated Certificate of Incorporation,
filed April 23, 1997, incorporated by reference to
Exhibit 3.01 to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended March 31,
1997 (File No. 1-14328) (the "Company's 3/31/97
10-Q").
3.02 Restated By-laws of the Company, effective April
23, 1997, incorporated by reference to Exhibit
3.02 to the Company's 3/31/97 10-Q.
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 paragraph that begins on page 90 and ends on
page 91 of the Company's Prospectus dated April
22, 1996, the paragraph that begins on page 54 and
ends on page 55 of the Company's Annual Report on
Form 10-K for the fiscal year ended December 31,
1996 (the "Company's 1996 10-K") and the first
paragraph on page 21 of the Company's 3/31/97
10-Q. Electronic
99.02 The second full paragraph on page 91 of the
Company's Prospectus dated April 22, 1996, the
first paragraph on page 55 of the Company's 1996
10-K and the second paragraph on page 21 of the
Company's 3/31/97 10-Q. Electronic
</TABLE>
The total amount of securities authorized pursuant to any instrument defining
rights of holders of long-term debt of the Company does not exceed 10% of the
total assets of the Company and its consolidated subsidiaries. The Company will
furnish copies of any such instrument to the Securities and Exchange Commission
upon request.
26
<PAGE> 27
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 PROPERTY CASUALTY CORP.
Date: August 12, 1997 By /s/ William P. Hannon
------------------------------------
William P. Hannon
Chief Financial Officer
(Principal Financial Officer)
Date: August 12, 1997 By /s/ Thomas P. Shugrue
------------------------------------
Thomas P. Shugrue
Chief Accounting Officer
(Principal Accounting Officer)
27
<PAGE> 1
Exhibit 11.01
Travelers Property Casualty Corp. and Subsidiaries
Computation of Earnings Per Share
(In millions, except for per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
--------- ------ ---------- -------
<S> <C> <C> <C> <C>
Earnings:
Net income (loss) $ 276 $ (216) $ 549 $ (118)
Preferred Dividends:
7.5% Preferred Stock - Series Z - (4) - (4)
--------- ------ ---------- -------
$ 276 $ (220) $ 549 $ (122)
========= ====== ========== =======
Average shares:
Common 398.5 374.2 399.0 334.3
========= ====== ========== =======
Earnings (loss) per share $ 0.69 $(0.59) $ 1.38 $ (0.36)
========= ====== ========== =======
</TABLE>
Earnings per common share is computed after recognition of preferred stock
dividend requirements and is based on the weighted average number of common
shares and common stock equivalents outstanding during the period. For purposes
of the computation of earnings per share, the weighted average number of common
shares and common stock equivalents 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 of stock prior to the IPO 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. Fully diluted earnings per common
share assuming the dilutive effect of common stock equivalents has not been
presented because the effects are not significant.
<PAGE> 1
Exhibit 12.01
Travelers 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 Six Months Ended
June 30, June 30,
------------------ ----------------
1997 1996 1997 1996
----- ----- ----- -----
<S> <C> <C> <C> <C>
Income (loss) before income taxes $ 393 $(361) $ 783 $(236)
Interest 40 38 80 38
Portion of rentals deemed to be interest 9 9 18 18
----- ----- ----- -----
Earnings available for fixed charges $ 442 $(314) $ 881 $(180)
===== ===== ===== =====
Fixed charges:
Interest $ 40 $ 38 $ 80 $ 38
Portion of rentals deemed to be interest 9 9 18 18
----- ----- ----- -----
Total fixed charges $ 49 $ 47 $ 98 $ 56
===== ===== ===== =====
Ratio of earnings to fixed charges 9.02x N/A (a) 8.99x N/A (b)
===== ===== ===== =====
</TABLE>
(a) For the three months ended June 30, 1996, TAP's earnings were not
sufficient to cover fixed charges by $361 million.
(b) For the six months ended June 30, 1996, TAP's earnings were not sufficient
to cover fixed charges by $236 million.
The ratio of earnings to fixed charges is 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 JUNE
30, 1997 FINANCIAL STATEMENTS OF TRAVELERS PROPERTY CASUALTY CORP. AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001010551
<NAME> TRAVELERS PROPERTY CASUALTY CORP.
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 25,380
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 983
<MORTGAGE> 855
<REAL-ESTATE> 210
<TOTAL-INVEST> 29,584
<CASH> 71
<RECOVER-REINSURE> 9,401
<DEFERRED-ACQUISITION> 475
<TOTAL-ASSETS> 49,901
<POLICY-LOSSES> 30,726
<UNEARNED-PREMIUMS> 3,814
<POLICY-OTHER> 1,931
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 1,249
900
0
<COMMON> 4
<OTHER-SE> 6,697
<TOTAL-LIABILITY-AND-EQUITY> 49,901
1,812
<INVESTMENT-INCOME> 507
<INVESTMENT-GAINS> (7)
<OTHER-INCOME> 28
<BENEFITS> 1,375
<UNDERWRITING-AMORTIZATION> 279
<UNDERWRITING-OTHER> 344
<INCOME-PRETAX> 393
<INCOME-TAX> 117
<INCOME-CONTINUING> 276
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 276
<EPS-PRIMARY> 0.69
<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
Company's Prospectus
April 22, 1996
Pages 90 and 91
A number of cases have been filed against several insurance companies and
industry organizations relating to service fee charges and premium calculations
on certain workers' compensation insurance. Certain subsidiaries of the Company
are defendants in South Carolina ex rel. Medlock v. National Council on
Compensation Insurance ("NCCI"), an action filed by the Attorney General of
South Carolina in August 1994 in the Court of Common Pleas, County of
Greenville, South Carolina; Four Way Plant Farm v. NCCI, a purported class
action filed in September 1994 in the Circuit Court for Bullock County, Alabama;
and NC Steel, Inc. v. NCCI, a purported class action filed in November 1993 in
the Superior Court Division of the General Court of Justice, Wake County, North
Carolina. In these cases, the plaintiffs generally allege that the
administration of each state's workers' compensation assigned risk pool
conspired with servicing carriers for the pool to collect excessive fees in
violation of state antitrust and/or unfair trade practice laws. The plaintiffs
seek unspecified compensatory, treble and/or punitive damages and injunctive
relief. The Company believes it has meritorious defenses and intends to contest
the allegations. In NC Steel, Inc. v. NCCI, the defendants' motion to dismiss
was granted in February 1995, and the plaintiffs have appealed to the North
Carolina Court of Appeals. In April 1994, certain subsidiaries of [the Company]
were named as additional defendants in a purported class action pending in the
116th District of Dallas County, Texas, entitled Weatherford Roofing Company v.
Employers National Insurance Company. The plaintiffs in this case allege that
the workers' compensation carriers in Texas have conspired to collect excessive
or improper premiums in violation of state insurance laws, antitrust laws and/or
state unfair trade practices laws. The plaintiffs seek compensatory, treble
and/or punitive damages as well as declaratory and injunctive relief. In a
statutory demand letter, plaintiffs' counsel allege classwide compensatory
damages, including interest through October 1994, of approximately $572 million.
Since that time, court-approved settlements with certain other insurers have
been based on single damage, or alleged overcharge, calculations which, if
applied to Company-issued policies of class members, would yield single damages
of $50 million or less. The Company believes it has meritorious defenses and
intends to contest the allegations unless an attractive settlement opportunity
arises.
<PAGE> 2
Company's Form 10-K
December 31, 1996
Pages 54 and 55
ITEM 3. LEGAL PROCEEDINGS.
For information concerning actions filed against several insurance
companies and industry organizations relating to service fee charges and premium
calculations on certain workers' compensation insurance, see the descriptions
that appear in the paragraph that begins on page 90 and ends on page 91 of the
Company's Prospectus dated April 22, 1996, the first paragraph on page 24 of the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996 and
the first paragraph on page 25 of the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996, which descriptions are incorporated by
reference herein. A copy of the pertinent paragraphs of such filings is included
as an exhibit to this Form 10-K. In NC Steel, Inc. v. NCCI, plaintiffs and
defendants have appealed to the North Carolina State Supreme Court. In November
1996, Amundson & Associates Art Studio v. NCCI, et al. was removed to the U.S.
District Court for the District of Kansas. In December 1996, a purported class
action entitled Forman, Inc. v. NCCI, et al. was filed in Chancery Court, Marion
County, Tennessee, with allegations similar to those in NC Steel and seeking
unspecified monetary damages. In January 1997, two additional purported class
actions, each entitled El Chico Restaurants, Inc. v. The Aetna Casualty and
Surety Company, et al., were filed in Chancery Court, Davidson County,
Tennessee, and Superior Court, Richmond County, Georgia, respectively, with
allegations similar to those in Weatherford Roofing Company v. Employers
National Insurance Company, which was settled in mid-1996. Plaintiffs seek
unspecified monetary damages. In February 1997, one action was removed to the
U.S. District Court for the Middle District of Tennessee and the other action
was removed to the U.S. District Court for the Southern District of Georgia.
Also in January 1997, a purported class of Texas workers' compensation insureds
filed a petition to intervene in a lawsuit pending since 1995 in District Court,
Travis County, Texas, entitled Travelers Indemnity Company of Connecticut v.
Texas Workers Compensation Insurance Facility. The pending lawsuit arose out of
a fee dispute between certain subsidiaries of the Company and the administration
of the Texas assigned risk pool. The proposed class challenges both the fees
paid to servicing carriers for the pool from 1991 to 1993 and certain premium
calculations on certain workers' compensation policies from 1991 forward. The
Company believes it has meritorious defenses to these actions and intends to
contest the allegations.
<PAGE> 3
Company's Form 10-Q
March 31, 1997
Page 21
ITEM 1. LEGAL PROCEEDINGS.
For information concerning actions filed against several
insurance companies and industry organizations relating to service fee charges
and premium calculations on certain workers' compensation insurance, see the
descriptions that appear in the paragraph that begins on page 90 and ends on
page 91 of the Company's Prospectus dated April 22, 1996, the first paragraph on
page 24 of the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996, the first paragraph on page 25 of the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1996 and the paragraph that
begins on page 54 and ends on page 55 of the Company's Annual Report on Form
10-K for the year ended December 31, 1996, which descriptions are incorporated
by reference herein. A copy of the pertinent paragraphs of such filings is
included as an exhibit to this Form 10-Q. In April 1997, the purported class of
Texas workers' compensation insurers that filed a petition to intervene in
Travelers Indemnity Company of Connecticut v. Texas Workers Compensation
Insurance Facility withdrew its claims against the Company's subsidiaries.
However, in May 1997, such purported class filed a second amended petition in
intervention alleging substantially the same claims as the original petition but
covering the periods from 1992 through 1994.
<PAGE> 1
Exhibit 99.02
Company's Prospectus
April 22, 1996
Page 91
On April 2, 1996, individual and institutional plaintiffs, on their own behalf
and also purporting to represent a putative class of similarly situated persons
who may lose their employment as a result of the Acquisition, filed an appeal
captioned Capital Region Conference of Churches, et al. vs. State of
Connecticut Department of Insurance, et al., (Judicial District of
Hartford/New Britain at Hartford, Superior Court of the State of Connecticut)
(the "Appeal"), from the Memorandum of Decision issued by the Deputy
Commissioner of the State of Connecticut Department of Insurance approving the
Acquisition. The Appeal alleges procedural defects in the approval process.
However, the Appeal does not seek a specific remedy. TIGI believes the Appeal
is without merit and plans vigorously to oppose it. On April 9, 1996, TIGI,
Aetna Casualty and Standard Fire moved for dismissal of the Appeal.
<PAGE> 2
Company's Form 10-K
December 31, 1996
Page 55
ITEM 3. LEGAL PROCEEDINGS.
For information concerning the appeal of a Memorandum of Decision
issued by the Connecticut Department of Insurance approving the acquisition by
the Company of Aetna P&C, see the description that appears in the second full
paragraph on page 91 of the Company's Prospectus dated April 22, 1996, which
description is incorporated by reference herein. A copy of the pertinent
paragraph of such filing is included as an exhibit to this Form 10-K. In October
1996, the court dismissed the appeal. Plaintiffs have appealed the dismissal.
<PAGE> 3
Company's Form 10-Q
March 31, 1997
Page 21
ITEM 1. LEGAL PROCEEDINGS.
For information concerning the appeal of a Memorandum of
Decision issued by the Connecticut Department of Insurance approving the
acquisition by the Company of Aetna P&C, see the descriptions that appear in the
second full paragraph on page 91 of the Company's Prospectus dated April 22,
1996 and the first paragraph on page 55 of the Company's Annual Report on Form
10-K for the year ended December 31, 1996, which descriptions are incorporated
by reference herein. A copy of the pertinent paragraphs of such filings is
included as an exhibit to this Form 10-Q. In April 1997, the appellate court
dismissed the appeal. Plaintiffs have requested that the Connecticut Supreme
Court review the appellate court's decision.
