<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, 1998
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, 1998:
CLASS A 65,907,734
CLASS B 328,020,170
<PAGE> 2
TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
TABLE OF CONTENTS
Part I - Financial Information
Item 1. Financial Statements: Page No.
Condensed Consolidated Statement of Income (Unaudited) -
Three and Six Months Ended June 30, 1998 and 1997 3
Condensed Consolidated Balance Sheet - June 30, 1998 (Unaudited)
and December 31, 1997 4
Condensed Consolidated Statement of Changes in
Stockholders' Equity (Unaudited) -
Six Months Ended June 30, 1998 5
Condensed Consolidated Statement of Cash Flows (Unaudited) -
Six Months Ended June 30, 1998 and 1997 6
Notes to Condensed Consolidated Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Part II - Other Information
Item 1. Legal Proceedings 25
Item 6. Exhibits and Reports on Form 8-K 25
Exhibit Index 26
Signatures 27
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,
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
REVENUES
Premiums $ 1,903 $ 1,812 $ 3,801 $ 3,612
Net investment income 520 507 1,028 1,007
Fee income 77 91 159 188
Realized investment gains (losses) 10 (7) 76 1
Other revenues 22 28 62 54
------- ------- ------- -------
Total revenues 2,532 2,431 5,126 4,862
------- ------- ------- -------
CLAIMS AND EXPENSES
Claims and claim adjustment expenses 1,444 1,375 2,885 2,748
Amortization of deferred acquisition costs 304 279 590 562
Interest expense 40 40 81 80
General and administrative expenses 318 344 658 689
------- ------- ------- -------
Total claims and expenses 2,106 2,038 4,214 4,079
------- ------- ------- -------
Income before federal income taxes 426 393 912 783
------- ------- ------- -------
Federal income taxes 113 117 252 234
------- ------- ------- -------
Net income $ 313 $ 276 $ 660 $ 549
======= ======= ======= =======
BASIC EARNINGS PER SHARE
Net income $ 0.80 $ 0.69 $ 1.68 $ 1.38
Weighted average number of common shares outstanding 392.4 398.4 392.3 398.9
------- ------- ------- -------
DILUTED EARNINGS PER SHARE
Net income $ 0.80 $ 0.69 $ 1.68 $ 1.38
Weighted average number of common shares outstanding
and common stock equivalents 392.9 398.5 392.8 399.0
======= ======= ======= =======
</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,
1998 1997
(UNAUDITED)
-------- --------
<S> <C> <C>
ASSETS
Fixed maturities, available for sale at fair value (cost, $26,606 and $26,127) $ 27,749 $ 27,188
Equity securities, at fair value (cost, $854 and $977) 910 1,037
Mortgage loans 611 691
Real estate held for sale 67 95
Short-term securities 1,923 1,446
Other investments 751 574
-------- --------
Total investments 32,011 31,031
-------- --------
Cash 89 47
Investment income accrued 419 387
Premium balances receivable 2,924 2,897
Reinsurance recoverables 9,106 9,188
Deferred acquisition costs 522 501
Deferred federal income taxes 1,253 1,316
Contractholder receivables 1,989 1,923
Goodwill 1,477 1,497
Other assets 2,054 1,895
-------- --------
Total assets $ 51,844 $ 50,682
======== ========
LIABILITIES
Claims and claim adjustment expense reserves $ 29,882 $ 30,324
Unearned premium reserves 4,099 3,867
Contractholder payables 1,989 1,923
Commercial paper -- 108
Long-term debt 1,250 1,249
Other liabilities 5,301 4,534
-------- --------
Total liabilities 42,521 42,005
-------- --------
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;
72,393,407 shares issued 1 1
Class B, $.01 par value, 700 million shares authorized;
328,020,170 shares issued and outstanding 3 3
Additional paid-in capital 5,479 5,473
Retained earnings 2,447 1,866
Accumulated other changes in equity from nonowner sources 772 722
Treasury stock, at cost (shares, 6,477,162 and 7,314,688) (235) (266)
Unearned compensation (44) (22)
-------- --------
Total stockholders' equity 8,423 7,777
-------- --------
Total liabilities and stockholders' equity $ 51,844 $ 50,682
======== ========
</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)
For the Six Months Ended June 30, 1998
<TABLE>
<CAPTION>
AMOUNT SHARES
COMMON STOCK AND ADDITIONAL
PAID-IN CAPITAL CLASS A CLASS B
----------- ----------- -----------
<S> <C> <C> <C>
Balance, beginning of period $ 5,477 72,393,407 328,020,170
Capital Accumulation Plan grants, net of forfeitures 6 -- --
----------- ----------- -----------
Balance, end of period 5,483 72,393,407 328,020,170
----------- ----------- -----------
RETAINED EARNINGS
Balance, beginning of period 1,866
Net income 660
Dividends (79)
-----------
Balance, end of period 2,447
-----------
ACCUMULATED OTHER CHANGES IN
EQUITY FROM NONOWNER SOURCES (1)
Balance, beginning of period 722
Net unrealized gain on securities 51
Foreign currency translation adjustments (1)
-----------
Balance, end of period 772
-----------
TREASURY STOCK (AT COST)
Balance, beginning of period (266) (7,314,688) --
Capital Accumulation Plan grants, net of forfeitures 30 821,786 --
Other 1 15,740 --
----------- ----------- -----------
Balance, end of period (235) (6,477,162) --
----------- ----------- -----------
UNEARNED COMPENSATION
Balance, beginning of period (22)
Issuance of restricted stock under Capital
Accumulation Plan, net of forfeitures (31)
Restricted stock amortization 9
-----------
Balance, end of period (44)
-----------
Total stockholders' equity and shares outstanding $ 8,423 65,916,245 328,020,170
=========== =========== ===========
</TABLE>
(1) All items of accumulated other changes in equity from nonowner sources are
displayed net of tax.
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>
For the Six Months Ended June 30, 1998 1997
------- -------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 394 $ 397
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of investments
Fixed maturities 826 719
Mortgage loans 101 100
Proceeds from sales of investments
Fixed maturities 4,587 5,691
Equity securities 269 237
Mortgage loans -- 59
Real estate held for sale 33 9
Purchase of investments
Fixed maturities (5,780) (7,344)
Equity securities (138) (263)
Mortgage loans (13) --
Short-term securities, (purchases) sales, net (476) 617
Other investments, net (188) 15
Securities transactions in course of settlement 614 82
------- -------
Net cash used in investing activities (165) (78)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of commercial paper, net (108) (25)
Purchase of treasury stock -- (269)
Dividend to TIGI (66) (49)
Dividend to minority shareholders (13) (11)
------- -------
Net cash used in financing activities (187) (354)
------- -------
Net increase (decrease) in cash 42 (35)
------- -------
Cash at beginning of period 47 106
------- -------
Cash at end of period $ 89 $ 71
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Income taxes paid $ 181 $ 433
Interest paid $ 81 $ 80
======= =======
</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.
(Travelers Group)) 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,
1997.
Certain financial information that is normally included in annual
financial statements prepared in accordance with GAAP, but that is not
required for interim reporting purposes, has been condensed or omitted.
2. Changes in Accounting Principles and Accounting Standards not yet
Adopted
Effective January 1, 1998, the Company adopted 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 thus
represents the sum of net income and other changes in equity from
nonowner sources. The accumulated balance of other changes in equity
from nonowner sources is required to be displayed separately from
retained earnings and additional paid-in capital in the consolidated
balance sheet. The adoption of FAS 130 resulted primarily in the
Company reporting unrealized gains and losses on investments in debt
and equity securities in changes in equity from nonowner sources. The
Company's total changes in equity from nonowner sources are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
(in millions) 1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net income $313 $276 $660 $549
Other changes in equity from nonowner sources 74 359 50 16
---- ---- ---- ----
Total changes in equity from nonowner sources $387 $635 $710 $565
==== ==== ==== ====
</TABLE>
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 127, "Deferral of the Effective Date of
Certain Provisions of SFAS 125" (FAS 127), which was effective for
transfers and pledges of certain financial assets and collateral made
after December 31, 1997. The adoption of the provisions of FAS 127
effective January 1, 1998 did not have a significant impact on results
of operations, financial condition or liquidity.
7
<PAGE> 8
TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
2. Changes in Accounting Principles and Accounting Standards not yet
Adopted, Continued
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (FAS 133). This
statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, (collectively referred to as derivatives) and for hedging
activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the consolidated balance sheet and
measure those instruments at fair value. If certain conditions are met,
a derivative may be specifically designated as (a) a hedge of the
exposure to changes in the fair value of a recognized asset or
liability or an unrecognized firm commitment, (b) a hedge of the
exposure to variable cash flows of a forecasted transaction, or (c) a
hedge of the foreign currency exposure of a net investment in a foreign
operation, an unrecognized firm commitment, an available-for-sale
security, or a foreign-currency-denominated forecasted transaction. The
accounting for changes in the fair value of a derivative (that is,
gains and losses) depends on the intended use of the derivative and the
resulting designation. FAS 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999. Upon initial application of
FAS 133, hedging relationships must be designated anew and documented
pursuant to the provisions of this statement. The Company has not yet
determined the impact that FAS 133 will have on its consolidated
financial statements.
In March 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of
Position 98-1, "Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use" (SOP 98-1). SOP 98-1 provides guidance on
accounting for the costs of computer software developed or obtained for
internal use and for determining when specific costs should be
capitalized and when they should be expensed. SOP 98-1 is effective for
financial statements for fiscal years beginning after December 15,
1998. Restatement of previously issued financial statements is not
allowed. The impact of SOP 98-1 is not expected to be significant.
3. Earnings per Share
There was no effect from dilutive securities on earnings per share for
the three and six months ended June 30, 1998 and 1997.
4. 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, 1998, this requirement was exceeded by approximately $3.8
billion. In addition, this facility places restrictions on the amount
of consolidated debt TAP can incur. At June 30, 1998, there were no
borrowings outstanding under this facility. If the Company had
borrowings on this facility, the interest rate would be based upon
LIBOR plus a negotiated margin. 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, 1998, 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. 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 $805 million in 1998 without prior approval of the
Connecticut Insurance Department. TAP received $220 million of
dividends from its insurance subsidiaries during the first six months
of 1998.
8
<PAGE> 9
TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
4. Capital and Debt, Continued
On June 3, 1998, the Company filed a registration statement covering
8,918,395 shares of Class A Common Stock, which were sold by Aetna
Services, Inc. (Aetna) and J.P. Morgan Capital Corporation (J.P.
Morgan). All expenses incurred in connection with the offering were
paid by the Company. The Company did not receive any proceeds from the
sale of the Class A Common Stock. The sale represented approximately
88% of the remaining aggregate holdings of Aetna, J.P. Morgan, Fund
American Enterprise Holdings, Inc. and The Trident Partnership, L.P.
(collectively, the "Private Investors"). Immediately following this
sale, the Private Investors held less than 1% of the total outstanding
shares of common stock.
5. Commitments and Contingencies
In 1996, Lloyd's of London (Lloyd's) restructured its operations with
respect to claims for years prior to 1993. The outcome of the
restructuring of Lloyd's remains 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 impact on collectibility 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,
1998 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 Superfund and other 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.
9
<PAGE> 10
TRAVELERS PROPERTY CASUALTY CORP. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited), Continued
6. Travelers Group Pending Merger with Citicorp
On April 5, 1998, Travelers Group, the indirect owner of approximately
83% of the outstanding common stock of TAP, and Citicorp agreed to
combine in a merger of equals (the "Merger"). The Merger, which is
anticipated to be completed in the third quarter of 1998, will be
effected through a merger of Citicorp into a newly formed, wholly owned
subsidiary of Travelers Group. The Merger and/or related transactions
are subject to customary closing conditions, including regulatory
approvals. On July 22, 1998 the stockholders of each of Travelers Group
and Citicorp approved the Merger.
Travelers Group has applied to the Federal Reserve Board to become a
bank holding company under the provisions of the Bank Holding Company
Act of 1956 (the "BHCA"). The BHCA precludes a bank holding company and
its affiliates from engaging in certain activities, generally including
insurance underwriting. Under the BHCA in its current form, the Company
has two years from the date it becomes a bank holding company to comply
with all applicable provisions (the "BHCA Compliance Period"). The BHCA
Compliance Period may be extended, at the discretion of the Federal
Reserve Board, for three additional one-year periods so long as the
extension is not deemed to be detrimental to the public interest.
Upon consummation of the Merger, and as a direct result of Travelers
Group becoming a bank holding company, the BHCA will impose certain
restrictions on the Company's operations going forward, including the
ability to make acquisitions of certain insurance underwriters. It is
not expected that such restrictions will impede the Company's existing
businesses in any material respect or preclude the Company from
expanding its existing insurance underwriting activities (other than by
acquisition of certain insurance underwriters). At this time, the
Company believes that compliance by Travelers Group and the Company
with applicable law following the Merger will not have a material
adverse effect on the Company's financial condition or results of
operations.
There is pending federal legislation that would, if enacted, amend the
BHCA to authorize a bank holding company to own certain insurance
underwriters. There is no assurance that such legislation will be
enacted. Before the expiration of the BHCA Compliance Period, each of
the Company and Travelers Group will evaluate its alternatives in order
to comply with whatever laws are applicable at the expiration of the
BHCA Compliance Period.
10
<PAGE> 11
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),
which includes Travelers Casualty and Surety Company (formerly The Aetna
Casualty and Surety Company) and The Standard Fire Insurance Company
(collectively, Aetna P&C), which TAP purchased from Aetna Services, Inc. (Aetna)
in 1996.
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,
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
(in millions, except per share data) 1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues $ 2,532 $ 2,431 $ 5,126 $ 4,862
--------- --------- --------- ---------
Net income (1) $ 313 $ 276 $ 660 $ 549
--------- --------- --------- ---------
Net income per share - assuming dilution $ 0.80 $ 0.69 $ 1.68 $ 1.38
--------- --------- --------- ---------
Weighted average number of common shares outstanding
and common stock equivalents - assuming dilution 392.9 398.5 392.8 399.0
========= ========= ========= =========
</TABLE>
(1) Net income includes $7 million of realized investment gains in the
three months ended June 30, 1998 and $4 million of realized investment
losses in the three months ended June 30, 1997, and $50 million and $1
million of realized investment gains in the six months ended June 30,
1998 and 1997, respectively.
Consolidated Results of Operations for the Three Months Ended June 30, 1998 and
1997
Operating earnings, which exclude realized investment gains (losses), were $306
million or $0.78 per share (diluted) in the second quarter of 1998, an increase
of $26 million or $0.08 per share from $280 million or $0.70 per share (diluted)
in the second quarter of 1997. The increase in operating earnings was primarily
the result of increased after-tax net investment income and continued
productivity improvements and expense savings, partially offset by increased
catastrophe losses.
Revenues of $2.532 billion in the second quarter of 1998 increased $101 million
from $2.431 billion in the second quarter of 1997. This increase was primarily
attributable to a $91 million increase in earned premiums, reflecting production
growth in Personal Lines. In addition, there was a $17 million increase in
realized investment gains and a $13 million increase in net investment income,
partially offset by a $14 million reduction in fee income.
Net investment income was $520 million in the second quarter of 1998, an
increase of $13 million from the second quarter of 1997, primarily reflecting
the higher level of invested assets in the second quarter of 1998, partially
offset by an increase in tax-exempt securities in the second quarter of 1998.
Fee income in the second quarter of 1998 was $77 million, a $14 million decrease
from the second quarter of 1997. National Accounts within Commercial Lines is
the primary source of fee income due to its service business. This decrease in
fee income was due to the depopulation of involuntary pools as the loss
experience of workers' compensation improved and insureds moved to voluntary
markets, the Company's continued success in lowering workers' compensation
losses of service customers and a slight increase in demand in the marketplace
for guaranteed cost products.
11
<PAGE> 12
Claims and expenses of $2.106 billion in the second quarter of 1998 increased
$68 million from the second quarter of 1997. The increase was primarily the
result of higher claims related to the growth in premiums in Personal Lines and
higher catastrophe losses, partially offset by a reduction in general and
administrative expenses.
The Company's effective tax rate was 27% in the second quarter of 1998 compared
to 30% in the second quarter of 1997. These rates were lower than the statutory
tax rate in both periods primarily due to non-taxable investment income. In
addition, the rate in the second quarter of 1998 was less than the rate in the
second quarter of 1997 due to the Company's decision to invest more heavily in
tax-exempt securities.
The statutory and GAAP combined ratios were as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30, 1998 1997
----- -----
<S> <C> <C>
STATUTORY:
Loss and loss adjustment expense (LAE) ratio .... 73.2% 72.7%
Underwriting expense ratio ...................... 29.5 30.3
Combined ratio before policyholder dividends .... 102.7 103.0
Combined ratio .................................. 103.4 104.0
----- -----
GAAP:
Loss and LAE ratio .............................. 72.8% 72.5%
Underwriting expense ratio ...................... 29.2 30.4
Combined ratio before policyholder dividends .... 102.0 102.9
Combined ratio .................................. 102.7 103.4
===== =====
</TABLE>
GAAP combined ratios differ from statutory combined ratios primarily due to the
deferral and amortization of certain expenses for GAAP reporting purposes only.
The decrease in the second quarter of 1998 statutory and GAAP combined ratios
compared to the second quarter of 1997 statutory and GAAP combined ratios was
due to lower operating expense levels in both Commercial and Personal Lines,
offset in part by an increase in catastrophe and other weather-related property
losses in Commercial and Personal Lines.
Consolidated Results of Operations for the Six Months Ended June 30, 1998 and
1997
Excluding realized investment gains (losses), operating income was $610 million
or $1.55 per share (diluted) for the six months ended June 30, 1998 compared to
$548 million or $1.37 per share (diluted) for the six months ended June 30,
1997. The increase in operating income in the six months ended June 30, 1998
compared to the six months ended June 30, 1997 was due to higher after-tax net
investment income and continued productivity improvements and expense savings,
partially offset by increased catastrophe losses.
The statutory and GAAP combined ratios were as follows:
<TABLE>
<CAPTION>
Six Months Ended June 30, 1998 1997
----- -----
<S> <C> <C>
STATUTORY:
Loss and LAE ratio .............................. 73.1% 73.2%
Underwriting expense ratio ...................... 28.9 29.1
Combined ratio before policyholder dividends .... 102.0 102.3
Combined ratio .................................. 102.7 102.9
----- -----
GAAP:
Loss and LAE ratio .............................. 72.8% 72.8%
Underwriting expense ratio ...................... 29.1 28.6
Combined ratio before policyholder dividends .... 101.9 101.4
Combined ratio .................................. 102.6 101.9
===== =====
</TABLE>
12
<PAGE> 13
GAAP combined ratios differ from statutory combined ratios primarily due to the
deferral and amortization of certain expenses for GAAP reporting purposes only.
The first six months of 1997 statutory and GAAP combined ratios include an
adjustment in Commercial Lines due to a change to conform the Aetna P&C method
with The Travelers Indemnity Company and its subsidiaries (Travelers P&C) method
of recording certain net written premiums, and an adjustment in Personal Lines
associated with a change in the quota share reinsurance arrangement. Excluding
these adjustments, the statutory and GAAP combined ratios before policyholder
dividends for the first six months of 1997 would have been 102.7% and 103.0%,
respectively. The decrease in the first six months of 1998 statutory and GAAP
combined ratios compared to the first six months of 1997 statutory and GAAP
combined ratios excluding these adjustments was due to continued productivity
improvements and expense savings, partially offset by higher catastrophe losses.
The other consolidated operating trends for the six months ended June 30, 1998
and 1997 are substantially the same as noted above for the quarters then ended.
SEGMENT RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997
Commercial Lines
<TABLE>
<CAPTION>
Three Months Ended June 30, 1998 1997
------ ------
(in millions)
<S> <C> <C>
Revenues ............................. $1,620 $1,612
Net income (1) ....................... $ 235 $ 209
====== ======
</TABLE>
(1) Commercial Lines net income includes $7 million of realized investment
gains in the three months ended June 30, 1998.
Commercial Lines operating income, which excludes realized investment gains
(losses), was $228 million in the second quarter of 1998 compared to $209
million in the second quarter of 1997. This increase was due to strong net
investment income and continued expense savings, partially offset by increased
losses from catastrophes and other weather-related events.
Revenues were $1.620 billion in the second quarter of 1998 compared to $1.612
billion in the second quarter of 1997. This increase primarily reflected higher
earned premiums, net investment income and realized investment gains, partially
offset by a decline in fee income.
Commercial Lines net written premiums in the second quarter of 1998 totaled
$1.121 billion, down $20 million from $1.141 billion in the second quarter of
1997. The decrease was driven by lower premiums from involuntary workers'
compensation pools. Also, net written premium levels continue to be unfavorably
impacted by the difficult pricing environment and reflect the Company's
disciplined approach to underwriting and risk management.
Fee income in the second quarter of 1998 was $77 million, a $14 million decrease
from the second quarter of 1997. This decrease was due to the depopulation of
involuntary pools as the loss experience of workers' compensation improved and
insureds moved to voluntary markets, the Company's continued success in lowering
workers' compensation losses of service customers and a slight increase in
demand in the marketplace for guaranteed cost products.
13
<PAGE> 14
National Accounts 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 sells claims and policy management services to workers'
compensation and automobile assigned risk plans, self-insurance pools throughout
the United States and to niche voluntary markets. National Accounts net written
premiums of $121 million in the second quarter of 1998 decreased $29 million
from the second quarter of 1997. This decrease was primarily the result of
pricing declines due to the highly competitive marketplace, a decrease in the
Company's level of involuntary pool participation and the Company's continued
disciplined approach to underwriting and risk management. National Accounts new
business and the business retention ratio were significantly lower in the second
quarter of 1998 than in the second quarter of 1997, reflecting the addition of
one large account in the second quarter of 1997 and the loss of one large
account in the second quarter of 1998.
Commercial Accounts serves mid-sized businesses through a network of independent
agents and brokers. Commercial Accounts net written premiums were $441 million
in the 1998 second quarter, down $12 million from $453 million a year ago. The
decrease in Commercial Accounts net written premiums reflected continued pricing
declines due to the highly competitive marketplace and the Company's continued
disciplined approach to underwriting and risk management, partially offset by
growth through programs designed to leverage underwriting experience in specific
industries. Commercial Accounts new business in the second quarter of 1998 was
significantly lower than in the second quarter of 1997. Commercial Accounts
business retention ratio was moderately lower in the second quarter of 1998 than
in the second quarter of 1997. The decreases in new business and business
retention ratios reflected the Company's focus on maintaining its selective
underwriting policy.
Select Accounts serves small businesses through a network of independent agents.
Select Accounts net written premiums were $394 million in the second quarter of
1998 compared to $370 million in the second quarter of 1997. The increase in
Select Accounts net written premiums was due to a decrease in ceded premiums,
partially offset by the highly competitive marketplace and the Company's
continued disciplined approach to underwriting and risk management. New premium
business in Select Accounts was virtually the same in the second quarter of 1998
and 1997. Select Accounts business retention ratio remained strong in the second
quarter of 1998 and was virtually the same as that in the second quarter of
1997.
Specialty Accounts markets products to national, midsize and small customers,
including individuals, and distributes them through both wholesale brokers and
retail agents and brokers throughout the United States. Specialty Accounts net
written premiums were $165 million in the second quarter of 1998 compared to
$168 million in the second quarter of 1997. This decrease primarily reflects a
highly competitive marketplace and the Company's continued disciplined approach
to underwriting and risk management.
Commercial Lines claims and expenses of $1.305 billion in the second quarter of
1998 were down from $1.319 billion in the second quarter of 1997. This decrease
was primarily due to continued expense savings, partially offset by higher
catastrophe and other weather-related property losses in the second quarter of
1998.
Catastrophe losses, net of taxes and reinsurance, were $10 million in the second
quarter of 1998, primarily due to tornadoes in Nashville, Tennessee. Catastrophe
losses were insignificant in the second quarter of 1997.
14
<PAGE> 15
Statutory and GAAP combined ratios for Commercial Lines were as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30, 1998 1997
----- -----
<S> <C> <C>
STATUTORY:
Loss and LAE ratio .............................. 79.0% 77.8%
Underwriting expense ratio ...................... 30.8 31.9
Combined ratio before policyholder dividends .... 109.8 109.7
Combined ratio .................................. 111.0 111.4
----- -----
GAAP:
Loss and LAE ratio .............................. 78.4% 77.5%
Underwriting expense ratio ...................... 31.5 32.5
Combined ratio before policyholder dividends .... 109.9 110.0
Combined ratio .................................. 111.1 110.9
===== =====
</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.
The increase in the second quarter of 1998 statutory and GAAP loss and LAE
ratios compared to the second quarter of 1997 statutory and GAAP loss and LAE
ratios was due to higher catastrophe and other weather-related losses and lower
fee income. The decrease in the second quarter of 1998 statutory and GAAP
underwriting expense ratios compared to the second quarter of 1997 statutory and
GAAP underwriting expense ratios was due to continued expense savings.
Personal Lines
<TABLE>
<CAPTION>
Three Months Ended June 30, 1998 1997
---- ----
(in millions)
<S> <C> <C>
Revenues ............................... $910 $815
Net income (1) ......................... $107 $ 97
==== ====
</TABLE>
(1) Personal Lines net income includes $4 million of realized investment losses
in the three months ended June 30, 1997.
Personal Lines operating income, which excludes realized investment gains and
losses, was $107 million in the second quarter of 1998 compared to $101 million
in the second quarter of 1997. The 1998 results include an increase in net
investment income and production compared to the second quarter of 1997,
partially offset by higher catastrophe losses and an increase in investments in
service centers and market expansions.
Revenues were $910 million in the second quarter of 1998 compared to $815
million in the second quarter of 1997. This increase primarily reflected an
increase in earned premiums of $84 million and an increase in net investment
income of $7 million.
Net written premiums in the second quarter of 1998 were $874 million, compared
to $745 million in the second quarter of 1997. This increase reflected growth in
target markets served by independent agents and growth in affinity group
marketing, joint marketing arrangements and the TRAVELERS SECURE(R) program. The
TRAVELERS SECURE(R) program markets Personal Lines products through the
independent agents of Primerica Financial Services (PFS), a unit of Travelers
Group Inc. Business retention continued to be strong.
Personal Lines claims and expenses of $754 million in the 1998 second quarter
increased $84 million from the 1997 second quarter. This increase was primarily
the result of higher losses associated with the growth in premiums and higher
catastrophe losses, as well as an increase in investments in service centers and
market expansions.
15
<PAGE> 16
Catastrophe losses, net of taxes and reinsurance, were $13 million in the second
quarter of 1998 compared to $5 million in the second quarter of 1997. The 1998
catastrophe losses were due to tornadoes and wind and hail storms in the
Southeast and Midwest.
Statutory and GAAP combined ratios for Personal Lines were as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30, 1998 1997
---- ----
<S> <C> <C>
STATUTORY:
Loss and LAE ratio ............................ 65.2% 64.9%
Underwriting expense ratio .................... 27.7 27.9
Combined ratio ................................ 92.9 92.8
---- ----
GAAP:
Loss and LAE ratio ............................ 65.2% 64.9%
Underwriting expense ratio .................... 26.3 27.2
Combined ratio ................................ 91.5 92.1
==== ====
</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 increase in the second quarter of 1998 statutory and GAAP loss and LAE
ratios compared to the second quarter of 1997 statutory and GAAP loss and LAE
ratios was primarily due to the higher level of catastrophe losses and a
decrease in favorable prior year reserve development in the automobile bodily
injury line. The decrease in the second quarter of 1998 statutory and GAAP
underwriting expense ratios compared to the second quarter of 1997 statutory and
GAAP underwriting expense ratios was primarily due to benefits from
productivity improvements as premium levels increase.
Corporate and Other
<TABLE>
<CAPTION>
Three Months Ended June 30, 1998 1997
---- ----
(in millions)
<S> <C> <C>
Revenues ............................... $ 2 $ 4
Net income (loss) ...................... $(29) $(30)
==== ====
</TABLE>
The primary component of net income (loss) for the 1998 and 1997 second quarter
was after-tax interest expense of $26 million, reflecting financing costs
associated with the 1996 acquisition of Aetna P&C.
SEGMENT RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
Commercial Lines
<TABLE>
<CAPTION>
Six Months Ended June 30, 1998 1997
------ ------
(in millions)
<S> <C> <C>
Revenues ............................. $3,317 $3,236
Net income (1) ...................... $ 495 $ 410
====== ======
</TABLE>
(1) Commercial Lines net income includes $42 million and $7 million of
realized investment gains in the six months ended June 30, 1998 and
1997, respectively.
16
<PAGE> 17
Commercial Lines operating income, which excludes realized investment gains, was
$453 million in the six months ended June 30, 1998 compared to $403 million in
the six months ended June 30, 1997. The increase in operating income in the 1998
period was due to higher net investment income, continued expense savings, and
favorable loss experience, partially offset by increased losses from
catastrophes and other weather-related events.
Revenues were $3.317 billion in the first six months of 1998 compared to $3.236
billion in the first six months of 1997. This increase primarily reflected
higher earned premiums and realized investment gains, partially offset by a
decline in fee income.
Commercial Lines net written premiums in the first six months of 1998 totaled
$2.333 billion, down $146 million from $2.479 billion in the first six months of
1997, reflecting a $142 million adjustment, in the first quarter of 1997, to net
written premiums due to a change to conform the Aetna P&C method with the
Travelers P&C method of recording certain net written premiums.
Fee income in the first six months of 1998 was $159 million, a $29 million
decrease from the first six months of 1997. This decrease was the result of the
depopulation of involuntary pools as the loss experience of workers'
compensation improved and insureds moved to voluntary markets, the Company's
continued success in lowering workers' compensation losses of service customers
and a slight increase in demand in the marketplace for guaranteed cost products.
National Accounts net written premiums were $308 million in the first six months
of 1998 compared to $371 million in the first six months of 1997. This decrease
was primarily the result of pricing declines due to the highly competitive
marketplace, a decrease in the Company's level of involuntary pool
participation, and the Company's continued disciplined approach to underwriting
and risk management. National Accounts new business in the first six months of
1998 was significantly lower compared to the first six months of 1997. National
Accounts business retention ratio was moderately lower in the first six months
of 1998 compared to the first six months of 1997. New business and business
retention ratios reflect the addition of one large account in the second quarter
of 1997 and the loss of one large account in the second quarter of 1998.
Excluding the above, National Accounts experienced an increase in claim
service-only business as well as favorable results from continued product
development efforts, especially in workers' compensation managed care programs.
Commercial Accounts net written premiums were $904 million in the first six
months of 1998 compared to $1.014 billion in the first six months of 1997. This
decrease reflected a $127 million adjustment, in the first quarter of 1997, to
net written premiums due to the change to conform the Aetna P&C method with the
Travelers P&C method of recording certain net written premiums. Excluding this
adjustment, net written premiums increased slightly reflecting lower ceded
premiums, partially offset by pricing declines due to the highly competitive
marketplace and the Company's continued disciplined approach to underwriting and
risk management. For the first six months of 1998, new premium business in
Commercial Accounts significantly declined compared to the first six months of
1997, reflecting the Company's focus on obtaining new business accounts where it
can maintain its selective underwriting policy. The Commercial Accounts business
retention ratio in the first six months of 1998 remained virtually the same
compared to the first six months of 1997. Commercial Accounts continues to focus
on the retention of existing business while maintaining its product pricing
standards and its selective underwriting policy.
17
<PAGE> 18
Select Accounts net written premiums of $772 million in the first six months of
1998 increased $39 million from $733 million in the first six months of 1997.
The 1997 amount includes a first quarter increase of $15 million to net written
premiums due to the change to conform the Aetna P&C method with the Travelers
P&C method of recording certain net written premiums. Excluding this adjustment,
the increase in Select Accounts net written premiums reflected lower ceded
premiums, partially offset by the highly competitive marketplace and the
Company's continued disciplined approach to underwriting and risk management.
New premium business in Select Accounts was moderately higher in the first six
months of 1998 compared to the first six months of 1997, reflecting the broader
industry and product line expertise of the Company. Select Accounts business
retention ratio remained strong in the first half of 1998 and was virtually the
same as that in the first half of 1997.
Specialty Accounts net written premiums were $349 million in the first six
months of 1998 compared to $361 million in the first six months of 1997. This
decrease primarily reflects a highly competitive marketplace and the Company's
continued disciplined approach to underwriting and risk management.
Commercial Lines claims and expenses of $2.644 billion in the first six months
of 1998 decreased $16 million from the first six months of 1997. This decrease
was primarily attributable to continued expense savings, partially offset by
higher catastrophe and other weather-related losses in the first six months of
1998.
Catastrophe losses, net of taxes and reinsurance, were $10 million and $5
million in the first six months of 1998 and 1997, respectively. The 1998
catastrophe losses were primarily due to tornadoes in Nashville, Tennessee in
the second quarter. The 1997 catastrophe losses were primarily due to tornadoes
in the Midwest in the first quarter.
Statutory and GAAP combined ratios for Commercial Lines were as follows:
<TABLE>
<CAPTION>
Six Months Ended June 30, 1998 1997
----- -----
<S> <C> <C>
STATUTORY:
Loss and LAE ratio .............................. 78.6% 79.8%
Underwriting expense ratio ...................... 29.6 29.5
Combined ratio before policyholder dividends .... 108.2 109.3
Combined ratio .................................. 109.4 110.3
----- -----
GAAP:
Loss and LAE ratio .............................. 78.1% 79.1%
Underwriting expense ratio ...................... 30.8 29.4
Combined ratio before policyholder dividends .... 108.9 108.5
Combined ratio .................................. 110.1 109.3
===== =====
</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.
The first six months of 1997 statutory and GAAP combined ratios for Commercial
Lines include an adjustment due to the change to conform the Aetna P&C method
with Travelers P&C method of recording certain net written premiums. Excluding
this adjustment, the statutory and GAAP combined ratios before policyholder
dividends for the first six months of 1997 would have been 110.1% and 110.3%,
respectively. The decrease in the first six months of 1998 statutory and GAAP
combined ratios compared to the first six months of 1997 statutory and GAAP
combined ratios excluding this adjustment was due to continued expense savings
and favorable loss experience, partially offset by higher catastrophe and other
weather-related losses and lower fee income.
18
<PAGE> 19
Personal Lines
<TABLE>
<CAPTION>
Six Months Ended June 30, 1998 1997
------ ------
(in millions)
<S> <C> <C>
Revenues ............................. $1,803 $1,620
Net income (1) ....................... $ 223 $ 202
====== ======
</TABLE>
(1) Personal Lines net income includes $8 million of realized investment
gains in the six months ended June 30, 1998 and $7 million of realized
investment losses in the six months ended June 30, 1997.
Personal Lines operating income, which excludes realized investment gains
(losses), was $215 million in the first six months of 1998 compared to $209
million in the first six months of 1997. The increase in operating income in the
1998 period was primarily due to increased production and higher net investment
income, partially offset by higher catastrophe losses.
Net written premiums in the first six months of 1998 were $1.680 billion,
compared to $1.451 billion (excluding a one-time adjustment of $69 million due
to a change in the quota share reinsurance arrangement) in the first six months
of 1997. This increase primarily reflects growth in target markets served by
independent agents and growth in affinity marketing, joint marketing
arrangements and the TRAVELERS SECURE(R) program. Business retention continued
to be strong.
Personal Lines claims and expenses of $1.475 billion in the first six months of
1998 increased $159 million from the first six months of 1997. This increase was
the result of higher losses associated with the growth in premiums and higher
catastrophe losses, as well as an increase in investments in service centers and
market expansions.
Catastrophe losses, after taxes and reinsurance, were $22 million in the first
half of 1998 compared to $5 million in the first half of 1997. The 1998
catastrophe losses were due to tornadoes and wind and hail storms in the
Southeast and Midwest in the second quarter and ice storms in northern New York
and New England and windstorms on the East Coast in the first quarter.
Statutory and GAAP combined ratios for Personal Lines were as follows:
<TABLE>
<CAPTION>
Six Months Ended June 30, 1998 1997
---- ----
<S> <C> <C>
STATUTORY:
Loss and LAE ratio ............................ 65.2% 63.1%
Underwriting expense ratio .................... 27.9 28.4
Combined ratio ................................ 93.1 91.5
---- ----
GAAP:
Loss and LAE ratio ............................ 65.2% 63.1%
Underwriting expense ratio .................... 26.7 27.3
Combined ratio ................................ 91.9 90.4
==== ====
</TABLE>
The first six months of 1997 statutory and GAAP combined ratios for Personal
Lines include an adjustment associated with a change in the quota share
reinsurance arrangement. Excluding this adjustment, the statutory and GAAP
combined ratios for the first six months of 1997 would have been 91.3% and
91.7%, respectively. The increase in the first six months of 1998 statutory and
GAAP combined ratios compared to the first six months of 1997 statutory and GAAP
combined ratios excluding this adjustment was due to higher catastrophe losses
and a decrease in favorable prior year reserve development in the automobile
bodily injury line, partially offset by productivity improvements.
19
<PAGE> 20
Corporate and Other
<TABLE>
<CAPTION>
Six Months Ended June 30, 1998 1997
---- ----
(in millions)
<S> <C> <C>
Revenues ............................... $ 6 $ 6
Net income (loss) ...................... $(58) $(63)
==== ====
</TABLE>
The primary component of net income (loss) for the six months ended June 30,
1998 and 1997 was interest expense of $53 million and $52 million after tax,
respectively, reflecting financing costs associated with the 1996 acquisition of
Aetna P&C.
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 aggregate volume of in-process environmental claims and the Company's
experience in resolving such claims. At June 30, 1998, approximately 19% of the
net aggregate reserve (i.e., approximately $191 million) consists of case
reserve for resolved claims. The balance, approximately 81% of the net aggregate
reserve (i.e., approximately $819 million), is carried in a bulk reserve and
includes incurred but not 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, 1998 and 1997.
<TABLE>
<CAPTION>
Environmental Losses
Six Months Ended June 30, 1998 1997
------- -------
(in millions)
<S> <C> <C>
Beginning reserves:
Direct .................................. $ 1,193 $ 1,369
Ceded ................................... (74) (127)
------- -------
Net ................................... 1,119 1,242
Incurred losses and loss expenses:
Direct .................................. 54 38
Ceded ................................... (27) (2)
Losses paid:
Direct .................................. 189 100
Ceded ................................... (53) (45)
------- -------
Ending reserves:
Direct .................................. 1,058 1,307
Ceded ................................... (48) (84)
------- -------
Net ................................... $ 1,010 $ 1,223
======= =======
</TABLE>
ASBESTOS CLAIMS
At June 30, 1998, approximately 29% of the net aggregate reserve (i.e.,
approximately $314 million) is for pending asbestos claims. The balance,
approximately 71% (i.e., approximately $771 million) of the net aggregate
reserve, represents incurred but not reported losses for which the Company has
not received any specific claims.
20
<PAGE> 21
The following table displays activity for asbestos losses and loss expenses and
reserves for the six months ended June 30, 1998 and 1997. In general, the
Company posts case reserves for pending asbestos claims within approximately 30
business days of receipt of such claims.
<TABLE>
<CAPTION>
Asbestos Losses
Six Months Ended June 30, 1998 1997
------- -------
<S> <C> <C>
(in millions)
Beginning reserves:
Direct .................................. $ 1,363 $ 1,443
Ceded ................................... (249) (370)
------- -------
Net ................................... 1,114 1,073
Incurred losses and loss expenses:
Direct .................................. 62 37
Ceded ................................... (28) (14)
Losses paid:
Direct .................................. 98 89
Ceded ................................... (35) (58)
------- -------
Ending reserves:
Direct .................................. 1,327 1,391
Ceded ................................... (242) (326)
------- -------
Net ................................... $ 1,085 $ 1,065
======= =======
</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, 1998 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 Superfund and other 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, 1998, approximately 18% of the net aggregate reserve (i.e.,
approximately $189 million) is for pending CIOTA claims. The balance,
approximately 82% (i.e., approximately $866 million) of the net aggregate
reserve, represents incurred but not reported losses for which the Company has
not received any specific claims.
21
<PAGE> 22
The following table displays activity for CIOTA losses and loss expenses and
reserves for the six months ended June 30, 1998 and 1997. In general, the
Company posts case reserves for pending CIOTA claims within approximately 30
business days of receipt of such claims.
<TABLE>
<CAPTION>
CIOTA Losses
Six Months Ended June 30, 1998 1997
------- -------
<S> <C> <C>
(in millions)
Beginning reserves:
Direct .................................. $ 1,520 $ 1,560
Ceded ................................... (432) (446)
------- -------
Net ................................... 1,088 1,114
Incurred losses and loss expenses:
Direct .................................. (18) 12
Ceded ................................... 15 --
Losses paid:
Direct .................................. 35 36
Ceded ................................... (5) (15)
Ending reserves:
Direct .................................. 1,467 1,536
Ceded ................................... (412) (431)
------- -------
Net ................................... $ 1,055 $ 1,105
======= =======
</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). 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 obligations and/or rebalance asset portfolios.
The Company's invested assets at June 30, 1998 totaled $32.0 billion, of which
86.7% was invested in fixed maturity investments, 2.8% in common stocks and
other equity securities, 2.1% in mortgage loans and real estate held for sale
and 8.4% in short-term and other investments. The average duration of the fixed
maturity portfolio, including short-term investments, was 5.3 years at such
date. Included in fixed maturity investments are non-investment grade securities
totaling $788 million, representing 2.8% of the Company's fixed maturity
investments as of June 30, 1998. 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
Average Yield (Annualized) June 30, June 30,
- -------------------------- -------- --------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Before tax 7.1% 7.1% 7.1% 7.0%
After tax 5.1% 4.9% 5.1% 4.9%
</TABLE>
22
<PAGE> 23
Cash flow needs at TAP include stockholder dividends and debt service. TAP is a
holding company and has no direct operations. Accordingly, 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 make borrowings under a $500
million Credit Facility with a syndicate of banks, which expires in December
2001, none of which is currently utilized. Under the Credit Facility, TAP is
required to maintain a certain level of consolidated stockholders' equity (as
defined in the agreement). At June 30, 1998, this requirement was exceeded by
approximately $3.8 billion. In addition, the Credit Facility places restrictions
on the amount of consolidated debt TAP can incur. If the Company had borrowings
under the Credit Facility, the interest rate would be based upon LIBOR plus a
negotiated margin. TAP compensates the banks for the Credit Facility through
commitment fees. 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, 1998, TAP had no
commercial paper outstanding.
At June 30, 1998, TAP had issued a total of $1.25 billion of, and had $750
million available for, debt offerings under its shelf registration statement.
TAP'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 $805 million in 1998 without
prior approval of the Connecticut Insurance Department. The Company has received
$220 million of dividends from its insurance subsidiaries during the first six
months of 1998.
On June 23, 1997, TAP repurchased, in the aggregate, 6,600,102 shares of its
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 represented 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 October 24, 1997, TAP filed a registration statement covering 14,200,207
shares of Class A Common Stock (which included an over-allotment option for
1,000,000 shares) which were sold by the Private Investors. In order to permit
the grant by the Private Investors to the underwriters in the offering of an
over-allotment option to purchase up to an additional 1,000,000 shares in the
aggregate, TAP waived the restricted period on such shares, the sale of which
would otherwise be restricted until March 15, 1998. Except for underwriting
commissions, all expenses incurred in connection with the offering were paid by
the Company. TAP did not receive any proceeds from the sale of the Class A
Common Stock. The sale represented approximately 54% of the remaining holdings
of each of the Private Investors.
On June 3, 1998, TAP filed a registration statement covering 8,918,395 shares of
Class A Common Stock, which were sold by certain Private Investors. All expenses
incurred in connection with the offering were paid by the Company. The Company
did not receive any proceeds from the sale of the Class A Common Stock. The sale
represented approximately 88% of the remaining aggregate holdings of the Private
Investors. Immediately following this sale, the Private Investors held less than
1% of the total outstanding shares of common stock.
23
<PAGE> 24
On January 28, 1998, TAP, through the Travelers Property Casualty Corp. Capital
Accumulation Plan, reissued 763,654 shares of treasury stock in the form of
restricted stock to participating officers and other key employees. In addition,
on January 22, 1997, TAP issued 413,578 shares of TAP's Class A Common Stock and
reissued 502,430 shares of treasury stock in the form of restricted stock to
participating officers and other key employees. The fair market values per share
of the 1998 and 1997 restricted stock awards were $43.71 and $37.58,
respectively. 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 grant represents the market value
of TAP's common stock at the date of grant and is recognized as a charge to
income ratably over the vesting period. At June 30, 1998, there were 2,320,338
shares available for future grants under TAP's restricted stock plan.
FUTURE APPLICATION OF ACCOUNTING STANDARDS
See Note 2 of Notes to Condensed Consolidated Financial Statements for a
discussion of recently issued accounting pronouncements.
FORWARD LOOKING STATEMENTS
Certain of the statements contained herein that are not historical facts are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act. The Company's actual results may differ materially from
those included in the forward-looking statements. Forward-looking statements are
typically identified by the words "believe," "expect," "anticipate," "intend,"
"estimate," and similar expressions. These forward-looking statements involve
risks and uncertainties including, but not limited to, the following: the
resolution of legal proceedings and related matters; the conduct of the
Company's businesses following the pending Citicorp merger; customer
responsiveness to both new products and distribution channels; and the ability
of the Company generally to achieve anticipated levels of operational
efficiencies related to recently acquired companies, as well as achieving its
other cost-savings initiatives.
24
<PAGE> 25
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
For information concerning nine purported class actions, with substantially the
same allegations, commenced in various courts against certain subsidiaries of
TAP, dozens of other insurers and the National Council on Compensation Insurance
("NCCI"), see the description that appears in the third paragraph under the
caption "Legal Proceedings" beginning on page 53 of the Annual Report on Form
10-K of TAP for the year ended December 31, 1997 (File No. 1-14328), which
description is incorporated by reference herein. A copy of the foregoing
description is included as an exhibit to this Form 10-Q. In May 1998, the
Georgia action, which had been pending in the Superior Court, Richmond County,
was dismissed by that court. Commencing in April 1998, seven additional
purported class actions, with substantially the same allegations, have been
filed against subsidiaries of the Company, other insurers and the NCCI. In April
1998, Dal-Tile Corporation, et al. v. NCCI, et al. was filed in the Superior
Court, Riverside County, California. In May 1998, Sandwich Chef of Texas, Inc.,
et al. v. Reliance National Insurance Company, et al. was filed in Judicial
District Court, Harris County, Texas and Alumax Inc., et al. v. Allianz
Insurance Company, et al. was filed in Circuit Court, Jefferson County, Alabama.
In June 1998, FFE Transportation Services, Inc., et al. v. NCCI, et al. was
filed in Superior Court, Richmond County, Georgia; American Association of
Retired Persons, et al. v. National Surety Corp., et al. was filed in Circuit
Court, Wayne County, Michigan; Payless Cashways, Inc., et al. v. National Surety
Corp., et al. was filed in Circuit Court, Fayette County, Kentucky; and Burnham
Service Corporation v. NCCI, et al. was filed in Supreme Court, New York County,
New York. Additionally, in June 1998, a non-class action, with substantially the
same allegations, entitled Albany International Corporation v. American National
Fire Insurance Company, et al. was filed against a subsidiary of the Company in
Superior Court, Maricopa County, Arizona. The Company intends to contest
vigorously all of the above-described cases.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS:
See Exhibit Index
(b) REPORTS ON FORM 8-K:
On April 22, 1998, TAP filed a Current Report on Form 8-K, dated April
21, 1998, reporting under Item 5 thereof certain additional information
related to the announcement that Travelers Group Inc., the indirect
owner of approximately 83% of the outstanding common stock of TAP, had
entered into a merger agreement with Citicorp.
No other reports on Form 8-K were filed during the second quarter of
1998.
25
<PAGE> 26
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
3.01 Restated Certificate of Incorporation of Travelers 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.
12.01+ Computation of Ratio of Earnings to Fixed Charges.
27.01+ Financial Data Schedule.
99.01+ Third paragraph under the caption "Legal Proceedings" beginning on page
53 of the Annual Report on Form 10-K of the Company for the year ended
December 31, 1997 (File No. 1-14328).
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.
- ----------
+ Filed herewith.
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, 1998 By /s/ William P. Hannon
-----------------------
William P. Hannon
Chief Financial Officer
(Principal Financial Officer)
Date: August 12, 1998 By /s/ Thomas P. Shugrue
-----------------------
Thomas P. Shugrue
Chief Accounting Officer
(Principal Accounting Officer)
27
<PAGE> 28
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
3.01 Restated Certificate of Incorporation of Travelers 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.
12.01+ Computation of Ratio of Earnings to Fixed Charges.
27.01+ Financial Data Schedule.
99.01+ Third paragraph under the caption "Legal Proceedings" beginning on page
53 of the Annual Report on Form 10-K of the Company for the year ended
December 31, 1997 (File No. 1-14328).
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.
- ----------
+ Filed herewith.
<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,
--------------------------- ---------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Earnings:
Net income $ 313 $ 276 $ 660 $ 549
========== ========== ========== ==========
Average shares:
Basic 392.4 398.4 392.3 398.9
========== ========== ========== ==========
Diluted 392.9 398.5 392.8 399.0
========== ========== ========== ==========
Earnings per share (EPS):
Net income per common share $ 0.80 $ 0.69 $ 1.68 $ 1.38
========== ========== ========== ==========
Net income per common share - assuming dilution $ 0.80 $ 0.69 $ 1.68 $ 1.38
========== ========== ========== ==========
</TABLE>
Net income per common share (Basic EPS) is computed by dividing income available
to common stockholders by the weighted average number of common shares
outstanding for the period. Net income per common share-assuming dilution
(Diluted EPS) reflects the effect of potentially dilutive securities,
principally stock-based incentive plans.
<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,
-------- --------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Income before income taxes $ 426 $ 393 $ 912 $ 783
Interest 40 40 81 80
Portion of rentals deemed to be interest 12 9 24 18
------ ------ ------ ------
Earnings available for fixed charges $ 478 $ 442 $1,017 $ 881
====== ====== ====== ======
Fixed charges:
Interest $ 40 $ 40 $ 81 $ 80
Portion of rentals deemed to be interest 12 9 24 18
------ ------ ------ ------
Total fixed charges $ 52 $ 49 $ 105 $ 98
====== ====== ====== ======
Ratio of earnings to fixed charges 9.19x 9.02x 9.69x 8.99x
====== ====== ====== ======
</TABLE>
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
TRAVELERS PROPERTY CASUALTY CORP.'S FINANCIAL STATEMENTS AS OF JUNE 30, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<DEBT-HELD-FOR-SALE> 27,749
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 910
<MORTGAGE> 611
<REAL-ESTATE> 67
<TOTAL-INVEST> 32,011
<CASH> 89
<RECOVER-REINSURE> 9,106
<DEFERRED-ACQUISITION> 522
<TOTAL-ASSETS> 51,844
<POLICY-LOSSES> 29,882
<UNEARNED-PREMIUMS> 4,099
<POLICY-OTHER> 1,989
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 1,250
900
0
<COMMON> 4
<OTHER-SE> 8,419
<TOTAL-LIABILITY-AND-EQUITY> 51,844
1,903
<INVESTMENT-INCOME> 520
<INVESTMENT-GAINS> 10
<OTHER-INCOME> 99
<BENEFITS> 1,444
<UNDERWRITING-AMORTIZATION> 304
<UNDERWRITING-OTHER> 358
<INCOME-PRETAX> 426
<INCOME-TAX> 113
<INCOME-CONTINUING> 313
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 313
<EPS-PRIMARY> 0.80<F1>
<EPS-DILUTED> 0.80<F1>
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>EFFECTIVE DECEMBER 31, 1997, THE COMPANY ADOPTED STATEMENT OF FINANCIAL
ACCOUNTING STANDARDS NO. 128, "EARNINGS PER SHARE" (FAS 128). FAS 128 REPLACES
THE PRESENTATION OF PRIMARY EPS WITH A PRESENTATION OF BASIC EPS. IT ALSO
REQUIRES DUAL PRESENTATION OF BASIC AND DILUTED EPS. ACCORDINGLY, THE COMPANY
HAS DISCLOSED EPS USING THE GUIDELINES IN FAS 128. THE EPS AMOUNTS FOR THE
THREE MONTHS ENDED JUNE 30, 1997 USING THE FAS 128 GUIDELINES WERE AS FOLLOWS:
THREE MONTHS ENDED
JUNE 30, 1997
EPS:
BASIC $0.69
DILUTED $0.69
</FN>
</TABLE>
<PAGE> 1
Exhibit 99.01
The third paragraph under the
caption "Legal Proceedings"
beginning on page 53 of the
Annual Report on Form 10-K of
Travelers Property Casualty Corp.
for the year ended
December 31, 1997
Beginning in January 1997, nine purported class actions were commenced in
various courts against certain subsidiaries of the Company, dozens of other
insurers, and the NCCI. The allegations in these nine lawsuits are substantially
the same. The plaintiffs generally allege that the defendants conspired to
collect excessive or improper premiums on certain loss-sensitive workers'
compensation insurance policies, in violation of state insurance laws, antitrust
laws, and state unfair trade practices laws. Plaintiffs seek unspecified
monetary damages. In January 1997, two of these purported class actions, both
entitled El Chico Restaurants, Inc. v. The Aetna Casualty and Surety Company,
et. al., were filed in the Chancery Court, Davidson County, Tennessee, and
Superior Court, Richmond County, Georgia. In February 1997, the Tennessee action
was removed to the U.S. District Court for the Middle District of Tennessee and
the Georgia action was removed to the U.S. District Court for the Southern
District of Georgia. In October 1997, the Georgia action was remanded to the
Superior Court, Richmond County, Georgia. In December 1997, the Tennessee action
was remanded to the Chancery Court, Davidson County, Tennessee. In July 1997,
Bristol Hotel Management Corp. et al. v. The Aetna Casualty and Surety Company,
et al., was filed in the U.S. District Court for the Southern District of
Florida. In December 1997, three actions, entitled Foodarama Supermarkets, Inc.,
et al. v. The Aetna Casualty and Surety Company, et al.; Bristol Hotel
Management Corp. et al. v. The Aetna Casualty and Surety Company, et al., and
Hill-Behan Lumber Co. v. Hartford Insurance Co., et al. were commenced,
respectively, in the Superior Court of New Jersey (Law Division), Morris County,
New Jersey; the Circuit Court of Palm Beach County, Florida and the Circuit
Court of Madison County, Illinois. In February 1998, three additional lawsuits
were commenced: CR/PL Management Co., et al. v. Allianz Insurance Company Group,
et al., in the Circuit Court of Cook County, Illinois, Foodarama Supermarkets,
Inc., et al. v. The Aetna Casualty and Surety Company, et al. in the Court of
Common Pleas, Philadelphia, Pennsylvania, and Hill-Behan Lumber Co. v. Hartford
Insurance Co., et al., in the Circuit Court of the City of St. Louis, Missouri.
